Appeal No. UKEAT/0859/04/TM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 28 April 2005

Before
HIS HONOUR JUDGE SEROTA QC
MS V BRANNEY
MR T MOTTURE

(1)	MR M FERGUSSON
(2)	MRS R FERGUSSON 	APPELLANTS

SHEPHERD NEAME BREWERY LTD	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellants	MR M LAING
(Representative)
Instructed by:
Employment Law Associates Ltd
16A Pampisford Road
Purley
Surrey CR8 2NE
	
For the Respondent	MR M EGAN
(of Counsel)
Instructed by:
Messrs Kingsfords
2 Elwick Road
Ashford
Kent TN23 1PD	

SUMMARY

 

Claimants complained of constructive dismissal by reason of breach of the implied term of trust and confidence.  The Employment Tribunal looked for a “continuous course of conduct” – as constituting the breach rather than considering the cumulative effect of the Respondent’s conduct.

  

HIS HONOUR JUDGE SEROTA QC
1.	This is an appeal by the Claimants from a Decision of the Employment Tribunal at Brighton.  Summary reasons were sent to the parties on 13 April and extended reasons on 25 May.  The Chairman was Mr M J Davey.  The Employment Tribunal dismissed the Claimants’ claims that they had been unfairly dismissed.  They were awarded the sum of £350.00 compensation for breach of contract.  We need say nothing more about that because that is not an issue in this appeal.  

2.	The matter was somewhat delayed because when the matter first came before the Employment Appeal Tribunal, there were no extended reasons.  The President referred the matter to a preliminary hearing and on 9 December of last year, His Honour Judge Reid QC presided over the Appeal Tribunal when the case was referred to a full hearing.  

3.	We need to say something about the factual background.  The Claimants were employed as joint managers of public houses and they took over the public house known as “The Red Lion”, Chelwood Gate in Sussex.  We believe that that was some time in 1998.  The Employment Tribunal in paragraph 5 of its Decision say that the Claimants had, since that time, complained of a course of conduct, the cumulative effect of which was a repudiatory breach of contract, the “last straw” being disciplinary proceedings taken against them in the year 2003.  We think it only right to say that, having looked at the way in which the Claimants put their case, they were not saying there had been a continuous course of conduct  but rather a number of incidents relied upon by them as cumulatively amounting to a breach of the implied term of trust and confidence to which we shall come later.  

4.	When Mr & Mrs Fergusson moved into The Red Lion, there is no dispute that the property needed refurbishment and the accommodation was inadequate.  We should also note that when they first moved to The Red Lion, it was what has been described as a local pub rather than the themed pub that it became after refurbishment, which did not, in fact, take place until the autumn of 2001.  The refurbishment took place in October and November and The Red Lion then opened as what was, I think, known as a Mulberry pub, a pub with a particular theme with a particular form of menu and what-have-you.  

5.	However, for the preceding three years, Mr & Mrs Fergusson, who have two young children, found that the state of the property was a major concern.  The Employment Tribunal was satisfied that it took the Respondent something like three years to put the refurbishment in hand and during that period, Mr and Mrs Fergusson had to settle for inadequate accommodation while, at the same time, trying to improve the trading position of The Red Lion.  The Employment Tribunal accepted that the physical condition of The Red Lion should have made the matter of refurbishment a pressing one and it was quite clear that the Respondents really did not address this issue with the urgency it demanded.  The matter was compounded because there was a period of uncertainty as to when the refurbishments works were going to be carried out and also where Mr & Mrs Fergusson were going to go during the refurbishment. 

6.	The Employment Tribunal was satisfied that in the summer of 2001, Mr & Mrs Fergusson were again faced with considerable uncertainty, both as where they should be working and where they might be living.  The Tribunal accepted Mr Fergusson’s evidence that this led to stress and frustration, and caused to his wife to suffer from depression.  There was a great deal more that the Respondents could have done to ease the problems of the Claimants and their family.  The Employment Tribunal concluded in paragraph 8 that the failure to do so caused Mr & Mrs Fergusson and the children to cope with uncertainty, lack of information and some appallingly unsatisfactory accommodation.  

7.	The Red Lion re-opened and there was friction thereafter because the Respondents had introduced what I have described as the Mulberry theme.  The Claimants maintained that they felt that they were fighting a battle with their manager, at that time, Miss Richardson-Bailey.  The Employment Tribunal, however, at paragraph 10 was not satisfied that the problems that they experienced

“were any more than the problems which might reasonably have been experienced upon the introduction of a new concept of trading when a manager is seeking to implement that concept and where a personable and quite forceful employee has doubts about the wisdom of the concept in the first place”.

8.	In January 2003, Miss Richardson-Bailey was replaced as manager and a Mr Giles Hilton took over as district manager.  There was an immediate concern about a stock deficit.  This led to a disciplinary meeting and a first written warning and an action plan together with a suggestion that a further meeting should take place.  In fact, what then happened was that Mr Hilton became increasingly concerned about the profit and loss account showing liquor and food sales well behind budget and labour costs running ahead of budget and a further disciplinary meeting was called.  Also, there appeared to be a substantial over-spend on the fuel and taxi budget and he had received complaints from the Chairman of Shepherd Neame who had visited The Red Lion.  He had found that Mr & Mrs Fergusson were absent and that the staff in charge were insufficiently mature, so that the licence might be endangered.  

9.	Mr Hilton himself, visited The Red Lion.  Mr Fergusson was not there and was told that Mrs Fergusson would not be down until the late afternoon.  He was dissatisfied with the standard of service and with the calibre of the young lady who had been left in charge.  He considered Mr & Mrs Fergusson were demonstrating lack of control.  He decided to call a further disciplinary meeting for 21 May but Mr & Mrs Fergusson pre-empted this by resigning.  

10.	We express some surprise that the Employment Tribunal does not specifically deal with the reason for the resignation of Mr & Mrs Fergusson.  Mr & Mrs Fergusson’s case before the Employment Tribunal and indeed before this Appeal Tribunal was that they were constructively dismissed and the calling of them to an imperfect disciplinary meeting was the last straw in a cumulative series of events that was tantamount to a breach of the implied duty of trust and confidence.  However, it is right to say and we have seen this from the witness statements before the Employment Tribunal, that there were additional concerns raised by the Respondent which are not referred to by the Employment Tribunal.  The Respondent maintained, for example, that Mr Fergusson was running a taxi business from The Red Lion which took up a significant part of his time and it might have been the case – indeed we do not know that this was suggested – that they chose to resign rather than face the music, so as to speak, over the taxi business and what might have been a substantial over-spend in relation to petrol and fuel.  

11.	The way in which the Claimants put their case before the Employment Tribunal, so far as we can tell from the witness statements and the Originating Application, was that the Respondents’ conduct from the time they arrived at The Red Lion was all of a piece and cumulatively amounted to a breach of the implied term of trust and confidence.  Indeed, the Employment Tribunal was satisfied that there had been significant breaches of contract that were of sufficient gravity to amount to a repudiatory breach of contract.  Those were the matters we have referred to that took place up to and including November 2001.  However, the Employment Tribunal in paragraph 13 was not satisfied from the evidence that any conduct thereafter by the Respondents or their representatives amounted to a breach of contract.  While there was friction, the Employment Tribunal did not consider there to be a breach of contract because the Fergussons and their manager had different views as to the value of the commercial decision of the Respondents in introducing the Mulberry concept.  The Employment Tribunal then went on to find that when Mr Hilton became district manager, a more vigorous view was taken as to the responsibilities of Mr & Mrs Fergusson as managers.  Again, the Tribunal did not consider there to be any fault on the part of the Respondents.  It was, however, critical of the disciplinary proceedings that were taken.  The disciplinary hearing of 18 February was conducted without Mr & Mrs Fergusson being given prior warning of the allegations against them and without their having been given a reasonable opportunity to respond to the allegations.  The disciplinary hearing fixed for 21 May was to be in two parts but Mr & Mrs Fergusson were not told that this was so, nor were they told in advance of the proposed hearing what the allegations against them would be in detail.  The Employment Tribunal concluded that for a company of the size of Shepherd Neame, the procedure was inept and fell below good practice but it was not satisfied that the failure to conform to good practice was itself a breach of contract, nor was it a breach of the implied condition of trust and confidence. The defects which were apparent were remediable had the Fergussons allowed matters to proceed further.

12.	The Employment Tribunal then went on to say this:
“16.		It becomes necessary also to consider whether, looked at in the round, while the conduct of the Respondents in respect of the disciplinary procedure was not of itself sufficiently serious to go to the root of the contract it might have been enough to draw together the events which took place between 13 August 2001 and 30 October 2001 so that there was a continuous course of conduct with the defective disciplinary being the last straw.  The Tribunal does not accept that was so because the Applicants had continued to work for the Respondents for over a year after their unfortunate experiences during the summer of 2001 and the  matters raised by and the conduct of Mr Hilton were completely and wholly separate.  The Tribunal is not satisfied therefore that there was a continuous course of conduct enabling the Applicants to argue that there was a dismissal within the terms of Section 95(1)(c) of the Employment Rights Act 1996.  The application for unfair dismissal is therefore dismissed”.

It will be noted that in that paragraph, the Employment Tribunal refers on two occasions to there being a “continuous course of conduct”.  This is also a matter which the Employment Tribunal had mentioned in paragraph 5 of its Decision as we have earlier mentioned when it stated that the Applicants complained of a course of conduct by the Respondents.  

13.	Before we turn to consider the Notice of Appeal, it is helpful to set out the law in relation to constructive dismissal and in relation to breach of the implied term of trust and confidence.  Now although neither party has referred to Western Excavating v Sharp [1976] 1 QB 769, we do not believe that the principle there set out is controversial and indeed it is referred to in authorities that the parties have referred to.  Lord Denning said this at paragraph 769:
“If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself with discharge from any further performance.  If he does so, then he terminates the contract by reason of the employer’s conduct.  He is constructively dismissed.  The employee is entitled in those circumstances to leave at the instant without giving any notice at all or alternatively he may give notice and say that he is leaving at the end of the notice.  But the conduct must in either case be sufficiently serious to entitle him to leave at once.  Moreover he must make up his mind soon after the conduct of which he complains for if he continues for any length of time about leaving, he will lose his right to treat himself as discharged; he will be regarded as having elected to affirm the contract”.  

14.	Now it must be borne in mind that the implied term of trust and confidence is one in respect of which any breach is repudiatory.  It is therefore not every act of an employer which the employee considers wrongful that can be regarded as being a breach of the implied term.  The matter has been recently considered by the Court of Appeal in the decision of London Borough of Waltham Forest v Omilaju [2004] EWCA Civ 1493.  Dyson LJ said
’14.	The following basic proposition of law can be derived from the authorities:
1.	The test for constructive dismissal is whether the employer’s actions or conduct amounted to a repudiatory breach of the contract of employment: Western Excavating (ECC) Ltd v Sharp [1978] 1 QB 761.
2.	It is an implied term of any contract of employment that the employer shall not without reasonable and proper cause conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee:  see, for example, Malik v Bank of Credit and Commerce International SA [1998] AC 20, 34H-35-D (Lord Nicholls) and 45C-46E (Lord Steyn).  I shall refer to this as the implied term of trust and confidence”.
3.	Any breach of the implied term of trust and confidence will amount to a repudiation of the contract see, for example, per Browne-Wilkinson J in Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666, 672A.  The very essence of the breach of the implied term is that it is calculated or likely to destroy or seriously damage the relationship (emphasis added).
4.	The test of whether there has been a breach of the implied term of trust and confidence is objective.  As Lord Nicholls said in Malik at page 36C, the conduct relied on as constituting the breach must “impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer” (emphasis added).
5.	A relatively minor act may be sufficient to entitle the employee to resign and leave his employment if it is the last straw in a series of incidents.  It is well put at para [480] in Harvey on Industrial Relations and Employment Law:
“[480] Many of the constructive dismissal cases which arise from the undermining of trust and confidence will involve the employee leaving in response to a course of conduct carried on over a period of time.  The particular incident which causes the employee to leave may in itself be insufficient to justify his taking that action, but when viewed against a background of such incidents it may be considered sufficient by the courts to warrant their treating the resignation as a constructive dismissal.  If may be the ‘last straw’ which causes the employee to terminate a deteriorating relationship.”’
15.	The Employment Tribunal cited also from the Judgment of the Court of Appeal in Lewis v Motorworld Garages [1986] ICR 157 and in particular, the Judgment of Glidewell LJ at page 169.  
‘(c)	The breach of this implied obligation of trust and confidence may consist of a series of actions on the part of the employer which cumulatively amount to a breach of the term although each individual incident may not do so.  In particular in such a case the last action of the employer which leads to the employee leaving need not itself be a breach of contract; the question is, does the cumulative series of acts taken together amount to a breach of the implied term?  
and the Court of Appeal continued:
‘16.	Although the final straw may be relatively insignificant, it must not be utterly trivial.  The principle that that law is not concerned with very small things more elegantly expressed in the maxim de minimis non curat lex  is of general application’

and the Court of Appeal continued:
‘19.	The question specifically raised by this appeal is:  what is the necessary quality of a final straw if it is to be successfully relied on by the employee as a repudiation of the contract?  When Glidewell LJ said that it need not itself be a breach of contract, he must have had in mind, amongst others, the kind of case mentioned in Woods at p 671F-G where Browne-Wilkinson J referred to the employer who, stopping short of a breach of contract, “squeezes out” an employee by making the employee’s life so uncomfortable that he resigns.  A final straw, not itself a breach of contract, may result in a breach of the implied term of trust and confidence.  The quality that the final straw must have is that it should be an act in a series whose cumulative effect is to amount to a breach of the implied term.  I do not use the phrase “an act in a series” in a precise or technical sense.  The act does not have to be of the same character as the earlier acts.  Its essential quality is that, when taken in conjunction with the earlier acts on which the employee relies, it amounts to a breach of the implied term of trust and confidence.  It must contribute something to that breach, although what it adds may be relatively insignificant.

20.	I see no need to characterise the final straw as “unreasonable” or “blameworthy” conduct.  It may be true that an act which is the last in a series of acts which, taken together, amounts to a breach of the implied term of trust and confidence will usually be unreasonable and, perhaps, even blameworthy.  But, viewed in isolation, the final straw may not always be unreasonable, still less blameworthy.  Nor do I see any reason why it should be.  The only question is whether the final straw is the last in a series of acts or incidents which cumulatively amount to a repudiation of the contract by the employer.  The last straw must contribute, however slightly, to the breach of the implied term of trust and confidence.  Some unreasonable behaviour may be so unrelated to the obligation of trust and confidence that it lacks the essential quality to which I have referred. 
21.	If the final straw is not capable of contributing to a series of earlier acts which cumulatively amount to a breach of the implied term of trust and confidence, there is no need to examine the earlier history to see whether the alleged final straw does in fact have that effect.  Suppose that an employer has committed a series of acts which amount to a breach of the implied term of trust and confidence, but the employee does not resign his employment.  Instead, he soldiers on and affirms the contract.  He cannot subsequently rely on these acts to justify a constructive dismissal unless he can point to a later act which enables him to do so.  If the later act on which he seeks to rely is entirely innocuous, it is not necessary to examine the earlier conduct in order to determine that the later act does not permit the employee to invoke the final straw principle.  
22.	Moreover, an entirely innocuous act on the part of the employer cannot be a final straw; even if the employee genuinely, but mistakenly, interprets the act as hurtful and destructive of his trust and confidence in his employer.  The test of whether the employee’s trust and confidence has been undermined is objective (see the fourth proposition in para 14 above)’.

16.	The short point made by Mr Laing who appeared on behalf of Mr & Mrs Fergusson is that the Employment Tribunal were wrong to look for a continuous course of conduct, the last event in which might be regarded as having been the final straw and it was wrong for the Tribunal to disregard earlier conduct.  The Employment Tribunal should, he submitted, having regard to the decisions which we have cited, have looked at all the conduct cumulatively.  He submitted, based upon the judgment in Lewis v Motorworld that the Employment Tribunal appeared to have ignored the effect of the breaches going back to November 2001 and regarded them as having been spent.  He relied on what Glidewell LJ had said in the Lewis case at paragraph 44.  He then went on to complain that the Employment Tribunal had failed to make findings about other matters that had taken place after the refurbishment of The Red Lion and before the termination of employment in May 2003 and also submitted that the Employment Tribunal was wrong in failing to find that the inept disciplinary procedures in 2003 were not in themselves repudiatory.  

17.	It seems to us that the first point made by Mr Laing is a powerful one, that is the Employment Tribunal had concentrated on the need for a continuous course of conduct, rather than acts of conduct that have the cumulative effect of amounting to a breach of the implied term of trust and confidence.  

18.	Mr Egan submitted that while it was unfortunate that the Employment Tribunal did not clearly set out the law relating to constructive dismissal and the law relating to breach of the implied duty of trust and confidence, the Employment Tribunal, when it referred to the word “continuous” as we have mentioned in relation in the course of conduct, really meant a “cumulative” course of conduct.  If one were to substitute the word “cumulative” for continuous”, there would be nothing wrong at all with the decision of the Employment Tribunal.  

19.	We would agree with Mr Egan that it was certainly open to the Employment Tribunal on the facts before it to find that, taken cumulatively and having regard to the fact that Mr & Mrs Fergusson had worked for some considerable time after the re-opening of The Red Lion and after what the Employment Tribunal had found to be a repudiatory breach of contract, that cumulatively speaking, as at May 2003 there was in fact no breach of the implied term of trust and confidence and thus no repudiatory breach of contract.  However, we cannot be confident that that is the way in which the Employment Tribunal directed itself.  In the Decision as a whole, there are three references to the continuous course of conduct and in the crucial paragraph of its Decision which we have already read out at paragraph 16, the Employment Tribunal twice refers to the need for there to be a continuous course of conduct with a defective disciplinary being the last straw.  

20.	In our opinion, there is a significant difference between the words “continuous” and “cumulative”.  “Continuous” requires some proximity of time.  It seems to us that the use of the word “continuous” as opposed to “cumulative” suggests that the Employment Tribunal may well, and perhaps one could go further, and say probably did, apply an incorrect test.  The matter is perhaps made even more difficult by the fact that the Employment Tribunal appear to have taken the view that the differing nature of the conduct meted out to Mr & Mrs Fergusson in and before 2001 and the defective disciplinary proceedings could not, so as to speak, be regarded as cumulative because they were different.  Again, if that was the approach of the Employment Tribunal, it was mistaken and not in accordance with the authorities.  We have therefore, and with some considerable reluctance, come to the conclusion that the appeal must be allowed on that ground and the matter be remitted to the Employment Tribunal for a further hearing.  

21.	We deal, in the circumstances, briefly with the two further points raised by Mr Laing.  Firstly, the failure of the Employment Tribunal to make adequate findings or to explain why various pieces of evidence were rejected or not taken into account.  He identified some six or seven particular facts in paragraph 11 of his Skeleton Argument.  He seeks also to run an argument based upon the well-known decision of Meek v City of Birmingham [1987] IRLR 250 CA that inadequate reasons were given, albeit this does not appear in his Notice of Appeal.  Had this been the only ground of appeal, we would have rejected it because while it is fair to say that the Employment Tribunal has been somewhat sparing in its fact finding as expressed in its Decision, we are satisfied that the Employment Tribunal, as Mr Egan submitted to us, has in fact dealt with the complaints in paragraphs 10, 11, 13 and 14 of its Decision.  We need not go into these matters in any further detail because we are satisfied that the Employment Tribunal did take all factual matters into account.  

22.	In relation to the disciplinary proceedings, again it was a matter for the Employment Tribunal to determine whether or not any defects in the disciplinary proceedings were capable of remedy and whether they were sufficiently grave as to amount to a repudiatory breach of contract or breach of the implied duty of trust and confidence.  The Employment Tribunal concluded that they were not.  We cannot regard that finding as perverse and so far as we are concerned, we would not have allowed the appeal on that ground either.  We stress therefore that the only basis on which we allow this appeal is because the Employment Tribunal appears to have misdirected itself as to the way in which various matters can be regarded cumulatively as amounting to a breach of the implied duty of trust and confidence.  The appeal will therefore be allowed.  

23.	The re-hearing will have to be before a differently constituted Tribunal.