United Kingdom Employment Appeal Tribunal

Appeal No. UKEATS/0051/10/BI

 

 

EMPLOYMENT APPEAL TRIBUNAL

52 MELVILLE STREET, EDINBURGH, EH3 7HF

 

 

At the Tribunal

On 17 February 2011

 

 

Before

THE HONOURABLE LADY SMITH

MISS S AYRE, FIPM, FBIM

MRS A HIBBERD

 

 

 

 

FIRST SCOTTISH SEARCHING SERVICES LTD APPELLANT

 

 

 

 

 

 

(1) MR T McDINE

(2) MR J P MIDDLETON RESPONDENTS

 

 

Transcript of Proceedings

 

JUDGMENT

 

 

 

 

 

 

 

 

 

APPEARANCES

 

 

 

 

 

For the Appellant	MR IAN TRUSCOTT (One of Her Majesty’s Counsel) Instructed by: Messrs Lindsays Solicitors 1 Royal Bank Place Buchanan Street Glasgow G1 3AA
For the Respondents	MR VICTOR TOUGH (Representative) ELP Solicitors 99 Ferry Road Edinburgh EH6 4ET

 

 

SUMMARY

REDUNDANCY – Fairness

 

Redundancy dismissals.  Employment Tribunal found dismissals following a TUPE transfer to be unfair having scrutinised the selection system used and found that there was a risk of unfairness in the absence of “some system for moderating” two sets of scores for two groups of employees – one group having previously been in the employment of the transferee (the Respondent) and the other having previously been in the employment of one of two transferor companies.  The Tribunal did not further explain what they had in mind when referring to “moderation”.  There were no findings of the risk identified having given rise to actual inconsistency as between the two sets of scores or of what would have been liable to have been the outcome if some system of moderation had been applied.  On appeal found that the Tribunal had erred in law.  It was not open to them to conclude that the dismissal of the Claimants was unfair by reason of the risk identified by them.

 

 

 

THE HONOURABLE LADY SMITH

Introduction

1.            This is an employer’s appeal from a judgment  of the Employment Tribunal sitting at Edinburgh, Employment Judge Mr D Fairley, registered on 23 June 2010 holding:

 

“(i) the process by which the Claimants were selected by the Respondent for dismissal by reason of redundancy was unfair; and

(ii) the respective dismissals of the Claimants were accordingly unfair.”

 

2.            The Claimants represented themselves before the Tribunal and were represented by Mr V Tough, representative, before us.  The Respondent was represented by Miss Roche, solicitor, before the Tribunal and by Mr Truscott QC, before us.

 

3.            We will continue referring to parties as Claimants and Respondent.

 

Background

4.            The Respondent’s business is that of property title searchers.  On 4 September 2009, they acquired the business of two other searchers, Douglas & Co and SPH.  The acquisition involved a TUPE transfer and the Claimants, who were formerly employed by SPH, transferred to the employment of the Respondent.  The Claimants were employed as searchers.

 

5.            Prior to the transfer in September 2009, the Respondent had warned SPH’s solicitors that it was likely that they would require to effect redundancies after the transfer.  Twelve months earlier, in September 2008, the Respondent had undertaken a redundancy exercise amongst the staff then in its employment.  It had resulted in 15 members of staff being made redundant at that time.

 

6.            The Claimants accepted that there was a genuine redundancy situation.  The 2009 redundancy exercise utilised the same scoring matrix as had been used in 2008. That matrix involved a mix of objective and subjective criteria:

 

·       Timekeeping and Reliability

·       Disciplinary

·       Length of Service

·       Performance and Quality

·       Individual Skills

·       Responsibility and New Practices

·       Attitude and Enthusiasm

·       Interpersonal Skills

 

7.            As is evident from that list, the first three criteria were objective and the subsequent five involved subjective assessment.  Weighting was applied and a scoring system was specified (each criterion apart from Disciplinary being scored in a range between 1 and 5).

 

8.            Five pools were ultimately identified:

 

·         Sasine

·         Quick Copies

·         Senior Land Register

·         Charges

·         Land Register

 

9.            The First Claimant was included in Quick Copies, Senior Land Register, and Land Register pools.  The Second Claimant was included in all five pools.  The Respondent identified that they required to reduce the number of employees in each pool and retain:

 

·                  Sasine 3 out of 6 in the pool

·                  Quick Copies 1 out of 4 in the pool

·                  Senior Land Register 2 out of 6 in the pool

·                  Charges 1 out of 2 in the pool

·                  Land Register 4 out of 8 in the pool

 

10.         The Respondent’s employees were scored by managers who had been employed by them before the transfer.  SPH employees including the Claimants were scored by two SPH managers.  The matrix that had been used by the Respondent in 2008 was used by both sets of managers.

 

11.         The Tribunal find there to have been some significance in the fact that, unlike the Respondent, SPH had used a formal staff appraisal scheme and prepared daily quality spreadsheets in which one of the scoring managers (Mike Forest) had been involved – he did not have access to the paperwork relating to that scheme though and the relevant finding in fact is confined to his having: “a passable working knowledge of their contents.”  It is not suggested that he had a precise recollection of the results of either Claimants’ appraisals or anything on the spreadsheets specifically relating to them.  The Respondent was found to have no formal appraisal scheme but informal appraisals were carried out from time to time.  They also had the scoring from 2008 available to them.

 

12.         The Tribunal draw attention to the fact that the SPH managers did not receive guidance as to:

 

“..how the more subjective of the individual performance- related criteria (which included ‘efficient use of time’, ‘flexible approach and can- do attitude’, ‘seeks continuous improvement in performance and processes’, ‘responds and adapts to change’, ‘ demonstrates willingness to undertake training and improve’) should be scored.”

 

13.         It is not entirely clear but the Tribunal appear to be referring to what seems to be, in effect, guidance as to what should be regarded as the component parts of the “Performance and Quality” and perhaps “Attitude and Enthusiasm” criteria.  They go on and refer to there being a lack of guidance in respect of “supports and promotes individual and team performance and objectives”, and “maintains good relationships with colleagues” and, again, they seem to be referring to what was, in effect, guidance as to what should be regarded as the component parts of the “Interpersonal Skills”  criterion.

 

14.         As to the scoring for the “Individual Skills” criterion, that was a matter for the judgment of the managers.

 

15.         Once scoring had been carried out, Caroline Ness, who was one of the Respondent’s managers, compared the scores of the Respondent’s employees with those achieved by them during the redundancy exercise in 2008.  They were higher.  She attributed the changes in score that she identified to the employees in question having “upped their game” as a result of the 2008 redundancy exercise.  The Tribunal evidently accepted her evidence about that.

 

16.         Both Claimants were identified as being at risk of redundancy.  All employees identified as being at risk had been transferred to the Respondent.  None of the Respondent’s pre transfer employees were identified as being at risk of redundancy.

 

17.         The First Claimant had the third highest score out of six in the Senior Land Register pool, the fifth out of eight in the Land Register pool, and the second out of four in the Quick Copies pool.  The spreadsheets showing the scores of all the relevant employees appear to demonstrate that in the case of Quick Copies and Senior Land Register, the disparities between the First Claimant’s scores and those achieved by the highest scoring employees were attributable to the difference in their lengths of service, one of the objective criteria.

 

18.         The Second Claimant had the fourth highest score out of six in the Senior Land Register pool, seventh out of eight in the Land Register pool, third out of four in the Quick Copies pool, second out of two in the Charges pool, and fifth out of six in the Sasine pool.  In all pools apart from Land Register, the Second Claimant had a shorter length of service than the highest scoring employee and so, again, the spreadsheets appear to demonstrate that, apart from the Land Register pool, the disparities between the Second Claimant’s scores and those of the highest ranking employees were attributable to the difference in their lengths of service.

 

19.         We would observe (as was not disputed by Mr Tough) that employers commonly use length of service as a relevant criteria when carrying out a redundancy exercise.

 

20.         There are no findings in fact regarding what happened to the Douglas & Co employees in the redundancy exercise.

 

The Claimants’ Forms ET1

21.         In part 5 of his form ET1, the First Claimant’s complaint is encapsulated in the following statements:

 

“…the selection process was unfair and biased and was designed specifically to discriminate against former SPH staff…

…

…it was clear from the information given the selection process was unfair and had been deliberately targeted at former SPH staff. Consequently my dismissal was unfair.”

 

22.         A similar complaint is articulated by the Second Claimant in part 5 of his form ET1:

 

“...it is illegal to discriminate between different sets of employees…..the redundancy process, favoured one specific set of employees (based in Fife) over others (the new employees from SPH who were based in Edinburgh and Glasgow) …….I believe a fair process would have indicated that at least some of our staff should have been kept on….

…I find the manufacture of anonymous sets of redundancy scores which show my name at or near the bottom of a list as unlikely to reflect reality. The high numbers of perfect scores amongst the First Scottish employees in various areas also appears unlikely.”

 

23.         The reference to Fife is to the Respondent’s base and their pre transfer employees.  The reference to anonymous scores is to the score spreadsheets that were provided to the Claimants having been anonymised.

 

24.         In short, the Claimants were suspicious and inferred that the Respondent had deliberately set about seeing to it that their pre-transfer employees were retained and the SPH employees were not.  Bad faith was not, however, an issue before the Tribunal nor does it appear to have been suggested to any of the Respondent’s witnesses that they consciously – or even unconsciously – in some way sought to favour the pre-transfer employees.

 

The Tribunal’s Judgment

25.         The Tribunal had no criticism to make of the pools – they found that the identification of pools was such as would have been chosen by a reasonable employer. Their criticism was that the system determined on by the Respondent did not incorporate what they refer to as “some system for moderating the two sets of scores” and that meant that there was a “clear and overt risk of unfairness” (paragraph 76).

 

26.         The Tribunal do not explain what they mean when they refer to “moderating” the scores. Moderation could involve a system of review whereby another person from the same organisation considers a set of results against the criteria used and determines whether or not the results appear to fall within the range of discretion available to the principal marker.  It could involve review by someone independent of each organisation.  It could be that the Tribunal had something else in mind.  In paragraph 77 they refer to the absence of a system to check that the scoring had been applied consistently as between the two sets of employees. What does, however, seem clear is that there is no indication that the question of “moderation” was explored in evidence and there are, for instance, no findings in fact as to what might have actually been done to achieve whatever it was that the Tribunal had in mind.  Nor are there any findings in fact as to what would have been the likely outcome if there had been “some system of moderation”.  As to the reference to checking for consistency, the Tribunal does not explain what it considered could be done in a situation where it would not, for instance, be feasible or indeed fair to have, say, one of the Respondent’s managers re-score any of the SPH employees such as the Claimants, when they had no prior knowledge or experience of them.

 

27.         At paragraph 77, the Tribunal state:

 

“…the absence of any form of moderation of the two sets of scores resulted in the process of scoring (and thus selection) employed by the Respondent falling outside the band/range of reasonable selection systems.”

 

28.         At paragraph 80, the Tribunal state:

 

“80………..the cumulative effect of the subjectivity in the scoring criteria, the absence of consistency of appraisal systems between the two businesses, and the absence of any moderation of the two sets of scores rendered the selection process unfair (in the sense that it did not fall within the range of fairness and reason). We do not go so far as to say that the same selection process would have been unfair if it had been confined to one or other sets of the employees in isolation. Arguably it would not. The presence of a transfer situation, however, which resulted in a coming together of two separate businesses gave rise to a necessity for some form of moderation of marking if the process of scoring was to be fair.”

 

29.         Despite the indication at the start of that paragraph that the Tribunal considered that there were three defects in the system (subjective criteria, differences in appraisal systems and the absence of moderation of scores) given the clear terms of the final sentence, we read the Tribunal’s ultimate conclusion as being that there was a single defect, namely the absence of moderation of the scores as between the two groups of employees.  The issue of moderation was, we were advised, raised by the Employment Tribunal in the course of the proceedings.

 

Relevant Law

30.         Section 98 of the Employment Rights Act 1996 provides that it is for the employer to show the reason for a dismissal (s.98(1)) and that redundancy is a potentially fair reason (s.98(2)(c)).  Whether or not dismissal for that reason is fair or unfair depends on the answer to the issue identified in section 98(4):

 

“…….where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) –

(a) depends on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee, and

(b) shall be determined in accordance with equity and the substantial merits of the case.”

 

31.         Accordingly, once a potentially fair reason for dismissal is established, the question of whether or not the employer acted reasonably in deciding to dismiss lies at the heart of every case where a claim for unfair dismissal is pursued including cases of dismissal on grounds of redundancy.  It is not for an Employment Tribunal to ask themselves whether they would have dismissed the employee; it is not for them to seek simply to substitute their own decision for that of the employer (Iceland Frozen Foods Ltd v Jones [1982] IRLR 439).  As explained in Iceland Frozen Foods that is because the concept of reasonableness as used in s.98(4) involves recognising that, in many cases, there will not be a single reasonable response to the circumstances that have led to the dismissal; there will be a band of reasonable responses within which one employer would reasonably take one view whereas another, equally reasonable, employer would take a different view.  To put it another way, in many cases, there will be room for legitimate differences of opinion amongst reasonable employers as to what is a fair way to respond.

 

32.         It is against that background that various observations have been made in the authorities regarding redundancy dismissals which show that, in assessing the reasonableness of a decision to dismiss for redundancy, it will rarely be appropriate for an Employment Tribunal to embark on a detailed scrutiny of the system used for scoring or the application of the system in a particular case.  In Buchanan v Tilcon Ltd [1983] IRLR 417, a decision of the First Division in which the opinion was delivered by the Lord President (Lord Emslie) (referred to in both Eaton Ltd v King in 1995 and British Aerospace plc v Green) a clear limitation is expressed as to what was to be expected so far as scrutiny of employers acting in a redundancy situation was concerned:

 

“ …In this situation where no other complaints were made by the appellant all that the respondents had to do was to prove that their method of selection was fair in general terms and that it had been applied reasonably in the case of the appellant by the senior official responsible for taking the decision.  As was pointed out by Phillips J in Cox v Wildt Mellor Bromley Ltd [1978][1978] IRLR 157 it is quite sufficient for an employer in a case such as this to call witnesses of reasonable seniority to explain the circumstances in which the dismissal of an employee came about and it was not necessary to dot every “i” and to cross every “t” or to anticipate every possible complaint which might be made.” (at p. 418)

 

33.         In the same vein, in British Aerospace plc v Green, Waite LJ, at paragraph 3, said:

 

“Employment law recognises, pragmatically, that an over-minute investigation of the selection process by the tribunal members may run the risk of defeating the purpose which the tribunals were called into being to discharge – namely a swift, informal disposal of disputes arising from redundancy in the workplace.  So in general the employer who sets up a system of selection which can reasonably be described as fair and applies it without any overt sign of conduct which mars its fairness will have done all that the law requires of him.”

 

34.         The same theme was taken up by this Tribunal in John Brown Engineering Ltd v Brown and others.  At paragraph 8, Lord Johnston said:

 

“….in each case what is required is a fair process, where an opportunity to contest the selection of each individual is available to the individual employee….it also has to be reasserted that it is no part of the industrial tribunal’s role in the context of redundancy to examine the marking process as a matter of criteria under a microscope; nor to determine whether, intrinsically, it was properly operated.  At the end of the day the only issue is whether or not the employers treated their employees in a fair and even handed manner.”

 

35.         Then, in Sanmina, Elias J, as he then was, rejected the claimant’s contention that an employers “absence” criterion should have included something to allow for the reason for absence, observing at paragraph 86, that to have acceded to that submission would have been to allow exceptions to what was a “carefully drafted” redundancy scheme and the Tribunal’s upholding of that contention had amounted to a substitution of its own view.  At paragraph 87, he explains that this Tribunal was satisfied that:

 

“it could not properly be said that no reasonable employer could adopt this criterion.”

 

36.         Later in the judgment, at paragraph 93, he refers to the need to consider whether a particular approach to scoring was within the band of reasonable responses that was open to a reasonable employer.

 

37.         Finally, the judgment of the Court of Appeal in Bascetta v Santander [2010] EWCA Civ 351 makes it clear that the principles articulated in the earlier cases, referred to above, still hold good.  The passages that we have referred to in both British Aerospace plc v Green and Eaton Ltd v King are referred to with approval and at paragraphs 29–30, the judgment of Pill LJ includes the following comments:

 

“29. The question for the industrial tribunal, which must be determined separately for each applicant, is whether the applicant was unfairly dismissed, not whether some other employee could have been dismissed...It will not help him to show that on the same criteria some other employee might not have been retained.

30. The Tribunal is not entitled to embark upon a reassessment exercise.”

 

The Appeal

38.         Mr Truscott QC made five submissions in support of the appeal.  First, the Tribunal had erred in raising the issue of moderation; the absence of moderation was not the basis of the Claimants’ claims.  Secondly, the Tribunal had erred in finding that the dismissals were unfair because the absence of moderation gave rise to a risk of unfairness; their approach involved making an unfounded assumption that the SPH scores were low as compared to what they would have been if “moderated”.  Thirdly, the Tribunal had substituted their own view for that of a reasonable employer in concluding that there was a need for moderation; the SPH employees were marked by managers who knew them and knew their work.  Fourthly, the Tribunal had erred in failing to consider each Claimant’s position individually.  Finally, the Tribunal had erred in failing to take account of the impact on the Claimants’ scores of the objective factor of their lengths of service.

 

39.         The second submission was Mr Truscott’s principal submission.  The Tribunal’s approach had, he said, gone well beyond the matter of what was reasonable.  They had looked for and sought to identify a perfect system.  They found a risk and because of the existence of the risk, concluded that these dismissals were unfair.  There was, however, a missing link.  The Tribunal had moved from potential unfairness to it coming to pass without there being any findings in fact which showed that in these cases, unfairness ensued.  But what was set out in paragraph 77 did not demonstrate that the risk had become actuality.  What had happened was that a system was used which enabled the Claimants to be scored by managers who knew them and knew their work, in relation to pools which were considered unobjectionable.  How could it be said that the dismissals were unfair?  Further, the Tribunal’s criticism of the subjectivity of some of the criteria seemed to fail to appreciate that it is inevitable that some of the criteria in such a system will be subjective.  As to the difference in the appraisal systems, it was difficult to see why that mattered.  In any event, in the end of the day, the Tribunal had focussed on the lack of moderation.  It was also plain that the Tribunal had substituted their own view for that of a reasonable employer.

 

40.         Regarding, the impact of the Claimants’ respective lengths of service, Mr Truscott referred to the scoring spreadsheets.

 

41.         For the Claimants, Mr Tough submitted that where a Tribunal identifies a “clear and overt risk” of unfairness then dismissal could not be within the range of reasonable responses.  It was for the Tribunal first to judge the system used by the employer and then ask whether or not it was fairly and reasonably applied.  Here, the Tribunal had accepted that there was a fair system but had found the application of the system to be unfair.  He referred in that regard to British Aerospace plc v Green in support of that submission.  Mr Tough did, however, on reflection, seem to accept that the Tribunal had concluded that the system was unfair – that was because it did not include moderation of the two sets of scores. Mr Tough submitted that the Tribunal must have found that the risk of unfairness was a substantial one; he did, however, accept that the Tribunal did not quantify the risk expressly.  He said that it ought, however, to be inferred from their finding of unfairness that that was how they had regarded it. He submitted that given that the Tribunal had referred to the relevant law, they must have asked themselves the right question. Maybe, he said, another Tribunal would have answered the question of whether or not the dismissals were fair, differently, but it was for them, as an industrial jury, to apply their minds to the issue and that was what they had done.  Further, the fact that the Tribunal had, without distinction, found both dismissals unfair did not logically exclude that they had found each of them unfair.  So far as the length of service matter was concerned, Mr Tough referred to his written response to the Notice of Appeal which simply states that the Tribunal took a number of factors into account and it was the lack of moderation “which rendered the selection unfair”.

 

42.         Mr Tough submitted, though somewhat faint-heartedly, that the forms ET1 did in fact contain a case that the redundancy exercise was unfair because there had been no moderation as between the scores of the two sets of employees.

 

Discussion and Decision

43.         The Tribunal found that the system used by the Respondent in the redundancy exercise was one which no reasonable employer would have used because it did not include some system for moderating the two sets of scores.  We refer to our observations above regarding the lack of specification by the Tribunal about what it had in mind as regards moderation.  It makes their criticism, at the very least, an uncertain base for the conclusion that no reasonable employer would have excluded it.  Without knowing how they envisaged their moderation system working, it seems impossible to assess what amelioration of their perceived risk it could have achieved.  It could only have affected the scoring of subjective criteria and thus may not have achieved anything at all in circumstances where neither sets of scoring managers knew each other’s employees.

 

44.         We note that the Tribunal’s approach was to find that the system was fatally flawed and because the system was flawed, the dismissals were unfair. This is not a case where an employer was found to have acted unreasonably in his application to a particular employee of an acceptable and fair system, contrary to what at first was Mr Tough’s approach.

 

45.         Dealing first with the Tribunal’s conclusion regarding the system, we consider that they have fallen into the trap of engaging in “microscopic” or “over-minute” examination of the type warned against by Waite LJ in British Aerospace plc and Lord Johnston in John Brown Engineering Ltd.  They have sought perfection and whilst maybe, in a perfect world, an employer in the position of the Respondent would have come up with some means to confirm that their managers’ notion of what amounted, for instance, to a high level of individual skill, equiparated to that held by the SPH managers, to look for perfection is to depart from what s.98(4) requires.  It is not as if there were findings in fact to the effect that there was in fact inconsistency of approach as between the two sets of managers or findings in fact that any of the managers on either side had any concern that there might be inconsistency of marking as between them.

 

46.         We turn then to what the Tribunal did, having found the system to be unfair.  It is important to note that the unfairness that the Tribunal found to exist was that the system had a risk in it; absent “moderation” there was a risk that the scores used by the Respondent in the redundancy exercise might be higher or lower than they would have been if there had been moderation.  This was not a case where the flaw in the system was such as to show that no employee’s score was reliable, as would occur if, for instance, an employer failed to include a clearly relevant criterion in his system.  The Tribunal did not, however, assess the extent of the risk they identified. We do not accept Mr Tough’s submission that they found it to be substantial.  They do not state that that is what they found and it is not, we consider, obvious that if there was any risk, it was a substantial one.  Further, the Tribunal do not consider whether in fact the Claimants suffered.  Their approach involves an underlying assumption that if there had been moderation, the Claimants’ scores would have been higher (and the Respondent’s employees would have been marked lower).  There is though no basis for that assumption in the findings in fact.  Nor was it found that the Claimants’ suspicions, as articulated in their forms ET1 to the effect that there was bad faith on the part of the Respondent in the sense that they were deliberately pro their own employees and anti the SPH employees in the redundancy exercise, were well founded.  These factors alone demonstrate that the Tribunal erred in concluding that because they had identified a risk in the system, the Claimants’ dismissals were necessarily unfair.

 

47.         That being so, we do not require to dwell at any length on the other grounds of appeal. We would, however, observe that the Tribunal did, as Mr Truscott submitted, require to exercise caution when determining the matter at issue on a basis that was not part of the Claimants’ cases in their forms ET1 and it is unfortunate that there is nothing in the judgment that shows they were conscious of that.  We are not entirely clear as to how and when the matter of moderation arose and we would have expected the Tribunal to explain how it came to be part of the case, whether or not the new matter was clearly articulated, whether or not the Respondent had fair notice of it and how they considered they could properly determine the case on a basis not pled.  As to substitution, we accept that the judgment shows that the Tribunal adopted the substitution mindset.  As to the impact of the lengths of service and the need to consider each Claimant separately the Tribunal do appear to have overlooked these matters. The effect on their total scores of their scores for lengths of service - a wholly objective matter which no type of moderation could have affected - was clearly substantial and the Tribunal required to take that into account before concluding that their dismissals were unfair because of the presence of a risk in the system used.

 

48.         In all the circumstances, we are persuaded that we should uphold the appeal.  For the reasons above, we are satisfied that it was not open to the Tribunal to find that these dismissals were unfair.

 

 

 

Disposal

49.         We will pronounce an order upholding the appeal, substituting for the judgment of the Employment Tribunal a judgment finding that the dismissals were fair and dismissing the Claimants’ complaints.