St John Of God (Care Services) Ltd v Brooks & Ors [1992] UKEAT 152_90_0804

EAT
St John Of God (Care Services) Ltd v Brooks & Ors
[1992] UKEAT 152_90_0804 · 1992-04-08
MR JUSTICE KNOX: The appellant, St John of God (Care Services) Ltd ("the Company") is a company which is wholly owned by a charity, the Hospitaller Order of St John ("the Order"). At the material time the Company operated a hospital ("the Hospital") with partly National Health Service ("N.H.S.") beds and partly private beds. It employed among its staff the four respondents to this appeal who were members of the nursing staff. Mr Brooks in particular was a very long serving charge nurse with 27 years employment at the Hospital. Mrs Andrews was a staff nurse on night duty and had been employed for over 15 years. Mrs Wharton was an enrolled nurse, also on night duty and had nearly ten years' service, while Mr Stephenson was a nursing auxiliary with nearly 13 years' service. The three respondents other than Mrs Wharton were dismissed by the Company by letters dated the 24th May 1989 giving 12 weeks notice to terminate their employment as from the 28th May 1989. The reason for dismissal was in each case the employee's refusal to accept altered terms and conditions of employment. It was common ground that the alterations were detrimental in various ways to the employee as compared with the terms and conditions previously enjoyed. Holidays were reduced, overtime rates for Saturday, weekend and Bank Holiday work were abolished and a generous sick pay scheme was replaced by statutory sick pay only and the Whitley Council provisions as to salary were no longer to apply. The Company recognised that these were harsh terms but claimed they were necessary if the Hospital was not to close with a large number of redundancies as a result of cuts in its N.H.S. financing.Mrs Wharton terminated her employment somewhat earlier on the ground that she had been constructively dismissed. She wrote to Mr Daly, the Hospital Administrator, on the 23rd March 1989 saying that she had been shown by her union the terms of a proposed new contract which she claimed would amount to a repudiation of her existing contract and was unacceptable to her so that unless the Company could assure her within seven days that her original contract would remain she would treat herself as constructively dismissed. No such assurance was given and by letter dated the 12th April 1989 she confirmed that she considered herself constructively dismissed. The Industrial Tribunal held that she was indeed constructively dismissed and that decision was not appealed from before us. The Industrial Tribunal also held that nothing which they had heard lead them to believe that there was any distinction to be made between the four applicants on the question whether they were unfairly dismissed and held that all four were indeed unfairly dismissed.No separate arguments were presented to us regarding Mrs Wharton on either side although for reasons which will appear later it seems to us possible that there may be a difference in that her employment was terminated some two months earlier than that of the other three respondents.Two other matters were not pursued before us. One was a cross appeal against the refusal of reinstatement and the other was an argument that there was a redundancy situation at the Hospital, raised in Mr Brooks' answer to the Company's appeal.The important background facts were that the Company was faced with progressive reductions in the Health Authority's service fee. Until the spring of 1987 the Hospital provided 100 N.H.S. beds and 25 private beds. 75% of capital costs were provided by the N.H.S. and 25% by the Order. The latter was not allowed, so the Industrial Tribunal found, by the rules of the Charity Commission to meet the Company's revenue losses. A written contract was made in July 1987 between the Health Authority and the Order regulating the basis upon which the Hospital was to provide N.H.S. beds and the necessary services. That reduced the N.H.S. beds at the Hospital to 85 and the funding to about £1.4 million. This reduction was dealt with by natural wastage so far as staff were concerned. However, within three months in October 1987 a further reduction in the Health Authority's service fee from £1.5 million to £900,000 was announced and a reduction in N.H.S. beds from 85 to 60. The Company managed to negotiate a rephasing of this cut into two stages of £300,000 in 1988/89 and £300,000 for 1989/90. The first cut of £300,000 was coped with reasonably well mainly by converting the top floor of the Hospital to nursing home as opposed to hospital uses. At this stage in the early part of 1988 the Company's relations with the Unions of which there were three, the Royal College of Nursing, the National Union of Public Employees ("N.U.P.E.") and the Physiotherapists Union, were good.No further discussions between the Company and the Unions occurred between January 1988 and January 1989. During this time the Company took various steps to try to make savings or increase revenue to cover the second anticipated cut of £300,000. The Unions were warned by letter from Mr Daly dated 4th January 1989 of anticipated redundancies. The letter concluded:
"The above redundancies, were they to be implemented, would still not offer us viability for the immediate future, therefore when we discuss these matters, I would also wish to introduce the reviewing of existing personnel's contractual terms and conditions."
This was followed by a meeting with the Unions on the 12th January 1989 and another later in January 1989 which produced no agreement. N.U.P.E. asked on the 17th January 1989 for the changes in terms and conditions to be stated in writing and these were sent on the 24th January. The proposed new terms and conditions were outlined in a letter to staff dated the 8th February 1989, explaining the Hospital's financial predicament and the need to make good a projected deficiency of £170,000, as follows:
"To achieve target the following proposals have been made for established staff.

Standstill of pay at present levels

Provision for Statutory Sick Pay only

No enhancements

Holidays to be 4 weeks per annum plus bank holidays to be increased by a further week after long service."It was these terms to which Mrs Wharton referred in her letter of the 23rd March 1989 in which she claimed constructive dismissal.The Company attempted without much success to negotiate better terms with the Health Authority and to get additional support from its bankers. Further meetings ensued with the Unions notably on the 17th and 19th April 1989 but the parties remained very far apart. At the latter it was stated on behalf of the Company that hospital management proposed to consult and discuss with individual employees regarding the proposed changes. The proposed new contracts would be given to employees who would be given a reasonable period of time to consider whether or not to accept but in the event of any employee not accepting the changes statutory notice of dismissal would be served.A notice to this effect was sent to staff the following day the 20th April 1989. New contracts were sent out and meetings were held with all 170 employees. Out of that number 140 accepted the new terms although later 115 employees signed a petition indicating they signed under protest. The remaining 30, who did not accept, were interviewed and thereafter dismissal letters containing 12 weeks notice to terminate were sent, as already mentioned above, to Mr Brooks, Mrs Andrews and Mr Stephenson (inter alios). By this time those who were going to accept had done so. In total 24 employees made applications to the Industrial Tribunal. The respondents before us are four out of that number.The Industrial Tribunal's findings as to the negotiating process between the Company and the Unions were that there was very little if any flexibility on the part of the Company and that the Unions on behalf of the employees put no real counter proposals as to terms of employment although the Unions did make other proposals such as ward closures, funds from the Order, less use of agency nurses and, above all, further negotiations with the Health Authority. No finding was made whether any of these proposals was practicable or not.The Industrial Tribunal accurately set out the effect of s.57(1) of the Employment Protection (Consolidation) Act, 1978 ("the 1978 Act") and quoted s.57(3) thereof. It found that the Company had shown some other substantial reason for dismissal namely the need to re-arrange terms and conditions of employees' contracts. That left the question under s.57(3) of the Act to be decided.It went on as follows in para 6(4) of its decision:
"We also accept that the case law on some other substantial reasons and changes in terms and conditions is adequately summarised in Harvey thus (a) Management have a right to reorganise a business in a manner which they consider advantageous but (i) it is for management to show that the reorganisation has discernible advantages and
(ii) more importantly, the interests of the employees cannot be ignored while evaluating whether the employer has acted reasonably under section 57(3)(b) Occasionally an employee may act reasonably in refusing to accept new terms and yet the employer may equally be acting reasonably in dismissing the employee (c) Thus it does not follow that if one party is acting reasonably the other is acting unreasonably. The sole question is not whether the advantages to the employer outweigh the disadvantages to the employee (d) The crucial question is whether the terms offered were those which a reasonable employer could offer."The area of dispute before us upon the law was effectively limited to the question whether or not para. 6(4)(d) quoted above was a correct statement of the law. It is an accurate quotation of a sentence in Harvey on Employment Law II 1030. This in terms is based on the decision in Richmond Precision Engineering Ltd v. Pearce [1985] I.R.L.R.179. In that case the employee Mr Pearce was dismissed when he declined to accept new terms and conditions which his employers proposed in order to bring into line the terms and conditions of employees in their original business with those of employees, among whom Mr Pearce was numbered, of another business taken over by the employers. The proposed new terms were financially and otherwise to Mr Pearce's detriment as compared with those he had theretofore enjoyed. The Industrial Tribunal held there had been an unfair dismissal holding in reliance on Chubb Fire Security Ltd v. Harper [1983] I.R.L.R. 311 that the question which fell to be considered was:
"whether the respondents were acting reasonably in deciding that the advantages to them of implementing the proposed reorganisation outweighed any disadvantage which they should have contemplated that the applicant might suffer."
The Industrial Tribunal's conclusion was stated as follows:
"The offer as made to the applicant was unduly disadvantageous to him as compared with any advantage to the respondents . . . no matter how one looks at it he was worse off under the offered terms and he was entitled to reject them."
The Employment Appeal Tribunal allowed an appeal by the employer and substituted a finding that the complaint of unfair dismissal had not been made out. As is often done in Industrial Relations Law Reports what appears to be a headnote in heavy type at the beginning of the report consists largely of quotations from the judgment of Beldam J. The first paragraph of the heavy type is not a verbatim quotation but an accurate summary of the overall decision and of para.23 of his judgment. It reads:
"The Industrial Tribunal had erred in holding that the appellants had acted unreasonably in dismissing the respondent for refusing to accept changes in his terms and conditions of employment which would bring him into line with existing employees holding similar positions, on the grounds that he would be worse off under the new terms. The Industrial Tribunal had misdirected themselves in law in interpreting the EAT's decision in Chubb Fire Security v. Harper as indicating that the sole question to be answered was whether the appellants had acted reasonably in deciding that the advantages to them of implementing the proposed changes outweighed any disadvantages which they should have contemplated that the respondent might suffer."
The next paragraph of the heavy type starts with a nearly verbatim quotation from paragraph 30 of the judgment and continues with an even more nearly verbatim quotation of para 32 of the judgment. That combination reads as follows:
"In determining whether an employer has acted reasonably in dismissing an employee who refuses to agree to changes in his terms and conditions of employment consequent upon a reorganisation, Industrial Tribunals should confine themselves to the question posed under s.57(3) of the Employment Protection (Consolidation) Act, ie whether the dismissal was fair or unfair, having regard to the reasons shown by the employer, depends on whether, in the circumstances, the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee and that question should be determined in accordance with equity and the substantial merits of the case. When that question has had to be considered in other cases, Industrial Tribunals have approached it on the basis of considering the range of responses open to an employer in the circumstances and if the action taken by the employer to dismiss is within the range of reasonable responses of an employer in a similar situation, then the dismissal is fair, provided all the other requirements are complied with. The task of weighing the advantages to the employer against the disadvantages to the employee is merely one factor which the Tribunal have to take into account in determining the question in accordance with equity and the substantial merits of the case. It does not follow that because there are disadvantages to the employee, the employer acted unreasonably in treating his refusal to accept the changes as a reason for dismissing him."
There is then included the following sentence:
"The test is whether the terms offered are, from the employer's point of view, ones which a reasonable employer could offer in the circumstances."
The nearest passage in the judgment to this sentence is to be found at paragraph 33 where Beldam J. said:
"It [scil. the Industrial Tribunal] should have directed itself that what it had to consider was whether it was an offer, from the employer's point of view, which a reasonable employer could make, in the circumstances which faced that employer."
That was aimed at identifying the particular error which that Industrial Tribunal had committed namely in assessing what it thought would have been a reasonable offer and seeing whether the offer actually made measured up to their assessment. There is in the view of the majority of us, Knox J. and Mr Phipps, a danger in promoting the nature of the offer made by the employer of new terms and conditions to the status of the sole or crucial test, as the sentence in Harvey quoted above, which adds the word "crucial" to the I.R.L.R. headnote, does, because it involves or may involve a departure from the words of the statute which are:
"whether . . . . . the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee."
where "it" is the reason shown by the employer for the dismissal.The Industrial Tribunal in the present case did not make the mistake made by the Industrial Tribunal in Richmond Precision Engineering v. Pearce , supra, because what it said in its very succinct statement of its decision was this:

"7. Decision

(1) In this case it is not for the Tribunal to substitute its own views for those of the employer by saying what terms and conditions it would have considered to be reasonable.(2) However, bearing in mind equity and all the circumstances of the case as is required of us under Section 57, we can and do say that no reasonable employer could or should expect its employees (even fully accepting the very difficult alternatives faced by the Hospital) to take on board new contracts of employment in which, in addition to other losses of benefits, all "enhancement" payments such as extra remuneration for working at nights, on weekends and on Bank holidays are abolished. In our unanimous opinion to do so is quite unreasonable."There are however in the view of the majority two reasons why this so called crucial question which the Industrial Tribunal very understandably culled from Harvey is not the right question. The first is that if the only thing that is looked at is the offer, this necessarily excludes from consideration everything that happened between the time when the offer was made and the dismissal. That must in principle be wrong because it is to the dismissal that s.57(3) points and whether it was fair or unfair must be judged in the light of the situation when it occurred and not when an earlier step was taken. Mr O'Rorke for the respondent employees submitted that this was too legalistic a point and that the offer and the dismissal should be treated as all one transaction, pointing out that right from the making of the offer it was coupled with a statement that if it was not accepted notice of termination would be given. The majority of us see the force of that but we do not accept that the distinction is either legalistic or, what is probably meant by that pejorative adjective, without a practical significance in the present case, in that what seems to us a potentially significant fact is excluded if the offer is concentrated upon to the exclusion of all subsequent matters, namely the very large percentage of employees who did accept the offer. The decision to dismiss was taken after the acceptances. The majority of us doubt very much whether the question whether dismissal for refusing an offer of new terms and conditions made to the whole workforce was fair or unfair would be unaffected by the fact, if it were one, that either only 1% or 99% of the other employees accepted the same offer. This case is neither of those extremes but the point is one of principle and it does arise in this case.The second reason why the majority of us consider that treating the nature of the offer of new terms and conditions as the crucial question is difficult to reconcile with the statutory provisions of s.57(3) of the 1978 Act is that such an approach tends to lead to giving undue importance to the factor that the employee is acting reasonably in refusing the offer. The situation may very well be one in which the employer's legitimate interests and the employee's equally legitimate interests are irreconcilable. If there is a sound good business reason for the particular reorganisation (See Hollister v. National Farmers' Union [1979] I.C.R.542 at 551) the unreasonableness or reasonableness of the employer's conduct has to be looked at in the context of that reorganisation. To look at the offer as the crucial question is apt to blur that aspect of the matter.The minority of us, Mr Garfield Davies, is of opinion that the question which the Industrial Tribunal considered as the crucial one is indeed the appropriate one and that there is therefore no basis upon which this Tribunal should interfere. The difference between the majority and the minority is limited to the first of those points because the majority would have accepted the Industrial Tribunal's conclusion had it considered that the right question had been posed as the crucial one.Another ground of appeal was the brevity of the Industrial Tribunal's decision which is effectively contained in para.7(2) quoted above. There is force in this in that the parties are entitled to be told why they have won or lost and it is not at all clear what the Company failed to do that it ought to have done. There is no finding that any other solution to the Company's prospective very large deficit was available to the Company nor indeed is it said what was meant by the "very difficult alternatives faced by the Hospital" referred to in the Industrial Tribunal's decision.However this is a relatively unimportant matter compared with the earlier point made regarding concentration upon the terms of the offer which in the view of the majority of us does in this case amount to an error of law. Nevertheless the majority is not satisfied that if proper regard is had to the terms of s.57(3) of the 1978 Act the only result on the facts found is that the dismissals were fair. This is particularly so in relation to Mrs Wharton whose dismissal occurred before the other employees who did accept new terms and conditions had done so. In the circumstances the appeals will be allowed and the matter remitted to the Industrial Tribunal to reconsider in the light of this judgment. We do not direct that it should be heard by a differently constituted Tribunal.