Appeal No. EAT/56/90

	EMPLOYMENT APPEAL TRIBUNAL
	4 ST. JAMES'S SQUARE, LONDON, SW1 4JU

		At the Tribunal
		On 14th April 1992

	Before

	THE HONOURABLE MR JUSTICE KNOX

	MISS C HOLROYD

	MR G H WRIGHT MBE

MRS B J DAMEREL	APPELLANT

DEVON COUNTY COUNCIL	RESPONDENTS

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR J McMULLEN
(Of Counsel)
Messrs Lawtons
Solicitors
16a Union Street
Newton Abbot
Devon
TQ12 2JS

For the Respondents	MR P ELIAS QC
The Solicitor
Devon County Council
County Hall
Topsham Road
Exeter
Ex2 4QD

	MR JUSTICE KNOX:  Mrs Brenda June Damerel appeals from a decision of an Industrial Tribunal sitting at Exeter on the 9th and 24th November 1989 which held unanimously that her application for relief for unfair dismissal was dismissed.  The decision was sent to the parties on the 7th December 1989.

	Mrs Damerel had been employed for a long time. She described her job as school caretaker in her Originating Application and gave as her dates of employment from September 1975 to 31st July 1989.  At that date she was offered continuous employment with the new organisation that had been set up consequent upon the passing of the Local Government Act 1988 by the Devon County Council, which is the Respondent both here and in the Industrial Tribunal.  That organisation was called "Devon Direct Services" and was set up, in the light of the Local Government Act 1988 to provide on a competitive basis services that had previously been provided by the Devon County Council.  We are concerned in this case of course with the services which Mrs Damerel and many another person were providing by way of school caretaker which, and we imagine that this too is an extremely common feature, in Mrs Damerel's case involved a very substantial amount of cleaning relative to the number of hours that were spent by her on caretaking in the strict sense of the word.

	The impact of the Local Government Act 1988 is described in the Industrial Tribunal's decision quite succinctly as follows:
"The Local Government Act 1988 provides that local authorities should undertake certain activities only if they can do so competitively.  [I pass over a paragraph to which I must return].

.....................

A local authority may compete for work provided that various criteria are observed.

The Act was passed in March 1988, by which time a number of local authorities already had the basis of an independent contracting department.

In practical terms, local authorities were faced with the choice of competing on an open tender basis or declaring wholesale redundancies and leaving the work to outside contractors.

In common with many others, the Devon County Council decided to compete.

Accordingly, a new Department, Devon Direct Services, was established."

	Then the Industrial Tribunal turns to the way in which this was effected and I need not deal with that in detail because in this case the procedural steps that were taken were not the subject of complaint either here or below and I can pass directly to the effect of this reorganisation in this particular case.  The Industrial Tribunal recorded that the Education Department of the County Council prepared a specification and that in doing so they had calculated a budget, the estimated cost of continuing to operate on the previous basis, that was calculated at £351,000.  Devon Direct Services put in a tender price of £316,495 and for this particular area the next tender was £602,000.  In fact the Devon Direct Services' tender was subject to a discount of some £8,000 in the event which happened of all the contracts being awarded in-house.

	So far as Mrs Damerel was concerned she was offered the job of site caretaker at the same school, Rydon School, the hours of work were to be the same for her, 39 hours a week but, and I quote the Industrial Tribunal:
"It was soon apparent there was to be a major change, however.

Prior to 1st August 1989, Mrs Damerel was assessed as spending 25 hours on cleaning and 14 on caretaking.  She had a cleaning assistant, Mrs Gale, who was working for 151/2 hours per week.  The total cleaning and caretaking work amounted to 541/2 hours.  Furthermore, prior to the change, the assistant had been employed for the whole year and not merely for the term time and a short time in the holidays."

The assistant was reduced from 151/2 cleaning to 5 hours and the Industrial Tribunal found that was a totally different job which Mrs Gale, the previous incumbent, did not accept and she applied for and received a redundancy payment.  

	So that overall the result comparing what had happened up to the 1st August 1989 and what was proposed to happen after the 31st July was that Mrs Damerel from spending 25 hours cleaning and 14 hours caretaking was required under the new contract, if she accepted it, to take very much wider cleaning duties of 34 hours which necessarily of course reduced the time in caretaking to some 5 hours.

	The Industrial Tribunal then made findings about Mrs Damerel's attitude, which are entirely to her credit, they said this at paragraph 31:
"Mrs Damerel had taken over a brand new school.  She regarded it proudly as her school.  She was a member of the school staff and had been under the direction of the Headmaster.  She took a great pride in the appearance of the school.  She and Mrs Gale had spent 54 1/2 hours per week on a full year basis looking after the school and she was now being asked to look after the school with only 44 hours per week available and that would not be on a full year basis.  She would be under the direction of the Devon Direct Services.  She would operate to the specification, and not as previously, to the requirements of the Headmaster.

It is entirely understandable that she had the gravest misgivings."

She did not accept, in those circumstances, in spite of the negotiations and in spite of a personal visit from the cleaning manager of Devon Direct Services, who spent two hours trying to persuade her to reconsider.

	The Industrial Tribunal then drew its conclusions, having stated those facts.  The first conclusion was, in their view, that the County Council had no choice about the reorganisation.  If their Direct Services Department did not put in a successful bid there would be wholesale redundancies.  There was no question of Mrs Damerel being allowed to continue on precisely the same basis as before because of the requirements of competitive tendering she had to act as if she was an employee of an outside organisation.  A little later they make their overall findings. First of all as regards the specification which had been the foundation for the assessment of the number of hours going to be allotted to her new job if she took it,  they said:
"the specification had been drawn up by the Education Department as client.  That is what they required and if it transpired that it was inadequate, there would have to be variations.  That was not Mrs Damerel's affair, although we have the greatest sympathy for Mrs Damerel in her predicament."

	I now come to heart of the Industrial Tribunal's decision where they assessed the reasonableness of the Devon County Council's actions.  They said this at paragraph 40:
"We have to consider the reorganisation.  It was a reasonable business reorganisation.  Indeed, the County Council had little choice.  The Education Department required work in accordance with the specification and that is the work for which Devon Direct Services tendered.

Mrs Damerel was offered work for the new Department as a Site Caretaker, working the same number of hours, in the same location and with no loss of pay.  There was some shift of work from caretaking to cleaning, but that change was reasonable.

Whilst we have sympathy with Mrs Damerel's decision not to accept the new proposal, we cannot find that her dismissal for failing to do so was unfair.

Many members of the County Council staff were in the same position and the change was brought about by the requirements of Central Government.  Her refusal to change in accordance with the proposal constituted `some other substantial reason justifying her dismissal'.  It was essential for the implementation of the competitive tendering scheme for the cleaning staff to work to the specification which formed the basis of the contract."

and her application thus failed.

	The criticisms that were levelled against that decision were as follows.  First of all, it was said that there was an inaccurate way of assessing the first of the questions that the Industrial Tribunal had to address.  In any unfair dismissal claim there are several stages to be gone through.  Subsection (1) of Section 57 of the Employment (Consolidation) Act 1978, which I will call "the Act", requires an employer to show, in other words the onus is on the employer:
"(a) what was the reason (or, if there was more than one, the principal reason) for the dismissal, and

(b)that it was a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held."

	Subsection (2) sets out various common categories of reasons for dismissal,  capability; conduct;  redundancy etc, none of which is claimed to be applicable in this case.

	Subsection (3) poses the second test that the Industrial Tribunal is required to apply in the following well known words:
"Where the employer has fulfilled the requirements of subsection (1), then, subject to sections 58 to 62, the determination of the question whether the dismissal was fair or unfair, having regard to the reason shown by the employer, shall depend 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 that question shall be determined in accordance with equity and the substantial merits of the case."

	In relation to this decision, the first criticism is that the Industrial Tribunal failed to apply the objective nature of the first of the test in subsection (1)(b).  When the Industrial Tribunal put between quotation marks the phrase:
"some other substantial reason justifying her dismissal"

they committed an error in suggesting, as those quotation marks must, that those are the precise words that are to be found in the Statute.  In fact it is not an error which is one to which they were regularly prone because they quoted the words of the subsection entirely accurately at the beginning of their decision in paragraph 1:
"some other substantial reason of a kind such as to justify the dismissal ..."

What is said is that the failure to appreciate that the test was an objective one of a reason of a kind such as to justify the dismissal of an employee is an error of law.  We are not satisfied that there is in fact an error of law revealed by the use of that rather inaccurate quotation.  What has happened, in our view, is that there has been a telescoping in the way in which the attempted quotation was made.  More importantly, it seems to us that if one decides that the substantial reason which has been detected actually justifies the dismissal in the particular case, it is difficult to see how that could fail to include, as one of the premises on which that conclusion is found, the view that the reason was of a kind such as to justify the dismissal of an employee holding the applicant's position.  One thing must embrace the other, although if the situation was the converse it would not follow.

	In addition there is the fact that the Industrial Tribunal did accurately quote the subsection at the outset of their decision and that they looked carefully at what the nature of the reason was, and for all those reasons we are not satisfied that the misquotation of Section 57(1)(b) in paragraph 43 at the end of the decision is something which enshrines an error of law with which we ought to interfere in the end result.

	The next submission was equally that there had been an error of law in dealing with the Local Government Act 1988.  I mentioned earlier that I had passed over a paragraph to which I should return and it is this, paragraph 3 of the decision reads:
"The activity relevant in this case is school caretaking and is referred to in Section 2(2)(d)."

That is a reference to the Local Government Act 1988.  Section 2 in the first two subsections reads as follows:
"(1)This section applies for the purposes of this Part

 (2)Each of the following is a defined activity - [I pass over (a)]

(b)cleaning of buildings,

(c)other cleaning,

(d)catering for purposes of schools and welfare,

[and there are four others in its amended form, the subsection continues]

and Schedule 1 to this Act applies for the purpose of interpreting the preceding provisions of this subsection."

and Schedule 1 does indeed contain further elaboration by way of definition of the phrases used in subsection (2);  notably, cleaning of buildings is further defined as including the cleaning of the windows of any building whether inside or outside, and the cleaning of any interior of any building, and then there are certain exclusions into the details of which it is not necessary to go.  Subsection (6) of Section 2 reads:
"Work which is carried out by a defined authority through an employee and which would (apart from this subsection) fall within a defined activity shall not do so if it is incidental to the greater part of the work he is employed to do and the greater part does not constitute a defined activity."

Caretaking as such, is of course, not mentioned in the list in subsection (2).  Cleaning of buildings and other cleaning is.  The job specification of Mrs Damerel included both caretaking and cleaning and the balance between the two, in terms of hours, I have already referred to but it will be recalled that even before the new regime was intended to be introduced Mrs Damerel was spending almost twice as much time on cleaning as on caretaking, that is to say 25 as opposed to 14 hours weekly.  Afterwards of course the slant would have been even greater 34 as against 5 but it is the situation before rather than after that matters for this purpose.

	The Industrial Tribunal's reference to paragraph (d), which it will be recalled reads "catering for purposes of schools and welfare" is in our view, a plain clerical error.  No one at any stage suggested to the Industrial Tribunal that Mrs Damerel was engaged in anything that could conceivably be described as catering and what doubt there was revolved around the question of the status of a person whose activities included not only cleaning, which clearly was one of the defined activities, so called, but also caretaking which was not one of the defined activities.  We were shown in the Notes of Evidence the note of the evidence which Dr Christopher Roberts, Senior Assistant Education Officer to the Devon County Council gave to the Industrial Tribunal where the notes read:
"Previously caretaking could be excluded, but the legislation refers to any cleaning - is caught.  The Authority's viewpoint is that the principal duty was for cleaning and so it had to be in the specification.  Other Authorities took different views.  The Department of Environment think it should be."

and on that it was submitted to us that the Industrial Tribunal committed an error of law in failing to make a specific finding beyond what was in paragraph 3 as to the exact status of Mrs Damerel's functions in the context of Section 2(2) of the Local Government Act 1988.  There is no trace in the Originating Application of this point being taken, namely that it might be possible for Mrs Damerel to be treated as a caretaker and therefore outside the ambit of the Local Government Act.  On the contrary the Originating Application repeated what was in fact the Devon County Council's attitude saying that:
"By virtue of the Local Government Act 1988 the Employer [the County Council]  was obliged to invite tenders from the private sector for the contract for the provision of school caretaking and cleaning services."

Secondly, there is no reflection of any argument on the line that the caretaking could have been, as it were, hived off and insulated from the operation of the Local Government Act 1988 in the Industrial Tribunal's decision and it seems at least likely that that was a reflection of the way in which the case was presented before it, but third and most important, it seems to us substantially not to be arguable in this particular case that there was an escape route, if that is the right word, for the Devon County Council in relation to the cleaning activities as against the caretaking activities because Mrs Damerel was a lady, like many another person who is a school caretaker, who performed two separate jobs in the one person and it seems to us plain beyond any sort of argument that cleaning activities were within the ambit of the Act and that it was not on the basis of Section 2(6) possible to argue that the cleaning was purely ancillary to her caretaking duties, given the hours that she worked which have been found by the Industrial Tribunal.  So that for all those reasons it seems to us that there is nothing more serious than a misprint of (d) for (b) in paragraph 3 of the Industrial Tribunal's decision and clerical errors are not errors of law but mistakes which can be corrected.

	The third point was that the Industrial Tribunal, it was said, had failed to distinguish between the two stages that I rehearsed at an earlier stage in this Judgment, that Section 57 requires an Industrial Tribunal to go through, first with the onus on the employer to identify the reason and the fact that it was a reason which is either one of the nominated ones in subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee and secondly, the test in subsection (3) which I do not repeat, but which essentially is concerned with the reasonableness of the employer in treating the identified reason as a reason for dismissal.  It is perfectly true that in this case the Industrial Tribunal did not overtly separate out the two stages, and they expressed their conclusions in quite short but compendious paragraphs of which the most important are numbers 40 and 41 in which there were the two critical findings that there was a reasonable business reorganisation and secondly that the change in the proportion of time that Mrs Damerel was being asked to spend on cleaning as opposed to caretaking was a reasonable change.  In our view the Industrial Tribunal has, in fact, addressed the questions which the law requires it to address. It does make life somewhat simpler for this Tribunal if it is spelt out that there are the two stages that I have identified but there is no legal obligation on an Industrial Tribunal to spell out the two elements separately so long as they do in fact address the critical questions which are not identical in the two subsections concerned.  The issue as to how far a business reorganisation is on the one hand capable of being a sufficient reason of a kind such as to justify the dismissal of an employee and on the other hand, whether any particular business reorganisation satisfies the provisions of Section 57(3) is addressed in the well known decision of Hollister v. National Farmers' Union (C.A.)  [1979] ICR 543 where on the first point Lord Denning then Master of the Rolls at page 550 dealt with the first question as follows.  He was dealing with the 1st Schedule to the Trade Union and Labour Relations Act 1974 but the same provisions with an amendment, which is not of significance for present purposes, is now contained in Section 57 of the Act he said this:
"The question which is being discussed in this case is whether the reorganisation of the business which the National Farmers' Union felt they had to undertake in 1976, coupled with Mr Hollister's refusal to accept the new agreement, was a substantial reason of such a kind as to justify the dismissal of the employee."

and then he refers to an earlier decision of Ellis & Brighton Cooperative Society [1976] IRLR 419 and quotes from it:
"`Where there has been a properly consulted-upon reorganisation which, if it is not done, is going to bring the whole business to a standstill, a failure to go along with the new arrangements may well - it is not bound to, but it may well - constitute `some other substantial reason.''"

and then the Master of the Rolls goes on:
"Certainly I think everyone would agree with that.  But in the present case Arnold  J. expanded it a little so as not to limit it to where it came absolutely to a standstill but to where there was some sound, good business reason for the reorganisation. I must say I see no reason to differ from Arnold J's view on that.  It must depend on all the circumstances whether the reorganisation was such that the only sensible thing to do was to terminate the employee's contract unless he would agree to a new arrangement."

On the second question, namely whether the requirements of what is now Section 57(3) was satisfied there are to be found the very well known passages which I do not repeat, about the undesirability of this Tribunal, or indeed any other appellate tribunal in this particular field of legislation using a fine tooth comb to try and extract a point of law out of a decision of fact.  Both Lord Denning and Lord Russell of Killowen in the Retarded Aid Society v. Day (C.A.) [1978] ICR 437 at p.444 set their faces against any such process.

	With that guidance before us it does seem to us first of all that the Section 57(1) test was satisfied and that there is a sufficient indication, unless we were to use a toothcomb that the Industrial Tribunal did address the problems raised by Section 57(3).

	The next criticism was against the Industrial Tribunal's expression "that the Devon County Council had no choice about the reorganisation."  That is a quotation that I have already read from paragraph 36 of the Industrial Tribunal's decision, and indeed the same is effectively said at an earlier stage.  There was of course an element of choice, as the Industrial Tribunal itself recognised, namely there is no compulsion under the Local Government Act 1988 for local authorities to set up their own in-house or direct labour organisation to compete in the tendering process which the Act effectively requires in providing given services but that element of choice was one which was recognised by the Industrial Tribunal as being the choice between letting the services be done by outside contractors or competing on an open tender basis and it is plain enough and indeed stated in terms by the Industrial Tribunal that, if you choose the former, a body in the position of the Devon County Council is clearly going to have wholesale redundancies on its hands if it withdraws from providing these services.  To that extent of course there was choice but the choice was one which the Devon County Council, in common with many others, took and which there is no suggestion was an unreasonable one.  It was certainly permitted under the Act and it was one which one would expect both employers and in particular employees to join in approving rather than criticising.  

	Where the lack of choice came in, in the Industrial Tribunal's decision in our view, was once one was in a tendering position the Devon County Council was caught by it in the sense that it is a process which does not allow for any latitude in relation to the terms on which services are tendered for and subsequently performed.  So that although there was this very strikingly large gap between the first commercial bid of £602,000 for this particular field of activity and Devon Direct Services' bid at £316,000 and odd reduced by some £8,000 for the bulk discount and even allowing for the additional work that was probably going to be required still under £350,000, nevertheless, there was no scope at all for a departure from the tender and its acceptance on the basis that there was a great deal of latitude between Devon Direct Services figure and the commercial figure of £602,000 so that there could be an upgrading of the services that Devon Direct Services could be expected to put in and a corresponding upgrading of the specification.  That was not a process that was legitimate under the Local Government Act 1988 and Mr McMullen was effectively driven to recognise that and suggested that it was at the stage of preparing the specification that the choice could have arisen and that it would have been possible for a specification to be prepared on a more liberal basis which would have given the necessary latitude for preserving Mrs Damerel and her likes hours of work throughout, and more particularly, the likes of Mrs Damerel's assistant, Mrs Gale.  That is a theoretical possibility which in our view is not one which the Industrial Tribunal is bound to have regard to given the constraints and the processes of the Local Government Act 1988 which requires tenders to be put forward on a basis of competition.  The process that was actually gone through by the Devon County Council in the preparation of its specification is one which is noted by the Industrial Tribunal and is not actually the subject of criticism in the Originating Application.  We do not see that there was an error of law in the Industrial Tribunal saying that there was no choice in the sense in which they use that expression, namely that the Local Government Act 1988 did not allow latitude once there was a competitive tendering situation in place.

	Finally, it was submitted to us that there was an error in allowing one and the same organisation, that is to say the Devon County Council, to shelter one of its entities behind another.  They way in which it is put in the skeleton argument is this:
"The tribunal adopted the Respondent's language and treated the Respondent's two departments of Education and Direct Services as separate entities, investing the former with the status as client and the latter as contractor supplying services."

and it was contended that that was inappropriate and wrong in law since at all times Mrs Damerel was employed by the one Respondent.  The conclusion was drawn that the Respondent cannot escape its obligations under employment protection law by the creation of internal labels leaving one department free to justify its unreasonable acts by reference to the dictates of another.

	In our view one has to distinguish between the two sets of legislation that we have to have regard to.  There is on the one hand, the Local Government Act 1988, which has built into it a requirement that local authorities should, if they are to compete against outside contractors, set up, by one means or another, an entity which can tender on a realistic basis, and therefore on a basis of ignorance of other bids, against the outside world.  The necessity for there to be a separate organisation is self evident once one has the requirement that the whole operation should be put out to tender.  That seems to us to be an inescapable feature of the Local Government Act 1988.  On the other hand, of course it is right to say that there is only one legal entity here and that Mrs Damerel was never employed by any other legal entity than the Devon County Council and that Devon Direct Services is in law an emanation of the Devon County Council for Employment Protection Act purposes.  In fact this point is not actually a significant one in our view, as regards identifying Mrs Damerel's relevant employer because there cannot be any doubt that it was the Devon County Council at the end of her original employment, it was only prospectively that Devon Direct Services was going to become her employer, in fact it never happened.  But the criticism is not aimed so much at identifying Mrs Damerel's employer as a criticism of the justification of the actions of the Devon County Council qua Education Authority, in dealing with the Devon Direct Services as the supplier of cleaning services.  What is criticised, as we understand it, is that it is not right for employment law purposes to regard the Education Department as a client of the same organisation, the Devon County Council, in relation to the supplier of services, which is also the Devon County Council under its hat as Devon Direct Services.

	We do not see an error of law in this.  The dichotomy is built into the Local Government Act 1988 and had to be accommodated in the framework of the employment law.  The question remains of course throughout, whether Mrs Damerel's employers were reasonable or unreasonable, once they had shown sufficient reason under subsection (1) in treating her refusal to accept the new post with continuity of employment as justifying her dismissal and on that the Industrial Tribunal has spoken.  It is, at the end, a question of fact for the Tribunal and we can see no basis upon which we should interfere with it.

	In those circumstances the appeal falls to be dismissed.