United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR R WOODS (Solicitor) Law at Work Ltd 151 St Vincent Street Glasgow G2 5NJ
For the Respondent	MR J MACDONALD (Advocate) Instructed by: McArthur Stanton 22-24 Colquhoun Square Helensburgh G84 8AG


 


SUMMARY

Redundancy pool. Circumstances in which Employment Appeal Tribunal held that the Tribunal had erred and substituted its own view for that of the reasonable employee. The claimant agreed that there was a redundancy and that all aspects of the procedure adopted other than the selection of the pool had been fair. Appeal upheld and judgment of the Tribunal set aside. If they had not done so, the Employment Appeal Tribunal would, in any event, have set aside the award in respect of future loss of earnings insofar as it was based on an assumption of continuing payment of bonus (an assumption which was made without any basis in findings in fact and relating to the car industry in a recession).


 


THE HONOURABLE LADY SMITH

INTRODUCTION

1. This is an appeal from the judgment of an Employment Tribunal sitting at Glasgow (Employment Judge Lucy Wiseman), finding that the claimant was unfairly dismissed and awarding him (a) compensation of £21,654 and (b) £11,136 as unauthorised deduction from wages in respect of unpaid bonus.
2. The finding of unfair dismissal arose in the context of the identification of a pool from which to select a candidate for redundancy. It was accepted by the claimant that the reason for his dismissal was redundancy.
3. We will continue to refer to parties as claimant and respondents.
4. The respondents were represented by Mr R Woods, solicitor, before the Tribunal and before us. The claimant was represented by Ms N Bonthrone, solicitor, before the Tribunal and by Mr McDonald, advocate, before us.

BACKGROUND

5. The respondents are car dealers who hold franchises from the car manufacturers, Audi. The claimant began working for them as a branch accountant in November 2000. At that time the respondents operated from two sites, one in Glasgow and one in Ayr. The claimant's contract of employment stated that his place of work was the respondents' Glasgow premises "or such other address as the Company may establish premises at." In the circumstances explained below, there was an agreement between the claimant and the respondents that he would move to work at the premises of a wholly owned subsidiary company.
6. On 1 September 2006, the respondents acquired two further sites, one in Edinburgh and one in Stirling. The respondents established a subsidiary company, Lomond Motors (East) Ltd to operate those two sites. Their purchase was from another car dealer (Glenvarigill) who transferred its Audi franchise to the respondents. Amongst the employees who transferred from Glenvarigill was a branch accountant, Bryne Gallacher.
7. The claimant was asked to go and work at the Stirling site as branch accountant. He agreed to do so and began working there in February or April 2007. The arrangement was an open ended one. His employment was not transferred to Lomond Motors (East) Limited; he remained in the employment of the respondents. Bryne Gallacher was given branch accountant responsibility for the Edinburgh site. Another employee of the respondents, Melanie Callaghan, was the branch accountant responsible for both the Glasgow and Ayr sites. In agreeing to his transfer to Stirling, the claimant had acknowledged that Ms Callaghan did not have the experience required to cover what was required at that site.
8. Paul Eunson was appointed as Group Financial Controller in April 2007. His remit included cost reduction. By the end of 2007, he concluded that it would be better for the business if one accountant covered both the Edinburgh and Stirling sites, as in the case of the Glasgow and Ayr sites, where the system of having one accountant cover both sites was working well.
9. The claimant was, accordingly, informed that he was at risk of redundancy. Redundancy consultation meetings took place in March, May and June 2008. By letter dated 12 June 2008 the claimant was issued with notice that he was being made redundant. He appealed, unsuccessfully. The respondents approached the redundancy process by, as they put it, focussing on Lomond Motors (East) Limited and seeking to bring its operation into line with the structure operated in the west. Melanie Callaghan was not, accordingly, included in the redundancy pool. The pool consisted of the claimant and Bryne Gallacher. Both men were interviewed and the same initial criteria had been applied to them: experience, skills, qualifications, attitude. The respondents' assessment of them under those heads was that there was nothing to choose between them. The respondents then turned to their next set of criteria: attendance, disciplinary and length of service. They found that there was nothing to choose between the men regarding discipline and attendance; both were impeccable in that regard. Mr Gallacher had, however, longer service and, accordingly, the claimant was selected for redundancy.
10. The claimant accepted that it was reasonable for Mr Eunson to decide that there should be one accountant to cover the Glasgow/Ayr sites and one to cover the Stirling/Edinburgh sites. Indeed, it was a decision with which he agreed.
11. Regarding the claimants' bonus entitlement, his contract provided that in addition to his salary, he would be entitled to "bonuses as agreed from time to time" (clause 2.2). In 2004, a document was issued by the respondents entitled "Management Bonus 2004" (C3 of the documents before the Tribunal). It set out the commencement point for bonus and rates of payment in relation to budget targets. It provided:

"The company reserves the right to amend the above with a month's notice. From time to time the above may be superseded by other measures which may not relate to financial performance."

12. Between November 2002 and March 2007 the claimant had been entitled to and had been paid a bonus. He did not receive any payments of bonus after moving to the Stirling site. No mention of his bonus entitlements had been made when he agreed to move to Stirling. The Tribunal made the following findings, in paragraphs 50 - 52:

"50. The claimant believed that he was, and continued to be, entitled to receive a monthly bonus. The claimant explained that he had felt unable, upon moving to Stirling, to take a bonus because the profit could not be verified. The claimant had, accordingly, set aside provision in the accounts for his bonus to be paid once the balances could be reconciled and he was able to fulfil the functions of the job. The claimant effectively delayed taking his bonus until the assets and liabilities could be reconciled.

51. The claimant was comfortable that he had acted properly, and believed Mr Eunson would have been aware of the situation given the provision in the monthly accounts which Mr Eunson reviewed.

52. The claimant did not in fact take payment of his bonus because just as one issue settled down, another issue arise and he decided to leave payment until after the accounts had been audited, which occurred in May 2008. The claimant had calculated the monthly bonus payments due using the bonus structure set out in C3. The bonus figure claimed was £11,136. The respondent did not seek to dispute this figure."

13. The Tribunal made no findings as to what bonuses, if any, were paid to any employee under the Management Bonus scheme after the date of the claimant's dismissal. Nor do they acknowledge, as was within judicial knowledge, that in the course of 2008, the United Kingdom entered an economic recession in which one of the industries immediately affected was the car industry.

TRIBUNAL JUDGMENT

Selection for Redundancy

14. The Tribunal concluded that the decision to limit the pool for redundancy selection to the claimant and Mr Gallagher fell outwith the band of reasonable responses. At paragraph 91, they state:

"Mr Eunson focused on the fact the redundancy situation affected Lomond Motors East, and included the claimant and Mr Gallagher in the pool for selection because they came under Lomond Motors East. We considered this approach did not take into account the following material factors: (i) the claimant was not a Lomond Motors East employee, he was a Lomond Motors Ltd employee; (ii) he had not been based in Stirling for very long and (iii) the three Accountants all performed the same, or a very similar task."

15. At paragraphs 95 and 96, they elaborate on their conclusion that the respondent's determination of the pool was not within the range of reasonable responses:

"95. We accepted that Mr Eunson applied his mind to the issue of the pool for selection, but we considered that he did so not knowing the circumstances of the claimant's move to Stirling, or the terms of his contract of employment. Mr Eunson sought to justify his pool for selection on the basis of the redundancy affecting the Lomond Motors East subsidiary, but he provided no evidence – beyond the fact the claimant's place of work (temporarily or otherwise) was Stirling – to show the claimant was a Lomond Motors East employee. Mr Eunson sought to infer the claimant had transferred to that business, but we could not accept that position. The contract provided for a mobility clause. The mobility clause operated when he went to Stirling. There was nothing to suggest there had been a change in employer.

96. We considered that no other reasonable employer would have made that decision without having taken into account the circumstances of the claimant's move to Stirling; the fact Ms Callaghan was doing the same, or a very similar role and the fact the jobs were interchangeable."

16. Thus, the Tribunal's thinking seems to have been that Mr Eunson required to specifically take account of the fact that the claimant was not employed by Lomond Motors (East) Ltd but by the respondents, that he had not worked at the Stirling premises 'for very long', and that all three accountants performed a similar task. The reference to the mobility clause in the contract would appear to be by way of deciding that Mr Eunson was obliged to recognise that the claimant's proper place of work was not at Stirling at all. Whilst such reasoning might have been thought to preface a finding that the pool should have included only the claimant and Ms Callaghan, they both being employed by the respondents, that was not the Tribunal's conclusion nor indeed, was it the claimant's case. His case was that there should have been a pool of three i.e. including both 'East' and the respondents' employees, and the Tribunal agreed with that proposition.
17. The Tribunal acknowledge that the claimant had, at no time, complained about being moved to Stirling.
18. The Tribunal were not critical of the respondents in any respect other than their determination of the pool for selection. In particular, they make no criticism of the selection criteria used or of the application of those criteria

Bonus

19. The Tribunal concluded that the claimant was entitled to the bonus he claimed he should have received because (a) it was calculated under reference to the bonus scheme set out in C3 and it had not been terminated or amended; and (b) there was nothing in writing to signify that the claimant had agreed to cessation of the payment of the bonus. It was not enough, as argued for the respondents, that the claimant had not raised any question with them regarding it not being paid after he moved to Stirling.

Compensation

20. The award of compensation made by the Tribunal included (a) loss of earnings from the date of dismissal (31 July 2008) to the date of the hearing (13/14 January 2009), (b) future loss of earnings for a further period of six months. They included in their calculation of monthly net loss of earnings a figure for continuing bonus payments at the rate of £583 net per month from the date of dismissal.

RELEVANT LAW

21. Redundancy is a potentially fair reason for dismissal but may be found to be unfair if, in all the circumstances, the employer's decision to dismiss was an unreasonable one (s.98(4) of the Employment Rights Act 1996). The starting point is always the language of s.98(4): was the decision to dismiss an unreasonable one? Thus, if, looking at matters objectively and allowing for the range of reasonable methods of selection that such an approach dictates, the decision to dismiss the individual employee was the result of the reasonable application of a fair selection method then the decision will not open to question. The issue for an Employment Tribunal is not whether or not it would have employed the method and made the selection that was made by the employer but whether the method and selection were such as could have been determined upon by a reasonable employer. With gratitude to Rimer J for his clarity of expression on this matter in the case of Kvaerner Oil & Gas Ltd v Parker &ors EAT/0444/02, I would adopt what he says at paragraph 20:

"…the starting point is and must always be, whether or not the Tribunal was correct to conclude that the dismissals were unfair by reference to the considerations set out in section 98(4) of the 1996 Act. But in approaching that exercise it is important to underline that the authorities show that different people can quite legitimately have different views about what is or is not a fair response to a particular situation. The mere fact that A considers that solution X is the fair one, whereas B favours solution Y, does not mean that one or other of them must be adopting an unfair solution. In most situations there will be a band of potential responses to the particular problem and it may be that both of solutions X and Y will be well within that band. The Employment Tribunal is of course charged with determining the fairness or otherwise of a particular dismissal, but that does not mean that merely because it forms its own view that solution X was or would have been the fairest one, the employer's different solution Y must necessarily have been an unfair one."

22. As Phillips J commented in the case of NC Whatling & Co Ltd v Richardson [1978] ICR 1049:

"…if an industrial tribunal equates its view of what itself would have done with what a reasonable employer would have done, it may mean that an employer will be found to have dismissed an employee unfairly although in the circumstances many perfectly good and fair employers would have done as that employer did."

23. If a tribunal approaches its decision in that way, it falls into error.
24. The employer will usually have to determine a pool from which redundancies are to be made. It follows from recognition of there being a band of potential fair responses open to an employer where redundancies are being considered, that a wide measure of flexibility is afforded to him in determining such a pool: Thomas Betts Manufacturing Limited v Harding [1980] IRLR 255, as tribunals require to recognise.
25. Turning to the relevance of a mobility clause in a contract of employment when considering a claim for unfair dismissal on grounds of redundancy, there is authority for the view that if there is a genuine redundancy at the place where an employee in fact works, it is not rendered any less genuine by reason of the existence of the mobility clause which could have enabled the employer to send the employee elsewhere to work. The point is rather that there is a cessation or diminution of business at the place where the employee is working at the relevant time and thus, the potentially fair reason is established (Bass Leisure Ltd v Thomas [1994] IRLR 104, High Table Ltd v Horst [1997] IRLR 513). Put shortly, it is a matter of looking at the circumstances where the employee was in fact working. A mobility clause is not indicative of no genuine redundancy. The respondents' approach in the appeal was to extend that reasoning so as to submit that, similarly, a mobility clause is not relevant to an assessment of whether or not, in selecting his pool, an employer has acted within the band of reasonableness and I can accept that there is considerable force in that submission, particularly in the circumstances of the present case. I have in mind the circumstances that the claimant had moved to work at Stirling to do 'East' work early in 2007, well over a year prior to his dismissal, that he had done so on the basis that the arrangement was an open ended one i.e. without a termination date having been fixed, and that there was no finding in fact that either party intended that he return to work in Glasgow or Ayr.

THE APPEAL

26. Mr Woods' ably argued submission for the respondents was that the Tribunal had erred in respect that it had substituted its own view for those of the reasonable employer in determining what the pool for redundancy ought to have been. In doing so it had taken account of a matter that was not material, namely the claimant's contract of employment. Further, in so doing, it had relied on matters which were not supported by its own findings in fact. He referred specifically to paragraphs 12, 89, 91, 94 and 95 of the Tribunal's judgment as being demonstrative of their falling into error.
27. Under reference to the Bass Leisure and High Table cases, Mr Woods submitted, as above noted, that the claimant's place of work should have been regarded by the Tribunal as Stirling and that it ought to have disregarded the mobility clause in his contract. He also submitted that the fact that his contract of employment was with the respondents was not material to the determination of the pool since he was working for the purposes of the Lomond East business and had been doing so for a significant period of time .
28. Mr Woods distinguished the circumstances of the present case from those in the Kvaerner Oil & Gas Limited case and submitted that they were comparable to those in the case of Brown & Ors v BMI British Midland Limited UKEAT/0055/04 where it was found to have been fair to limit the redundancy pool to only one of three groups of maintenance engineers notwithstanding that they all worked at the same airport and were all of the same grade because each group were regarded by the employers as being a separate centre of work. That and the discussion in the case of Whatling showed that it was not to be assumed that where employees did the same job in a different place it meant that they were interchangeable.
29. In summary Mr Woods submitted that there were two errors that lay at the heart of the tribunal's decision namely that they had added a separate test under reference to the contract of employment, which was not justified, and that they had regarded all three accountants' jobs as interchangeable which was not correct on the facts; the claimant had agreed to transfer to Stirling on an open ended basis and Ms Callaghan was not able to do that job.
30. In the event that his appeal against the finding of unfair dismissal was not upheld, Mr Woods advanced a submission that the Tribunal had erred in compensating the claimant on the basis that he would have received a bonus after dismissal and would have received it at the same rate as during the period between him moving to Stirling and his dismissal. The Tribunal had no basis in fact for such an approach and no submission had been made to them that bonus should be included in the compensatory award.
31. For the claimant, Mr MacDonald submitted that it could be shown that the tribunal were entitled to look at his contract of employment in the context of his whole employment and it was then possible to say that the tribunal were entitled to reach the decision that they reached. The Tribunal had correctly identified the factors set out as relevant in the case of Williams v Compair Maxam [1982] ICR 156 and considered them. He submitted that the Tribunal did not focus on the mobility clause in the contract although, as he put it, the Tribunal had perhaps found an exception to the flexibility to be afforded by holding that the respondents did not act reasonably. What the Tribunal had, he submitted, focussed on was that the claimant was an employee of the respondents, not an employee of Lomond East. They were right to do so. Whilst there had been a variation of the claimant's contract so far as place of employment was concerned, there was no substitution of parties.
32. Mr MacDonald acknowledged that there was a genuine redundancy situation but the point, he said, was that it did not involve the employer whose redundancy situation it was. The Tribunal were entitled to take account of how the business operated which was through two separate companies. They were entitled to take account of the contract of employment and decide that they could not find the respondents' decision to be a reasonable one because of the doctrine of privity of contract. It was a matter for the good sense of the Tribunal.
33. Regarding the matter of bonus, Mr MacDonald submitted that the figure arrived at was a matter of assessing just and equitable compensation, that was a matter for the Tribunal and it was legitimate for them to infer, as they must have done, that the bonus would carry on being paid. He accepted that no submission had been made to the effect that the calculation of compensation for the post dismissal period ought to include an allowance for bonus.

DISCUSSION AND DECISION

34. We are persuaded that this appeal should be upheld. The key to the Tribunal's reasoning is to be found in paragraphs 91, 95 and 96 and it can be summarised as follows: the pool ought to have been a pool of three, namely the claimant, Mr Gallagher and Ms Callaghan. That was because (a) the claimant was not employed by Lomond East, (b) the claimant had not worked at Stirling 'for very long', (c) all three accountants performed a similar task to the extent that Ms Callaghan's job and the claimant's could be regarded as interchangeable, and (d) the claimant's contract of employment contained a mobility clause.
35. Dealing firstly with that factual basis, the Tribunal, in assessing the claimant's and Ms Callaghan's jobs as interchangeable appear to have overlooked their earlier finding in fact that Ms Callaghan did not have the requisite experience to cover the Stirling site . There was no finding in fact that Ms Callaghan could have changed to the Stirling site which undermines the finding of interchangeability. Also, in approaching matters on the basis that the claimant had not worked at Stirling for very long, they appear to have overlooked that, by the date of his dismissal he had worked there for well over a year, a period which does not obviously lend itself to the description 'not very long'.
36. As to the relevancy of the mobility clause in the claimant's contract, we note that the employee's obligation to move is restricted to premises established by the respondents. The Stirling site was not the respondents' premises; it was the premises of Lomond East. We accept Mr Woods' submission that the clause was of no relevance in the circumstances, particularly since the claimant had previously agreed to a move which he did not have to agree to in terms of it. In any event, when considering the reasonableness of the determination of a redundancy pool, it is not a question of considering what, historically, the position was (as was the cause of the employers' unfairness in Kvaerner) nor is it a matter of considering what, at some indefinite future date, the position might be. It is a matter of examining what actually is the position at the time of redundancy (Kvaerner; High Table; Bass Leisure). Whether it was the main focus of the Tribunal's reasoning or not it is clear that they were influenced by it and they were in error in so doing.
37. There were also other relevant facts which the Tribunal, when considering the issue of identification of the redundancy pool, ought to have taken into account. Firstly, although the respondents and Lomond East are two separate companies, the latter is a wholly owned subsidiary of the former and the redundancy plan involved a holistic approach to the business being taken by the Group Financial Controller after an examination by him of all aspects of both companies including the financial reporting structure. Secondly, the work that the claimant had been doing since moving to Stirling was entirely for the benefit of Lomond East; whatever the formalities of his contractual arrangements, his services were for them. Thirdly, the Lomond East sites formed a separate work centre, to use the language of the Tribunal in Brown v BMI, from Glasgow and Ayr; this was not a case of the west of Scotland and east of Scotland sites functioning as a single entity for branch accountancy purposes. Fourthly, the running of the Glasgow and Ayr sites by Ms Callaghan as one operation for accountancy purposes was working well. Fifthly, it was recognised that, similarly, it would be beneficial for Stirling and Edinburgh to be run as a single operation for accountancy purposes. Sixthly, it was Lomond East that was over-provided for in terms of branch accountants, not the respondents. Seventhly, the Group Financial Controller, having carried out his assessment and full examination of all aspects of the business considered it appropriate to restrict the redundancy pool to the two accountants who were in fact doing work for Lomond East; it was never suggested that his motives in determining the pool were other than genuine.
38. All of the above seven facts plainly point to the reasonableness of the restriction of the pool to the Stirling and Edinburgh accountants and in any assessment of the reasonableness of the respondents' determination of the pool the Tribunal required to consider them. Assuming for the moment that the matters referred to by the Tribunal in paragraphs 91 and 95 are an accurate record of additional facts, it would only have been open to the Tribunal to conclude that the determination of the pool was not in fact reasonable if there was something about those additional matters which showed that the restriction was outwith the available range of reasonable options. There is no obvious feature of them that does so and the Tribunal do not attempt to explain how and why those particular factors were so important as to lead to their conclusion. It may well be that they considered that they had identified them as matters which Mr Eunson did not take into account but even if that is correct, that of itself would not justify a conclusion of unreasonableness. Before such a conclusion could be reached, the Tribunal would need to have gone further and explain how they would have been bound to so weigh with the reasonable employer in a consideration of the whole circumstances as to produce the wider pool. It is not enough simply to refer to them as being material factors. Employers are to be afforded a good measure of flexibility in the determination of the pool and a finding that their judgment was unreasonable must be based on a sound rationale. Pointing to a matter or matters not taken into account cannot, of itself, constitute such a rationale and even less can it do so if the factual basis relied on is an erroneous one.
39. We would observe further that there is an inherent illogicality in the claimant's approach as accepted by the Tribunal and as urged on us by Mr McDonald, namely an approach which required the respondents to focus on the fact that the claimant was an employee of the respondents, not an employee of Lomond East. That is an approach which, as put, was also on the basis that the decision should have been to have a pool of three. Yet a strict approach focussing only on the identity of the employer under the contract of employment would have excluded Mr Gallagher from the pool as he was not employed by the respondents. The claimant did, however, accept that Mr Gallagher required to be part of the pool and it is difficult to resist the conclusion that a fatal flaw in the claimant's argument was thereby demonstrated.
40. We are satisfied that the Tribunal have fallen into error. Read in context the reference to the range of reasonable responses in paragraph 96 amounts to lip service being paid to the principle and in substance, the Tribunal has not considered the range of reasonable responses that was open to the respondents. In this case, we accept that that range could have included a pool of three but that does not mean, as explained in Kvaerner, that these respondents acted unreasonably in deciding to have a pool of two. There was, accordingly, no basis for the decision that the claimant's dismissal was unfair.
41. Turning to the matter of bonus, we readily accept the submission that the Tribunal fell into error here also. Whilst the bonus scheme was found to have remained part of the claimant's contract up to the time of his dismissal and an exact sum could be calculated as to his entitlement to that date, there was no evidence led nor findings made as to what would have been the position thereafter. Would the scheme have remained in place? What bonuses were actually earned by the branch accountants or others after the claimant was dismissed? The respondents were entitled, under the scheme, to amend it at a month's notice and it could be superseded by other measures. Even if it was not amended or superseded the actual sums due would be dependent on the setting of budgets and the achievement of sales that met those budgets. The UK went into economic recession in 2008. No submission was made to the Tribunal that ongoing loss should be calculated so as to take account of any continuing bonus. The Tribunal did not have the benefit of submissions that would, no doubt, have been made in response had such a claim been advanced. In these circumstances the Tribunal had no basis at all for finding that the claimant had lost not only salary but also his bonus payment or for finding that the level at which it would have been paid would have been the same as the year prior to his dismissal, which is what they did. Had we not been upholding the main appeal, we would certainly have sustained the second part of the appeal and reduced the award of compensation so as to delete the bonus element in the calculation.

DISPOSAL

42. In these circumstances, we will pronounce an order upholding the appeal and substituting for the judgment of the Tribunal a judgment that the claimant was not unfairly dismissed.