Mr S Hodson v Aluminium Vent Company Ltd and others: 2302413/2019
EMPLOYMENT TRIBUNALS
Case No 2302413/2019
Between
Mr S HodsonClaimantAluminium Vent Company Limited R1 Mr I Montgomery R2 Mr A Montgomery R3 Mr I Boushear R4RespondentDate 3 December 2020
JUDGMENT
[1]The claimant’s claims against the second, third and fourth respondents are dismissed upon withdrawal. RESERVED JUDGMENT[2]The claim of constructive unfair dismissal is well founded and succeeds. The claim for holiday pay fails and is dismissed.
REASONS
Claims
[1]By a claim form presented to the Tribunal on 20 June 2019, the Claimant brings claims of constructive unfair dismissal and unpaid holiday pay. Legal issues[2]The following questions were agreed as those which I needed to answer in order to determine the claims, this being a claim where it is argued that there was a breach of the implied term of mutual trust and confidence, the Claimant's resignation triggered by a “last straw” event1:(a) What was the most recent act (or omission) on the part of the employer which the employee says caused, or triggered, his resignation?(b) Did he affirm the contract after that act (or omission)?(c) If not, was that act (or omission) by itself a repudiatory breach of contract?(d) If not, was it nevertheless a part of a course of conduct2 comprising several acts and omissions which, viewed cumulatively, amounted to a repudiatory breach of the implied term of trust and confidence?(e) Did the employee resign in response (or partly in response) to that breach?[3]It was confirmed by Counsel for the Respondent that he was not putting forward the position, on behalf of his client, that the dismissal was fair, if the Claimant was found to have been dismissed. The Respondent's defence therefore relied solely on there being no dismissal.
Evidence
[4]I heard evidence from the Claimant and his witness, Mr Clifford Smith; for the Respondent, I heard from brothers Ian Montgomery (“IM”) and Andrew Montgomery (“AM”).[5]The Tribunal was referred to documents in a bundle extending to 527 pages. References to numbers in square brackets below are to pages in the hearing bundle.[6]This is a case where, not surprisingly for a constructive dismissal case, there is much disputed fact. It is also a case where there is a lack of direct documentary evidence relating to certain important events. I therefore consider it important to make the following three general points which have informed my findings of fact. (a) Credibility[7]I found the Claimant to be an honest, credible and reliable witness. Unlike much of the Respondent's evidence, my impression of the Claimant was 1 These questions were also conveniently set out in the case of Kaur v Leeds Teaching Hospital NHS Trust [2018] EWCA Civ 2 Applying the approach explained in Omilaju v Waltham Forest LBC [ 2005] ICR 481 that he did his best to give an honest account of matters which went back some years. Where he did not know or could not remember something, he was candid in his answer. For the most part, however, he was able to recall with clarity what happened. Whilst I only heard from Mr Smith for a short while, I also found him to be a truthful and reliable witness.[8]I did not find the evidence of AM and IM as convincing or reliable. Both had a tendency to give the evidence they thought would be more consistent with their defence to this case, rather than simply, to the best of their ability, tell me what they could genuinely remember. At some points it felt like IM, in particular, saw the process of giving evidence as a game of cat and mouse. When a piece of evidence was put to IM that was inconsistent with an answer he had given in cross examination, his response was to say “you’ve got me” as though he had been ‘caught out’ by Counsel for the Claimant . At one point I reminded IM that rather than assume Counsel was trying to trip him up, he should simply concentrate on giving an honest account of what he could recall.[9]In many other respects there was much that IM and AM could not remember with clarity. (b) Disclosure[10]During this case, there were a number of points during the evidence when IM and AM were asked about a document they had referred to but which was not in the bundle, such as emails and text messages. There was even a document which was produced after the evidence had completed and just before we were due to start legal submissions. I found IM and AM’s reasons for their failure to disclose documents in this case wholly unconvincing. (c) Matters not put during cross examination – the rule of Browne v Dunn3[11]There were certain important factual allegations contained in the witness statements of IM and AM that were not put to the Claimant in cross examination, and so he was not given the opportunity to reply to them. Equally there were matters in the Claimant's witness statement that went unchallenged by the Respondent. Whilst allowances might ordinarily be made for, and assistance given to, litigants in person during their questioning, I am mindful of the fact that both parties in this case were represented by experienced Counsel. Accordingly, I consider it right to apply this rule more strictly notwithstanding the general rule under Rule 41 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013 that a Tribunal may regulate its own procedure and shall conduct the hearing in the manner it considers fair, having regard to the principles contained in the overriding objective 3 (1893) 6 R. 67
Findings of fact
[12]The following findings of fact were reached on the balance of probabilities having considered all the evidence given by witnesses during the hearing and documents referred to by them. I have only made those findings of fact that are necessary to determine the claims. It has not been necessary to determine every fact in dispute where it is not relevant to the issues between the parties.[13]In July 1982, the Claimant started work at a company called Aluvents Limited (“Aluvents”) a manufacturer of aluminium vents, louvres and diffusers.[14]The owners of Aluvents sold the business to Ian Blackwell in March 2005, at which point he employed his friend Ian Boushear to work for the company. Mr Boushear had no previous experience of working in the heating and ventilation industry and was brought in to oversee staff and deal with staffing issues.[15]For reasons which it is not necessary to go into here, Aluvents faced financial problems in 2007 and went into liquidation.[16]IM and AM were, at this time, owners and directors of a business called Montgomery Brothers Ltd (“MBL”). MBL traded under the name of Primus Quality Coatings, which was one of Aluvents’ suppliers.[17]Seeing a potential opportunity from the difficulties faced by Aluvents, IM and AM decided to set up an identical business to Aluvents. That business is the Respondent in these proceedings.[18]The Respondent was incorporated on 1 August 2007. At all material times the Respondent was owned in equal shares by Ian Boushear and AM/IM. AM/IM’s share was not owned by them personally, but rather by MBL. Mr Boushear owned 33.33% of the Respondent, whilst 66.67% was owned by MBL.[19]The Claimant's employment ended at Aluvents on 9 August 2007 when he was made redundant. Mr Smith was also employed by Aluvents and made redundant on the same date.[20]In July 2007, Mr Boushear spoke to the Claimant about the formation of the Respondent, and asked him to be its new sales manager. Mr Boushear asked the Claimant to approach all key clients of Aluvents to let them know that the business would continue, albeit under a different company name and with new owners. Mr Boushear informed the Claimant that MBL would be an investor in the new business but that IM and AM would not be involved in the day to day running of the business. Mr Boushear told the Claimant that the new company could only be formed if he agreed to be its sales manager, dealing with sales, customers, pricing and technical matters; whilst Mr Smith would run the workshop where the grilles, louvres and vents were manufactured. Mr Boushear saw the Claimant's knowledge and experience to be vital to the success of the Respondent.[21]Mr Smith and the Claimant discussed Mr Boushear’s proposal but agreed that they would only accept it if they were given shares in the company and the Claimant was made a director. This counter proposal was put to Mr Boushear.[22]The Claimant and Mr Smith duly started work for the Respondent. It was disputed in these proceedings exactly when they began their employment. The Claimant maintained that he started in mid to late August 2007. The Respondent says that the Claimant started employment in January 2008. The Claimant was very clear in evidence that the January date was wrong. The only evidence the Respondent could refer to in support of its position was an employee list produced by their accountants indicating that the Claimant started in January 2008. However there was some disagreement, even between IM and AM, as to when the Claimant's start date was: IM said January 2008 whilst AM suggested it was September or October 2007. The Claimant said that on 1 January 2018 he was put on the company’s payroll but prior to that he had been paid by Mr Boushear by cheque in the sum of £500 per week but received no payslips.[23]I prefer the Claimant's evidence on the above point. One reason I found the Respondent's evidence wholly unreliable, apart from the differences in IM and AM’s own recollections of when the Claimant started, was the evidence of IM when questioned about those people involved at the very beginning, when the company was started. IM initially said that the Claimant was not involved during the start up stage, but was forced to retract that position when it was put to him that in one of the letters written on his instructions by his lawyers, he said the Claimant was “a valuable member of the start up team”. He also seemed to react as if he had been ‘caught out’ when that part of the letter was put to him; indeed he said to Counsel for the Claimant “you’ve got me”.[24]As an aside, it was agreed at the outset of the hearing that it was not suggested that the incorporation of the Respondent resulted in a TUPE transfer of the Claimant from Aluvents. There is no suggestion that the Claimant's employment with the Respondent continued back to his time with Aluvents.[25]It was also a disputed issue in these proceedings, indeed a central part of this case, whether the Claimant was offered a shareholding in the Respondent by Mr Boushear, AM and IM. The Claimant says this was exactly the proposal put to him and Mr Smith by Mr Boushear (paragraphs 20 and 21 above). The Claimant said that Mr Boushear returned from his conversation with IM and AM and confirmed that 15% of the company would be given to Mr Smith and the Claimant to be shared equally (7.5% each).[26]There was then a meeting in February 2008 between the Claimant, Mr Boushear, Mr Smith, IM and AM. The Claimant said that the initial promise was reconfirmed by all parties; each would give 5% of their shares so that 15% could be divided equally between the Claimant and Clifford Smith. No payment would be made for the shares as the Respondent was in effect buying Mr Smith and the Claimant's “wealth of industry experience and knowledge, including the customer base”.[27]The Respondent's evidence of this meeting was different. IM said in evidence that he, AM, Mr Boushear and the Claimant had a discussion about the business going forward, when the Claimant started pushing for an opportunity to be allowed to participate in the ownership of the business. IM said that they would offer the Claimant and Mr Smith an option to purchase up to 7.5% worth of shares in the Respondent at a later date on terms to be determined and depending on their performance and the success of the business ("the Share Option"). This account by the Respondent was not put to the Claimant in cross examination.[28]On this crucial issue, I prefer the Claimant's version of events, including what happened during the meeting in February 2008. Not only do I prefer the Claimant's oral evidence as being a more reliable, honest and truthful account of what was agreed, but when I look to supporting documentary evidence, there are a number of letters written by the Claimant, beginning with the one in 2018 to the Respondent, which set out the Claimant's position as to the agreement reached in 2007 and repeated in 2008, and are consistent with the Claimant's evidence at this hearing. These letters were an ideal opportunity for the Respondent to have put the Claimant straight in terms of any misunderstanding, and set out what it considered was a correct version of events, namely that there was a discussion about share options. However they failed to do so and I draw an appropriate inference from that failure, namely that the offer made was as the Claimant describes. Indeed, the first time the Respondent replied with reference to share options, was in a formal letter from their lawyers to the Claimant on 7 May 2019, after the Claimant had resigned, and doubtless at a point when they contemplated that a legal claim may be brought by the Claimant. Interestingly, even in a letter from the Respondent's lawyers to Mr Boushear dated 8 March 2019, the discussion, or alleged misunderstanding, in 2007/2008, is not even mentioned.[29]The Respondent quickly became successful, due in large part to the Claimant’s industry knowledge, experience and his ability to bring over a number of Aluvents customers. Mr Boushear was the Managing Director and the Claimant was the Sales Manager (later becoming the General Manager).[30]I accept that Mr Smith often raised the issue regarding the promise of shares with the Claimant and wondered whether they should get confirmation that these were being dealt with. The Claimant continued to assure Mr Smith that Mr Boushear was dealing with it and that they could trust him; in the Claimant's view, a promise had been made and would not be broken. I accept that the Claimant asked Mr Boushear periodically about the shares but ultimately the Claimant placed his trust in Mr Boushear.[31]In 2018, the circumstances of the Claimant changed due to the birth of his daughter and his need to buy a house. The Claimant decided that he finally needed his position regarding the shares and directorship resolved. The Claimant raised this with Mr Boushear, who also agreed it was time the matter was resolved. On 25 July 2018, the Claimant sent a letter to Mr Boushear, with the intention that it would be shared with IM and AM [148]. It said as follows [sic]: As you are aware I have been keen for some time to formalise my position within the Company, namely Aluminium Vents Company Ltd (AVC Ltd), I am currently an employee employed in the position of Sales Manager. When the company was incorporated in August 2007 and prior to the company being set up after the collapse of Aluvents Ltd I made my position very clear that would only be involved in this new company if my position was formalised and I had some control over the day-to- day running and future of the company. With time moving on and retirements approaching this needs now to be addressed. The Company was incorporated on 1 August 2007 from the information recorded at Companies House the following are Directors: Ian Robert Montgomery (who Is also the Secretary), Ian James Boushear (aka Tom) and Andrew James Montgomery. The split shares is not detailed but it has you, Ian James Boushear, as a 'person with significant control' meaning you have ownership of more than 25% but not more than 50% of the shares. During the meeting when the company was set up it was agreed that Clifford and I would be given 15% of shares between us i.e. 7.5% each, can you please confirm if this is documented anywhere namely in the Memorandum of Association or Statement of Capital Holdings and whether AVC Ltd has an Articles of Association. It is my view that I work extremely hard for AVC Ltd and although I am remunerated for my position, I have no control over the decision-making process or the actions of the Company. I perform the role of a company director, I promote its success and manage the Company on behalf of the Shareholders often working 10-11 hour days to ensure that the business runs smoothly. I have always acted in the best interests of the Company, exercising care, skill and diligence that you would expect from a director but I am not one, I am an employee. This needs to be reviewed as I cannot continue to work for company that I have no influence over, yet take responslbility as if it were my company; this is exactly what happened at Aluvents Ltd and while I do not compare the shareholders of AVC Ltd with Aluvents Ltd I need to protect my future. I understand that you, Ian and Andy made a financial lnvestment into the Company to start it up, although I did not make a financial Investment I did bring goodwill to the Company. AVC Ltd has had the benefit of my experience, reputation and connections within the industry. Although we were a start-up business due to Aluvents Ltd going into liquidation I was able to sustain our customer base having worked with them in the lndustry during my 25 years wlth Aluvents Ltd and maintain their continued custom, Going forward I would like to be made a company director and given shares in the Company based on the goodwill that I have bought with me which has enabled the Company to flourish. The shareholders will need to decide what this goodwlll is worth. Please can you consider this proposal, we are approaching the end of our financial year so if you are in agreement I would like this appointment to be made by September 2018.[32]There was no reply to the above letter but Mr Boushear acknowledged that it had been received.[33]In September 2018, the Claimant met with Mr Bouschear and AM during which the share issue and directorship was discussed. During this meeting AM and Mr Boushear agreed that the Claimant should be made a director and gifted a 15% share of the business. This was 7.5% more than had originally been promised, due to the Claimant's commitment and contribution to the business.[34]Discussions continued between the Claimant and Mr Bouchear; the Claimant felt that it was unfair and unreasonable that the original promise had not been formalised.[35]In December 2018, prior to the Christmas break, the Claimant reminded Mr Boushear that the deadline of September 2018 to formalise the Claimant's position regarding the shares and directorship had passed. By this stage, Mr Smith had left the company, seemingly on the grounds of redundancy, but the actual reason related to misconduct.[36]On 7 January 2019, there was a meeting between IM, AM, Mr Boushear and the Respondent's accountant, Mike Gill. The purpose of that meeting was to discuss the on-going issue concerning the gifting of shares to the Claimant. The meeting did not go well and Mr Boushear left the meeting when IM and AM changed their position and said that they would only sell their shares, which they valued at £600,000. IM could not explain in crossexamination what options were on the table regarding the Claimant’s position. His evidence on this was strained. He gave evidence that Mr Boushear suggested that the Claimant should be gifted 20% of shares, which is not a figure which came from the Claimant. There was no discussion about the Claimant being given share options at this meeting.[37]During this hearing, IM was cross examined about a letter from the Respondent's lawyers to Mr Boushear dated 8 March 2019. In it, Mr Hodson’s situation was discussed and there is a paragraph headed “Misunderstanding”. In cross examination IM could not give any explanation why the opportunity was not taken in this letter to correct any alleged misunderstanding on the part of the Claimant that he was to be gifted shares, as opposed to being given share options.[38]On 11 March 2019, Mr Boushear and the Claimant instructed a barrister on a direct access basis to advise on the Claimant’s rights regarding the promise of the gift of shares and the directorship. In the instructions provided to the barrister, which I was shown, a version of events consistent with the Claimant's evidence that he was promised shares, is set out in detail.[39]During the process of collecting together information to provide to the barrister, the Claimant discovered that the owners of the Respondent had been drawing dividends since 2013, which was contrary to what the Claimant had been told, that all profits were being invested back in the business.[40]On 19 March 2019, Mr Boushear, his wife, Kath, and the Claimant's wife, Clare Hamilton-Hodson, met with the barrister. The Claimant did not attend as he had to work. On behalf of the Claimant, Ms Hamilton-Hodson confirmed that the Claimant would not continue to work for the Respondent if the original promise of shares was not fulfilled.[41]On 28 March 2019, Mr Boushear was given notice of a Board Meeting to take place at the offices of the Respondent's lawyers on 29 March 2019. Notwithstanding the short notice, Mr Boushear attended because he was keen to resolve matters with regards to the Claimant's shares and being made a director. Later that evening the Claimant received a text message from Mr Boushear saying "everything fine, call you in the morning". The minutes of the meeting is the first documented reference to share options but I do not accept that the minutes accurately reflect the discussion at the meeting; IM could not explain, for example, why there was no reference to what Mr Boushear said at the meeting.[42]On Saturday 30 March 2019, the Claimant said that Mr Boushear phoned the Claimant on his mobile and confirmed that after discussions at the board meeting, the Claimant would be made a director and shareholder of the Respondent and given shares of 7.5%. The Claimant said he questioned why the shareholding was no longer 15% as Andrew Montgomery and Ian Boushear had agreed in September 2018, but Mr Boushear confirmed that there was "nothing he could do". Mr Boushear also confirmed that IM would be working in the sales office of the Respondent from 1 April 2019 which came as a surprise to the Claimant as Mr Boushear had previously been so against IM and AM being involved in the day to day running of the business.[43]On 1 April 2019, the Claimant said he was invited to attend a meeting with IM, AM and Mr Boushear at the Respondent's premises. During this meeting the Claimant said that AM and IM confirmed that they agreed to make the Claimant a director and confirmed that he would be gifted a 7.5% shareholding in the company. IM did not refer specifically to a meeting in his evidence but said: On 1 April 2019, I started to attend the Respondent's First Warehouse for 2-3 hours per day, as agreed during the March 2019 EGM and Board Meeting. Between this time and 3 April 2019, I remember a number of occasions where the Claimant started to aggressively pursue this idea of him being gifted shares. I assumed at the time, it must have been Tom who told him what was discussed at the March 2019 Board Meeting, I told him to be patient, that we were in the process of deciding the details of the offer and I would let him know the outcome soon. By this I meant the Share Option. l did not propose that the Claimant should be made a director at one and the same time, as he proposed.[44]The above account was not put to the Claimant in cross examination. Again I prefer and accept as fact the evidence of the Claimant regarding what was said and promised at the meeting.[45]On 2 April 2019, the Claimant approached Mr Boushear and asked him whether the shareholding was going to be backdated to 2007/2008 and if dividends were going to be paid to him as they had been paid to others. Mr Boushear said he would have to speak to AM.[46]On 3 April 2019, Mr Boushear invited the Claimant to a meeting at the Respondent's premises with IM and AM. The Claimant asked about the backdated dividends, but AM and IM remained silent. The Claimant started to feel betrayed.[47]On 4 April 2019, IM approached the Claimant and told him that he would be given a 10% shareholding in the Respondent which the Claimant agreed to accept.[48]On 5 April 2019, the Claimant wrote to AM, IM and Mr Boushear again setting out his position, referring to the promise of gifted shares and appointment as a director. No acknowledgment of this letter or response was sent to the Claimant.[49]The continuing situation was causing the Claimant stress and anxiety which resulted in him being signed off work from 12 April 2019 to 1 May 2019.[50]With no response received to the Claimant’s 5 April 2019 letter, the Claimant wrote to Mr Boushear on 13 April 2019 chasing a reply.[51]On 24 April 2019, the Claimant sent an email to IM, AM and Mr Boushear in which he said: Further to my letter dated 4th April 2019 and email sent to Tom on 13th April 2019 I have not received a response from you. I'm unclear what the issue is as I'm just requesting what we discussed and agreed to be confirmed in writing. We all agreed that I am both a director and shareholder, this agreement was made when the company was incorporated and this needs to be formalised. As such I should be able to have a copy of the documents listed below so that there is complete transparency between all parties so that we can move forward. As you are aware this is causing me great stress, can you please respond by the end of the week. If no response is received my legal representative will be taking the matter forward.[52]By 26 April 2019 the Claimant had not received a reply and therefore he felt he had no option but to resign. The last straw for the Claimant was the Respondent's failure to reply to correspondence regarding what the Claimant considered to be broken promises. In his letter he wrote: In the light of everything that has happened, I consider that AVC's conduct has completely destroyed any trust and confidence which I may have had In them, The chain of events I have described above clearly shows a huge number of broken promises as far as transfer of shares, payment of dividends and payment of pension contributions are concerned.
Law
[53]Section 95 Employment Rights Act 1996 (“ERA”) defines what it means to be dismissed: An employee is dismissed by his employer if and only if:(a) the contract under which he is employed is terminated by the employer (whether with or without notice),(b) he is employed under a limited-term contract and that contract terminates by virtue of the limiting event without being renewed under the same contract, or(c) the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct.[54]The Claimant in this case relies on a breach of the implied term of mutual trust and confidence, which means that the employer “shall not, without reasonable or proper cause, conduct themselves in a manner calculated or likely to destroy or seriously harm the relationship of trust and confidence between employer and employee”: Malik v BCCI [1997] ICR 606. The test of whether there has been a breach of the implied term of trust and confidence is objective: the question is whether the conduct relied on as constituting the breach, when looked at objectively, is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer.[55]In Kaur v Leeds Teaching Hospitals NHS Trust 2019 ICR 1, CA the Court of Appeal clarified that an employee who claims unfair constructive dismissal based on a continuing cumulative breach is entitled to rely on the totality of the employer’s acts notwithstanding a prior affirmation of the contract, provided that the later act — the last straw — forms part of the series. The effect of the final act is to revive the employee’s right to terminate his or her employment based on the totality of the employer’s conduct. This, at any rate, is the case if the final straw incident is not itself so damaging as to comprise a repudiatory breach in and of itself. If, however, it does comprise a repudiatory breach in and of itself and thereby triggers the employee’s resignation, there will be no need for the employee to rely on the last straw doctrine as the basis for claiming that he or she has been constructively dismissed.[56]Where the act that tips the employee into resigning is entirely innocuous, a constructive dismissal claim will still succeed, provided that there was earlier conduct amounting to a fundamental breach, that breach has not been affirmed and the employee resigned at least partly in response to it.[57]The law relating to the right not to be unfairly dismissed is set out in s.98 ERA. Section 98(1) says as follows:(1) In determining….whether the dismissal of an employee is fair or unfair, it is for the employer to show— (a) the reason (or, if more than one, the principal reason) for the dismissal, and (b) that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.(2) A reason falls within this subsection if it— (a) relates to the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do, (b) relates to the conduct of the employee, (c) is that the employee was redundant, or (d) is that the employee could not continue to work in the position which he held without contravention (either on his part or on that of his employer) of a duty or restriction imposed by or under an enactment. (4) Where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer)— (a) depends on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee, and (b) shall be determined in accordance with equity and the substantial merits of the case.[58]What is clear is that there are two parts to establishing whether someone has been unfairly dismissed. Firstly, the Tribunal must consider whether the employer has proved the reason for dismissal. Secondly, the Tribunal must consider whether the Respondent acted fairly in treating that reason as the reason for dismissal. For this second part, neither party bears the burden alone of proving or disproving fairness. It is a neutral burden shared by both parties. Submissions[59]Both Counsel had prepared written submissions and these were supplemented by oral submissions at the hearing. I have taken these submissions, including relevant case law referred to, into account in reaching my decision. Analysis and conclusions[60]Answering each of the questions at paragraph 2 above and relying on the above findings of fact, I conclude as follows: What was the most recent act (or omission) on the part of the employer which the employee says caused, or triggered, his or her resignation?[61]The Claimant resigned in response to the broken promises and the Respondent's failure to address the issue or reply to letters sent. The last straw for the Claimant was the Respondent’s failure to respond to his 24 April 2019 email, which itself was chasing a response to the his 13 April 2019 email. This was not an innocuous act but evidence of the Respondent’s failure to deal with genuine and valid concerns raised by the Claimant that IM and AM had not honoured the agreement reached between them. (b) Has he or she affirmed the contract since that act?[62]I find that the Claimant did not affirm the final act. Having given a reasonable opportunity for the Respondent to reply to the Claimant's 13 and 24 April 2019 emails, the Claimant resigned promptly. (c) If not, was that act (or omission) by itself a repudiatory breach of contract?[63]It is not suggested that the final act itself was a repudiatory breach of contract. (d) If not, was it nevertheless a part of a course of conduct comprising several acts and omissions which, viewed cumulatively, amounted to a repudiatory breach of the implied term of trust and confidence?[64]I am satisfied, relying on the above findings of fact, that the the Respondent's behaviour, viewed cumulatively, amounted to a breach of the implied term of mutual trust and confidence. The Respondent did not have reasonable and proper cause for its conduct, and I am satisfied that it was calculated or likely to destroy trust and confidence. (e) Did the employee resign in response (or partly in response) to that breach?[65]I conclude that the Claimant did resign in response to the above breach.[66]Having found that the Claimant was dismissed, I find that the Respondent has not established a potentially fair reason to dismiss. For the above reasons, the claim of constructive dismissal is well founded and succeeds.[67]As I did not hear sufficient evidence to determine the claim for holiday pay, this claim fails.[68]This case will now be listed for a remedy hearing in due course. REMEDY JUDGMENT The Respondent is ordered to pay the Claimant compensation for unfair dismissal in the sum of £78,662.501
Law
[1]This hearing was listed to determine remedy following the Claimant's successful claim of unfair dismissal.[2]The Respondent had written to the Tribunal, prior to this hearing, to postpone the remedy hearing, but withdrew this application at the start of the hearing. 1 Refer to the schedule at the end of this document for a complete breakdown[3]The Claimant had submitted a schedule of loss prior to the hearing and the Respondent had submitted a counter schedule of loss. Whilst there was agreement as to the amount of the basic award and the fact that any compensatory award would be subject to the statutory cap, the following matters fell to be determined by me at the hearing:(a) Should a week’s pay, for the purposes of determining the statutory cap, include in that calculation, the annual bonus?(b) What is the period of future loss?(c) Did the Claimant fail to mitigate his loss? i. Did he act unreasonably in setting up his own business, rather than applying for positions as an employee? ii. Did he act unreasonably in taking less salary than he was contractually entitled to?(d) Should the Claimant be compensated for loss of pension contributions?(e) Should there be an uplift to the compensatory award on the ground that the Respondent breached the ACAS code?[4]The Claimant's schedule of loss showed that he had incurred significant costs in setting up his business, which he contended should be set off against his income from the business, reducing his income to zero. I immediately identified that the analysis of expenses was potentially more difficult but that it could all be academic if the amount of loss determined, even without taking into account expenses, exceeded the statutory cap.[5]I therefore informed Counsel that I would approach this exercise in two stages. The first stage would involve consideration of all those matters at paragraphs 3(a)-(e) above. If that resulted in the Claimant being awarded a figure exceeding the statutory cap, it would be pointless going to the second stage, which would involve a more detailed analysis of the claim for expenses incurred by the Claimant when setting up his business. Both parties agreed with that approach.[6]For this hearing, the Claimant had provided a further witness statement. For the Respondent, a witness statement was provided by Jackie Montgomery, the wife of Ian Montgomery. Both witnesses gave evidence and were cross examined. Neither Ian or Andrew Montgomery attended this hearing or gave evidence.
Findings of fact
[7]Following the termination of his employment with the Respondent, the Claimant looked at the market and concluded that senior roles in the same industry were not available either in Croydon or within a 25-mile radius of where he lived. The Claimant concluded that his only option was to set up his own company in an industry he had developed decades of expertise and experience. He had been in the heating and ventilation business, manufacturing and selling grilles and vents, for 37 years. Given his age and where he was in his career, he considered that retraining in another industry was not a viable option.[8]He formed a new company called London Vents Ltd on 2 August 2019. He borrowed £30,000 from his mother in law to start up the business, and also contributed £10,000 of his own money. The Claimant said that the total cost associated with setting up the business was £178,413.00.[9]The Claimant was employed by London Vents Ltd under a contract of employment which I was referred to at this hearing. There was no dispute that the document at page 266 of the main hearing bundle was the Claimant's contract of employment with London Vents Ltd. It stated that the Claimant's employment with the new business commenced on 1 September 2019 and that he would be paid a salary of £41,600.00. However, during this period the Claimant did not draw his full salary because the company could not afford to do so; instead the Claimant prioritised paying his staff. During the period from 1 September 2019 to the date of this remedy hearing, the Claimant received net income of £33,201.08, as opposed to the contracted net amount of approximately £48,900.00[10]The Claimant gave evidence that when employed by the Respondent, each Christmas he and other members of staff were given a Christmas bonus. He said that the amount “wasn’t set in stone but was generally an additional month’s salary”. Despite this, the Claimant only gave details about two bonuses he was paid: £3,790.47 on 13 December 2017; and £10,050.00 on 18 December 2018. The Claimant was not able to produce any payslips showing the bonus payments, but he did refer me to bank statements showing deposits matching the above sums.[11]Mrs Montgomery said that the above payments were not bonuses and were unauthorized. I do not accept this. There was evidence in the bundle in which the Respondent acknowledged the bonus payments and demonstrated that they intended that the Claimant should receive them. Conclusions, analysis and associated
Findings of fact
[12]A schedule setting out how I have arrived the the final sum to be awarded to the Claimant is at the end of this Judgment. My reasons for awarding the sums stated are set out below. (a) Statutory cap and definition of a “week’s pay”[13]The statutory cap which applies to a compensatory award under s124(1ZA) Employment Rights Act 1996 (“ERA”) is the lower of £88,519.00 and 52 weeks’ pay (uncapped). A week’s pay is calculated by reference to sections 221-227 ERA and the case law interpreting those sections, in particular:(a) By sections 226(3) & (6) the calculation date for the s124 calculation is the date on which notice would have been given had (a) the contract of employment been terminable by notice and terminated by the employer giving such notice as is required by s.86 ERA to terminate the contract and(b) the notice expired on the effective date of termination. (b) By s.221(2), where the employee’s remuneration for employment in normal working hours does not vary with the amount of work done in the period, the amount of a week’s pay is the amount “which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week”.[14]In Econ Engineering v Dixon [2020] ICR 1331 the EAT held that the words in s.221(2) refer to “a sum or sums which are payable by the employer as a matter of legal obligation where that obligation arises simply because the employee has worked their normal working hours in a week.”[15]Discretionary bonuses do not normally form part of remuneration because, although the employer must act rationally and in good faith when exercising the discretion, such payments are not in reality contractual. However, where a bonus is described as discretionary but is, in fact, paid to employees on a regular basis, it may be deemed to be a contractual payment. Of course, the fact that a bonus is paid regularly does not necessarily mean that it has become contractual. If a payment remains genuinely ex gratia, it will not be included in the calculation of a week’s pay.[16]Mr Watson invited me to accept that because there was an expectation that the bonus payments would be made at the same time every year, that I should accept that they were contractual payments and should be included for the purposes of calculating a week’s pay pursuant to s.221(2) ERA, and therefore also for the purposes of calculating the statutory cap[17]The problem for the Claimant, however, is that he only received two payments and these were vastly different in amounts. On the one hand I was being told that the bonus equated to one month’s salary, yet the bonus in 2018 vastly exceeded one month’s salary.[18]I was not persuaded that these payments were anything other than adhoc discretionary bonus payments. There was no documentation stating anything about the bonuses, or their terms, with the exception of the above mentioned correspondence acknowledging that payments had been made. Only two bonus payments were made to the Claimant notwithstanding he had been employed for some years. Although the Claimant said that the bonus was an additional month’s pay, this method of calculation was not consistent with the 2018 payment of £10,050.00. I concluded that whilst the Respondent intended to pay these sums, contrary to what was suggested at the hearing by Mrs Montgomery, there was not sufficient evidence for me to be satisfied that such payments had become contractual, as Mr Watson had invited me to conclude. For this reason, I did not consider that such bonuses fell within the category of payments that could be included in a “week’s pay” for the purposes of s.221(2) ERA which is used to calculate the statutory cap. I concluded therefore that the statutory cap in this case is £70,000.00. (b) Alleged failure to mitigate[19]The principles in respect of mitigation of loss are well-established, but were conveniently summarised in Singh v Glass Express Midlands Ltd UKEAT/71/18 (HHJ Eady QC) as follows:(a) The burden of proof to show a failure to mitigate is on the wrongdoer; a Claimant does not have to prove they have mitigated their loss.(b) It is not some broad assessment on which the burden of proof is neutral; if evidence as to mitigation is not put before the Tribunal by the wrongdoer, it has no obligation to find it.(c) What has to be proved is that the Claimant acted unreasonably; the Claimant does not have to show that what they did was reasonable.(d) There is a difference between acting reasonably and not acting unreasonably. There is usually more than one reasonable course of action open to the employee. The employer needs to show that jobs were available and that it was unreasonable of the employee not to apply for them.(e) What is reasonable or unreasonable is a matter of fact.(f) That question is to be determined taking into account the views and wishes of the Claimant as one of the circumstances, but it is the ET’s assessment of reasonableness, not the Claimant’s, that counts.(g) The Tribunal is not to apply too demanding a standard to the victim; after all, they are the victim of a wrong and are not to be put on trial as if the losses were their fault; the central cause is the act of the wrongdoer.(h) The test may be summarised by saying that it is for the wrongdoer to show that the Claimant acted unreasonably in failing to mitigate.(i) In cases in which it might be perfectly reasonable for a Claimant to have taken on a better paid job, that fact does not necessarily satisfy the test; it would be important evidence that may assist the Tribunal to conclude that the employee has acted unreasonably, but is not, in itself, sufficient.[20]The principle that the Respondent must prove that the Claimant acted unreasonably was explained clearly by Sedley LJ in Wilding v British Telecommunications plc [2002] ICR 1079 at [54] and [55]: [54]Take a not uncommon case: an employee who has been subjected to harassment at work is offered his job back with the same colleagues but with promised safeguards against repetition. He refuses it in circumstances in which the employment tribunal consider that it would have been reasonable to accept it; but they accept, too, that his decision to refuse was in all the circumstances not an unreasonable one… [55] It is not enough for the wrongdoer to show that it would have been reasonable to take the steps he has proposed: he must show that it was unreasonable of the innocent party not to take them. This is a real distinction. It reflects the fact that if there is more than one reasonable response open to the wronged party, the wrongdoer has no right to determine his choice. It is where, and only where, the wrongdoer can show affirmatively that the other party has acted unreasonably in relation to his duty to mitigate that the defence will succeed.[21]The Claimant was cross examined about his failure to mitigate. However this was simply limited to suggesting names of companies that the Respondent suggested the Claimant ought to have made applications to. There was no indication at all that any vacancies existed at those companies. I also bear in mind that the Claimant operated at a senior level and that what he wanted when employed by the Respondent was to become a shareholder. It was not therefore simply a case of the Claimant applying for any role within these companies; arguably such a senior position would be hard to come by.[22]I concluded that, given that the Claimant had spent his whole life in one field, it was reasonable for him to set up a business doing what he did with the Respondent. That is where all of his expertise and experience lay. I concluded that the Respondent did not get close to persuading me that the Claimant had failed to mitigate his loss. On the contrary, I am satisfied that he did. I therefore award the Claimant his actual losses. I also assess his future losses to be limited to one year, by which time I consider that his business will be more successful and he will have reached pay parity with what he received with the Respondent.[23]The Claimant said that he did not draw a full salary because it was important that other employees’ pay was prioritised in circumstances where the company was in its very early stages of development. I do not consider this to be unreasonable and I do not consider that by doing so, the Claimant failed to mitigate his loss. In the detailed break down of compensation in the Schedule to this Judgment, I have accounted for the sums received by the Claimant from his new business, and have made assumptions about receipts for the purposes of assessing future loss. I did not set off expenses as it made no difference to the end result bearing in mind the statutory cap.[24]The Respondent submitted that, in terms of monies earned for which credit should be given when assessing the loss, the Tribunal should take the amount the Claimant was contracted to receive. I do not agree. I conclude that it is right to give credit for monies actually received and that the correct approach was to consider whether the Claimant had failed to mitigate his loss in not taking a full salary, or whether he had acted unreasonably in not doing so. I concluded that the Claimant did not act unreasonably given the fragility of the new business at the time and the Claimant's view that it was important that he was in a position to pay his staff, not least because the future success of the business depended on him retaining those staff. However, in any event if I had used the contracted amounts both in terms of giving credit for past and future loss, it would not have affected the final amount to be awarded to the Claimant due to the statutory cap. (c) Period of loss[25]I consider that a future loss of twelve months is appropriate in this case. This is the period of loss suggested by the Claimant. (d) Pension loss[26]I accept that arrangements were made to enable the Claimant to receive a pension and had the Claimant not resigned, he would have received pension payments as that was clearly the Respondent's intention. I have therefore allowed for pension loss. (e) ACAS uplift[27]Under s.207A TULR(C)A 1992, the Tribunal may increase or decrease the compensation by no more than 25% if:(a) the claim to which the proceedings relate concerns a matter to which a relevant Code of Practice applies;(b) the employer has failed to comply with that Code of Practice in relation to that matter, and(c) that failure was unreasonable.[28]When assessing the level of any uplift under s.207A, the Tribunal should first fix the appropriate uplift by reference to the nature and gravity of the breach and then, but only then, consider how much this involves in money terms and, if necessary reduce to a level which would be proportionate and acceptable: Credit Agricole Corporate and Investment Bank v Wardle [2011] IRLR 604 (CA).[29]I conclude that the Respondent did breach the ACAS code by failing to deal with, what was effectively a grievance raised by the Claimant. I did not consider there to be a good reason for such failure. The Respondent essentially ignored the complaints being raised. I concluded that a 10% uplift was appropriate when considered against the sum of money which that represents. (f) Loss of statutory rights[30]I consider that a sum of £300 is appropriate given that the Claimant is effectively employed by his own business.[31]Given the sum to be awarded to the Claimant taking into account the above findings and conclusions, it was not necessary to deal with stage 2 of this process as outlined in paragraph 5 above. ……………………………………………… Employment Judge Hyams-Parish 26 February 202117 March 2021 CALCULATION SCHEDULE[1]Details Date of birth of Claimant 18/05/1966 Date Claimant started employment 15/08/2007 Effective Date of Termination 26/04/2019 Period of continuous service (years) 11 Age at Effective Date of Termination 52 Remedy hearing date 10/02/2021 Date by which employer should no longer 09/02/2022 be liable Statutory notice period (weeks) 11 Net weekly pay at EDT 934.98 Gross weekly pay at EDT 1,346.15 Gross annual pay at EDT 70,000.00[2]Basic award Basic award Number of qualifying weeks 8,662.50 (16.5) x Gross weekly pay (525.00) Total basic award 8,662.50[3]Compensatory award (immediate loss) Loss of net earnings Number of weeks 87,607.63 (93.7) x Net weekly pay (934.98) Plus loss of statutory rights 400.00 Plus Pension Contributions 21,623.07 Plus Bonus 8,000.00 Less sums obtained, or should have been obtained, through mitigation Earnings London Vents (01/09/2019 to -33,201.08 10/02/2021) Total compensation (immediate loss) 84,429.62[4]Compensatory award (future loss) Loss of future earnings Number of weeks 48,618.96 (52) x Net Weekly pay (934.98) Plus Bonus 4,000.00 Plus Pension Contributions 12,000.00 Less sums expected to be obtained through mitigation London Vents (11/02/2021 to -29,917.58 09/02/2022) Total compensation (future loss) 34,701.38 Compensatory award before 119,131.00 adjustments[5]Adjustments to total compensatory award Plus failure by employer to follow statutory 11,913.10 procedures @ 10% Compensatory award after adjustments 131,044.10 Grossed up compensatory award 210,916.77
award
[6]Summary totals Basic award 8,662.50 Compensation award including statutory 210,916.77 rights GRAND TOTAL 219,579.27 AFTER COMPENSATION CAP OF 78,662.50 £70,000.00 (GROSS ANNUAL PAY)