Hand Tools Ltd v Maleham [1991] UKEAT 110_91_2711

EAT
Hand Tools Ltd v Maleham
[1991] UKEAT 110_91_2711 · 1991-11-27
MR JUSTICE KNOX: Hand Tools Ltd ("the Company") appeals from the decision of the Sheffield Industrial Tribunal which after hearings on the 13th September and the 20th November 1990 held by a majority that the applicant before them Mr J L Maleham was unfairly dismissed for redundancy and was entitled to £4,975.49 compensation. The appeal before us was directed at the first conclusion that Mr Maleham was unfairly dismissed in that the majority of the Industrial Tribunal held that there was no redundancy and it is the latter conclusion that the Company submits is wrong in law on the facts found.The Company is a relatively new company which was acquired "off the shelf" as the vehicle for a management buy out in February 1990. The business thus acquired had been in existence a long time and had originally been owned by a company formed by Mr Maleham's grandfather and later controlled by his father. The business was the manufacture of hand held and garden tools. In 1985 when the original company was owned by Mr Maleham's father, Mr Maleham, who had started with the Company in September 1976, had become Production Manager. The original company was sold to another organisation the Rockingham Group (which subsequently became Brook Tools Group) on terms that Mr Maleham's father continued to work for another two years. When those two years were up and his father retired Mr Maleham acted as General Manager but his functions did not include financial direction which remained with the Brook Tools Group but they did include the supervision of the manufacturing process. Below Mr Maleham from 1986 there was a Mr Ingham who acted as works superintendent. It was accepted in argument before us that the Industrial Tribunal was wrong in describing Mr Ingham, as it did, as having joined the Company as his first employment on leaving school. In fact he is somewhat older than Mr Maleham and is now some 43 years old. The other finding of the Industrial Tribunal regarding Mr Ingham, that he was trained as works superintendent by Mr Maleham was not challenged before us.In February 1990 the management buy out already mentioned occurred and the business was acquired by the Company which changed its name to that of the original company. There were two active directors of the Company at the time of that buy out namely Mr Gale and Mr Bly (they are the persons called Gail and Bligh in the Industrial Tribunal decision). There were in addition to those directors 31 employees. Mr Maleham's major activity was the running of the shop floor including the design of production methods and of production routes but did not include sales. Below him in relation to the shop floor came Mr Ingham as he had done for some four years. Mr Gale in particular took an active part in management and required Mr Ingham to report to him rather than to Mr Maleham. In April 1990 Mr Maleham took on a certain amount of sales activity but that does not appear to have been a very successful initiative. Although there is no specific finding to that effect in the Industrial Tribunal decision as opposed to a statement that it was said by the respondents that by the end of June Mr Maleham felt that it was not an acceptable type of activity compared with his primary work of running the production line, it was accepted in argument before us that it did not come to anything. On 2nd July 1990 Mr Maleham was dismissed by reason of redundancy by a letter which said inter alia that his previous position of Manager was redundant. Mr Maleham received 12 weeks pay in lieu of notice plus a redundancy payment. His Originating Application claiming unfair dismissal included the following:
"3.From February of 1990 Messrs Gale and Bly have been involved full time in the activities of Hand Tools Limited - Mr Bly as Sales Director and Mr Gale as Managing Director. Messrs Bly and Gale's appointment was in addition to, and not in substitution for, any other senior member of staff.
4.It was obvious to me that the Company could not sustain three executive employees, namely myself and Messrs Bly and Gale whereas previously it had supported me more or less single-handed.5.On 2nd July 1990 Mr Gale dismissed me on the alleged ground of redundancy and I attach a copy of his letter of dismissal dated 2nd July 1990.6.I do not think I was made redundant. My job has simply been taken over by Messrs Bly and Gale and divided between them. In the alternative I have been unfairly selected for redundancy."In addition Mr Maleham said in answer to an invitation in Form IT1 to state the reason for his dismissal, the following:
"The Company was taken over in or about February 1990 and the new management sought to discharge my work function themselves."
The majority of the Industrial Tribunal held that Mr Maleham was transferred from his primary and most experienced area of work as in effect works manager to the sales activity and that his initial function which was primarily related to production had been taken over by Mr Ingham who clearly had far shorter service with the Company. The Decision states that it had not been argued for the Company that Mr Ingham had been selected because of his greater efficiency than Mr Maleham. That must be irrelevant to the question whether there was or was not a redundancy situation although it might well be significant in relation to the question, if there was a redundancy situation, whether it was handled fairly or unfairly by the Company. The Industrial Tribunal went on to say that there was no evidence in detail of consultation and therefore it had no evidence from which to assess Mr Maleham's technical value to the Company. There then follows the majority's conclusion that there was no redundancy. It is stated as follows:
"We therefore take the view that there was no redundancy situation, since the direct supervision of the shop floor continued to be a necessary function. The applicant had been partly displaced by Mr Ingham, and had subsequently been dismissed from his sales activity on a basis said to be of redundancy albeit that that activity might have become more familiar to the applicant after further experience. The majority finding therefore is that the applicant was unfairly dismissed."
The minority view was that there was a redundancy situation in that the two new directors Mr Gale and Mr Bly were providing skills which had to some extent been earlier undertaken by the applicant and that Mr Ingham had, with Mr Gale, rendered the applicant's position in regard to production redundant.The Company's appeal was primarily based upon the argument that the Industrial Tribunal erred in law in treating the continuation as a necessary function of the business of the direct supervision of the shop floor as determinative of the issue whether or not there was a redundancy situation. Reliance was placed on the passage in Harvey on Industrial Relations at V1 para.635 which is a commentary of s.81(2) of the Employment Protection (Consolidation) Act 1978 ("the 1978 Act"). That subsection so far as relevant reads as follows:
"(2) For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to ..... (b) the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish."
It was common ground that para. (a) had no relevance to this case in that there was never any question of any cesser of the business or of its activities.The passage relied on in Harvey reads as follows:
" Requirements of that business for employees to carry out work of a particular kind have ceased or diminished. The test is whether the requirements of the business for employees to carry out the particular kind of work have ceased or diminished, not whether there has been a cesser or diminution of that kind of work. Delanair v. Mead [1976] IRLR 340: Higgs & Hill Ltd v. Singh [1977] IRLR 229 .... This basic point as to the correct test was reaffirmed by the Northern Ireland Court of Appeal in McCrea v. Cullen & Davison Ltd [1988] IRLR 30 (management functions of applicant and another performed satisfactorily by that other while the applicant was away ill: that arrangement formalised and the applicant dismissed: held for redundancy - the work has not decreased, but it was being done by one less employee)."
We accept the correctness of the above quoted passage from Harvey. Indeed the inclusion in s.81(2) of the 1978 Act of both cesser of the business and the cesser or diminution of the requirements of the business for employees to carry out work of a particular kind shows clearly that the latter is not limited to the reduction of the work in question. In Delanair v. Mead, supra, at page 343 para. 9 Cumming Bruce J said:
"It is submitted by Mr Irvine on behalf of the employers that the Industrial Tribunal have employed the wrong test and have confused the diminution of work of a particular kind with the diminution of the requirements of the business for employees to carry out such work. It is clear that those two concepts differ in important respects, because the volume of work may remain in (sic) the same although the requirement of the business for employees to carry it out had diminished. There are two obvious examples: (1) when a new machine is introduced which enables the same volume of work to be carried out by fewer men; (2) when there is over-manning such that on reorganisation of duties or terms and conditions of work the same volume of work is carried out by a slimmed down work force. Mr Irvine submits that this case illustrates a third example namely where for reasons of economy the employers introduce a new structure of management and supervision, and so reallocate duties that the same volume of work is carried out without the requirement for a foreman/supervisor to organise and oversee its performance. That such reallocation of duties may give rise to dismissal by reason of redundancy is illustrated by Sutton v. Revlon Ltd [1973] IRLR 173 and Scarth v. Economic Forestry Ltd [1973] ICR 322."
That passage was quoted with approval by Gibson LJ in McCrae v. Cullen & Davison , supra, at p.32.

(b) of the 1978 Act

"S.11(2)(b) when applied to the facts of this case may be reduced to the proposition that an employee is dismissed by reason of redundancy if the dismissal is attributed to the fact that the requirements of the business for employees to carry out the work of management has diminished. It will be seen that what the section is directed towards is not a diminution in the work of management but a diminution in the requirement of the company for employees to do the work of management. Though the work of management remains to be done the applicant will be redundant if the company has so organised its affairs that the work is done by fewer employees."
On behalf of Mr Maleham it was submitted that the function of supervising the factory floor was Mr Maleham's primary function and that it continued to be a requirement of the business which had not ceased or diminished and therefore there was no redundancy situation. It was accepted that where the proprietor of a business decides to carry out a function previously carried out by an employee there is in principle a redundancy situation. Consistently with that attitude there was no argument addressed to us to the effect that Mr Gale's position was to be equated with that of an employee engaged from outside as a substitute for Mr Maleham.In our view both the argument addressed to us on behalf of Mr Maleham and the decision of the Industrial Tribunal that there was no redundancy situation, since the direct supervision of the shop floor continued to be a necessary function, are infected with exactly the confusion identified and criticised in Delanair v. Mead and McCrae v. Cullen & Davison, supra, between the continuation of the work on the one hand and the continuation of the requirement of the business for employees to do the work on the other hand. It follows that the appeal should be allowed.We have considered whether any conclusion is possible on the facts found by the Industrial Tribunal other than one that there was a redundancy situation as regards Mr Maleham. Given the finding that Mr Maleham's primary area of work was the supervision of the production process as what amounted to works manager and that it was the continuation of that function which in the Industrial Tribunal's view led to there not being a redundancy situation, the sales aspect of Mr Maleham's duties can be disregarded. Indeed Mr Coles on his behalf accepted that it was not significant. Equally it is we think clear from the Industrial Tribunal's decision that Mr Ingham's functions did not significantly alter in 1990. All that is found regarding that is that he was required to report to Mr Gale instead of Mr Maleham. There is no suggestion that Mr Ingham's functions altered. He was and remained Works Superintendent from 1986 till Mr Maleham's dismissal as found by the Industrial Tribunal in para.6 of its Decision. It is also significant that the Originating Application does not anywhere mention Mr Ingham and it was not submitted to us that Mr Ingham's functions had changed in any material respect. In our view both Mr Maleham's sales responsibilities such as they were and Mr Ingham's functions are of no direct relevance to the issue whether or not there was a redundancy situation in relation to Mr Maleham. On that view and on the basis of Mr Maleham's own Originating Application which states in terms that the Company could not sustain three executive employees, namely Mr Maleham, Mr Gale and Mr Bly where previously it had supported Mr Maleham more or less single-handed we do not consider that any other conclusion is possible on the facts found than that Mr Maleham was redundant and we so find.That does not necessarily mean that Mr Maleham was fairly dismissed. That is a matter which should be decided by the Industrial Tribunal unless the parties agree and accordingly the case will be remitted to the Industrial Tribunal for the question whether or notMr Maleham was fairly dismissed to be determined, on the footing that he was dismissed for redundancy.