Appeal Nos.	 EAT/775/00 & EAT/1444/00

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	                 At the Tribunal
	       On 8 November 2001
Judgment delivered on 13 December 2001

Before
MR COMMISSIONER HOWELL QC

MR B GIBBS
MRS R A VICKERS

UNIVERSITY OF LINCOLNSHIRE & HUMBERSIDE	APPELLANT

MR T LANE	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	ADRIAN LYNCH QC
One of Her Majesty’s Counsel
Instructed by:
Messrs Rollit Farrell & Bladon
Solicitors
Wilberforce Court
High Street
Hull HU1 1YJ

For the Respondent	Paula Craven
Representative
Humberside Law Centre
95 Alfred Gelder Street
Hull HU1 1EP	

MR COMMISSIONER HOWELL QC

1	These two connected appeals by the University of Lincolnshire and Humberside are brought against the two Decisions of the Hull Employment Tribunal set out in Extended Reasons sent to the parties on 9 May 2000 and 17 October 2000 respectively, in proceedings alleging unfair dismissal and breach of contract brought by one of their former employees, Mr Terence Lane, which were heard at the tribunal on 27 March, 11 April, 18 July and 13 September 2000.  

2	By their first Decision, the Tribunal held that Mr Lane had been unfairly dismissed from his employment with the university as a caretaker on 4 October 1999, by the University mistakenly thinking he had resigned on that date and taking his name off the payroll.  By their second Decision, the Tribunal held him entitled him to a total of £25,103.81 compensation for unfair dismissal and damages for wrongful dismissal, rejecting the University’s contentions that this should be reduced on the ground that his own actions had contributed to his dismissal and/or to allow for the possibility that if the university had not understood him to have resigned to avoid dismissal, he could and would have been fairly and properly dismissed in any event.  

3	The single ground of appeal against the first Decision, relied on in the university’s Notice of Appeal dated 15 June 2000 and by Mr Lynch QC in argument on their behalf before us, was that the Tribunal misconstrued Mr Lane’s letter of resignation delivered to the University on 3 October 1999 as remaining conditional after it was accepted, so that it did not become effective to bring his employment contract to an end.  That misconstruction, Mr Lynch submitted, had led the Tribunal into a completely false analysis of how Mr Lane’s employment did come to an end, when they held the university liable for dismissing him by that acceptance on 4 October 1999.  That was an allegation not even made by Mr Lane, whose case as set out in his Originating Application dated 17 December 1999 had been based on two alternative grounds only: either his resignation had never taken effect, so that his contract of employment had never terminated at all and he was still entitled to wages; or if his resignation was held to have been unconditional and effective, he had been forced by the actions of the university into tendering it and thereby been unfairly constructively dismissed on 3 October 1999.  

4	The resignation letter itself was in evidence before the Tribunal and a copy of it is at page 27 of the appeal file.  It is undated, but according to Mr Lane’s Originating Application it was handed in by him on 3 October 1999 and, as the Tribunal found in paragraph 11 of their Extended Reasons, received by the Director of Human Resources of the University Mr John Steele on 4 October.  It was in these terms:-
“Dear Mr Steele,
Further to discussions with Steve Torrance, the branch secretary of my union, I can confirm that I hereby agree to the terms on offer, i.e
1	I shall receive 4 weeks pay and any other monies owing to me.
2	An agreed statement of record is kept on file for prospective employers.
3	The above is subject to a compromise agreement.
Provided you are in agreement with the above points I would like to tender my resignation.
Yours, T Lane”

5.	The circumstances which led up to that letter being written were that Mr Lane had been employed by the university since 24 June 1985.  In 1999 he was employed as a caretaker at the Inglemire Avenue Campus, which included student union premises.  He was at that time already subject to a final written warning for dishonesty imposed on 12 February 1999, for falsifying timesheets to show himself present at work when he had in fact been absent.  That was a twelve month final written warning, stating in terms that if there was any further misconduct during that period Mr Lane would be dismissed.  

6.	During the summer of 1999, there was a promotion on behalf of the brewing company Guinness, under which vouchers could be exchanged for the company’s stout.  The terms of the offer were that one voucher could be exchanged per customer per transaction, so as to obtain either an individual free can of Guinness or one free can in a pack of four, up to a total value of £1.25.  Two boxes of the vouchers were delivered to the student union, for distribution to the students.  A small quantity of them was placed on the reception counter, ready to be handed out to individual students when they came in.  The rest were kept in their boxes in the reception office at the back, and used to replace those on the counter as they were distributed.  Mr Lane noticed the vouchers, and was told by Mr Williams, the General Manager of the student union, that they were for distribution to students.  

7.	Some time after that Mr Lane, who was not of course a student, went into the back office and helped himself to a very large number of the vouchers out of one of the boxes, probably getting on for a hundred.  He then went to a local off-licence and exchanged no less than seventy-two of them in a single transaction for three complete cases of Guinness containing twenty-four cans each, for himself.  The staff at the off-licence had been left with the impression he was doing so on behalf of the student union.  When coincidentally the union rang up shortly afterwards to arrange for the collection of some cases of Guinness for the benefit of students, the assistant expressed surprise and said that three cases had only just been collected. 

8.	An investigation was launched into what was regarded as the theft of the vouchers from the student union.  Inquiries were made, CCTV footage was looked at and the police were informed.  Mr Lane was eventually identified.   He was suspended and became the subject of a disciplinary inquiry, conducted on behalf of the university by Mr Kelsey and Mr Richards, Estates and Facilities Managers.  When challenged, Mr Lane admitted having taken a very large number of vouchers from the box in the office and exchanging seventy-two of them himself for three cases of Guinness. He made no suggestion that he had been authorised to do this for the students or had done so for their benefit.  He had thrown away the remaining vouchers he took and not returned them to the student union.  His explanation was that he had been given permission by Mr Williams to take the vouchers for his own benefit.  That was categorically denied by Mr Williams in his evidence to the investigation. Mrs Wynne, the students union receptionist, also categorically denied allowing him to take them or being aware of his doing so.

9.	The investigation report was completed on 16 September and the University decided that formal disciplinary action would be taken against Mr Lane with a view to his dismissal for misconduct.  The next day Mr Torrance, the Branch Secretary of Unison who had been representing Mr Lane throughout the investigation, happened to meet the university’s Director of Estates and Facilities and on behalf of Mr Lane proposed that he should be allowed to resign instead of facing disciplinary proceedings.  

10.	The Human Resource managers of the university were reluctant to accept this proposal, because an issue of trust was involved and Mr Lane was already subject to a current final written warning for what was viewed as dishonest conduct.  However by about 21 September they had agreed that a resignation would be accepted from Mr Lane if this took place quickly, and had also agreed in principle to severance terms negotiated between Mr Torrance and Mr Steele, under which Mr Lane would receive a final payment equal to four weeks’ pay and an agreed statement would be put on his file to form the basis of any future reference. The university however made it a condition that these terms would have to be incorporated in a formal Compromise Agreement under Section 203 Employment Rights Act 1996 so that Mr Lane was legally bound by them. 

11.	Mr Lane did not in fact submit his resignation immediately as the university had envisaged, but waited until 3 October 1999 which was the end of a further pay period.  Then he submitted his resignation letter setting out the agreed terms which had been dictated to him over the telephone by Mr Torrance, in the form of three numbered points .  At the end he added the final sentence which was in his own words:
"Provided you are in agreement with the above points I would like to tender my resignation."

12.	As the Tribunal found and recorded in paragraph 28 of their Extended Reasons, the proposal for the resignation to avoid the disciplinary proceedings had come entirely from Mr Lane’s side, and was based on the advice of his union representative that he was likely to be dismissed if the matter proceeded to a disciplinary hearing.  The disciplinary proceedings with a view to dismissal would otherwise have been under way, if not already concluded, by the date of the resignation letter; and the university had only reluctantly halted them and agreed to the resignation proposal instead.

13.	Immediately on receipt of Mr Lane’s letter of resignation Mr Steele replied on behalf of the university by letter on 4 October 1999, confirming that it was indeed in agreement with the three points set out and tendering a draft of a formal Compromise Agreement incorporating them.  He accepted Mr Lane’s resignation as immediately effective and arranged for him to be taken off the payroll and sent the usual P45 tax certificate on termination of employment.  

14.	The draft agreement, a copy of which is at pages 29 - 33 of the appeal file, recited that Mr Lane’s employment had terminated on 4 October 1999.  It provided for the payment to him of a sum equal to a month’s pay as  “compensation for loss of office”, and for the university to keep on record: 
 “a statement of service agreed between the parties which shall be presented to any other prospective employer upon request”.
It contained other provisions for the employer’s protection such as a continuing obligation not to disclose confidential information, and acknowledgements that the conditions regulating compromise agreements under Section 203 Employment Rights Act 1996 had been complied with and that the sum to be paid would be accepted in a full and final settlement of all claims against the university in respect of Mr Lane’s contract of employment or its termination.  The covering letter of 4 October 1999 at page 28 advised Mr Lane that there was a requirement for him to obtain legal advice on the contents of the draft agreement before it could be finalised, and offered him £150 towards the costs of this. It required confirmation of his acceptance by 15 October 1999, with a view to payment of the agreed sum on the 29th.

15.	Mr Lane did not at that stage dispute that his employment with the university had ceased following his resignation letter.  It was not until some two weeks later that he consulted solicitors, who wrote to the university on 22 October asking for clarification of his current employment status and whether he had been dismissed.  After that they contended in a letter dated 4 November 1999 on his behalf that he had not resigned, and was still employed by the university but suspended on full pay.  That letter had however plainly been written without sight of Mr Lane’s actual resignation letter, a copy of which was sent to them by Mr Steele on 10 November 1999 with a detailed explanation of the circumstances leading up to it, also making clear the university’s view that Mr Lane had resigned his employment and had ceased to be an employee of the university with effect from 4 October 1999.  No further effective response came from the solicitors apart from a formal acknowledgement. They then dropped out of the picture, though it appears that they may have assisted Mr Lane with the drafting of the Originating Application which he later lodged on 21 December 1999.  The compromise agreement was never completed or returned, or confirmed as accepted by Mr Lane. 

16.	By his originating application Mr Lane sought a declaration that he continued to be in the university’s employment and that they had acted unlawfully in not paying him his wages after 3 October.  Alternatively he contended that if his resignation had been effective, he had been forced into it by the actions of the university so that it amounted to an unfair dismissal. Finally he alleged that the university was in breach of contract “for not paying the monies under the contract we agreed”.

17.	The Tribunal rejected the claim for unfair constructive dismissal after hearing evidence on 27 March 2000 from the Applicant and Mr Torrance his trade union representative, and from Mr Steele and two other managers on behalf of the university including Mr Kelsey who had conducted the disciplinary investigation. They found there was no question of the university having put any undue or improper pressure on Mr Lane either directly or indirectly to tender his resignation, and that he had not been:
“pushed into the situation so that he gave no true consent to termination of his employment or resigned”
(paragraphs 10 and 27 of their Extended Reasons).  Those findings, and the tribunal’s conclusion that the university’s actions had not amounted to a constructive dismissal of Mr Lane,  are unimpeachable and are not challenged on his behalf before us.  

18.	The tribunal went on however to reach the two further conclusions, set out in paragraphs 29 to 32 of their extended reasons, which are challenged on behalf of the university.  First they held that Mr Lane’s resignation letter should be construed as only a conditional resignation, subject to a condition or conditions precedent imposed by the final paragraph of the letter which had never been fulfilled because the Compromise Agreement had never been concluded.  Second,  that as the university had on that basis
“acted in error in treating Mr Lane’s letter received on 4 October as an unconditional resignation”,
they had in treating his contract of employment as at an end from that date dismissed him themselves.  The act of dismissal was, in the Tribunal’s words, that
“To all intents and purposes the university were preventing Mr Lane from performing his contract of employment”.

19.	The tribunal then held that the university (which was ex hypothesi unaware that it had done any such thing) had failed to show that the reasons for this dismissal had been within the potentially fair reasons under Section 98(1) or (2) of the Employment Rights Act 1996, and accordingly that the dismissal was automatically unfair.  

20.	The entire appeal against this decision thus depends on whether the Tribunal were right or wrong in their construction of the letter of resignation and the condition attached to it.  It was common ground before us that the true construction and legal effect of a written document is a question of law, and we must determine it for ourselves in the context of the evidence and facts as found by the Tribunal: our task here is not a matter of identifying “perversity” in its findings. 

21.	Despite what impressed us all as a very clear and intelligently argued submission by Ms Craven of the Humberside Law Centre on behalf of Mr Lane, we have unanimously reached the conclusion that the Tribunal did misdirect themselves as to the construction and effect of Mr Lane’s resignation letter, and their decision that he was unfairly dismissed, or dismissed at all, in the way they held was erroneous in law.  In our judgment, the resignation did not remain conditional after the university accepted it on 4 October.

22.	Our reasons are as follows.  First, the terms of the letter itself.  The only condition attached to Mr Lane’s resignation was the proviso in the final sentence that the university was in agreement with the three specific points already negotiated and agreed on Mr Lane’s behalf by Mr Torrance: namely that following termination of his employment he would receive the agreed payment and have an agreed statement entered on his employment record, both of these being subject to the conclusion of a formal Compromise Agreement.  The university was of course in agreement with those three points, since they had been already settled in negotiation with Mr Torrance; and its agreement was confirmed by Mr Steele’s letter with the draft document the following day.  The resignation letter does not actually contain the condition which the Tribunal attributed to it, that the conclusion and implementation of the Compromise Agreement should all precede Mr Lane’s resignation taking effect, and we do not think it correct so to read it.  On the contrary, it appears to us that the substance of the transaction was that it was Mr Lane’s resignation that was the precondition and necessary trigger for the halting of the disciplinary proceedings and the parties entering into the Compromise Agreement dealing with the consequences of the termination of his employment, rather than the other way round.  

23.	Second, the context in which the letter came to be written appears to us to bear that out.  The proposal that the university would accept Mr Lane’s resignation instead of going ahead with its disciplinary proceedings had come from his side, and as was recorded by the Tribunal in paragraph 9 of its Extended Reasons, the university had only agreed to abandoning its disciplinary process reluctantly, agreeing further to the payment of two or four weeks wages following a quick resignation because of the time the disciplinary process would have taken anyway.  The only conditional element in what had been negotiated between Mr Torrance and the university had been at the insistence of the university itself, that the severance terms should be incorporated in a formal Compromise Agreement so that they became legally binding on Mr Lane and he could not thereafter claim more.  That was a stipulation made by the university for its own protection, against the possibility of further claims or difficulties from Mr Lane following termination of his employment: it was never put forward by the university as a precondition that such an agreement had to be entered into and carried into effect before it accepted Mr Lane’s resignation and abandoned its disciplinary proceedings.  Again, it was the resignation that was the precondition to all that happening, not the other way round.  

24.	Finally, as Ms Craven very fairly conceded, the restrictions on contracting out under Section 203 of the Employment Rights Act 1996 in this context have as their purpose the preservation of the employee’s right to bring proceedings before an Employment Tribunal for any appropriate remedy following the termination of his employment, notwithstanding any agreement on compensation or otherwise that may have been concluded between him and his employer, unless the safeguards of the section as to independent advice are met.  It is not part of that purpose to alter the legal effects of the events that constitute or trigger the termination itself.  Consequently there would be no ground for inferring any intention that the requirement of a compromise agreement was to place a termination of the contract by resignation into suspense, as distinct from its provisionally agreed consequences.  

25.	All of that, in our judgment, is consistent with the university’s understanding that in view of the way it had been proposed and the negotiations leading up to it, Mr Lane’s letter amounted to a resignation which became immediately effective as soon as the university signified its agreement to the three points listed, which it did on 4 October 1999.  It is inconsistent with the Tribunal’s interpretation, that the letter stipulated for the resignation not to take effect, and for Mr Lane to remain an employee entitled to full pay, unless or until in the tribunal’s words in paragraph 30 of their reasons “the written agreement and the other matters had been concluded” – the other matters being the payment of four weeks’ money and the entry on the employment record.

26	Accordingly, the sole condition set out in the proviso to that letter was in our judgment met by the university signifying its agreement to the three listed points on 4 October 1999.  Mr Lane’s employment thereupon came to an end by the university’s acceptance of his resignation, even though his rights in consequence of that resignation remained to be determined in one of two ways  as a result of the provisions of Section 203.  He had the option of either taking what was on offer under the proposed Compromise Agreement already negotiated on his behalf, by concluding that agreement after independent advice; or of electing to reject those terms after all, and taking his case to a Tribunal to pursue his statutory remedy by complaining that his resignation amounted, in the circumstances, to unfair constructive dismissal.  

27.	In the event, it was the second option he elected to pursue, and that was the single factual basis for the complaint of unfair dismissal made in his Originating Application, rightly rejected by the Tribunal on the evidence. The alternative basis on which they found in his favour, namely that the university had unilaterally caused his employment contract to terminate by mistakenly assuming him to have resigned by 4 October 1999, is inconsistent with what we have held to be the proper construction of his letter as well as his own firm contention that if he had not resigned, he still remained an employee and had never accepted the contrary; and in our judgment it was erroneous in law.

28.	For those reasons we set aside the decision of the Tribunal holding Mr Lane to have been unfairly dismissed and substitute our own decision that he was not dismissed, as his employment came to an end by acceptance of his own voluntarily tendered resignation on 4 October 1999.

29.	It necessarily also follows that the second appeal by the university against the award of £25,103.81 as compensation for dismissal and damages for breach of contract must also be allowed and that decision set aside as well; though as the second appeal was fully argued before us we will express our conclusions on it briefly.  

30.	Again we have been satisfied that the Tribunal’s decision on the amount of compensation and damages to be awarded embodied material misdirections, and would have had to have been set aside as erroneous even if our conclusion on the first appeal had been otherwise.  In the first place we accept Mr Lynch’s submissions that the Tribunal’s conclusions on the facts appear to be based on some obviously incorrect and potentially material misdirections about the effect of the evidence before them.  In particular, there is a reference in paragraph 6(a) of their Extended Reasons at pages 11 - 17 of the second appeal file to the evidence of Mr Williams which implies acceptance by him of there having been a conversation when permission was given to Mr Lane to take the vouchers, when Mr Williams’ consistent evidence both to the original disciplinary investigation and to the Tribunal itself was to the opposite effect.  Secondly there are two references in paragraphs 7 and 13 to a Mr Wilkinson, who had apparently also taken some vouchers for himself, as having been the person who carried out the disciplinary investigation into Mr Lane.  This was not a clerical slip, but a factor to which the Tribunal obviously attached significance in their decision that there had been no dishonesty on Mr Lane’s part, and that there should be no reduction of his compensation, and as noted above they refer to it twice.  In fact it was a complete mistake by the Tribunal, as the evidence showed clearly that it was not Mr Wilkinson who conducted the disciplinary inquiry; he was merely one of the witnesses. Mr Kelsey and Mr Richards, the two managers who did conduct the inquiry, had never been implicated in the taking of any vouchers. 

31.	More substantially, we also accept Mr Lynch’s submission that the Tribunal erred in failing to ask themselves the correct questions on the contribution and compensation issues they were required to address.  They appear to have concerned themselves exclusively with forming their own view, on the up to date evidence as presented to them on 18 July 2000, as to whether they considered Mr Lane to have been guilty of dishonesty and misconduct.  That, in our judgment, was a misdirection. What they should have been addressing, given their own finding as recorded in paragraph 9 of the Extended Reasons for their second Decision that:

“the dismissal occurred on our previous finding as a result of the University wrongly interpreting that Mr Lane had resigned.  His conduct was subject to investigation by the respondent but formed no part of the reason for the dismissal”

were two significantly different questions.  These are (a) to what extent that dismissal had been to any extent caused or contributed to by any action of the complainant (which in this context would have needed to include an examination of all the circumstances leading up to Mr Lane’s resignation, and the university’s supposed mistake) and (b) the likelihood, if that mistake had not been made (i.e. if the university had understood him to be still in its employment after 4 October), of Mr Lane’s employment being brought to an end by a fair dismissal in any event once it became apparent to the university that there had not been a resignation and that he was not after all going to agree the compromise.  Moreover Ms Craven was in our view right to concede that the Tribunal’s reasons show them wrongly viewing the reduction of compensation as “an all or nothing” issue, and failing to address the possibility of at least some proportionate reduction: in the circumstances of this case that was an error in view of what was said in Polkey -v- A E Dayton Services Ltd [1988] ICR 142, in particular per Lord Bridge at 163 F - H.

32.	For those reasons, we allow both appeals and substitute our own decision on the first as indicated above.  The alternative claim in the Originating Application for damages for breach of the payment term in the Compromise Agreement necessarily also fails, because of Mr Lane’s rejection of that agreement and election to pursue these proceedings instead.