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[1993] UKSSCSC CU_82_1992 (19 July 1993)

R(U) 1/95

Mr. A. W. E. Wheeler CBE CU/82/1992
19.7.93

Dismissal for misconduct - ex gratia payment - whether compensation in respect of termination of employment - effect of dismissal for misconduct on ineligible period

The claimant was awarded a payment by his employer following his dismissal without notice for gross misconduct. The adjudication officer decided that the payment was compensation and that there was an ineligible period within the meaning of regulation 7 of the Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983. The tribunal found first, that although the payment was expressed to be made ex gratia in acknowledgement of 28 years past service and equalled net pay for twelve weeks (the period of notice to which the claimant was entitled unless dismissed for misconduct), it was nevertheless compensatory and would not have been made but for termination of employment; and secondly, that it did not fall within the exception in regulation 7(6)(c) as it was not an emolument of the employment which accrued under the contract of employment before termination. The tribunal went on to base the "ineligible period" on the period of notice to which the claimant would have been entitled. The claimant appealed to the Commissioner.

Held, allowing the appeal, that:

the tribunal was correct to decide that the payment was compensation because the mere fact that the payment was calculated by reference to the period of notice to which the claimant would have been entitled if he had not been dismissed for misconduct could not by itself make it a payment which accrued before termination of the employment;

as the claimant was dismissed for misconduct there was no "period of notice" so that there was no "due date" as defined in regulation 7(6);

the ineligible period must therefore be calculated by reference to the "standard date" based on the weekly amount specified in paragraph 8(1)(c) of Schedule 14 to the Employment Protection (Consolidation) Act 1978 rather than on the claimant's net pay.

DECISION OF THE SOCIAL SECURITY COMMISSIONER

My decision is that the unanimous decision of the Southampton social security appeal tribunal ("the appeal tribunal") dated 25 March 1992 is erroneous in point of law and is set aside. As I consider it a proper case for me to give the decision which the appeal tribunal should have given, I further decide that the days falling in the inclusive period from 3 August 1991 to 11 October 1991 fall to be treated as the ineligible period for the purposes of regulation 7(1)(d) of the Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983. However, in practical terms, my decision does not avail the claimant.

Before me is an appeal by the claimant, brought with the leave of the chairman of the appeal tribunal, on a question of law, against the unanimous decision of the appeal tribunal of 25 March 1992.

The appeal gives rise to the issue of the effect on entitlement to unemployment benefit of payments received by the claimant upon termination of his employment. It is a somewhat complex issue and I think it best to begin by referring to the relevant statutory provisions.

Section 14(1)(a) of the Social Security Act 1975 provides that a person shall be entitled to unemployment benefit in respect of any day of unemployment which forms part of a period of interruption of employment. Regulation 7 of the Social Security (Unemployment Sickness, and Invalidity Benefit) Regulations 1983 lists the days not to be treated as days of unemployment. Paragraph (1)(d) of that regulation was amended and paragraphs (5) and (6) were added, with effect from 9 October 1989, by regulation 4 of the Social Security (Unemployment, Sickness and Invalidity Benefit) Amendment No. 2 Regulations 1989. They apply to any termination of employment taking effect on or after that date and are therefore applicable to the present case. They deal with the effect on eligibility for unemployment benefit of payments received by a claimant on termination of his employment. Regulation 7(1)(d) provides:

"Where in any case the employment of a person is terminated and he receives compensation, a day shall not be treated as a day of unemployment if it is a day-

(i) which falls within the ineligible period as defined in paragraph (5), and

(ii) which falls within the period of 52 weeks beginning with the day following the termination of the employment;".

Regulation 7(5), so far as material, provides:

"For the purposes of paragraph (1)(d), "the ineligible period" is the period which begins on the day following the termination of the employment and ends-

(a) in a case where the person who paid the compensation represents that it, or any part of it, was paid in lieu of notice of termination of employment ...

(b) in a case where the person who paid the compensation represents that it was paid in lieu of consultation under section 95 ...

(c) in any other case, the standard date."

Regulation 7(6) provides, so far as material, as follows:

"(6) In this regulation-

"Compensation" means any payment made to or for a person in respect of the termination of the employment other than-

(a) any remuneration paid in respect of the period before the termination;

(b) any holiday pay;

(c) any payment not falling within para. (a) or (b) of this definition which is paid in respect of any emolument of the employment (whether in money or in kind) and which has occurred before the termination of the employment;

(d),(e),(f) [not relevant].

"due date" in relation to the termination of a person's employment, means whichever the following dates is applicable in his case, that is to say-

(a) the date on which any period of notice applicable to the person was due to expire or would have been due to expire if it had not been waived;

(b) ... (not relevant)

"the standard date" means the earlier of

(a) the due date; and

(b) the last day of the period determinated by-

(i) dividing the amount of the compensation by the maximum weekly amount which on the day following the day of termination of employment, is specified in paragraph 8(1)(c) of Schedule 14 to the Employment Protection (Consolidation) Act 1978, and

(ii) treating the result (less any fraction of a whole number) as a number of weeks;"

The salient facts of the case are not in dispute and can be shortly stated. The claimant, having worked for his employers from 4 June 1963 was summarily dismissed for gross misconduct on 2 August 1991. He admitted having stolen company property. Because of his long service and the illness of his mother, he was given an ex gratia payment of £1,996.32. The issue in the case is whether this payment constitutes compensation within the meaning of regulation 7(6) as set out above. If it does, it is now common ground that the ineligible period for unemployment benefit purposes runs from 3 August 1991 (the date following the termination of the appointment) to 11 October 1991.

Initially the local adjudication officer decided that the claimant was in fact disentitled to benefit in respect of the period from 5 August 1991 to 25 October 1991. Subsequently his decision was reviewed and revised resulting in a decision that the claimant was not entitled to unemployment benefit from 5 August 1991 to 11 October 1991 (both dates included).

From that decision the claimant appealed to the appeal tribunal. In due course, the appeal tribunal reached a unanimous decision dismissing the appeal. In doing so they recorded the following findings of fact:

"2. The claimant was dismissed for gross misconduct: theft of company property. Under the rules of the employer he was not entitled in such circumstances to money in lieu of notice or holiday pay. He received an ex gratia payment £1,996.32. This was a compensatory payment. He was entitled to twelve weeks notice. Ineligible period 5 August 1991 to 11 October 1991."

The appeal tribunal then went on to give the following reasons for their decision:

"Mr. Morgan worked for Allders Ltd for 28 years. On the 2 August 1991 he was summarily dismissed for gross misconduct, theft of Company property. He was subsequently prosecuted for theft and received a two year conditional discharge on the 4 November 1991. The Employer gave Mr. Morgan a payment of £1996.32 which was expressed to be ex gratia and made in acknowledgement of 28 years service and the fact that he had a sick mother (see p. 13). This sum equated to twelve weeks net pay. Under The Employers Disciplinary Rules in the case of summary dismissal there is no entitlement to pay in lieu of notice or accrued holiday pay.

Mr. Farrell for Mr. Morgan acknowledges that any gratuitous payment made on termination will be a compensatory payment disqualifying the recipient from entitlement to unemployment benefit for whatever may be the ineligible period unless the payment or some of it is not a qualifying payment or falls within the exceptions set out in regulation 7(6) of the Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations. He argues that this payment is not a qualifying payment and should not be considered a compensatory payment for two reasons. The first is that the payment did not arise from the termination of the employment and if that argument fails the second is that regulation 7(6)(c) applies and so in this way the payment is not to be counted.

Mr. Farrell says that there was no entitlement to payment under the Disciplinary Rules because of a gross misconduct dismissal. He says it is clear that the payment was made for reasons unrelated to the dismissal but related to previous service and domestic circumstances. He argues in the same way for the regulation 7(6)(c) exemption. We have concluded that his argument must fail in respect of both limbs. We first considered if the payment could be considered "compensatory" and looked at regulation 7(6) which defines such a payment. We consider that the payment was one which was made upon termination and would not have been made but for that termination. In our view therefore, unless one of the exceptions could be applied the payment must be treated as a compensatory payment. Specific exceptions are applied by subsections including subsection (c) which refers to and excludes a payment which is one not covered by (a) or (b) (in short pay to date of termination or holiday pay) which is paid in respect of any emolument of the employment which has accrued before termination of the employment. We consider that a gratuitous payment cannot be considered an emolument, a word which in our view implies a contractual obligation as does in our view the reference to accrual of the entitlement before termination. Further in our view all the exceptions relate to payments arising in some way under the contract prior to termination.

In summary our view is that the payment was referable to termination and is not excluded from being a compensatory payment by virtue of any of the specific exemptions provided for in the regulation. Accordingly the appeal has to fail and there being no issue on any other aspect of the decision the adjudication officer's decision on disqualification must stand."

I set out those reasons in full as they demonstrate that the appeal tribunal took considerable pains with this case and, in particular, that they considered with care the claimant's contentions. Those contentions were, and remain, that, in the first place, the payment in question to the claimant falls to be ignored because it did arise from the termination of his employment and, in the alternative, that, if it did arise from the termination of his employment, it falls to be ignored under regulation 7(6)(c) which exempts a payment (other than remuneration paid in respect of the period before the termination and any holiday pay) which is paid in respect of any emolument of the employment which accrued before the termination of the employment.

I accept without hesitation the submission of the adjudication officer now concerned with this case that the reasoning of the appeal tribunal in rejecting the claimant's arguments under both those heads cannot be faulted. In my judgment they were manifestly entitled on the evidence and findings to reach the conclusion that on the true construction of regulation 7(6) of the 1983 Regulations the payment was made to the claimant upon the termination of his employment and that its character as such was not changed by reason of the exempting provisions of paragraph (c) or any other paragraph of the regulation 7(6) definition. Indeed I would have reached the same conclusion myself. The mere fact that it seems likely that the ex gratia payment (as the employers themselves described it in the form dated 6 August 1991 sent to the Department of Employment), was calculated by reference to the period of twelve weeks notice which the claimant would have been entitled to if he had not been dismissed for misconduct, cannot, by itself, make it a payment which accrued before the termination of the employment. I am fortified in that view by the decision in R(U) 5/92, with which I respectfully concur. In the circumstances, in my view, the appeal tribunal were perfectly entitled to reach the conclusion which they did and on that score their decision cannot be criticised.

However, as I have indicated, the appeal tribunal's decision is not without fault. As the adjudication officer now concerned with the case concedes in his submissions to me dated 16 December 1992 the appeal tribunal fell into error by holding, like the adjudication officer before them, that the ineligible period began on 5 August 1991. By regulation 7(5) of the 1983 Regulations, the ineligible period begins on the day following the termination of the employment. It is not in dispute that the claimant's employment was terminated on 2 August 1991 and indeed, as I have said, it is common ground now that the ineligible period started on 3 August 1991.

When did the ineligible period come to an end? On the facts of this case, it is now apparent that this is a complicated issue. Focusing on the problem as a result of the nominated officer's perceptive direction dated 18 November 1992, the adjudication officer now concerned has made the following written submissions:

"4. I now turn to the means of establishing the last day of the ineligible period in this case. The claimant's former employer does not represent that any part of the payment which was made following the termination of his employment was in lieu of notice or consultation under section 99 of the EP(C) Act 1975. I submit accordingly, that sub-paragraph (c) of regulation 7(5) of the USIB Regulations applies and that the ineligible period shall end on the standard date.

The definition of the "due date" at regulation 7(6) of the USIB Regulations provides that:

"for the purpose of paragraph (a) of this definition "period of notice" means the period of notice of termination of employment to which a person is entitled by statute or by contract, whichever is longer, or, if he is not entitled to such notice, that period of notice which is customary in the employment in question."

I submit, therefore, that it is prerequisite to the definition of "due date" in regulation 7(6), that there shall be a "period of notice" to be established by title or custom. The claimant, as a result of his misconduct, had no such "period of notice" at all. As a result, I submit that there can be no due date in this case.

If the Commissioner accepts my submission that there can be no due date in this case, I respectfully observe that the result will be that the standard date shall be arrived at solely by reference to the calculation prescribed by subparagraph (b) of the definition of "the standard date" in regulation 7(6) of the USIB Regulations. I calculate the standard date by this means in the following paragraph (7) of my submission.

I submit that the amount of compensation in this case is £1996.32: that is the remainder of the total payment made to the claimant following termination (£2084.44) less the amount included as wages for work already done (£88.12) (see regulation 7(6) of the USIB Regulations).

On the day following the day of the termination of the claimant's employment, the amount specified in paragraph 8(1)(c) of Schedule 14 to the EP(C) Act 78 was £198.

By dividing the amount of compensation (£1996.32) by the specified amount (£198) there results a figure of 10.09.

Sub-paragraph (b)(ii) of regulation 7(6) of the USIB regulations requires that fractions of a whole number are to be subtracted from the result. The whole number so obtained (10) is, in my submission the number of weeks in the ineligible period.

The period of ten weeks following from and including the first day of the ineligible period (3 August 1991, see para. 3 above) ends on 11 October 1991. I submit therefore, that the ineligible period in the claimant's case is from 3 August 1991 to 11 October 1991.".

I read the response of the claimant's representative to those submissions as one of concurrence, albeit without prejudice to his main contention regarding the effect on this case of regulation 7(6) of the 1983 Regulations, which I have dealt with above. In these circumstances all I need say is that, for my part, I find the submissions of the adjudication officer on this difficult point lucid, comprehensive and soundly based and I accept them with gratitude.

In the upshot, the decision which I give in this appeal is as set out in paragraph 1.

Date: 19 July 1993 (signed) Mr. A. W. E. Wheeler CBE Commissioner