At the Tribunal | |
Before
HIS HONOUR JUDGE McMULLEN QC
MR D J JENKINS OBE
MRS M V McARTHUR FCIPD
APPELLANT | |
RESPONDENT |
Transcript of Proceedings
JUDGMENT
For the Appellant | MR SIMON GORTON (One of Her Majesty's Counsel) Instructed by: Cottrill Stone Lawless 82-86 Deansgate Manchester M3 2ER |
For the Respondent | MR DAVID FLOOD (of Counsel) Instructed by: Weightmans LLP 100 Old Hall Street Liverpool L3 9QJ |
SUMMARY
UNFAIR DISMISSAL – Reason for dismissal including substantial other reason
UNLAWFUL DEDUCTION FROM WAGES
The Employment Tribunal was entitled on the facts to find that a disagreement about salary and bonus did not result in a breakdown of trust and confidence and so become some other substantial reason for dismissal. It was entitled to hold there should be no reduction for Polkey. The dispute over bonus was within the meaning of s 27 of the Act.
HIS HONOUR JUDGE McMULLEN QC
Introduction
The legislation
"98 General
(1) In determining for the purposes of this Part whether the dismissal of an employee is fair or unfair, it is for the employer to show --
(a) the reason (or, if more than one, the principal reason) for the dismissal, and
(b) that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of n employee holding the position which the employee held.
...
(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 employer, and
(b) shall be determined in accordance with equity and the substantial merits of the case."
"123 Compensatory Award
(1) ... the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.
(6) Where the tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant, it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding."
"13 Right not to suffer unauthorised deductions
(1) An employer shall not make a deduction from wages of a worker employed by him unless -
(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or
(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.
(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion."
"27 Meaning of "wages" etc
(1) In this Part "wages", in relation to a worker, means any sums payable to the worker in connection with his employment, including --
(a) any fee, bonus, commission, holiday pay or any other emolument referable to his employment, whether payable under his contract or otherwise ...."
The facts
"9 The reason for dismissal:
9.1 C was employed in a small company and an even smaller senior management team (of 3). There emerged a lack of understanding between the parties as to C's entitlement to a share (by the issuing of shares) in the share capital of R based on the original offer letter made by R to C dated 29/9/03 i.e. 30% of the issued share capital of R on a staged basis; (para 6)
9.2 In 2006 C received an increased salary and a "share of the profits" (p 97). Payments, described as a share of profits, in accordance with a staged % identified for the shares were made (20% and 30%) (para 16). C then was paid a figure at the rate of 30% of the assessed net profit and signed the accounts for 2007 and 2008 (paras 17-18). The ET regarded these payments as consistent with a payment in lieu of C's shares i.e. giving them up, or, payment in the meantime in respect of his 30% shareholding which had not been lost (para 20). Either way, R makes the point here that the ET clearly found that the payment emanated from the promise to issue shares to R prior to his employment by letter of 29/9/02 - whether that entitlement had ceased or was continuing;
9.3 R thought matters had been resolved by this. C had a different view and requested that R declare that the summary accounts (from which the 30% payment from net profits was derived) was a "true and accurate account of all business transactions" (para 25). This has a direct connection to the ongoing dispute between the parties as to the correct assessment of net profits. C then suggested in 2008 that payments made and signed for by C as being in full and final settlement of C's entitlement, were not in fact in full and final settlement (para 32). This also led to a meeting on 16/3/09 between R and C where R made it clear to C that his questioning of the profit and loss accounts was having a detrimental effect on C's working relationship; (para 51)
9.4 R then sought, with C's agreement, to formalise C's entitlement into a service agreement. That commenced in May 2006 and by the time of the events giving rise to C's dismissal, some 5 formal service agreements had been issued and 2 further offers of terms made by R which were rejected and/or not accepted by C, as follows:
9.4.1 Version 1 May 2006 - paragraphs 21-29
9.4.2 Version 2 15/9/08 - paragraphs 30-35
9.4.3 Version 3 30/9/08 - paragraphs 36-44
9.4.4 Version 4 28/11/08 - paragraph 45-49
9.4.5 Version 5 30/3/09 – paragraphs 50 (This was in fact a version of an agreement amended by C and his lawyers – para 50)
9.5 In addition to the above 2 additional offers of terms of employment were made by R:
9.5.1 R further offered C terms by letter of 26/3/09; (para 54)
9.5.2 And by email dated 8/6/09 from R's solicitors. (para 61)
9.6 The issue/dispute of share ownership/entitlement endured in 2008 with C insisting he was entitled to the same and R insisting it had been relinquished due to tax reasons; (paras 39-44 and 48. The letter in the EAT's bundle p117 is incorrect: the letter drafted by Weightmans is dated 20/2/09 but in fact was 2009)
9.7 Matters reached a near critical point in March 2009 when it was recorded that a parting of the ways was a distinct possibility based on the failure to agree terms (para 51-54). That did not bring about agreement but rather led to C writing to R on 6/4/09 in forceful terms (paras 55-60). This reached a near resolution in April when C agreed to consider as a compromise R's offer made on 26/3/09 above;
9.8 Matters were not resolved which led to the letter from C's solicitors (Weightmans) of 26/6/09 (p 127 EAT bundle). That letter is produced in full in the ET Reasons and asserts that "our client is losing all trust and confidence in respect of his employment with the Company" and made reference to a potential constructive dismissal claim against R whilst also referring to being made an offer to effect a "clean break" and goes on to conclude "our client has lost all trust and confidence in his employer (p 19 of decision).
9.9 The letter induced "complete shock" in R's Managing Director (para 32).
9.10 R attempted to engage C in a discussion about the letter and its contents/effects, but C insisted on leaving any dialogue to the legal advisers (para 68). Fruitless efforts were made to settle the differences between the parties, all premised on C's employment being terminated; (see para 70-71)
9.11 R then issued C with a letter dated 30/7/09 inviting C to a meeting at which R stated that it believed that the working relationship had been soured and had "completely broken down" and become unworkable (paras 73-75).
9.12 C was then dismissed on notice by letter of 4/8/09 due to these matters including the point that the breakdown in the relationship was also reflected in R's view that Chad not been committed to the business as he had before (para 76).
10 The ET was invited by R to find that even if the dismissal was unfair, as the core disagreement was a failure to agree terms, and as there would never have been such an agreement, the outcome of dismissal would have been the same and in the process C contributed to that dismissal by the stance he took. The ET did not regard the exercise as Polkey one, but rather the ET approached it on the basis that the Weightmans' letter had stung R into action that led to C's dismissal that meant C should be criticised for contributing to his own dismissal by 40% (para 158. There was also a small additional reduction of 5% for unreasonably following the ACAS Code).
11 In relation to the deduction from wages claim:
11.1 The parties at the outset of the hearing did not invite the ET to adjudicate on C's monetary claim for the year 2008/2009 but rather to make findings on issues of principle i.e. was C entitled as a matter of law to a bonus or profit share, and was that a claim that could be brought within the ET's jurisdiction; (C valued the claim in excess of £300,000 and therefore was not brought within the IT's breach of contract jurisdiction)
11.2 R argued that the true nature of the claim for the alleged bonus was (a) in reality a share of the profits of the business in lieu of C receiving an allocation and not a matter related to C's remuneration or any deduction from wages and thus not falling within the definition of wages under s27(1) ERA (b) the assessment of net profits in any event depended on R's exercise of judgment/discretion as to its calculation/assessment i.e. what matters were treated as expenses before profit is declared and that exercise rendered the claim inapt as a deduction from wages;
11.3 The ET made the following findings:
11.3.1 C received a share of profits in 2006/2007 and signed the accounts dealing with his entitlement to the "share of profits" for the relevant years. C subsequently requested that R declare that the summary accounts (from which the 30% payment from net profits was derived) was a "true and accurate account of all business transactions" (para 25).
11.3.2 The payment in respect of bonus of 30% net profits was equally consistent with C giving up his share claim as it was with C receiving the same in lieu of a 30% shareholding;
11.3.3 C then suggested in 2008 that payments made and signed for by C as being in full and final settlement of C's entitlement, were not in fact in full and final settlement (para 32). The reason for this was that C was disputing that the calculation of the figure for net profit was not correct - see for example Weightmans' letter of 26/6/09 asserting that C's provisional entitlement was in the region of £240,000.
11.5 The ET decided that the claim whist at present was un-quantified, that did not mean it was un-quantifiable and the ET regarded itself as having jurisdiction to hear the claim; (para 138)
11.6 The ET made a finding that C received 30% of the net profits in the preceding 3 years; (para 140)
11.7 The ET then went on to describe the previously made payments as a "contractual payment" (para 140)."
"136. So all of these matters lead us to the conclusion that the real reason for the dismissal in the mind of Mr Littlewood was not a loss of trust and confidence but a power struggle over the terms of the contract, the bonus' and the shares - put simply: his terms or mine. This issue is, in our judgment, different from trust and confidence because the evidence from Mr Littlewood is that if the claimant had signed up to terms then he would most likely have stayed. Mr Littlewood did not, pursuing that line of approach, give the claimant an ultimatum - sign the agreement on my terms or go - he did not give the claimant the stark reality that may well have been before him, but had he done so who knows what would have happened. We find that this was the reason for the dismissal - the power struggle - not that it was a loss of trust and confidence."
"137. Therefore, the respondent has not satisfied us as to the true reason for the dismissal based on the evidence it has put forward in the case and so we find on that basis that dismissal itself was unfair. We note that other matters were raised in the disciplinary, the smaller issues that were not matters the claimant had a chance to deal with in advance. They do not seem to us necessarily to be trust and confidence related but had we had to go on to consider fairness we would have found the dismissal unfair because these matters were raised at the disciplinary hearing for the first time when they could and should have been included in the letter inviting the claimant to the meeting which turned out to lead to his dismissal."
"139. It is suggested by Mr Gorton that a share of the profits is something distinct from a bonus and that a pure share of profit would not become within the definition of wages set out in section 27. Is this a real or an artificial distinction? In our judgment, for an employee who does not hold any share in a company, it is an artificial rather than a real distinction. We find the claimant received for each of the three preceding years a bonus calculated as a 30% share of net profit."
"140. We heard Mr Littlewood say that if the claimant had continued to work he would have paid him a bonus subject to profit, possibly calculated in the same manner. On this basis we find that it was something that Mr Summers could reasonably have expected to have carried on receiving had he continued in employment, subject of course to any subsequent agreement. The contractual arrangement we find is an entitlement to a bonus of 30% of net profit for the year ended 31 March 2009 calculated in the same manner as previously because no alternative had been agreed. The amount in question will be determined at a remedy hearing in the absence of agreement between the parties. Whether that will be a complex calculation or a simple approach like Mr Ramadhin's calculations will be for the Tribunal to consider at the remedy hearing."
"157. The Tribunal has considered these submissions and takes the view that the matters alleged against the claimant with regard to Polkev and/or contribution are more properly dealt with by way of contribution under section 123(6) which provides that where the Tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant, it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding.
158. We take the view that the main contributing factor to the changing of the attitude of Mr Littlewood was the letter from Weightmans dated 26 June 2009 and thereafter the further letter dated 23 July. It was accepted that letters from the claimant's solicitors were properly to be regarded as the conduct of the claimant. Had they not been sent then we do not think that Mr Littlewood would have been affected in the way that he was and would not have taken the action against the claimant that he did. It is not, however, wholly the claimant that is to blame because Mr Littlewood could have let his solicitors deal with Weightmans on a solicitor-to-solicitor basis waiting for them to resolve matters between themselves.
159. Taking into account these matters, Mr Flood's concession of 20 - 30% and our general findings with regard to this case we think it just and equitable to reduce the amount of any compensatory award by 40% to take into account the actions of the claimant."
The submissions and our conclusions
(1) The reason for dismissal
"A reason for the dismissal of an employee is a set of facts known to the employer, or it may be of beliefs held by him, which cause him to dismiss the employee. If at the time of his dismissal the employer gives a reason for it, that is no doubt evidence, at any rate as against him, as to the real reason, but it does not necessarily constitute the real reason. He may knowingly give a reason different from the real reason out of kindness..."
"I did not understand Mr Langstaff to argue that in a given case a breakdown in confidence between an employer and one of its senior executives; (a) for which the latter was responsible; and (b) which actually or potentially damaged the operations of the employer's organisation (or which rendered it impossible for the senior executives to work together as a team) was out with section 98 as SOSR and therefore could not result in an employer fairly dismissing the employee whom the employer deemed responsible for that state of affairs. Indeed, I think Mr Langstaff was minded to accept that the facts found by the Tribunal could have amounted to SOSR. In my judgment, that concession was both correct, and realistic. Standing outside the case for a moment, it seems to me that it must be possible for an employer fairly to dismiss an employee in the circumstances set out in the earlier part of this paragraph, provided always the terms of section 98(4) are satisfied."
(2) Contribution
(3) Polkey
(4) Unauthorised deductions
"…Parliament has not limited wages to what can be contractually ascertained. Defining them so as to embrace all that is 'properly payable' aims, by looking beyond the lawyer's contract to the industry reality, to avoid some of the niceties of legal analysis which would otherwise arise."
Disposal