United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR TERENCE RIGBY (of Counsel) Instructed by: Burnley Borough Council People & Law Town Hall Manchester Road Burnley Lancashire BB11 1JA
For the Respondent	MR JASON SEARLE (of Counsel) Instructed by: Messrs Farleys Solicitors Unit C1 Hurstwood Court Duttons Way Shadsworth Business Park Blackburn Lancashire BB1 2PT


 


SUMMARY

UNFAIR DISMISSAL

S.98A(2) ERA / Reasonableness of dismissal / Polkey deduction / Compensation

Change of terms and conditions of employment. Dismissal on notice with offer of re-engagement. Whether inadequate consultation rendered dismissals unfair under s98(4). Application of s98A(2). Approach to Polkey question in assessing financial compensation.


 


HIS HONOUR JUDGE PETER CLARK

1. The parties in this matter, which has been proceeding before the Manchester Employment Tribunal, are Mrs Karen Davies and nine others, Claimants, and Burnley Borough Council, Respondent. We shall so describe them.
2. We have before us for Full Hearing three combined appeals brought by the Respondent, namely:

(1) An appeal against the reserved liability Judgment of a full Employment Tribunal chaired by Employment Judge Brain dated 17 September 2008 (the Liability Appeal)

(2) An appeal against the Review judgment of Judge Brain, sitting alone, dated 6 October 2008 (the Review Appeal).

(3) An appeal against the Remedy Judgment of the full Employment Tribunal dated 6 November 2008 (the Remedy Appeal).

The Facts

3. In 1989 the Respondent introduced a car contract hire scheme (the Scheme) designed to encourage recruitment and retention of staff. Members of the Scheme were entitled to receive from the Respondent a sum towards the cost of car rental on 3 year hire contracts equivalent to 10 per cent of the top spinal point of salary for that employee's grade.
4. On 4 March 1993 the Scheme was closed to new entrants: it was viewed as unsustainable financially. However, each of the ten Claimants was by then contractually entitled to enjoy the benefit of the Scheme. That right would cease, under clause 16.1 of the Scheme, on the employee's death, retirement or on termination of the employment.
5. In April 2005 the benefit of the Scheme was withdrawn from the Chief Executive and Directors as part of a review by external consultants, Hay. In September 2005 the recognized trade union, UNISON, agreed to the phasing out of the Scheme. The Branch Secretary, Mr Thorne, had written to the Chief Executive in January 2004, welcoming the proposal to abandon the Scheme on the grounds that it had been a source of friction between staff ever since it was introduced, a fact accepted by the Employment Tribunal.
6. In January 2006 the remaining members of the Scheme were informed of terms proposed for phasing it out. That proposal, from Mr Aves, Director of Resources, who gave evidence before the Employment Tribunal at the Liability Hearing held on 23-25 July 2008, led to the setting up of the 'Car Lease User Group' (CLUG) to which each of the Claimants belonged. On 3 February 2006 CLUG lodged a collective grievance with UNISON, who declined to represent them due to the conflict of interest with other members who opposed the Scheme. The grievance was pursued by CLUG with the Respondent and a grievance meeting was held on 20 September 2006.; that grievance was rejected by Mr Aves on 11 October but an appeal by CLUG against that decision was allowed by a panel of Councillors sitting on 24 November 2006, the panel directing that further discussions between management and the CLUG members take place on the way forward to phasing out the Scheme at an early date.
7. Mr Aves then took external legal advice. Following a conference with Counsel, Mr Carlo Breen, Mr Breen produced a written Advice dated 13 March 2007 in which he said (para 12):

"… in order for a lawful variation to be made to the contract of employment, the following issues need to be satisfied:-

a. reasonable attempts, through consultation, must have taken place to achieve a change in the employee's contract of employment via negotiation and discussion.

b. a Court must be satisfied that there are reasonable grounds for imposing the change in question …"

8. Having received that advice Mr Aves proposed, on 28 March 2007, that the Scheme be phased out so that the last 3 year lease agreement expired no later than 30 September 2010.
9. On 4 April Mrs Davies wrote to Mr Aves, indicating the willingness of CLUG members to consider reasonable proposals to vary their existing contracts of employment. She put forward a proposal which would involve compensation for loss of future benefits which took account of financial loss for the remainder of the individual's working life. The Employment Tribunal found (Liability Reasons, para 49) that it formed no part of the Claimants' case that the Scheme should survive indefinitely.
10. Mr Aves put forward a fresh proposal, following a meeting held with Mrs Davies and others on 12 April in a letter dated 24 April 2007. Solicitors, Farleys, instructed on behalf of CLUG wrote to him on 21 May. He responded on 23 May. His formula was accepted by the Respondent's Executive on 29 May. Mr Rigby tells us that six relevant employees accepted the final proposal; the ten Claimants did not. Accordingly, on 29 June 2007 the ten Claimants were give three months' contractual notice of termination of their employment, coupled with an offer of re-engagement on terms that the Scheme would come to an end. They accepted re-engagement on those terms under protest and commenced proceedings in the Employment Tribunal for compensation for unfair dismissal on 21 December 2007, the effective date of termination of their original contracts of employment being 29 September 2007.

The Employment Tribunal Judgments

Liability

11. It was common ground that no question of automatically unfair dismissal arose under s98A(1) Employment Rights Act 1996 (ERA) by virtue of the provisions of reg 4(1)(a) of the Dispute (Resolution) Regulations 2004; all relevant employees had been offered re-engagement before termination of their contracts. As to 'ordinary' unfair dismissal under s98 ERA, the Employment Tribunal found that the Respondent had established a potentially fair reason for dismissal; some other substantial reason; namely that the Respondent was entitled to form the belief that the Scheme should be withdrawn because its operation was causing resentment amongst the workforce (Liability Reasons, para 81). They also concluded that the Respondent had a genuine belief that it faced a potential threat of claims brought under the Equal Pay Act arising out of the operation of the Scheme for some but not other members of staff (para 78). They further found that the Respondent had reasonable grounds for the former, but not the latter belief (paras 81 and 82).
12. As to reasonableness under s98(4), the Employment Tribunal concluded that following the Claimants' successful appeal against Mr Aves' decision to reject their grievance, on 24 October 2006, the Respondent was bound to start negotiations afresh. In these circumstances consultation was restricted to the period 28 March 2007 until 29 May 2007, during which time one meeting was held on 12 April. The procedure adopted at the Executive meeting held on 29 May, when Mr Aves' proposal was adopted, was manifestly unfair (para 93). The Claimants had no or no proper opportunity to make oral representations at the meeting; a copy of Mr Breen's Advice was not put before the Executive members. Mr Aves conceded in evidence (para 96) that the Executive may have deferred its decision if they had been aware of Counsel's advice, particularly in relation to negotiation; he also accepted that he might have been more flexible had negotiations continued.
13. The Employment Tribunal found that there was no basis for Mr Aves' conclusion that an impasse had been reached (para 97). The Claimants were, the Employment Tribunal found, ready willing and able to negotiate.
14. In these circumstances the Employment Tribunal concluded (para 99) that the Respondent acted outside the range of reasonable responses and paid insufficient regard to the impact of the contractual changes on the Claimants. That was one factor to be taken into account (see Chubb Fire Security Ltd v Harper [1983] IRLR 311), albeit a significant one in circumstances where abolition of the Scheme would present a significant saving to the Respondent. Dismissal at that time fell outside the range of reasonable responses and was unfair.
15. A remedy hearing was then fixed for 29 September 2008. However, the Respondent, through Mr Rigby, then applied for a review of the Liability Judgment on the basis that the Employment Tribunal had not, in their Liability Reasons, dealt with his submission that the dismissal was fair, notwithstanding any procedural failings found on the part of the Respondent by virtue of the application of s98A(2) ERA (the 'reverse Polkey' provision).
16. That Review application was initially considered by Judge Brain on written representations. He applied the reasoning of Elias P in Alexander v Brigden Enterprises Ltd [2006] IRLR 422 and concluded, bearing in mind the full Employment Tribunal's findings of fact listed at paragraph 11 of his Review Judgment Reasons, that a fair dismissal would not have taken place at the time of dismissal.
17. By its Remedy Judgment the Employment Tribunal found that there was a 50 per cent chance that had further negotiations taken place a settlement resolving the issue of phasing out the Scheme would have been reached between the parties. Accordingly each Claimant was awarded a basic award based on length of service and age; additionally five of the ten Claimants received compensatory awards representing one-half of the monetary compensation payable on the basis that the car lease benefit would continue until 30 September 2010. The reasons for making no compensatory award in relation to the remaining five Claimants are set out at paragraph 36 of the Remedy Reasons.

The Appeals

18. We have considered these three appeals individually and cumulatively. Having done so it is convenient to deal with Mr Rigby's submissions under the following heads.

S98(4) Fairness

19. The Employment Tribunal acknowledged that no question of automatic unfairness under s98A(1) arose by virtue of reg 4(1)(a) DDR 2004 (Liability Reasons, para 7). Having done so we are unable to accept Mr Rigby's contention that reg 4(1)(a) had any significance in their consideration of the s98(4) fairness question.
20. Having found that the Respondent had established a potentially fair reason for dismissal, some other substantial reason, it was then for the Employment Tribunal to answer the s98(4) question according to ordinary principles. Did dismissal for that reason fall outside the band of reasonable responses open to the employer? We accept that that test applies equally to questions of procedural as well as substantive fairness.
21. We reject Mr Rigby's point that the Employment Tribunal fell into error in failing to take into account the effect of para 16.1 of the Scheme, whereby that benefit could be terminated on three months' notice. That is true; however, the critical finding by the Employment Tribunal was that had the Respondent continued negotiations there was a 50 per cent chance that a settlement would have been reached, thus obviating the need for termination on notice coupled with an offer of re-engagement.
22. The question is whether the failure to negotiate further led to a permissible finding by the Employment Tribunal that the Respondent acted unfairly. In our judgment that was a permissible finding. We have considered the submission that there was no prospect of agreement being reached but we cannot retry the facts. The Employment Tribunal, having heard the evidence, firmly rejected that part of the Respondent's case. They were entitled to do so.
23. Nor do we accept that the Employment Tribunal fell into error as a matter of law in preferring the Claimants' case that negotiations should be viewed after the successful grievance appeal. As the Employment Tribunal found, any earlier negotiations with the Union were of no value bearing in mind the Union attitude to continuation of the Scheme.
24. Further, the Employment Tribunal was entitled to make the criticisms it did of the Claimants' lack of opportunity to make representations at the Executive meeting which, in adopting Mr Aves' proposals, effectively brought further negotiations to an end.
25. In short, the perversity challenge to the finding of s98(4) unfairness fails.

S98A(2) Fairness

26. In Polkey v A.E. Dayton Ltd [1987] IRLR 503 the House of Lords decided, first that the principle laid down by the Employment Appeal Tribunal in British Labour Pump Co Ltd v Byrne [1979] IRLR 94, approved by the Court of Appeal in Wass Ltd v Binns [1982] IRLR 283, that where procedural unfairness made no difference to the result then the dismissal may be fair, should not be followed. Such a dismissal is unfair. Secondly, that in such circumstances the compensatory award for unfair dismissal may be reduced on a scale of 0-100 depending on the chance that a fair procedure would have resulted in the employee retaining his job (the Polkey deduction).
27. s98A(2) ERA reversed the first of those propositions to the extent, so Elias P opined in Alexander v Brigden, that where the Employment Tribunal finds that under the second Polkey principle there was a less than 50 per cent chance that the employee would have retained his employment following a fair procedure, the dismissal will be fair.
28. In the present case we agree with Mr Rigby that the full Employment Tribunal ought to have decided the Polkey deduction question before finally ruling on the s98A(2) argument. Instead, they did not deal with that argument at all in their Liability Judgment and the Judge dismissed the Respondent's review application summarily. However, in the event the Employment Tribunal found, at the Remedy stage, that there was a 50 per cent chance that further negotiations would lead to a resolution of the 'Scheme problem'. If that finding is sustainable, in our judgment the s98A(2) argument fails and the Judge's review decision is plainly and unarguably correct; if not, then the question of s98A(2) fairness will require to be revisited.

Remedy

29. We deal first with what Mr Rigby acknowledged was a bold submission; that credit should be given for the basic award in the case of the five Claimants who received compensatory awards against those awards. He cited no authority for that proposition.
30. We can find no basis in fact or law for this submission. The statute makes no provision for such set-off. The only possible analogy, in the cases, is to be found in Boorman v Allmakes Ltd [1995] ICR 842, where the Court of Appeal held that an ex gratia payment expressed to incorporate the employee's statutory redundancy entitlement could not be set against his entitlement to a basic award for unfair dismissal because the reason for dismissal was not redundancy. Had he been dismissed by reason of redundancy any redundancy payment could be set off against the basic award. Similarly, the basic award may be reduced for contributory fault (not found in the present case). Otherwise there is no scope for set-off.
31. Turning to the compensatory awards made in the present case, Mr Rigby submits that there was no credible evidence that the Claimants had suffered the loss of a chance of further negotiations leading to a concluded settlement. However, we agree with Mr Searle that the Employment Tribunal made findings, supported by evidence, which entitled them to reach the conclusion which they did: specifically, Mr Aves' evidence that he would be flexible and the movement by the Claimants in their negotiating position. In our judgment the Polkey question at the remedy stage requires a degree of forensic speculation; provided there is some evidence to support the Employment Tribunal's conclusion, and we are satisfied that there was, we should not interfere.

Disposal

32. It follows, for the reason given, that we shall dismiss all three appeals.