Appeal No. EAT/39/94

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 15 June 1995

	Before

	HIS HONOUR JUDGE C SMITH QC

	MR J H GALBRAITH CB

	MR S M SPRINGER MBE

ST BUDEAUX ROYAL BRITISH LEGION CLUB LTD	APPELLANT

MR A CROPPER	RESPONDENT

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR M WEST
Personnel Consultant
Peninsula Business Services
  Ltd
Stamford House
361/365 Chapel Street
Manchester M3 5JY

For the Respondent	MR J SWIFT
(of Counsel)
Messrs Foot & Bowden
70-76 North Hill
Plymouth
Devon PL4 8HH

	JUDGE C SMITH QC:  This is an appeal by the Appellant employers, the St. Budeaux Royal British Legion Club Ltd against the decision of an Industrial Tribunal sitting at Plymouth on 19 October 1993 when they concluded that Mr Cropper, the Respondent before us and Applicant before the Industrial Tribunal, had been unfairly dismissed by way of constructive dismissal from his position as steward of the Club.

	The Industrial Tribunal concluded that the Appellant Club was in fundamental breach of contract in unilaterally reducing the hours of work of the steward, Mr Cropper, in the manner that it had and in not, according to the findings of the Industrial Tribunal, giving him sufficient notice of the reduction.  

	The nub of the decision of the Industrial Tribunal is expressed in paragraph 37 of the reasons in these terms:

		"We therefore found that the employer was in breach of contract both by the manner and extent of the reduction in the hours of work, and further by giving unreasonably short notice of this variation.  The employee left in response to this breach which justified his resignation."

	Accordingly, the Industrial Tribunal held that the Respondent, Mr Cropper, was entitled to terminate his contract and that he had been constructively dismissed in accordance with s.55(2)(b) of the 1978 Act.  They went on to hold that he had been unfairly dismissed after considering s.57(3) of the Act.

	The facts found by the Industrial Tribunal are set out very carefully, in our judgment, by the Industrial Tribunal, principally in paragraphs 5 to 19 of its decision, to which reference should be made for the full details of those facts and findings as they relate to this appeal.  In a nutshell, and it is no more than a summary, the Respondent had been employed as a steward for many years at the Club.  Between 1978 and May 1987 he had a contract of employment which did not contain a provision for variation of his weekly working hours.  However, in 1986 it appears that the Club suffered a serious fire and Mr Cropper was laid off due to the unavoidable closure of the Club until it reopened in the Spring of 1987.  As the Industrial Tribunal found, the Club suffered economically during the closure and had to realize the capital invested in the steward's living accommodation.  Negotiations were entered into between the parties, which eventually resulted in a new contract of employment being signed by both parties on 22 May 1987 and Mr Cropper being able to raise money to purchase the accommodation, which he had previously occupied free of charge.

	By clause 4 of the 1987 contract it was provided as follows:

		"4.	The Employee's normal hours of work will be specified by the Employer and be subject to variation as the Employer may decide the Employer agreeing to give the Employee reasonable notice of any alteration."

It is not necessary for the purposes of this judgment to read any further.

	It is common ground that, as found by the Industrial Tribunal in paragraph 16 of their reasons by the early part of 1993 the Club was in some degree of financial difficulties and running an overdraft.  Accordingly, in purported reliance upon clause 4, which I have read, on 4 May 1993 the treasurer of the Club decided that Mr Cropper's hours should be reduced from 56 hours per week to 51 hours per week.  Over the years Mr Cropper had initially worked 59 1/2 hours, then 56 1/2 hours and, finally, 56 hours per week.  It is a matter of record, as found by the Industrial Tribunal, that all these previous variations had, in fact, been agreed between the parties.

	The effect of the decision made at the beginning of May 1993 would be when it was implemented, that Mr Cropper's weekly basic wage would be reduced by £27 per week from about £230 per week.

	On 9 May 1993 the secretary of the Club, Mr Toms, told Mr Cropper of the decision.  Apart from the fact that Mr Toms had simply told Mr Cropper on 6 May of the meeting on 9 May and advised him to look at his contract, there was, it appears from the Industrial Tribunal finding, no consultation or discussion whatsoever in relation to this decision.  Indeed, in paragraph 18 of its reasons, the Industrial Tribunal record that Mr Toms regarded the proposal he was making in terms of its being "an ultimatum", although he expected negotiations to follow and hoped that a consensus might be reached.

	In purported compliance with the contractual requirement in clause 4 that "reasonable notice" should be given of any variation, the secretary, Mr Toms, informed Mr Cropper that the proposed variation was to come into operation with effect from 20 June 1993, ie., a notice period of about 6 weeks.  What happened thereafter, as found by the Industrial Tribunal and as, indeed, appears from contemporaneous letters passing between the parties, is that Mr Cropper, who was plainly very upset by the decision on the findings of the Industrial Tribunal, consulted solicitors who maintained in letters on his behalf dated 12 and 20 May 1993 respectively, that (1) the Club's intention to vary the steward's hours without his consent was an unlawful breach of contract and (2) that the number of hours being worked by the steward had become established as his contractual hours and the significant reduction proposed amounted to a fundamental breach of contract.

	In both letters the solicitors made it quite clear that due to the breach, as they alleged that it was, Mr Cropper was treating himself as constructively dismissed and would be leaving the Club's employment on 20 June 1993 and claiming unfair dismissal by way of complaint to an Industrial Tribunal.  This is exactly what happened.

	The Industrial Tribunal expressed its reasons for the conclusion which it reached in paragraph 37, which I referred to and read at the commencement of this judgment, in paragraphs 30 to 37 of the decision.  Before consider that reasoning, we have, of course, had to consider the submissions made to us by the representatives on each side.  Mr West, on behalf of the Appellant employers, submitted in effect to us that the Industrial Tribunal had erred in its decision in that it had not applied properly or at all a contractual approach to the evidence in order to see whether there was a repudiatory breach of contract by the Appellants but had allowed itself to take the reasonableness approach to the issue, contrary to the very well-known decision of the Court of Appeal in Western Excavating (ECC) Ltd v Sharp [1978] ICR 221.  In addition, he sought to distinguish the circumstances and evidence before the Industrial Tribunal in this particular appeal from the factual situation in the case of United Bank Ltd v Akhtar [1989] IRLR 507 involving a mobility clause and he relied upon the cases of Spafax Ltd v Harrison  [1980] IRLR 442 and White v Reflecting Roadstuds Ltd  [1991] IRLR 331, particularly at page 334, showing that the mere fact that a loss of income results to an employee from a lawful operation of a clause in a contract does not render the employer's act in breach of contract.  He submitted that the employers were entitled to exercise their discretion here in the way they had to reduce the hours and that the Industrial Tribunal had, accordingly, reached a wholly unreasonable conclusion.  In deciding otherwise, he submitted additionally that the Industrial Tribunal had acted perversely in concluding that the Appellant should have given 12 weeks' notice.  The appellant could have given notice of termination of the contract of employment in that period and offered a new contract, which he submitted demonstrated that that decision was perverse.

	Mr Swift, Counsel for the Respondent, in a very powerful submission to us, submitted that, contrary to Mr West's submission, it was in fact quite clear on analysis that the Industrial Tribunal had correctly applied the contractual approach as that approach is to be applied in the field of employment law.  His submission on the main issue in support of his client's case that the Industrial Tribunal acted perfectly reasonably in concluding that there was here a repudiatory breach of contract by the Appellants in their exercise of the discretion under paragraph 4 of the written contract was based on four propositions, which he submitted could clearly be extracted principally from the cases of Akhtar and White, references of which I have already given. 

	The first proposition was that in a contract of employment, the duty to maintain trust and confidence between employer and employee is an overriding obligation, see particularly the passages in the judgment of Mr Justice Knox in United Bank Ltd v Akhtar at paragraph 37 in these terms, citing directly from Mr Justice Knox's judgment:

		"The third implication is a much more general one and is to be found in the extract which Mr Lynch accepted as stating the law, from Mr Justice Browne-Wilkinson's judgment in Woods v W M Car Services (Peterborough) Ltd [1981] IRLR 347 where he said this:

			`In our view it is clearly established that there is implied in a contract of employment a term that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee:  Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84.  To constitute a breach of this implied term, it is not necessary to show that the employer intended any repudiation of the contract:  the Tribunal's function is to look at the employer's conduct as a whole and determine whether it is such that its effect, judged reasonably and sensibly, is such that the employee cannot be expected to put up with it.'"

Then at paragraph 50:

		"The third principle, which is enunciated by Mr Justice Browne-Wilkinson's judgment, from which I read an extract, is of much wider import and is capable of applying to a series of action by an employer, which individually can be justified as being within the four corners of the contract because we take it as inherent in what fell from Mr Justice Browne-Wilkinson that there may well be conduct which is either calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee, which a literal interpretation of the written words of the contract might appear to justify, and it is in this sense that we consider that in the field of employment law it is proper to imply an over-riding obligation in the terms used by Mr Justice Browne-Wilkinson, which is independent of, and in addition to, the literal interpretation of the actions which are permitted to the employer under the terms of the contract.  On that aspect of the matter, we have the Industrial Tribunal's finding that the situation here was that the bank's conduct, in which we include inactivity rather than activity, was such that if one looks at it reasonably and sensibly, it was such that the employee could not be expected to put up with it."

	Mr Justice Knox went on to say, not perhaps directly relevantly to this first proposition but I will just cite it now because it is germane to Mr Swift's fourth proposition, that it is never for the Employment Appeal Tribunal to substitute its decision for that of the Industrial Tribunal on a question of fact.

	That was the first proposition.  The second proposition was that an employer may properly be held by the Industrial Tribunal in appropriate circumstances to have acted in breach of that implied term in the exercise of a discretion given to him under the terms of the contract unless he acts reasonably in accordance with such implied terms.  In other words, it may be the actual exercise of a discretion conferred upon the employer by the terms of the contract that can, unless he acts reasonably in accordance with the implied term, have the result that the employer is in repudiatory breach of contract.  

	Thirdly, and this is a different variation on the same theme, an industrial tribunal is entitled to imply a term into a contract of employment that an employer will not exercise a contractual discretion so as to make it practicably impossible for an employee to comply with his contractual obligations.  That is a different and important submission and Mr Swift cited authority to demonstrate that that is a term that can be implied strictly by way of necessity into the contract of employment.

	Finally, fourth, the one I have already mentioned in passing above, that the implication of such a term is a question of fact for the Industrial Tribunal.

	As we understood those submissions, the effect of those principles was that it may be a perfectly proper finding for an Industrial Tribunal to make, whilst still applying the contractual test in accordance with Western Excavating Ltd v Sharp, that the existence of the implied duties of trust and confidence, including the implied duty not to render it practically impossible for an employee to perform his contractual obligations under the contract, alongside a contractual discretion on the part of the employer of the kind present in the instant case, has the result that the implied obligation must override the "black letter" discretion which the employer has, reading the literal words of the contract.

	We have carefully considered the rival submissions that were made to us on this appeal and we have, firstly, concluded that Mr Swift's propositions are entirely correct and are properly founded on the authorities which he cited to us.  We have derived particular assistance from Mr Justice Knox's statement in Akhtar in the headnote that:

		"In the field of employment law, it is proper to imply an overriding obligation in the terms used by Browne-Wilkinson J which is independent of and in addition to the literal interpretation of the actions which are permitted to the employer under the terms of the contract, since there may well be conduct which is calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee which a literal interpretation of the written words of the contract might appear to justify."

	Thus, it is clear that in this field of law an apparently unfettered discretion is, in fact, subject to important restrictions on the manner and extent of its exercise to which it might well not be subject in other fields of law.  That is our first conclusion.  

	We have next looked, of course, with the greatest care at the decision of the Industrial Tribunal in the light of those principles which we are satisfied are correct.  In particular, of course, we have examined closely paragraphs 30 to 37 of the decision.  Of course, in our judgment, this was not nearly such an extreme case as Akhtar where the Bank appears to have exercised the mobility clause in a high-handed and irresponsible manner.  But, in our judgment, nevertheless, the Industrial Tribunal were entitled to reach the conclusion that they did on the evidence before them that in exercising its discretion the Appellant had, to use the words of the Industrial Tribunal in paragraph 34, the Applicant had acted in a way that amounted to:

		"disregarding any implied obligation on them in relation to good employee relations practices and seeking to impose a reduction in a wholly different fashion".

	The Industrial Tribunal, in our judgment, were entitled to make this finding on the evidence before them that the decision was expressed as an ultimatum without prior discussion or consultation contrary to what had happened before, and on the correct application of the legal principles we have referred to above.  Additionally, in our judgment, the Industrial Tribunal were entitled to conclude, as they did in paragraphs 33 and 36, that the exercise of the discretion, as implemented by the Appellants, had had the result that the Respondent would not be able to discharge his important responsibilities under the contract which included, of course (there was no need for the Industrial Tribunal to spell it out) the proper supervision of the Bar at the Club and the steward's duties under the Licensing Acts.  Especially is this so, in our judgment, as they had found in paragraph 15 of their reasons that, on an earlier occasion, the Respondent Mr Cropper had expressly refused to accept a reduction in his hours on the very ground that he would not be able to fulfil his functions if the hours were so reduced.

	Accordingly, for those reasons, and because in our judgment their entire reasoning was in accordance with principle and properly applied to the evidence before them, we conclude that this Industrial Tribunal was justified in what we regard as a careful decision in concluding that the Club was in repudiatory breach of contract, as they found in paragraph 37 of their decision.

	With regard specifically to the issue of lack of reasonable notice, we consider as well that the Industrial Tribunal was justified in what was essentially a question of fact for them in concluding that in the circumstances also the Appellant had been in breach of contract.  Whether, had this stood alone as a breach, it was of sufficient significance to justify the Respondent in leaving his employment is, in our judgment, perhaps more questionable but in the light of our conclusion that the Industrial Tribunal was amply justified in the conclusion they reached that the exercise of the discretion in all the circumstances to reduce hours was a fundamental breach by the Appellant, that question is entirely academic.

	We should say, finally, that there were arguments in the skeleton arguments addressed to us on behalf of the Appellant, by way of criticism of the Industrial Tribunal's decision that the controversial decision of Frank Wright & Company Holdings Ltd v Punch was not relevant to the issues before them and also as to whether they had correctly applied s.57(3) on the issue of fairness of the dismissal or otherwise but, in our judgment, the Industrial Tribunal was fully justified in reaching the conclusions it did, both on the non-applicability of the decision in Frank Wright & Company Holdings Ltd and also as to the unfairness of the dismissal by application of s.57(3) of the 1978 Act.

	Accordingly, for those reasons, this appeal must be dismissed.

	Before we part finally with this matter, it has been rightly drawn to my attention by one of the Members sitting with me, that this another case where, although the Chairman's notes of evidence have been produced, presumably as a request by the Appellant, they have not been referred to in any way at all during the hearing before us.  It is very important for me to stress, sitting as a Judge in this Employment Appeal Tribunal, that it is only where there are really substantive points that are sought to be made in reliance upon evidentiary issues that arise directly in regard to the Chairman's notes, that the Chairman of an Industrial Tribunal should be put to the trouble and difficulty and time-consuming effort of having to produce notes.  We must register our disapproval of this occurrence in this particular case which seems to lie entirely at the door of the Appellant.