United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR ADAM SOLOMON (of Counsel) Instructed by: Synergy Employment Law The Podium Gainsborough Studios 1 Poole Street London N1 5ED
For the Respondent	MR SIMON FORSHAW (of Counsel) Instructed by: Messrs Foot Anstey Solicitors Salt Quay House 4 North East Quay Sutton Harbour Plymouth PL4 0BN


 


SUMMARY

UNFAIR DISMISSAL

Constructive dismissal

Compensation

Employment Tribunal entitled to conclude, on the facts, that Respondent was in breach of implied term of trust and confidence. Claimant resigned in response. She was constructively dismissed. S.124(1) Employment Rights Act 1996. The Employment Tribunal was wrong to make a compensatory award to Claimant in excess of statutory cap. Grossing up takes place before, not after, application of cap so as to allow for taxation.


 


HIS HONOUR JUDGE PETER CLARK

Introduction

1. We have before us for full hearing appeals against both the liability and remedy Judgments delivered by an Employment Tribunal sitting at London Central. The parties are Miss Jane Aspden, Claimant, and Hardie Grant London Ltd, Respondent. In the liability appeal (EAT/0242/11/RN), the Respondent appeals against the Tribunal's finding, in a Judgment with Reasons, promulgated on 16 March 2011, that the Claimant was constructively dismissed, unfairly, by the Respondent. The Claimant opposes that appeal.
2. In the remedy appeal (0460/11), should the liability appeal fail, the Respondent challenges the Tribunal's assessment of the Claimant's compensatory award in the sum of £87,166.67. At the effective date of termination the statutory cap for ordinary unfair dismissal claims such as this was £65,300. In addition to opposing that appeal, the Claimant raises two grounds by way of cross-appeal in relation to remedy.

Background

3. The Claimant commenced employment with the Respondent as Managing Director on 16 March 2009. The company was a new venture set up by its Australian publishing parent company, Hardie Grant Publishing Pty Ltd (Hardie Grant). She reported to directors of the Australian parent, Mr Grant, its CEO, and Ms Pinkham.
4. Mr Grant had entered into negotiations with two potential American partners, Chronicle Books and Abrams Books, with a view to engaging in a joint venture designed to operate in the UK market.
5. In the event, in Spring 2010, Mr Grant recommended to his board that Hardie Grant should not proceed with the joint venture. However, Chronicle and Abrams did enter into a joint venture, incorporating Abrams and Chronicle Books Ltd, on 17 June 2010, and the Respondent was its distributor in the UK.
6. On 23 March 2010, Mr Grant emailed Jack Jensen, Managing Director of Chronicle and a friend, explaining why Hardie Grant was not proceeding with the joint venture. This is referred to as the Jensen email.
7. The email is marked confidential and contains this passage:

"The process has also led me to really question my own UK leader - but that is my problem. She is a really safe pair of hands, but we need an easier, more composed leadership, which we'll get on to soonest. Obviously why this note is confidential."

The UK leader there referred to was the Claimant.

8. The Tribunal found at paragraph 20:

"20. On 28 March, forgetting he had included that paragraph [set out above], Mr Grant forwarded that [Jensen] email to Ms Pinkham and the Claimant. The Claimant interpreted this as an indication that she was to be dismissed. She emailed Mr Grant [on 29 March] saying "Well, this is one way to find out" […]"

9. Mr Grant and the Claimant spoke on the telephone on 30 March. The Claimant said that she would not need to discuss the budget because she would not be with the Respondent in 12 months, to which Mr Grant's response was that she would. On 7 April, Mr Grant emailed the Claimant suggesting that they conducted an appraisal in London the following week. However, shortly afterwards she emailed her resignation to him, stating that the Jensen email had destroyed trust and confidence between employer and employee. Mr Grant accepted her resignation.

The Tribunal liability decision

10. The Tribunal found that the Claimant had sufficient continuous employment to bring her claim of unfair dismissal. That was an issue between the parties below, but not now before us.
11. On the critical question as to whether the Respondent had breached the fundamental implied term of mutual trust and confidence, entitling the Claimant to treat herself as discharged from further performance under the contract, the Tribunal directed themselves as to the Malik test: see Malik v BCCI [1997] IRLR 462 (HL). That was a proper self-direction: see Buckland v Bournemouth University Higher Education Corporation [2010] ICR 908, paragraph 22, per Sedley LJ. They found this a very difficult case to decide: it was a very finely balanced issue (paragraph 33).
12. Whilst accepting that Mr Grant's views expressed in the Jensen email were entirely genuine and did not amount to an express statement that he did not intend the Claimant to continue as Managing Director; indeed it was accepted by the Claimant that the email was ambiguous and could mean no more than that Mr Grant felt that her leadership style needed to be addressed (see paragraph 36).
13. In conclusion, the Tribunal accepted the Claimant's case that the breach was made out (paragraph 43) and at paragraph 40 they said this:

"40. We found the issue of whether the sending of the email to the Claimant could be a repudiatory breach to be difficult, but again we have concluded on balance that whilst we accept the Respondent's proposition that an employee should be broad-shouldered enough to listen to criticism without walking out, this was not criticism which was being given and to which the Claimant could listen; this was an email from the CEO of her employer, which appeared to her, not unreasonably, to express doubts over her leadership ability, and evidence that he was going to be dealing with it at the earliest opportunity."

14. The Tribunal went on to find that the Claimant resigned in response to the breach (paragraph 44).

The liability appeal

15. In constructive dismissal cases such as this, whilst the construction of the relevant contractual term is a question of law, the question as to whether the employer was in breach of that term and if so whether the breach is fundamental, entitling the employee to treat himself as discharged from further performance, is essentially one of fact (see Pedersen v London Borough of Camden Council [1981] ICR 674). Even although the EAT may take a different view on the Tribunal's answers to either of those questions, it cannot interfere, absent a patent error of law or perversity (Woods v WM Car Services [1982] ICR 693).
16. In the present case, the Tribunal directed themselves as to the "unvarnished" Malik test (paragraph 28). They found that in the particular factual circumstances of this case the Respondent had breached the trust and confidence term (paragraph 40). A breach of that implied term is a fundamental breach of the contract of employment; see Safeway Stores v Morrow [2002] IRLR 9. The Claimant resigned in response to that repudiatory breach. She was constructively dismissed. The dismissal was unfair.
17. Where is the error of approach which entitles, indeed requires us, to interfere and allow this appeal? Mr Solomon advances the following three legal propositions in support of his submissions:

"(i) The correct approach to the question of whether there has been a repudiatory breach is to determine objectively whether there has in fact been a clear and unambiguous breach of contract:

'the legal test is whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract.'"

A citation from Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168 at paragraph 61 per Etherton LJ.

18. He has also referred us to higher authority in the commercial cases and the observations of Kay LJ in Tullet Prebon v BGC Broker [2011] IRLR 420 at paragraphs 20 and 24.

"(ii) A statement of intention to terminate the contract in the future does not evince any intention to break the contract: it is perfectly consistent with a lawful termination. Accordingly, it cannot form the basis of a constructive dismissal claim."

He relies on Devon County Council v Cook [1977] IRLR 188 and Haseltine Lake & Co v Dowler [1981] IRLR 25, both EAT; and

"(iii) '…the objectively assessed intention of the alleged contract-breaker towards the employees is of paramount importance.'"

A passage from the Judgment of Kay LJ in Tullet Prebon at paragraph 27.

19. Based on those propositions of law he submits:

(i) That no clear intention to breach the contract is made out where Mr Grant's email to Mr Jensen was ambiguous and any ambiguity was later resolved by Mr Grant's assurance to the Claimant that she would still be in the employment in 12 months' time (Reasons paragraph 20).

(ii) If anything, this was an anticipatory breach of contract; however what was said in the email was also consistent with a future lawful termination of the contract.

(iii) Objectively assessed, Mr Grant wished to perform the contract as evidenced by what followed between him and the Claimant after the email was forwarded to her, and before her resignation.

20. Attractively as the argument is put, we cannot accept it. We are satisfied that, having correctly identified the trust and confidence term, the Tribunal made an objective assessment of how a reasonable employee would view the circumstances in which this Claimant found herself on receipt of the Jensen email. Her response (paragraph 40, last sentence) was not an unreasonable one.
21. This was not a case of anticipatory breach. It was conduct which, the Tribunal found, undermined trust and confidence at that point. Whether it did so, objectively, was a judgment for the Tribunal to make. We cannot characterise that judgment as being legally perverse. In short, the Tribunal asked themselves the correct question and answered it permissibly. Having found the breach made out, it could not then be cured or remedied by anything Mr Grant did or said (see Buckland); it was by definition a fundamental breach, itself evincing an intention on the part of the Respondent no longer to be bound by the contract.
22. Her resignation in response to that breach amounted to a constructive dismissal. There is no issue as to the fairness or otherwise of that dismissal. Accordingly, this liability appeal fails and is dismissed.

Remedy

23. We are entirely satisfied that the Tribunal fell into error in making a compensatory award in favour of the Claimant in the sum of £87,166.67. The award ought to have been limited to the then statutory cap of £65,300. S.124(1) of the Employment Right Act 1996 provides, so far as is material:

"124 Limit of compensatory award etc.

(1) The amount of -

(a) [...]

(b) a compensatory award to a person calculated in accordance with section 123,

shall not exceed £65,300."

24. The Employment Tribunal thought (remedy Reasons paragraph 14) that it was permissible to apply the statutory cap and then gross up that figure, to allow for the incidence of tax in the Claimant's hands. That is not correct.
25. In calculating the loss of earnings flowing from an unfair dismissal, the calculation is based on the Claimant's net (i.e. after tax) earnings. Where the loss exceeds £30,000, the maximum tax-free termination payment figure, it is appropriate to apply the 'reverse-Gourley principle', so as to ensure that the Claimant receives the appropriate net loss figure. However that exercise comes before, not after, the application of the cap imposed by s.124(1).
26. To reverse that process is wrong in law as a matter of domestic legislation, and that legislation does not offend the anti-discrimination provisions in Article 14 of the ECHR, as Mr Forshaw contended. The award is paid to a person, the Claimant. It is not divided between the Claimant and HMRCS. The Employment Tribunal decision in Barton v Sheffield City Council Services (ET 2800284/00), to which Mr Forshaw referred us, was also wrongly decided on this point.

Disposal

27. It follows that the Respondent's liability appeal is dismissed. Its remedy appeal is allowed. The Claimant's remedy cross appeal is dismissed. The result is that paragraph 2 of the Employment Tribunal remedy Judgment is varied to a compensatory award figure of £65,300.