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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Gover & Ors v Propertycare Ltd [2005] UKEAT 0458_05_2211 (22 November 2005) URL: http://www.bailii.org/uk/cases/UKEAT/2005/0458_05_2211.html Cite as: [2005] UKEAT 458_5_2211, [2005] UKEAT 0458_05_2211

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APPEARANCES

 

For the Appellants	MR MICHAEL BOOTH (One of Her Majesty's Counsel) and MR MARTIN BUDWORTH (Of Counsel) Instructed by: Messrs Horwich Farrelly Solicitors National House 36 St Ann Street Manchester M60 8HF MR VICTOR HAIMES the Appellant in person
For the Respondents	MR JOHN BOWERS (One of Her Majesty's Counsel) and MR MARK TRAFFORD (Of Counsel) Instructed by: HomeLet Legal Services Becor House Green Lane Lincoln LN7 6DL

SUMMARY

Unfair Dismissal

In the application of the test in Devis and Sons v Atkins Ltd [1976] ICR 176. and Polkey v A E Dayton Services Ltd [1987] IRLR 503, as modified by the Court of Appeal in Lambe v 186K [2004] EWCA 1045 and known as the principles in O'Dea v ISC Chemicals Ltd [1995] IRLR 599 and King v Eaton [1998] IRLR 686, to the assessment of compensation for unfair dismissal, if the Employment Tribunal can sensibly reconstruct the world as it would have been if the unfairness identified had not occurred, and form a view that the Claimant would have been dismissed anyway, a deduction is appropriate. The Employment Tribunal did not err in its approach.


 


HIS HONOUR JUDGE McMULLEN QC

1. This case concerns the correct approach by an Employment Tribunal to the assessment of compensation where arguments are raised according to the judgment in King v Eaton [1998] IRLR 686, when it is likely that a dismissal would be occur in any event. The judgment represents the views of all three members. We will refer to the parties as the Claimants and the Respondent.

Introduction

2. It is an appeal by the Claimants in those proceedings against a Reserved Judgment of an Employment Tribunal sitting at London (South) registered with reasons on 8 June 2005 following a 12-day hearing. The Chairman was Mr D N Milton. The Claimants were represented by Mr Budworth who today is led by a Mr Michael Booth QC and the Respondent was represented by Mr Trafford today led by Mr John Bowers QC. Mr Haimes, one of the ten Claimants represented himself there and here. He adopts all of the arguments made by Mr Booth.
3. The claims were of unfair dismissal. The Tribunal decided in the Claimants' favour and left over for another time a hearing on remedy which awaits the judgment here.
4. The procedural history of the case is complicated. This is its second appearance at the EAT and is the product of three hearings in the Employment Tribunals under different chairmen. The first set of proceedings was to establish the status of the Claimants. They were employees, from 1999 at least, of Propertycare Ltd, the sole Respondent now in these proceedings. The proceedings with which we are concerned involve the hearings in 2005 and resulted in a judgment of 31 pages following consideration of evidence of many of the Claimants and written submissions by both Counsel.

The issues

5. The issues were determined by the Employment Tribunal and as one could expect they included whether the Claimants were unfairly dismissed. So far as is relevant on appeal the issue is as follows:

"8. Did the Respondent carry out a fair procedure i.e. any/any adequate consultation with regard to the commission cuts in April and the terms of new employment in October? If not, what would a fair period have been in the circumstances? The Tribunal is invited to consider, generally and in particular on this issue, what effect any finding that all or either party/parties regarded themselves at the relevant times as self-employed."

6. The Tribunal decided in the Claimants' favour on unfair dismissal but effectively imposed a cap on the compensation on forward losses extending up to, but not beyond, a putative fair dismissal on 1 February 2002; at which time the Claimants would have been dismissed with two weeks' pay. In simple terms the Claimants were awarded compensation from the termination of their relationships on 1 November 2001 until the middle of February 2002. The award was capped because of the Tribunal's findings to which we will refer in due course.
7. The Claimants appeal against that judgment, again in simple terms, contending that there should have been no cap and that their forward losses should be the sole basis of the calculation without any deadline, for the findings were of such condign criticism against their employer that there was no possibility of a fair dismissal. The doctrine in Polkey v A E Dayton Services Ltd [1987] IRLR 503 is not engaged.
8. Directions sending this appeal to a full hearing were given at a preliminary hearing by HH Judge Peter Clark and members, and by myself with reasons which I gave at case management in chambers and at a hearing today, as a result of which the sole issue is as we have cited above.

The legislation

9. The relevant provisions of the legislation is section 123(1) of the Employment Rights Act 1996:

"123. - (1) Subject to the provisions of this section and sections 124 and 126, the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer."

10. The Employment Tribunal directed itself in accordance with the legal authorities cited to it in the written submissions of both junior Counsel and what it described as the classic decision in Polkey. It is common ground that the Tribunal had before it the judgment of the Court of Session Inner House in King (above) although it does not expressly cite it. The Tribunal regarded itself as being engaged in something which is not an exact science. It therefore approached its task in broad terms.

The facts

11. We need not dwell upon the facts because the Claimants' relationship with their employer constituted a good deal of the early proceedings. The Tribunal did not mince its words in describing the conduct of the Respondent. The Respondent sought to introduce a new set of terms and conditions for this group of employees who were regarded by both sides as self-employed. A package was put forward so that these Claimants who were engaged essentially in selling insurance products in the lettings industry were remunerated on a different basis. The position of the Claimants was addressed in the middle of 2001 and a proposal was made to them which involved very substantial cuts in their commission. In September 2001, the Claimants met to discuss the issues and decided to file a joint grievance. A further emergency meeting was called, when the Respondent announced that the Claimants' contracts would be terminated on 31 October 2001 and each would be invited to apply for new employment with effect from the following day. The Claimants met to decide whether they would all apply for employment on the new terms but all their contracts were terminated on 1 November 2001. A number of them ended up in employment with a competitor.
12. The Tribunal decided to put it at its lowest, that the Respondent did not handle this situation very well. We have rarely seen more robust terms given to what is properly described as a re-organization, being some other substantial reason for a dismissal within the terms of section 98(1) and (2) of the Employment Rights Act. The issue for the Tribunal was to decide whether or not the compensation which was then determined would fall due should be reduced in accordance with the principles of Polkey.

The submissions

13. On behalf of the Claimants it is contended that the principles in Polkey do not apply in this case for there could not sensibly be a reconstruction of what would have happened had the Respondent acted fairly. This argument involved a consideration of the judgments in the two cases we have cited and a number of others to which we will turn. The simple proposition was that this was a case where the Respondent had so set its face against fairness that it was impossible to reconstruct what would have happened had things gone fairly.
14. On behalf of the Respondent it is contended that this, albeit unusual, case is one in which there was material upon which the Tribunal could form its judgment. The judgment is truly one of hypothesising about what would have occurred. No criticism can be made of the Tribunal for the evaluation of the circumstances which led to its finding which represents a summation of the Tribunal's evidence for it said this:

"142 We supposed that if the Respondents had taken the question seriously and had taken proper legal advice they could have in due course put together a package which did not amount to a fundamental breach of contract but which would nevertheless have been sufficiently unattractive to the majority of the Claimants.

143 We suspect that the final package would still have been unattractive to the majority of the Claimants particularly the older members of the staff who still hoped to have found (as it appears they had in fact done) a business opportunity for their long term retirement years.

144 We are satisfied that we had sufficient material before us to reach a conclusion that even the high earning Claimants would have been faced after a period of consultation with a salary plus commission sort of arrangement or indeed even a commission only arrangement on a PAYE basis which would not have been particularly attractive but which would have been justifiable after proper consultation and inquiry."

15. On the basis of those findings it is contended that the relationship would have come to an end for some other substantial reason which would have been fair on 1 February 2002 and it would have attracted therefore a payment of two weeks notice. (We are not quite certain about the arithmetic in this because there is a reference to a period of four months and to a period of two weeks notice but neither of those is an issue).

The legal principles

16. The legal principles to be applied in a case such as this emerge from the authorities which we have cited above. The starting point is the judgment of Viscount Dilhorne in Devis and Sons v Atkins Ltd [1977] ICR 662 at 679.

"… it cannot be just and equitable that a sum should be awarded in compensation when in fact the employee has suffered no injustice by being dismissed"

17. That is the approach to what is just and equitable. It involves the principle that if a person has suffered no loss, no compensation should be awarded. In Polkey the approach was refined, for the speech of Lord Bridge contains the following at paras 28 and 29:

"28

Employers contesting a claim of unfair dismissal will commonly advance as their reason for dismissal one of the reasons specifically recognised as valid by s.57(2)(a), (b) and (c) of the Employment Protection (Consolidation) Act 1978. These, put shortly, are: (a) that the employee could not do his job properly; (b) that he had been guilty of misconduct; (c) that he was redundant. But an employer having prima facie grounds to dismiss for one of these reasons will in the great majority of cases not act reasonably in treating the reason as a sufficient reason for dismissal unless and until he has taken the steps, conveniently classified in most of the authorities as 'procedural', which are necessary in the circumstances of the case to justify that course of action. Thus, in the case of incapacity, the employer will normally not act reasonably unless he gives the employee fair warning and an opportunity to mend his ways and show that he can do the job; in the case of misconduct, the employer will normally not act reasonably unless he investigates the complaint of misconduct fully and fairly and hears whatever the employee wishes to say in his defence or in explanation or mitigation; in the case of redundancy, the employer will normally not act reasonably unless he warns and consults any employees affected or their representative, adopts a fair basis on which to select for redundancy and takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within his own organisation. If an employer has failed to take the appropriate procedural steps in any particular case, the one question the Industrial Tribunal is not permitted to ask in applying the test of reasonableness posed by s.57(3) is the hypothetical question whether it would have made any difference to the outcome if the appropriate procedural steps had been taken. On the true construction of s.57(3) this question is simply irrelevant. It is quite a different matter if the Tribunal is able to conclude that the employer himself, at the time of the dismissal, acted reasonably in taking the view that, in the exceptional circumstances of the particular case, the procedural steps normally appropriate would have been futile, could not have altered the decision to dismiss and therefore could be dispensed with. In such a case the test of reasonableness under s.57(3) may be satisfied.

29

My Lords, I think these conclusions are fully justified by the cogent reasoning of Browne Wilkinson J in Sillifant v Powell Duffryn Timber Ltd [1983] IRLR 91 ..."

18. That Lord Bridge there refers on numerous occasions to procedural steps is an echo of the approach taken by Lord Mackay LC. Both indicate that they are dealing with a situation where a person is dismissed and yet the procedure leading up to the dismissal has been defective in one respect or another. The judgment in King has to be seen in the light of the issue in it. There was an application to adduce new evidence indicating for the first time what the employer would have done in certain circumstances. Giving the Judgment of the Division Lord Prosser said this:

"19

We are not persuaded that the various expressions of opinion to be found in previous cases are as difficult to reconcile as may be suggested, or as may have been thought when some of these opinions were expressed. If one reads the whole of the final paragraph of the Opinion delivered by Lord Coulsfield in Steel Stockholders (Birmingham) Ltd [1993] IRLR 515, it seems to us that he appreciates that the word 'procedural' does not reflect some precisely identifiable category, far less that it represents a category which could be precisely defined in all cases without enquiry into the facts. In broad terms, it appears to us that there will be situations where one can say that what went wrong was 'merely' procedural. Equally, in broad terms, we think there will be situations where one can say that an employee has been deprived of 'something of substantive importance', to use a phrase of Lord Coulsfield's. We see no need to discard entirely terminology of this kind; and while in many cases it may be inappropriate to allocate the particular facts to either category, or to do so without enquiry, it seems to us that a distinction between the 'merely' procedural, and the more genuinely 'substantive' will often be of some practical use, in considering whether it is realistic, or practicable, or indeed 'just and equitable' to embark upon an attempt to construct a hypothesis, enabling one to assess what would have happened, if only it had. If there has been a 'merely' procedural lapse or omission, it may be relatively straightforward to envisage what the course of events would have been if procedures had stayed on track, rather than briefly leaving the track in this way. If, on the other hand, what went wrong was more fundamental, or 'substantive', and seems to have gone 'to the heart of the matter', it may well be difficult to envisage what track one would be on, in the hypothetical situation of the unfairness not having occurred. It seems to us that the matter will be one of impression and judgment, so that a tribunal will have to decide whether the unfair departure from what should have happened was of a kind which makes it possible to say, with more or less confidence, that the failure made no difference, or whether the failure was such that one simply cannot sensibly reconstruct the world as it might have been. It does not seem to us that there is anything very wrong in using the word 'substantive' in connection with this latter situation.

20

So far as Lord Bridge's observations in Po/key [1987] IRLR 503 are concerned, it is no doubt correct to say that he is not drawing a categorical distinction between 'procedural' cases and 'substantive' case, or excluding the latter as a category from the possibility of what has become known as a Polkey [1987] IRLR 503 reduction. If in a particular case it is possible to say (as in O'Dea [1995] IRLR 599) that the fact of the matter is that the applicant has lost only a one-in-five chance of being retained, then we concur with Peter Gibson LJ in saying that there is no arguable case that he should have been compensated on the same footing as if he was bound to have been retained. But it does not seem to us that Lord Bridge was considering or commenting upon the question of how or when one might discover what would have happened, but for the employers' unfair acts or omissions; and we cannot read him as trying to lay down a general proposition, to the effect that an employer will always be entitled, however fundamental his unfair course of action may have been, and however speculative the question of what would have happened but for these acts and omissions, to insist upon a tribunal hearing a tract of evidence, designed to reconstruct the world that never was, and ask for a finding as to the likelihood of the employee having been dismissed in that speculative world.

…

23

…In the absence of evidence as to what would have happened, had there been consultation before the method was adopted (evidence, that is, which is not offered, and would itself be inappropriate for the reasons which we have indicated) we can see no purpose in further evidence as to how these or other employees were marked, or might have been marked, or as to the actual or hypothetical consequences of any markings."

19. The most recent exposition of this approach is found in the judgment of the Court of Appeal in Lambe v 186K [2004] EWCA 1045 where there is a full analysis of Polkey and other judgments including, importantly, the judgment of the Court of Appeal in O'Dea v ISC Chemicals Ltd [1995] IRLR 599. Giving the judgment of the Court, Wall LJ in Lambe, having cited the passage from Lord Prosser's conclusion, emphasised the words which appear as follow:

"…It seems to us that the matter will be one of impression and judgment, so that a tribunal will have to decide whether the unfair departure from what should have happened was of a kind which makes it possible to say, with more or less confidence, that the failure made no difference, or whether the failure was such that one cannot sensibly reconstruct the world as it might have been…"

59. We respectfully agree with the formulation contained in the highlighted passage from that citation. However, we share Peter Gibson LJ's view, expressed in the extract from his judgment in O'Dea which we have cited, that it is unhelpful for the purposes of assessing compensation to characterise the defect in the employer's behaviour as either substantial or procedural. The highlighted passage from King v Eaton (No 2) seems to us both practical and to coincide with the approach of this court in O'Dea. It provides Tribunals with a straightforward and sensible yardstick with which to approach such cases, and avoids unnecessary and unproductive debate about whether a particular piece of conduct fits into the "substantive" as opposed to the "procedural" category.

60. The application of the O'Dea / modified King v Eaton (No 2) approach to the facts of the instant case leads us to the conclusion that on the evidence available to it, the Tribunal was entitled to conclude that in the Appellant's case, whilst both the process of selection for redundancy and the absence of consultation was unfair, it was unlikely that the Appellant would have found alternative employment with the Respondent or any of its associated companies at the conclusion of an extended period of consultation. The Tribunal was entitled to find that what the Appellant wanted was his job back, and that he was not willing to consider the alternative offered by the Respondent, which the Tribunal found was both a promotion and commanded a higher income. In short, this was not a case in which it was impossible for the Tribunal sensibly to reconstruct the world as it never was: the Tribunal was entitled to come to the conclusion that an extended period of consultation should have taken place, but that at the end of it, the Appellant would still have left the Respondent's employment."

20. From this it appears there is a modification of the King approach in line with the Court of Appeal's judgment in O'Dea. The correct approach is not for a Tribunal to adopt a taxonomy which separates procedural from substantive issues but to ask itself the question: was there an unfair departure from what would or should have happened? That is apt, in our judgment, to include not only what are popularly, and as Lord Bridge put it, conveniently known as procedural issues, but also substantive issues. In a simple case, a failure on a redundancy selection exercise to calculate accurately a person's performance points, or sickness record, might be regarded as substantive. It might in some circumstances be regarded as unfair procedurally but in either case it represents an unfair departure from what would or should have happened. What is necessary is that the Tribunal should have confidence in deciding whether or not it could sensibly reconstruct what would have happened had there been no such failing.
21. In O'Donoghue v Redcar v Cleveland Borough Council [2001] IRLR 615 the Court of Appeal again considered a situation where there had been a reduction in compensation. In this case the reduction was based upon a view taken by the Tribunal that the Claimant's attitude and subsequent behaviour would have caused a rupture in the relationship at some stage later than the actual termination of the employment.
22. We would particularly like to thank Mr Bowers for his categorization of the cases which were put before us where it is suggested a reduction in, or cap on, compensation is just and equitable and we adopt them as follows:

(1) Length of time cases, where a dismissal would have occurred in due course - Mining Supplies v Baker [1988] IRLR 417 and Lambe above.

(2) Loss of chance cases, where there was a chance of surviving dismissal – for example O'Dea above, Wolseley Centres v Simmons [1994] ICR 503 and Dunlop v Farrell [1993] ICR 885.

(3) Cases where a reduction has been effected because the Claimant was likely to have been dismissed on another ground, for example, O'Donoghue above and James W Cook & Co (Wivenhoe) Ltd v Tipper [1990] ICR 716 (factory closure).

(4) Cases where there has been no reduction because there was a complete sham: see Dixon v Ferguson Seacabs Ltd EAT 59101 EAT and, King above, where the selection process was held to be unfair from start to finish, and similarly Telelift (UK) Ltd v Cherrington [2002] AER (D) 296.

Conclusions

23. With those principles in mind we approach the issue in this case. First, we accept that the direction which we have cited at from its reasons at paragraph 144 is correct in a re-organization case; drawing as it does, although not expressly, from the judgment of the Court of Appeal in Hollister v NFU [1979] IRLR 238. Lord Denning MR, said this:

"12 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. Upon that there have only been one or two cases. One we were particularly referred to was the case of Ellis v Brighton Co operative Society Ltd [1976] IRLR 419, where it was recognised by the Court that reorganisation of business may on occasion be a sufficient reason justifying the dis. missal of an employee. They went on to say: '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".' Certainly, I think, everyone would agree with that. But in the present case Mr Justice Arnold 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 Mr Justice Arnold's view on that It must depend in 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. It seems to me that that paragraph may well be satisfied, and indeed was satisfied, in this case, having regard to the commercial necessity of rearrangements being made and the termination of the relationship with the Cornish Mutual, and the setting up of a new relationship via the National Farmers' Union Mutual Insurance Limited…"

24. Thus the Tribunal here was dealing properly with a re-organization and a termination of an employment relationship for some other substantial reason justifying dismissal of the Claimants. In those circumstances it made a finding that there would have been a justifiable dismissal provided proper consultation and enquiry had taken place and that would have been done by the end of the four month period which it envisaged.
25. The Tribunal looked carefully at the reaction of the Claimants as it hypothesised it to have been. What it said was this:

"139. We had to hypothesise about the period during which it would have been reasonable to consult about a totally new contract of employment and what would have been a reasonable period and what would have been the consequences at the end of such a period. This exercise was we found particularly difficult in view of our findings on a whole number of issues about the conduct and behaviour of the Respondents and trying to visualise them theoretically as "reasonable employers".

140. We took into account our own industrial experience of other industries where fundamental job changes are 'introduced over a period of time which are not necessarily popular with the workforce. Thus for example the Tribunal panel has had experience of cases where a large workforce in the "care" world has sought to introduced shift working. That kind of exercise in our judgement would usually require particularly in special cases involving no doubt wide ranging changes to family arrangements and issues of that kind a period, say, of at least six months."

26. In that passage the Tribunal is doing what it is engaged to do: to draw upon its own industrial experience of circumstances such as this and to construct, from evidence not from speculation, a framework which is a working hypothesis about what would have occurred had the Respondent behaved differently and fairly. The Tribunal acknowledged that there would have been a radical overhaul of all employment terms. In the passage at para144, it has made a finding that that would have occurred and if the Claimants had failed to adopt them, as they appeared particularly unattractive, their dismissals would have occurred in any event.
27. The criticism advanced by Mr Booth is that in seeking to construct the hypothesis this Tribunal had so many pieces of the jigsaw missing that the only correct approach was to disallow any kind of Polkey reduction. We do not accept that proposition because the findings based upon a careful analysis of the material which it had before it, and drawing upon its experience, do indicate that it was satisfied that there was material sufficient to make its judgment. It is true that in one place a more tentative approach, using the word "could" rather than "would" appears, but it is overwhelmed by the numerous occasions when the positive "would " is used. Similarly, the use of the words "we supposed" and "we suspect" in building the blocks towards the hypothesis shows the way in which the Tribunal was approaching its task correctly.
28. The Tribunal was engaged in what it described as the "what if?" exercise. The Tribunal made strong criticisms of the Respondent but it is not necessary to describe this process as a procedural flaw or a substantive flaw; all that is necessary, adopting the highlighted extract from Lord Prosser's judgment is that the Tribunal can sensibly reconstruct what would have happened. Here it made its own findings and we see no error in its approach to it.
29. This case was unusual in a variety of respects not least because of the joint approach, erroneous as it turned out, to the status of the Claimants. Thus, in these circumstances the employees succeeded before the Employment Tribunal and the finding by the Tribunal is not one which we can say was an error of law; indeed it seems to us to be correct. We appreciate that this will be a grave disappointment to the ten Claimants in this case who were dismissed more than four years ago. They should, however, take heart from the undisturbed findings of criticism of their employer made by this Employment Tribunal and by the fact that they have won. They will also be entitled to compensation and it may well be that with the skilled advisers on each side and the proper exchange of schedules it will be unnecessary to hold a hearing and that compensation can be worked out and paid quickly.
30. We would very much to thank all four Counsel for their very helpful contribution to our understanding of this case and to the law and to Mr Haimes for lending his support to the submissions made by Mr Booth.
31. The appeal is dismissed. Permission to appeal refused [with reasons not transcribed]