GEC Avionics Ltd v Sparham [1993] UKEAT 714_91_1210

EAT
GEC Avionics Ltd v Sparham
[1993] UKEAT 714_91_1210 · 1993-10-12

JUDGE HULL QC :

This is an Appeal to us from a decision of the Industrial Tribunal sitting at Ashford, Kent. That Tribunal sat on 16 and 17 October and on 28 October promulgated a very long decision, closely reasoned and setting out a great deal of the evidence, in which they acceded to the application of Mr Sparham, the complainant, that he had been unfairly dismissed but held that Mr Sparham had contributed to his dismissal by his own conduct to the extent of one third.The decision contains a great deal of detail about the Respondents, GEC Avionics Ltd, and the organisation of the Central Quality Department in which Mr Sparham worked. He was there as a member of the management team. The Respondents make a number of complaints concerning the grounds of the decision, saying that it is wrong in law, and these grounds can be condensed, I hope without discourtesy to Mr Fodder, by saying that he says the Tribunal applied the wrong test in deciding whether the employers had acted in such a way that Mr Sparham's resignation amounted to constructive dismissal by the employers.It is said by Mr Fodder that the Tribunal allowed themselves, having stated the test correctly in the first place and referred correctly to the authorities, to apply a different test. Instead of asking themselves whether the employers had behaved in a capricious, arbitrary and wholly unjustifiable way, they applied the test of mere reasonableness and held that it was enough to be satisfied that the employers had behaved unreasonably in their dealings with Mr Sparham. In those circumstances the Tribunal, having misdirected itself in that way and applied the wrong test, should not and could not have found that the employers were guilty of constructively dismissing Mr Sparham. That was Mr Fodder's contention and we will deal later in this Judgment with the detailed way in which he puts it.Mr Sparham had been employed for just over 17 years and it was clear that in many ways he was a skilled and valued employee. However, there was a difficulty in 1990. Mr Farham was expecting his pay to be reviewed and when the question of pay arose all the other managerial people in his department, and I think everybody in that department, were awarded a pay rise but Mr Sparham was not and that was the apple of discord.There was also another matter. Mr Sparham as a responsible person had been concerned with questions of costing, but he was not taken into the negotiations with a very important customer of the Respondents and there were misunderstandings over that which the Industrial Tribunal also had to consider.It is an enormously long decision; I think in a straightforward case of alleged unfair dismissal the longest I have ever read. It amounts to 25 pages of close type. I am not going to read it all. They set out in paragraph 21 that about a year after the question had first come up Mr Sparham, on 4th January 1991, being told again that he was not going to receive any pay increase because of a dispute with Mr Craven (who was a colleague), in despair wrote a letter of resignation and that is therefore the date of the alleged dismissal.There were two matters of complaint which the Tribunal considered. At paragraph 24 the Tribunal set out that:
"Mr Sparham agreed that he did not have a contractual entitlement to a pay rise, but it was the usual course of business to receive a rise each year"
They go through the evidence stating which witnesses they prefer. There is no complaint about that and it does seem to us that it is a very patient and careful exploration of the evidence. There is no complaint as to which evidence the Tribunal were entitled to accept or that they misdirected themselves about those matters. The Tribunal set out that they find Mr Boardman (a senior man) an extremely impressive witness and they accept his evidence. They then go on to the circumstances of the non-award of any pay increase to Mr Sparham and they set out at paragraph 31 that Mr Reese (deputy managing director) suggested that Mr Sparham should receive a zero pay award that year, that was early 1990, which might induce him to transfer to a larger department where he would be cushioned from what was called "interface with engineers". Mr Sparham had an accountancy function.Despite that decision by a very senior member of management the Tribunal record that
"Mr Boardman did not tell him that the zero pay award had been upheld because Mr Reese wished to apply pressure on him to transfer departments."
I should say that Mr Sparham had on several occasions been absent from work owing to illness. Part of the trouble was some sort of nervous illness. He was apparently a man who was prone to anxiety and his job was one in which he was obviously exposed to considerable responsibility and had difficulties in obtaining information which he required to carry out his costing duties.They then say at paragraph 36:
"Mr Boardman said that he thought that someone should have explained to Mr Sparham more directly that his nil pay rise was to encourage him to move departments. He had no evidence that anyone was trying to induce Mr Sparham to resign from the company. Personally, he was not keen on Mr Reese's suggestion, because it might leave him without a Costs and Budget Officer for his final year. Mr Reese was leaving it to other people to apply pressure to Mr Sparham."
They go on to deal with the way in which pay rises were awarded. They record, quite rightly, that this was a difficult time and that a number of staff were being made redundant, that there were a number of staff who did not receive a pay review and they say 130 monthly-paid staff out of 3,500 did not receive an increase. They then went on to consider the criteria which they should apply to the contention that Mr Sparham had resigned in circumstances such that it could justifiably be said that there had been a dismissal by the employers.At paragraph 49 of their decision they refer to the case of Western Excavating (ECC) Ltd v Sharp [1978] QB761 to which we too have been referred today. That of course is a case which holds that there is no rule that an employee is entitled to resign simply because he says his employer has behaved unreasonably. It is necessary to apply what has been called the contract test, that is to say that the employer must be guilty not just of a breach of contract but of a breach of contract which goes to the root of the contract such that the employee is entitled to say - "I accept this as terminating the relationship between us. You have committed a fundamental breach or a breach which goes to the root of the contract, and I am entitled to say that as a result of that I shall be no longer bound. I resign. And you have dismissed me".They then go on to consider the criteria with regard to the pay rise. In paragraph 51 they say that Ms Absalom (who appeared for the company):
"submitted that there was no contractual term which entitled Mr Sparham to an annual pay rise, but she conceded that there was an implied term that the respondents should not behave capriciously or inequitably to Mr Sparham. "
so that was the concession made to the Tribunal by Ms Absalom.Later it is confirmed that that is what Ms Absalom said in paragraph 52. She submitted that there had been no capricious or arbitrary treatment of him in this matter of pay. They then record that of course if was said by Mr Sparham (or on his behalf) that that is how the Respondents had behaved.The Tribunal then reviewed some other matters including the question of payment of bills and in paragraph 57 they say:
"In the light of our findings of fact on this issue, it is our unanimous view that Mr Sparham has failed to make out a case that his employers were in breach of the implied term of mutual trust and confidence by deliberately withholding information from him."
Then they go on to the question of pay and in paragraph 58 say:

"We turn now to the question of pay, and find the following further facts:-

Mr Sparham was a valued employee of the Central Quality Department, where he reported to Mr Boardman.Mr Boardman thought that his technical ability was excellent.Mr Boardman assessed him for a pay rise in 1990, his technical ability being taken into account, but the recommendation being moderated because of an item of misconduct on Mr Sparham's part, namely, the incident with Mr Wyatt.I should say that there had been more than one incident, which may very well have been partly due to the stress of Mr Sparham's job or partly perhaps to his natural nervousness, when he behaved in an intolerable way towards colleagues and had rows with them or swore at them and that was a matter which was of some concern to his employers.They go on to say:
"Mr Boardman's recommendation that Mr Sparham should receive a pay rise in 1990 was contested by Mr O'Malley, who assessed Mr Sparham for a zero rise because of conduct, and what he described as a pre-1989 pattern of conduct.
Mr Boardman objected: the matter went to Mr Reese who overruled Mr Boardman and upheld the zero award for the covert reason that it would persuade Mr Sparham to transfer from CQD to another Division

This was never told to Mr Sparham, but

It was put to Mr Sparham as an option that he should transfer to a different Division. He agreed to co-operate, and enquired about the progress of that option, which eventually proved not to be feasible."Mr Sparham's review was deferred for grounds which had nothing to do with the objective assessment of his pay in the preceding period.The effect of deferring the pay review throughout the autumn of 1990 was that the employers were applying pressure to a personality which they had reason to think was vulnerable. There is no evidence which entitles us to say that they were doing this deliberately, but that was the effect of the continued delay.The final pay review took place on 7 December, but its result was not communicated to Mr Sparham until 4 January 1991, when he asked about the result, as the company had not volunteered it. In the absence of knowing the result, Mr Sparham was under further pressure until January.The combination of the original review with its zero award, and the slow progress and deferment of the subsequent review, and the failures of communication related to that slow progress, made Mr Sparham feel that the company was not treating him correctly. That drove him to resign.We have carefully considered whether, in the light of our findings of fact, Mr Sparham has made out a case that he was constructively dismissed because of inequitable treatment about his pay. We remind ourselves that he had no contractual right to a pay increase. But we are unanimously of the view that, in awarding him a nil pay award in April 1990 in the face of Mr Boardman's recommendation, Mr O'Malley acted unfairly and inequitably towards Mr Sparham in failing to take into account, adequately or at all, his technical ability and his good performance in his work, and allowing that to be totally overridden by one (admittedly serious) item of misconduct for which we found Mr Sparham did not even receive an informal warning. Mr O'Malley further acted inequitably by taking into account matters which must already have been taken into account when assessing Mr Sparham's pay rise for 1989, which was wholly merit-based, and for 1988 which was partially merit-based. He thereby, in effect, punished Mr Sparham twice for the same offence. Mr O'Malley's decision to award a nil increase was supported by the Assistant Managing Director for a covert reason, but, since that reason was not known to Mr Sparham until the Tribunal hearing, it can have formed no part of his view that he had been constructively dismissed.Mr Sparham was then promised a further pay review in September/October 1990. That was deferred for reasons which we characterise as specious." [That is a strong word to which we think we ought to give full affect]. Although we can understand Mr 0'Malley was busy with the multiple redundancies, he should have found time to consider the question of Mr Sparham's pay, and to deal with him fairly and equitably. Instead, this was deferred (with Mr Boardman's approval) to see whether Mr Sparham withstood the pressure of the period in which he prepared the budget. [So that was a deliberate decision] Mr Sparham was told that his review would take place in mid-November, but Mr O'Malley did not deal with it then. At the beginning of December, Mr Sparham reminded Mr O'Malley, and, on the following day, Mr O'Malley telephoned Mr Boardman - but by then Mr Sparham had received his informal warning from Mr Craven. [That was in respect of an incident of offensive behaviour]. In the circumstances, Mr O'Malley was not prepared to grant any increase, but even then that decision was not conveyed to Mr Sparham until a month later. Mr Sparham, it was clear both from other people's evidence (particularly that of Mrs Starling and Mr Boardman, and, indeed from his own) is a nervous and hypertense (sic) man. His employers knew that. Their handling of the second pay review was inequitable and unfair to Mr Sparham because they unreasonably deferred and delayed dealing with the pay review, or communicating the result to Mr Sparham. After, we repeat, very careful consideration indeed, it is the unanimous decision of the Tribunal that, in the matter of both the original and subsequent pay review for 1990, the respondents treated Mr Sparham so unfairly and inequitably as to breach the implied term that an employer will not act inequitably towards his employee: since this was a matter affecting Mr Sparham's pay, he was entitled to treat it as going to the root of the contract, and as being repudiatory. He was entitled to treat himself as having been dismissed, and to accept the fact of the firm's repudiation of his contract of employment."They then went on to ask whether Mr Sparham was at fault himself and they said he was undoubtedly guilty of conduct which affected the results of both the original pay review (the incident with Mr Wyatt) and the December pay review (the December incident with Mr Craven).
"His conduct on both those occasions was a substantial factor in his employer's treatment of him. Doing the best we can, we assess his contributory fault at one-third."
So those were the findings of the Industrial Tribunal and of course, as is entirely accepted by the Appellants, we have no jurisdiction to hear any Appeal on grounds of fact. What the Appellants have to do and have endeavoured to do is to point to errors in the approach of the Tribunal which amount to errors of law.The matter was put very concisely by Mr Fodder. He referred to Western Excavating v Sharp and then he turned to the question of whether it could be said, as a matter of law, that there had been a breach by the employers which went to the root of the contract. He referred the case of Murco Petroleum v Forge [1987] ICR 282. That was a case in which:
"the employee resigned because she had failed to receive a pay increase having received a pay increase in each of the previous ten years. An Industrial Tribunal upheld her complaint of unfair dismissal on the ground that the employers were in breach of her contract of employment by excluding her from the general pay increase without previous warning. They held there was an implied term in her contract of employment that she would be given an annual increase, that the employers had repudiated her contract of employment so that she was entitled to treat herself as constructively dismissed and that her dismissal was unfair."
The employers' appeal was allowed:
"It was held that there was no general principle that an implied obligation to provide regular pay increases should be read into a contract of employment and that the industrial tribunal had erred in law in holding that there was such an implied term in the employee's contract; that further, even if there was an implied term that an employer would not treat an employee arbitrarily, capriciously or inequitably in matters of pay, the industrial tribunal had failed to consider whether the employers had in fact acted arbitrarily; and that if the industrial tribunal had considered the matter, they would have concluded that the employers had not acted capriciously and, accordingly, the employee had not been unfairly dismissed."
In the course of their Decision, the Employment Appeal Tribunal referred to the decision in F C Gardner v Beresford [1978] IRLR 63 to which Mr Fodder also referred us and the passage cited by this Tribunal was as follows:
"Although in the present case there was no express contractual term relating to pay increases, in most circumstances it would be reasonable to infer a term along the lines that an employer will not treat his employees arbitrarily, capriciously or inequitably in matters of remuneration. In the present case, however, where the respondent employee had not had a pay rise for two years and other employees had received increases, it was unclear what the Industrial Tribunal had meant when they found that the employee had been victimised.
The Industrial Tribunal may have meant no more than that the employee had a grievance; that she was resentful and that the employers had not treated her very well. On the other hand, if there was evidence to support a finding that the employers were deliberately singling the respondent out for special treatment inferior to that given to everybody else and that they were doing it arbitrarily, capriciously and inequitably, that might well lead the Industrial Tribunal to say that she had a good claim even under the new test for constructive dismissal."Mr Fodder cited further passages from that case to us. He said that the Industrial Tribunal had dealt first with the question of mutual trust and confidence in relation to the question of keeping Mr Sparham in the dark about other matters and he said that when they came to the question of pay they were applying the quite different test which is referred to in the Murco case and the case cited there ( Gardner v Beresford ) and they were applying the test of whether the employers had acted arbitrarily, capriciously, inequitably - whether those words were connected by the conjunctive "and" or by the disjunctive "or".Having referred to Gardner v Beresford he said that if you look at paragraph 60 the Tribunal, having perhaps correctly stated the test earlier, were sinking into heresy. They were speaking as though mere unfairness by itself could amount to a breach of contract. He referred to The Post Office v Roberts [1980] IRLR 347; in particular the passage which is cited in the headnote:
"Whether the conduct of the party whose behaviour is challenged amounts to a repudiation of contract must be determined by whether it is such that its effect, judged reasonably and sensibly, is to disable the other party from properly carrying out his or her obligations."
Mr Fodder referred to another passage in the headnote:
"The Industrial Tribunal had erred, however, in holding that there is an implied term that an employer will treat an employee in a reasonable manner. Such a term is too wide and too uncertain to be implied. Although there are some obligations in a contract of employment which the employer must comply with reasonably, there are others - such as the payment of wages due - which do not admit of any reasonable compliance; there must be compliance. It could not be held, however, that the Industrial Tribunal's view had so affected their judgment that it required their decision to be reversed. In the end, the Industrial Tribunal had considered the correct matter and considered it in the light of the facts as they understood them to be."
So, says Mr Fodder, the Industrial Tribunal were not invoking the test of mutual confidence and trust at all, they were applying the test in the case of Gardner v Beresford and Murco Petroleum Ltd v Forge and they should have been applying the test of whether it could be said that the employers' behaviour was arbitrary, capricious and inequitable. So those are the submissions which Mr Fodder made about that.He referred to the text which I have already read and said that merely to refer, as they do in paragraph 60, to "inequitably" as being a test, was not right - the employers' behaviour should be described as arbitrary, capricious or both - and he said that even if they did find that there was a breach relating to pay, they were wrong in directing themselves that they could say that that automatically went to the root of the contract. He cited Gillies v Richard Daniels & Co Ltd [1979] IRLR 457, which undoubtedly establishes the proposition that the mere fact that the employer wrongly withholds some part of the pay of an employee does not, of itself, entitle the employee to treat the contract as being at an end, even if that withholding of pay is a breach of contract. One can understand that case very well because if something to which the employee is contractually entitled is withheld, the employee has his remedy if he chooses to sue for the money, and it may be that the correct view is that although it is a matter of complaint it is not so serious that it can be said that it goes to the root of the contract; of course we accept that.Mr Fodder said - Look what the Tribunal say:
"...since this was a matter affecting Mr Sparham's pay, he was entitled to treat it as going to the root of the contract.."
That is a non sequitur says Mr Fodder; and he says - if you read this decision justly, the Industrial Tribunal are introducing by a back door the old test of reasonableness which was demolished by Western Excavating v Sharp.I have read the relevant parts (or most of the relevant parts) of the Industrial Tribunal's Decision, which was a carefully reasoned one. As in all questions of degree and fact the Tribunal has a duty to assess the evidence which it has heard and which is its own responsibility alone. It is not for us to say whether we would, or would not, have reached the same decision as the Tribunal and one must be careful in considering the conclusions of the Tribunal not to trespass on their function of finding the facts. It may very well be that a different tribunal (it does not matter about our view) would have reached different conclusions. What we have to ask ourselves is was this Tribunal entitled to reach the decisions they did?It seems to us that when the Courts have spoken of the fundamental term which must exist in all contracts of employment that there should be mutual trust and confidence, that is a generalisation of which the rule in the Murco case and the Gardner v Beresford case that the employer must not act arbitrarily, capriciously and inequitably in dealing with matters of pay is but an example.In the very wide range of relationships which come under the broad umbrella of the contract of employment there must be many different types of employment and many different types of obligation. Quite clearly to say in a general way that either employer or employee is under a duty to treat the other reasonably is going far too wide. There are environments in which, for example, bad language, roughness and so forth is all part of the everyday round; there may be other environments in which such things would be rightly held to be a breach of an important term of the contract.We think that when the employer is said not to be under a contractual duty to award a pay rise but none the less he is under a duty, when he comes to deal with pay, not to behave arbitrarily or capriciously or inequitably, that is but an illustration of the duty of good faith and fair dealing which underlies the mutual trust which has to exist between employer and employee. It is almost a truism to say that the employee owes duties of good faith to his employer, he must act honestly, respect important confidences and not betray his employer and it works the other way too. An employer must not betray the relationship of trust which has to exist between him and the employee. That is an overriding obligation and the two cases which have been cited to us, Murco v Forge and Gardner v Beresford, are but illustrations in which it has been authoritatively stated what is the test to apply when the employer deals with the question of pay and in particular the question of pay rises.Now we look at the facts in this case which I have already read. It is quite clear that there was a covert purpose in refusing the pay rise. It was thought that it would bring pressure to bear on this susceptible man to apply for a transfer of some sort and this purpose was never made known to him. He was never treated frankly about this. When, 6 months after the first decision was taken or thereabouts, the question of reviewing the decision should have come up, it was deferred for reasons which in the view of the Industrial Tribunal were specious. They found that this made Mr Sparham feel that the Company was not treating him correctly and drove him to resign. They speak of him being punished twice for the same offence. They say of this nervous and hypertensive man that the review was deferred to see whether Mr Sparham withstood the pressure of the period in which he prepared the budget. Thus at a time when he was under great pressure from his exacting job a deliberate decision was taken which had the effect of bringing further pressure to bear on him.It is not for us to say whether we agree with the Industrial Tribunal or not. We can find in this decision, justly read, no evidence that the Industrial Tribunal departed from the test which they had correctly set out, namely that there had to be not merely a breach of contract but one which was fundamental, one which went to the root of it and which in effect made it impossible for Mr Sparham to carry out his duties.In our view they were amply justified by what they had heard and accepted in evidence in saying that here there was such a breach; that pressure was deliberately being brought to bear in a covert manner by withholding the pay review - on one occasion for reasons which they characterised as specious - and in a way which drove Mr Sparham to resign. We do not say that we would have reached the same conclusion but we do say that there was ample material to justify that decision and that on a true reading of the decision it cannot be said that the Industrial Tribunal departed from the proper test in law. In particular it seems to us that they had their eye admirably fixed upon the question of mutual trust which ought to exist and which must exist between employer and employee and which clearly, on any view, was likely to be shattered by this pressure brought to bear on this nervous and hypertensive man.Mr Fodder refers to one passage where they say:
"...since this was a matter affecting Mr Sparham's pay he was entitled to treat it as going to the root of the contract, and as being repudiatory."
Mr Fodder complains of that for the reasons which I have tried to summarise. In our view there is what could at worst be described as an ellipsis there. If they had simply said: "since that was a matter affecting Mr Sparham's pay then, having regard to all the facts which we have set out and in particular the importance which all parties, including Mr Sparham himself attached to it, he was entitled to treat it as going to the root of the contract" then there would have been no complaint about that, or so it seems to us. In our view the Tribunal were doing no more than stating shortly an added conclusion which led them to the conclusion that this was something which Mr Sparham was entitled to treat as going to the root of the contract.He had been put under pressure. It was covert. The true nature of what had happened was being kept from him and at a time of great stress for him he was being made in effect the subject of some sort of experiment in psychological management (I do not think that is an unjust way of putting it) hoping that he would apply for transfer but not telling him so; not counselling him, not advising him that really he ought to apply for a different department because his behaviour in the present one and other matters made his employers feel that he was under too great a stress there, nothing of that sort.Mr Fodder complains finally that it was illogical in the circumstances for them even to consider, in the light of those findings, whether Mr Sparham was at fault himself. One can certainly see the logical difficulties about that but Industrial Tribunals, as indeed employers and employees, are supposed to apply a certain amount of commonsense in their every day affairs. Mr Sparham, not to put too fine a point upon it, had been guilty of using foul language and rowing with colleagues in a very embarrassing way and it appears to us that there is no error in law in the Tribunal going on to say that he contributed, to some extent, to the ill consequences which followed; in assessing as a matter of degree and fact the question of his contribution to his own dismissal the Tribunal were in our view fully entitled to approach it in that way and are not guilty of a fatal error of reasoning.For those reasons, which are concerned not with any questions of fact but simply with whether there was material on which the Industrial Tribunal could reach the conclusion they did, and whether they used the correct and proper tests in reaching their conclusion, this Appeal falls to be dismissed.