Appeal No.EAT/0950/01 DA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 6 December 2002
Judgment delivered on 20 December 2002

Before
HIS HONOUR JUDGE PETER CLARK
MR D J HODGKINS CB
MR N D WILLIS

CAPE INDUSTRIAL SERVICES LTD	APPLICANT

MRS P AMBLER	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Applicant	MR PETER OLDHAM
(Of Counsel)
Instructed by:
Messrs Hartley Linfoot and Whitlam
Solicitors
Princess House
122 Queen Street
Sheffield
S1 2DW

For the Respondent	MISS NICOLA BRAGANZA
(Of Counsel)
Instructed by:
Messrs Morley Mitchell
Beech House
Horsforth Office Park
Manor Road
Horsforth
Leeds
LS18 8DX	

HIS HONOUR JUDGE PETER CLARK

1	This is an appeal by Cape Industrial Services Ltd, the Respondent before an Employment Tribunal sitting at Leeds under the chairmanship of Mr H G Forrest, against that Employment Tribunal’s decision, promulgated with Extended Reasons on 13 July 2001, upholding the Applicant, Mrs Ambler’s complaint of unfair constructive dismissal.

The Facts

2	The Applicant commenced employment with the Respondent in 1991.  Under her contract of employment her duties were evenly split; 50 percent of her time she acted as secretary to the Managing Director, who at the relevant time was Mr Ainley; the remaining 50 percent was spent as Personnel Officer.

3	As time passed the Applicant developed her personnel role; she attended courses and gained personnel qualifications during her employment with the Respondent.  The Company took on an administrative assistant and later a staff administrator, Mrs Eastwood, who between them dealt with the more routine personnel aspects.  Both reported to the Applicant, who retained oversight of the personnel function and an advisory role on legislative developments and individual disputes which went to Employment Tribunals.

4	On 25 August 2000 Mrs Eastwood tendered her resignation in order to take up a job opportunity elsewhere.  Mr Ainley and the Applicant discussed how to respond to this change.  The Applicant proposed that she devote the whole of her time to the personnel function.  Mr Ainley said that he would consider that proposal and the Applicant left to go on holiday.

5	During her absence Mr Ainley offered the role of full-time Personnel Officer to Mrs Eastwood.  She was prepared to accept that offer and remain with the Respondent, however, the offer itself was subject to further discussion by Mr Ainley with his fellow directors and with the Applicant.

6	On 4 September the Applicant returned from holiday.  Mr Ainley told her the good news, as he saw it, that the problem of Mrs Eastwood’s proposed departure had been resolved by offering her the post of full-time personnel officer.  He assured Mrs Ambler that she would retain three of her roles in personnel; responsibility for Directors’ pay, for the annual appraisal and for Employment Tribunal matters.  However, so the Employment Tribunal found, Mr Ainley had not thought through the division of responsibility for personnel matters between the Applicant and Mrs Eastwood under the proposed new structure.  What was clear was that Mrs Eastwood would no longer report to the Applicant but to Mr Ainley direct.  The Employment Tribunal’s decision and reasons is silent as to whether any thought had been given to the reporting line of the administrative assistant and if so, to whom that person would report.

7	The Applicant was extremely upset by these proposals, involving as they did rejection of her original proposal that she should take on a full-time personnel role.  So much so that she went off sick with stress, never to return to work for the Respondent.

8	The Respondent is a subsidiary of a parent company.  On 7 September the Applicant wrote to Mr McClellan, a director of the parent company, raising a grievance over what had happened.

9	Pausing there, it is common ground that the Applicant’s contract of employment with the Respondent contained a contractual grievance procedure.  It read as follows:

“GRIEVANCE PROCEDURE
If at any time you have a personal problem, or want to discus informally any issue relating to your employment, you may consult your superior and seek advice from the Personnel Department.
If you wish to raise formally any grievance relating to your employment, you should raise this verbally with your immediate superior.  A reply will be given as soon as possible.
If the issue has not been satisfactorily resolved, you can ask your superior, in writing, to arrange a meeting with a more senior manager.  A meeting will take place as quickly as possible.  The conclusions will be recorded and you will be given a copy.
Should the issue still not be satisfactorily resolved, you can write direct to the Personnel Department to request a meeting with a manager at an appropriate level.  This will be arranged as quickly as possible.  The conclusions will be recorded and a copy given to you.”

10	Additionally, in her personnel role, the Applicant was aware of the employer’s manual which contained what the Employment Tribunal describe as a Group Personnel Policy, which was available for perusal by all staff employees.  That provided for a potential two-stage procedure.  At stage 1 the employee must first raise her grievance with her section / Departmental Head.  If not resolved at stage 1 the employee may request an interview with the manager responsible for her department.  That request should be in writing addressed to the manager through the section / Departmental Head.

11	Thereafter, within a reasonable time the manager will arrange a meeting.  It is company policy that grievances should be dealt with on a “two up” basis, that is, two levels of management above the employee concerned.  The grievance procedure should not go beyond 2 levels of management, however, in some cases more senior managers may have to become involved.

12	The Employment Tribunal found that the contractual grievance procedure was inappropriate for the Applicant because it referred to receiving advice from the personnel department which was effectively the Applicant herself.  She relied on the Group Policy to raise her grievance on a “two up” basis.  There was, in her view, no point in raising it with Mr Ainley, since her grievance was against him.

13	Thereafter there was an exchange of correspondence between the Applicant and Mr Ainley leading to a meeting between them on 17 October.

14	Following that meeting the Applicant wrote again to Mr McClellan on that day asking for her grievance to be dealt with.  That letter was again passed to Mr Ainley, who replied on 26 October suggesting a further meeting between them other than under the grievance procedure.  On 6 November the Applicant wrote to Mr Ainley saying that she wished “to pursue my right to refer my grievance to a higher level”, a request repeated to Mr McClellan on 13 November.  Mr Ainley’s response, on that day, was to offer a further meeting with himself or a grievance meeting with a member of the Board of Directors, however that latter offer was subject to her producing a medical report showing that she was fit to pursue a grievance.  He was unable to explain to the Employment Tribunal why a medical report was necessary for such a grievance meeting but not for a meeting with himself.

15	That requirement before she could have her grievance dealt with proved to be the last straw for the Applicant, so the Employment Tribunal found, and she resigned on 24 November.

The Issues

16	The Employment Tribunal directed themselves that in this alleged constructive dismissal case it was for the Applicant to satisfy the Tribunal that she had resigned in circumstances where she was entitled to.  Section 95 (1) (c) Employment Rights Act 1996 (ERA).  The resignation must be in response to a fundamental breach of contract by the employer (Reasons paragraph 2).  They repeated that self-direction at paragraph 4 of their Reasons and then added this:

“We have reminded ourselves of the wording of section 95 sub-section 2 and of section 98 sub-section 4 of the Employments Rights Act 1996.”

17	Pausing there, section 95 (2) is concerned with cases in which an employee gives notice of termination whilst he is under notice given by the employer and has nothing to do with this case.  Section 98 (2) deals with the list of potentially fair reasons for dismissal other than some other substantial reason which appears in section 98 (1) (b).  We shall return to the reason for dismissal later in this judgment.  Whether the Employment Tribunal in fact directed their minds to the Respondent’s reason for dismissal, as opposed to its reasonableness (section 98 (4)), if there was a dismissal, is unclear on the face of their Reasons.

18	For the Applicant it was contended that the Respondent was in fundamental breach of contract in one or more of the following repects:

(i)	making a substantial change in the Applicant’s status and job content;
(ii)	the loss of mutual trust and confidence, caused by the employer’s actions, in particular by not allowing her to apply for the full-time Personnel Officer post;
(iii)	the failure to allow prompt redress of grievance, through the grievance procedure

19	The Respondent’s case on constructive dismissal was that there was no breach of contract; if there was it was not a fundamental breach; if it was then it was likely that she resigned in response to the breach.

20	By their Notice of Appearance, settled by solicitors, the Respondent disputed the dismissal; advanced no potentially fair reason for dismissal at Box 4 and at the end of their grounds of resistance added this:

“If…the Tribunal should find that the Applicant was dismissed, then the Respondent’s position must be that the dismissal was fair.”

The Tribunal Decision

21	The Employment Tribunal found that two fundamental breaches of contract had occurred:

(i)	At paragraph 7 they say:

“First of all the Tribunal find that the Applicant’s job as Personnel Officer had included responsibility for two other members of personnel staff.  Whatever the changes to the job content might or might not be, it was clear that following Mrs Eastwood’s appointment she would no longer be responsible either for Mrs Eastwood or for the Administrative Assistant.  This seemed to the Tribunal, in itself, a significant and fundamental breach of contract.”

(ii)	At paragraph 9 they say:

“The second fundamental breach involved is a cumulative one relating to the employer’s conduct in destroying the relationship of trust and confidence which should subsist between employer and employee.  The employer’s initial breach of contract in fundamentally changing Mrs Ambler’s job structure and status was compounded by their subsequent handling of the grievance.  Mrs Ambler sensibly tried to raise the grievance at the next level of management to Mr Ainley, relying on the group policy.  While this may technically have been in breach of the letter of the company’s grievance procedure the Tribunal could not see that this in itself was a significant breach.  Moreover, Mr Ainley accepted in his evidence that the fact that she had written directly to Mr McClellan rather than to himself as the immediate supervisor was not itself significant.  Mrs Ambler repeatedly requested that her grievance be addressed at a higher level and this never happened.”

22	Having found two fundamental breaches of contract the Employment Tribunal concluded that she had resigned because of the breaches.  She was constructively dismissed within the meaning of section 95 (1) (c).

23	Finally they said this (reasons, paragraph 14):

“Moreover, looking at the employer’s conduct which led her to resign, it could not be said that they acted reasonably within section 98 (4).  Mrs Ambler was, therefore, unfairly dismissed.”

24	The question of remedy was then adjourned.

The Appeal

25	The Respondent appealed by a Notice dated 3 August 2001 containing 11 separate grounds of appeal (EAT/0950/01).

26	The appeal came on for Preliminary Hearing before a division presided over by HHJ Pugsley on 13 November 2001.  It appears that at the same time the Employment Appeal Tribunal held a Preliminary Hearing in appeal number 1077/01, which was an appeal by Mrs Ambler.  Both parties appeared by Counsel, Mr Oldham and Miss Braganza, neither of whom had appeared below.  It appears that Miss Braganza withdrew the Applicant’s appeal but, according to the revised transcript of the judgment then delivered “reserved her right to raise that and any other issue she thinks relevant at the full hearing.”

27	In order to understand that somewhat Delphic observation, having reserved our judgment in this appeal, I called for the file in 1077/01.  Having read the grounds of appeal in that appeal by the Applicant I am none the wiser and whatever may have been intended by that appeal the file has been returned to its proper resting place – the dead files room.  In these circumstances we do not consider it necessary to reconvene the appeal hearing.

28	Of more immediate concern is precisely which ground or grounds in the Respondent’s appeal were then allowed to proceed, by HHJ Pugsley’s division, to this full hearing.

29	The Order, drawn up by the Court Associate and dated 13 November 2001, may fairly be described as internally inconsistent.  The relevant part of the Order reads:

“THE TRIBUNAL ORDERS that in accordance with the Judgment of the Employment Appeal Tribunal the Appeal be allowed to proceed to a full hearing solely on the one ground of appeal as to whether or not the Employment Tribunal have correctly identified the mutual trust and confidence (sic) and have failed to set out with sufficient particularity their breaches of that mutual trust and confidence (sic) and have failed to deal with the issue of reasonableness.”

We think that the word “term” may have been missed after the word “confidence” where it appears.

30	The inconsistency lies in the direction that the case proceed “solely on the one ground of appeal”, when the Order goes on to identify two grounds:

(i)	the identification of the [term] of mutual trust and confidence (a constructive dismissal point) and;
(ii)	the issue of reasonableness (a point going to the fairness of the dismissal, if found).

31	We turn then to the revised judgment given by the learned Judge at the Preliminary Hearing.  Having rejected, it seems to us, all other grounds, the judgment, at paragraph 5, refers to one arguable issue, the reasonableness point to be found at Ground 6 (xi) of the grounds of appeal.

32	So what of the constructive dismissal point?  The answer would appear to lie in a helpful note of the Preliminary Hearing ex tempore judgment prepared at the time by Miss Braganza.  That note is with our papers and not materially disputed by Mr Oldham; indeed is relied on by him.

33	The relevant passage is as follows:

“In no place in the Tribunal decision do the Tribunal direct themselves though they grapple with it as to the terms of the mutual trust and confidence and set it out.  At no stage do they identify those matters in breach of the implied term and do not in their decision deal with the issue as to the extent to which constructive dismissal was unfair and identify whether the reason for her embarking (sic) was for a potentially fair reason and came within the ambit of section 98 (4).”

34	It seems from that passage that, at the Preliminary Hearing itself, the Employment Appeal Tribunal intended to allow the appeal to proceed on both the constructive dismissal point and the fairness point; hence both appear in the Order.  Further, Mr Oldham was given permission to amend his grounds of appeal (presumably to reflect what was said at the hearing) and formulated them thus:

(i)	“the Employment Tribunal erred, by reason of its failure to identify correctly the scope of the implied term of trust and confidence, in determining, in paragraphs 9 and 12 of its decision, that the Appellant had committed a breach or breaches of that term;
(ii)	the Tribunal erred in failing to determine the reason for the alleged dismissal and whether it was a fair reason and/or failing to ask whether the Appellant acted within the range of reasonableness and/or in failing to give any proper reasons at all for the decision that the dismissal was unfair.”

35	The Employment Appeal Tribunal did not require those grounds to be submitted in draft for approval by the Judge.  They are date-stamped 15 March 2002.

36	Following receipt of the revised transcript of the judgment, sent to the parties on, coincidentally, 15 March 2002, Miss Braganza lodged a document headed “RESPONDENT’S GROUNDS OPPOSING THE APPEAL”.  In it she compared and contrasted the single (fairness) ground identified in the revised transcript, with Mr Oldham’s two grounds appearing in his Amended grounds of appeal, whilst acknowledging that the two amended grounds drafted by Mr Oldham more closely reflected the grounds articulated by the Judge at the Preliminary Hearing and captured in her note.  We would add, captured also in the Order of the Court.
37	Whilst the position cannot be described as a model of clarity we have proceeded on the basis that both grounds, as formulated by Mr Oldham in his amended grounds of appeal and reflected in the Order, are before us at this full hearing.

38	That is not quite the end of the matter.  The Respondent appealed to the Court of Appeal against the Employment Appeal Tribunal’s refusal to allow other grounds of appeal to proceed to this full hearing.  The Court of Appeal entertained that appeal.  It was allowed in part on 26 July 2002.  The appeal was allowed to proceed on two further grounds, more particularly set out at paragraphs 6 (i), (ii) and (iii) (taken together) and 7 (a) of the original grounds of appeal.

39	In these circumstances Mr Oldham lodged re-amended grounds of appeal, received here on 9 September 2002, setting out the additional grounds permitted to proceed by the Court of Appeal.

40	It is those re-amended grounds which now fall to be considered at this full appeal hearing.

The Grounds Of Appeal

41	It is convenient to consider the remaining grounds of appeal under 4 heads in the following order.

(1)	The First Fundamental Breach Found by the Employment Tribunal

42	Referring to the Employment Tribunal’s finding at paragraph 7 of their reasons, Mr Oldham submits that the Employment Tribunal found no term of the contract that the administrative assistant and Mrs Eastwood report to the Applicant; thus removal of those reports could not amount to a breach, let alone a fundamental breach of contract.  Indeed, as a matter of fact there was no finding that the administrative assistant would cease to report to the Applicant.

43	We see the force of that submission, as did the Court of Appeal (judgment of Peter Gibson LJ, paragraph 11).  Indeed we accept it, insofar as it goes.  However, there is a further difficulty.  It was the Applicant’s case, in part, that the Respondent was in fundamental breach of contract by effecting a substantial change in the Applicant’s status and job content.  The latter part of that contention was pursued below; we are told by Miss Braganza that of 22 functions performed by the Applicant in her 50 percent personnel duties, only 3 would remain after Mrs Eastwood’s proposed appointment as full-time Personnel Officer.  At paragraph 7 the Employment Tribunal make no finding of fact on this contention; “whatever the changes to the job content might or might not be.”  Yet in paragraph 9 they say: “the employer’s initial breach of contract in fundamentally changing Mrs Ambler’s job structure and status.”  That suggests that they have accepted that both were changed.

44	It follows, in our judgment, that the decision is flawed in (a) purporting to find a breach of a non-existent term of the contract (paragraph 7) and (b) in failing to make a clear finding as to whether or not the relevant contractual term, as found, the 50 percent personnel function was breached and breached fundamentally, by any proposed change in job content as well as the effect on the Appellant’s status, bearing in mind the reporting structure which went with that  original personnel function.  It was the Respondent’s case below that there was to be no material change in the Applicant’s job content.  That factual issue has not been properly resolved.

(2)	The Implied Term of Mutual Trust and Confidence

45	We adopt the formulation approved by the House of Lords in Malik v Bank of Credit and Commerce International S.A. [1997] ICR 606; the employer will not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

46	The Employment Tribunal, at paragraph 9 of their reasons, do not formulate the implied term in that way.  They refer to the employer’s conduct in destroying the relationship of trust and confidence which should subsist between employer and employee.  That formulation omits reference to the qualification “without reasonable and proper cause” which is material when considering Mr Oldham’s next point in the appeal.

(3)	Breach of the Implied Term of Trust and Confidence

47	Mr Oldham submits that the Employment Tribunal fell into error in concluding that the Respondent was in breach of the implied term in failing to deal properly with her grievance, at the same time finding that she had not sought to pursue her grievance in accordance with the terms of her contract of employment.  He submits, correctly we think, that an employer cannot be held to have breached the implied term, without reasonable and proper cause, in circumstances where he is seeking to apply the contractual grievance procedure and the employee is not.

48	That said, the Employment Tribunal’s reasoning is not, apparently, confined to the processing of the Applicant’s grievance.  At paragraph 12 of their reasons they add that the Applicant’s loss of trust and confidence in the Respondent was substantially contributed to by the delays in dealing with her grievance (although they did not think that the denial of grievance was itself a breach of contract) but also started with Mr Ainley’s insensitive handling of Mrs Eastwood’s promotion and was “compounded” by Mr Ainley’s failure to explain to the Applicant how the new structure would work.

49	We find the use of the word “compounded” both here and in paragraphs 8 and 9 of the Employment Tribunal’s reasons not altogether easy to follow.

50	In short, we are left unsure as to precisely what facts the Employment Tribunal found amounted to a fundamental breach of the implied term.

(4)	Fairness of Dismissal

51	An interesting point of construction arose during the discussion before us.  Mr Oldham cited to us a passage from the judgment of Browne-Wilkinson LJ in Berriman v Delabole Slate Ltd [1985] ICR 546, 550 H-551 A, where his lordship said this:

“First, in our judgment, even in a case of constructive dismissal, section 57 (1) of the Act of 1978 imposes on the employers the burden of showing the reason for dismissal, notwithstanding that it was the employee, not the employers, who actually decided to terminate the contract of employment.  In our judgment, the only way in which the statutory requirements of the Act of 1978 can be made to fit a case of constructive dismissal is to read section 57 (1) as requiring the employers to show the reasons for their conduct which entitled the employee to terminate the contract thereby giving rise to a deemed dismissal by the employers.  We can see nothing in the decision in Savoia v Chiltern Herb Farms Ltd [1982] IRLR 166 which conflicts with this view.”

52	Mr Oldham submitted that what that passage means is that it is for the employer to justify the conduct of which the employee complains amounted to a repudiatory breach.  That is not our understanding.  We think the meaning is clear.  Section 98 (1) of the ERA, the successor to section 57 (1) of the 1978 Act, requires the employer to show a potentially fair reason for dismissal and dismissal includes constructive dismissal under section 95 (1) (c).  Thus it is for the employer to show a potentially fair reason for the constructive dismissal in accordance with section 98 (2) or some other substantial reason (section 98 (1) (b)).  He is not required to justify the repudiatory conduct, but to show the reason for it.

53	That leads on to the difficulty in the Tribunal’s finding that the constructive dismissal, as found, was unfair.  Although, by their Notice of Appearance, the Respondent put in issue the fairness of the constructive dismissal, if such be found, nowhere are we able to discern from the Tribunal’s Reasons (a) the potentially fair reason for dismissal advanced by the Respondent and (b) the Tribunal’s finding as to whether that reason was established.

54	The Tribunal found that, looking at the employer’s conduct leading to the Applicant’s resignation, it could not be said that they acted reasonably within section 98 (4).  But that is not the statutory question.  First, the Employment Tribunal must find a potentially fair reason for the dismissal.  If none is advanced then the dismissal is unfair.  Section 98 (4) is not engaged.  If a potentially fair reason is established then it is the reasonableness of the employer’s decision to dismiss for that reason which falls to be considered under section 98 (4), not the conduct of the employer which led the employee to resign in a constructive dismissal case.

55	We canvassed with Mr Oldham what, if any potentially, fair reason for dismissal was advanced by the Respondent below.  He ventured some other substantial reason, although what was the basis of such a reason on the facts of this case remains unclear.
Conclusion

56	In these circumstances we have no hesitation in saying that this Tribunal decision is fundamentally flawed.  We shall allow the appeal and set it aside.  The only proper course is to remit the matter to a fresh Tribunal for the entire case to be reheard.  The questions for determination are:

(1)	What are the relevant term(s) of the contract said to have been breached?
(2)	Are the breaches alleged, or any of them, made out?
(3)	If so, are those breaches or is that breach fundamental?
(4)	If so, did the Applicant resign in response to such breach or breaches?  If so, then she was constructively dismissed.
(5)	In that event, has the Respondent shown a potentially fair reason for the constructive dismissal; if not, the dismissal is unfair; if so, did the Respondent acted reasonably or unreasonably in treating that reason as a sufficient reason for dismissal?