Abbey National Plc v Holmes [1992] UKEAT 406_91_1512

EAT
Abbey National Plc v Holmes
[1992] UKEAT 406_91_1512 · 1992-12-15

JUDGE HICKS QC:

This is an appeal by the employers, Abbey National plc, from the decision of the Industrial Tribunal promulgated on the 14th June 1991, its decision being that the Applicant, the Respondent before us, Mr Simon Andrew Holmes, had been unfairly dismissed, and a cross-appeal by Mr Holmes against the finding of the Tribunal that there should be no award of compensation.Mr Holmes was an acting Branch Manager in the Abbey National and he resigned by a letter dated 9th July 1990. The issue before the Tribunal was, therefore, whether under Section 55(2)(c) of the Employment Protection (Consolidation) Act 1978 he had terminated his contract of employment in circumstances such that he was entitled to terminate it, without notice, by reasons of the employer's conduct, in other words whether there was what is commonly called a constructive dismissal.The Tribunal found that there was a constructive dismissal and the substance of the appeal is that in so doing they misdirected themselves as to the law. There was a further ground in the Notice of Appeal that if justified in finding dismissal they nevertheless erred in law in failing to consider as a separate issue whether that dismissal was fair or unfair. That ground was not argued and we need say nothing about it.In view of the nature of the issue before us we need not rehearse the facts in full; suffice it to say that they concerned Mr Holmes' conduct in relation to applications by him for loans from his employers to a total of £11,000 and that the Tribunal's findings include two of some seriousness, one being that on receipt of one of the advances amounting to £6,900 he failed to apply it to eliminate the negative balance on his deposit account with his employers, as had been agreed between himself and immediate superior Mrs Gonzalez. The other was that when questioned by Mrs Gonzalez about the continuing negative balance on that account he untruthfully told her that he had not received any of the loan monies. As a result of these events Mr Holmes was suspended and there was a disciplinary hearing. The employers had a formally structured procedure for dealing with such matters, which was followed.

(l) of the Appellants' skeleton argument as follows:

"Mr Holmes, in addition to receiving a final warning under stage 3. . ."

I interpolate that "stage 3" was a technical term in the procedural documents of the employer's disciplinary procedure and was the most serious of stages under which disciplinary charges could be dealt with. I continue with the quotation:
". . . .was to be ineligible for any performance related pay rise during a period of two years and would not be permitted to apply for any internally advertised job during that period."
There was a right of appeal within the disciplinary procedure, of which Mr Holmes was advised by his union representative, but he did not exercise it and instead resigned.The relevant part of the Tribunal's Reasons, at paragraph 4(g), reads as follows:
"[Mr Holmes] feels that there was never any justifiable reason for him to be disciplined, and secondly, that even if he was, that the sanction imposed was simply not appropriate and was in breach of that underlying implied term of trust and confidence between employer and employee.
Let us say clearly in regard to this first aspect that there is no doubt in our mind that Mr Holmes' actions did justify a disciplinary hearing; we are satisfied that what he did called out for a hearing and that these respondents were entitled to call him to book for obvious failure to follow sensible and commonsense standards expected of people who deal with money, deal with the public's money and deal, indeed, with their own personal money within the organisation that they are employed by. We have no doubt that the Respondents were perfectly entitled and wholly justified in calling him to a disciplinary hearing and we so find unanimously. There had been significant misjudgments by Mr Holmes that undoubtedly justified them taking the course that they did.h)We are unanimously anxious about the sanction imposed on the applicant. We have been shown a document which sets out the level of options available to the respondents when they feel matters are so serious that possible dismissal is involved. The document that we were grateful to receive from Mr Woods (who is Mr Holmes' witness) has been looked at and there appears to be no justification, in the sense of an agreed arrangement between the staff association and the respondents for adding on sanctions on top of a warning. It has been said to us by Mr Wood (and not disputed by Mr Woollcott) that it has become the practice to do this `topping up' if thought appropriate and if that is so, then it may be said that custom and practice over a period of time varied the exact terms of the written agreement. We will assume that that is so, but it still leaves the position to be that if the respondents are going to add something on top of a warning, then it has to be reasonable. To deny the applicant pay rises, related to his job performance for 2 years, and to say that he shall not have any interview that might lead to promotion is rightly complained about by Mr Holmes. We think he has made out his claim. It seems to us that what happened here went much further than any reasonable employer reasonably would go. All reasonable employers will deal reasonably with an employee when they discipline. Two years standstill on pay and promotion seems to us to be so far over the top as to make it unfair. We are unanimously of the view that this sanction really is too much; it does breach the implied term of mutual trust and confidence and it is something that did justify this applicant in saying `Well if that's how you are treating me, I'm going.'"It is germane also that in dealing with the issue of compensation the Industrial Tribunal said in paragraph 6 of their Reasons:
"This dismissal was unfair procedurally but should there be any compensation at all in the light of the totality of the evidence?"
We think that the reference as to its being unfair procedurally perhaps was a slip of the tongue, because it is not suggested anywhere else in the Tribunal's Reasons that there was any procedural defect on the part of the employers.Then, in paragraph 7, referring to their decision on the constructive dismissal issue:
"It is only a technicality that we make the declaration that the applicant was unfairly dismissed . . ."
On the issue of misdirection, Mr Fodder acknowledges that the Industrial Tribunal in paragraph 2 of their Reasons - which I have not read - reminded itself of the case of Western Excavating (ECC) Ltd v. Sharp [1978] ICR 221 - to which I shall return - and which, put shortly, decided that the question under Section 55(2)(c) is whether there has been a repudiatory breach of contract by the employers, not whether the employer has acted unreasonably in any general sense, and having so reminded itself, the Tribunal did at the end of the principal passage which I have quoted use contractual terminology in the phrase "it does breach the implied term of mutual trust and confidence". But he submits that taken as a whole the passages that I have quoted show that the Tribunal was, in truth, applying the reasonableness test as if this were a case of direct dismissal and as if they were concerned with Section 57(3) of the Act which provides, so far as is relevant to the present purpose, that once certain pre-conditions have been fulfilled the determination of the question whether dismissal was fair or unfair shall depend 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 shall be determined in accordance with equity and the substantial merits of the case.The case which is regarded and recognised as the leading authority on this subject is the case of Western Excavating (ECC) Ltd v. Sharp [1978] ICR 221 and the passage to which Mr Fodder referred us, and which we accept as setting out the case of the reasons of the Court of Appeal is that in the judgment of Lord Denning at page 227 D, where having discussed previous lines of authorities which canvassed two tests, one called in brief "the contract test" and the other "the unreasonableness test", Lord Denning said:

"In my opinion, the contract test is the right test."

and then he goes on to give his reasons and I do not think I need repeat them verbatim because that authority, Mr Fodder rightly submits, is established as laying down the principles which should be applied, and is summarised in the headnote in these terms:
"that whether an employee was entitled to terminate his contract of employment by reason of the employer's conduct and so be treated as having been dismissed, pursuant to [the relevant statutory provision] had to be determined in accordance with the law of contract and not by applying a test of unreasonableness to the employer's conduct; and that there had been no breach or repudiation of the contract of employment by the employers in that particular instance."
Mr Fodder also referred us to two other cases, one before Western Excavating and a decision of an industrial tribunal - its significance being that the test which it proposes was adopted and applied by the Employment Appeal Tribunal after Western Excavating in the case to which I shall come in a moment - and for present purposes it suffices to read paragraph 21 of the Reasons of the Tribunal as given by the Chairman, Mr Oliver Lodge. The case itself is Theedom v. British Railways Board [1976] IRLR 137 and concerned the disciplinary procedure of the British Railways Board, and paragraph 21 reads:
"Reduction in grade is one of the normal types of recordable punishment under the Railways disciplinary procedure. It is an accepted custom and practice in the railway service that an employee is subject in appropriate circumstances to reduction in grade and also to transfer from one place of work to another. We are satisfied that this custom and practice was an implied term of the applicant's contract of service. [Then the important sentence] The punishment imposed therefore was not a repudiation of the applicant's contract of service unless it was either grossly out of proportion to the offence or it was imposed from improper motives."
British Broadcasting Corporation v. Beckett [1983] IRLR 43 was a case where the Industrial Tribunal had concluded that the applicant was constructively dismissed. There was an appeal and the relevant part of the headnote reads:
"The imposition of a punishment which is `grossly out of proportion to the offence' [referring to the case of Theedom v. British Rail ] can amount to a repudiation of a contract of service."
and I think it can reasonably be submitted, as Mr Fodder did, that that amounts to an approval by this Tribunal of that test as enunciated by the Industrial Tribunal in Theedom's case. The Employment Appeal Tribunal in that case, it is only right to note, went on to say further, as summarised in the headnote:
"It was for the industrial tribunal to come to a conclusion whether the penalty of demotion was within the band of reasonable penalties which a reasonable employer might impose."
and in the absence of any attendance by or on behalf of Mr Holmes it is only right that we should have regard to that part of the headnote in Beckett's case because, as Mr Fodder acknowledged, that particular passage, on the face of it does seem to come very close to, if not to coincide with the way in which the reasonableness test is normally put under Section 57(3). Nevertheless that case, of course, did not and could not overrule or depart from Western Excavating , which remains the leading authority.Mr Fodder's submission about those cases, that is to say Theedom and Beckett , is that they may lean too far towards allowing in the concept of reasonableness by the back door, but that even if Theedom as approved in Beckett does correctly state how Western Excavating should be applied to a situation where the employer imposes disciplinary sanctions, the industrial tribunal here went too far and asked themselves not whether what the employer did was grossly out of proportion (there was no suggestion of improper motives) but, to repeat the key phrases in paragraph 4(h) of their Reasons:
"if the respondents are going to add something on top of a warning, then it has to be reasonable . . . what happened here went much further than any reasonable employer, reasonably would go. Two years standstill on pay and promotion seems to us to be so far over the top as to make it unfair."
In our view, that criticism is well founded even in the narrow terms of the Theedom test, which as we indicated may arguably be too favourable to the employee. We believe, however, that the better approach is to go back to Western Excavating and ask in progression the questions which it seems to us to entail. One, what is the relevant term of the contract? Two, was the employer in breach? And three, if so, was the breach repudiatory? There are, of course, further questions, such as whether the employee acted promptly and so on, but those do not arise here.It may well be that where there is a formal disciplinary procedure a term will readily be implied that the employer will not act outside the range of sanctions for which it provides. But it is a very different term, and one which the Industrial Tribunal did not expressly find, and could not, in our view, have found if properly directed, that the employer undertakes within the bounds of the sanctions provided for by its procedure not to impose a penalty which is, in the view of an industrial tribunal, unreasonable or unfair. Nor does it help, in our view, to say that an implied term of trust and confidence entails the same consequence. However, if such a term were one which an industrial tribunal could as a matter of law, and did as a matter of fact, imply, there is further no indication that this Tribunal asked itself whether the breach was repudiatory, especially given the existence of a right of appeal which Mr Holmes did not pursue and to which the Tribunal refers in terms which cast no doubt on its likely fairness - rather the reverse - and having regard also to the Tribunal's own phrase "it is only a technicality".For both of these reasons, therefore, we find that the Industrial Tribunal misdirected itself in law. We do so on the basis of their own assumption that the right to impose sanctions in addition to a final warning under Stage 3 arose from custom and procedure and practice rather than the express terms of the procedure. We do not need to reach a decision on Mr Fodder's further submission that that right existed on a true construction of the express terms themselves, although it has obvious force.We have also considered, in the absence of Mr Holmes, who was not able to attend this appeal, the matters put forward in his Respondent's Answer to the Notice of Appeal and in a further written statement which he submitted for consideration on this hearing. He raises, as we understand it, three matters in those documents he does so, not surprisingly, a little discursively but we trust that we have understood the substance of his submissions and they fall, apparently, under three main heads.The first is that the Abbey National acted unreasonably and unfairly in bringing the matter to a disciplinary hearing at all. As to that, all we need say is that the Tribunal itself expressly found that they were justified, and did so in emphatic terms and on ample evidence, and there is no basis on which we could interfere with that finding.The second matter that he puts forward is that, even if there were disciplinary proceedings, it was unfair and inappropriate to use the Stage 3 procedure, which as I have said, was the most serious of three possible stages. That aspect is not criticised by the Industrial Tribunal in its Reasons, and not relied upon by them for their conclusion, and we cannot find any reason to conclude that they should have criticised it or taken it into account, or that that would be an alternative justification of their decision, different and distinct from the reason which they themselves gave.Thirdly Mr Holmes relies, as one would expect, on the reasons given by the Industrial Tribunal themselves. But those, of course, we have dealt with in discussing the Appellants'submissions and our conclusions upon them.In the event, therefore, the appeal is allowed. Mr Fodder asks us to substitute our own decision for that of the Industrial Tribunal but we are quite clear that that would be inappropriate and that the proper course is to remit this application for re-hearing by a differently constituted tribunal and that is the Order which we make.In those circumstances we need not deal with Mr Holmes' cross-appeal, because on a re-hearing the matter will be dealt with de novo by the Industrial Tribunal and they will, therefore, have jurisdiction over all the issues which are raised by the cross-appeal, if they come to a conclusion that there was unfair dismissal.