Gates v Cosworth Engineering [1997] UKEAT 115_97_2907

EAT
Gates v Cosworth Engineering
[1997] UKEAT 115_97_2907 · 1997-07-29
MR JUSTICE KIRKWOOD : The Industrial Tribunal found that the employee, Mr Gates did not act promptly enough in response to his employer's fundamental breach of the contract of employment, to entitle Mr Gates to treat the contract as repudiated and himself as constructively dismissed. Mr Gates appeals. He says that the approach of the Industrial Tribunal was wrong in law.The tribunal that heard and dismissed Mr Gates's claim in respect of unfair dismissal sat at Bedford on 15th and 18th November 1996. It gave its extended reasons on 18th December 1996.Mr Gates was employed from August 1985 by Cosworth Engineering. Cosworth Engineering are well know in the motoring world for developing and building engines for sports and racing cars. They supply engines to Formula 1 teams and to Indy Car Racing teams in the United States of America.Mr Gates began his employment with Cosworth as a fitter. He moved on to sub assembly and then to the engine building department. In 1992 he applied for and obtained the position of race support technician on the Indy Car project. His grade changed from M1 - skilled fitter, to MJ - a technician/universal skill. He regarded that as a promotion.In the 1993 and 1994 Indy Car racing seasons in the United States Mr Gates remained based in England and travelled to the United States as required for testing and races. The financial arrangement was that on each trip he was paid for an 18 hour day from the day he left the United Kingdom until the day he returned. In 1993 and 1994 he earned £32,000 a year as against £21,000 or £22,000 he would have earned in the factory.In 1995 the pattern of the racing season in the United States was changed with the same or a similar number of races being compressed into a shorter period of time. It became impractical for Mr Gates to travel to and fro. So he was to go on secondment to Newman Hass Racing for 28 weeks for which he was to be paid £23,155. Two return flights were provided for Mr Gates's wife and children to visit him in the United States.On Mr Gates's return to the United Kingdom on 12th September 1995, he was told by Cosworth's programme director, Mr Miller, that he would no longer be required on race support and would have to return to work as an engine builder. The Industrial Tribunal found that that represented a substantial drop in status and in earning power and was a breach of contract, indeed a fundamental breach of contract as it went to the root of the contract of employment. Notwithstanding that, however, Mr Gates worked and drew his salary for the next nine weeks.Following his return from the United States, Mr Gates asked about his holiday entitlement. His contract said that he was entitled to 36 days leave a year. Before going to the Untied States in March 1995 he had taken only three days leave, so he thought he was due another 33 days. He was told in response that certain days on which he had not been working whilst in the United States had to be taken into account as holidays so that he was left with an entitlement for the year of 15 days of which five days had to be taken over Christmas. Mr Gates appealed to the chief executive, who referred the matter to Mr Bate, the personnel director.On 17th October 1995, Mr Bate wrote a letter to Mr Gates, received by Mr Gates on 18th October 1997, increasing his outstanding holiday entitlement by four and a half days. Mr Gates was not satisfied with that.The Industrial Tribunal found that Cosworth was not entitled to take into account non-working days in the United States. The tribunal found that Cosworth's action in respect of holiday entitlement was a breach of contract, indeed a fundamental breach. The tribunal found indeed that those breaches also amounted to a breach of the implied duty of trust and confidence. But still Mr Gates continued to work and to draw his salary.If nothing further had intervened between the receipt of the letter of 17th October on the following day 18th, and Mr Gates subsequent letter of resignation on 20th November 1995, the case would be simple enough. The only question for the Industrial Tribunal would have been was the resignation too late.But on 30th October 1995, Mr Gates became ill with an acute stress reaction. His doctor signed him off work for two weeks to 13th November and then a further two weeks. On 8th November 1995, Mrs Keppel, from the personnel department, called to see Mr Gates but he was out collecting his child from school. They spoke on the telephone on 13th November. That was before Mr Gates went for his further appointment with the doctor. Mr Gates asked how much more entitlement he had to sick pay. The contract provided for 15 days. Mrs Keppel told him he had six hours entitlement left. According to Mrs Keppel's note of the conversation, which I have understood not to be in dispute, Mr Gates asked to take off the next two weeks as holiday.There was in fact a prolonged illness sick pay scheme operated by Cosworth, but Mrs Keppel did not think it appropriate to authorise an extension under it in Mr Gates's case. On a proper interpretation of the scheme she may have been right, though the tribunal made no finding about that. Mr Gates, however, made no reference to that in his Originating Application, IT1.On Cosworth's behalf, a submission was made to the tribunal that that could not have been a breach leading Mr Gates to resign, because his evidence was that he was not aware of the detail of the prolonged sick pay scheme. The tribunal did not make any finding about that either. This appeal has proceeded upon the basis that Mr Gates was not aware of the scheme, or at least its detail.What, however, Mr Gates had said in his Originating Application was this:
"At work we have a scheme for being off sick. We are allowed 15 days and on the second appointment of 2 weeks I phoned work only to be told that I had 6 hours sick leave left and I would not get paid so I would have to take it as holiday. This was the final straw, not only have I given 10 years service to the Company and represented them in the USA but I feel they have treated me very badly, not only taking my job away but to give me the option of this is the job take it or leave it and then to take away my holiday. This is not good enough. They left me no alternative but to leave."
On 20th November 1995 Mr Gates wrote a letter of resignation in which he said:
"It is with regret that I hear by give 1 weeks notice to terminate my employment with Cosworth Engineering.
I feel very disappointed with the way I have been treated over the last few months after 10 yrs of loyal service to the company and feel that under present circumstances I cannot work under these conditions anymore.My present health condition is due to the way I have been treated by Steve Miller and I believe that it is his sole responsibility why I have to make this decision."That reference to treatment by Steve Miller is of course a reference to Mr Gates being redeployed as an engine builder, the first fundamental breach as found by the Industrial Tribunal; and possibly also to the decision as to holiday entitlement, although that is less clear. The Industrial Tribunal found that Mr Gates's resignation was due to Cosworth's breach of fundamental terms of the contract of employment.The tribunal's approach to the case in the light of that is set out in paragraph 21 of the extended reasons in these terms:
"21. We have been referred to the judgment of Lord Denning in Western Excavating (EEC) Ltd -v- Sharpe [1978] ICR 221 and to the principles laid down there. In order to claim constructive dismissal an employee must establish that (1), there was a fundamental breach of contract on the part of the employer, (2) that the employer's breach caused the employee to resign and (3) that the employee did not delay too long before resigning thus affirming the contract and losing the right to claim constructive dismissal. Mr Gates has satisfied the first two tests. There have been fundamental breaches of contract by the Respondent. Unfortunately for him it is the unanimous decision of the Tribunal that he delayed too long before resigning. He worked and drew his salary for nine weeks after he was aware of his loss of status and he allowed five weeks to elapse after he became aware of the result of his appeal in relation to his holiday entitlement. The implied term of trust and confidence was in our view broken at the date of the first breach of contract and cannot be said to have been broken only when the company refused to operate the prolonged illness sick pay scheme. We have every sympathy for the Applicant but he delayed too long before resigning."
The law is contained primarily in s.95 of the Employment Rights Act 1996 :

"(1) For the purposes of this Part an employee is dismissed by his employer if

. ..(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."It is clear that the Industrial Tribunal was referred to and had in its mind the decision of the Court of Appeal in Western Excavating (ECC) Ltd v Sharp [1978] ICR 221 . In the course of his judgment, the Master of the Rolls, Lord Denning spoke in reference to the provision of the legislation then in force which was, in its material terms, the same as the provision to which I have referred in the 1996 Act, but in was contained in paragraph 5(2) of Schedule 1 of the Trade Union and Labour Relations Act 1974 . Lord Denning said:

" The contract test

On the one hand, it is said that the words of paragraph 5(2) (c) express a legal concept which is already well settled in the books on contract under the rubric "discharge by breach". If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer's conduct. He is constructively dismissed. The employee is entitled in those circumstances to leave at the instant without giving any notice at all or, alternatively, he may give notice and say he is leaving at the end of the notice. But the conduct must in either case be sufficiently serious to entitle him to leave at once. Moreover, he must make up his mind soon after the conduct of which he complains: for, if he continues for any length of time without leaving he will lose his right to treat himself as discharged. He will be regarded as having elected to affirm the contract.

The unreasonable test

On the other hand it is said that the words of paragraph 5(2)(c) do not express any settled legal concept. They introduce a new concept into contracts of employment. ..."On page 227 the Master of the Rolls resolves that dispute:

"The result

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

In the course of his judgment Lawton LJ said this:
"For the purpose of this judgment, I do not find it either necessary or advisable to express any opinion as to what principles of law operate to bring a contract of employment to an end by reason of an employer's conduct. Sensible persons have no difficulty in recognising such conduct when they hear about it. ... Lay members of industrial tribunals, however, do not spend all their time in court and when out of court they may use, and certainly will hear, short words and terse phrases which describe clearly the kind of employer of whom an employee is entitled without notice to rid himself. This is what paragraph 5(2)(c) is all about; and what is required for the application of this provision is a large measure of common sense."
This appeal went to a preliminary hearing on 15th April 1997. By the order made at that hearing, the appeal was allowed to proceed to a full hearing only on the last straw doctrine in paragraph (ii) of the Notice of Appeal, that paragraph reads as follows:
"(ii) In reaching the decision the Tribunal failed to take account of the "last straw doctrine" which the Appellant argued was applicable to the facts of this case. The Tribunal found that the Appellant had affirmed the Contract by waiving the first breach. They then misdirected themselves in Law by deciding that affirmation after the first breach precluded the Appellant from accepting repudiation at a later date in respect of subsequent breaches."
The Industrial Tribunal does not seem to have been referred to or to have in mind the decision of the Court of Appeal in Lewis v Motorworld Garages Ltd [1985] IRLR 465 . We have been greatly assisted by considering that decision and in particular two passages from the judgment of Glidewell LJ:
"The principles to be found in the relevant authorities can, I believe, be summarised as follows:
. ..(c) The breach of this implied obligation of trust and confidence may consist of a series of actions on the part of the employer which cumulatively amount to a breach of the term, though each individual incident may not do so. In particular in such a case the last action of the employer which leads to the employee leaving need not itself be a breach of contract; the question is, does the cumulative series of acts taken together amount to a breach of the implied term.. ..This case raises another issue of principle which, so far as I can ascertain, has not yet been considered by this court. If the employer is in breach of an express term of a contract of employment, of such seriousness that the employee would be justified in leaving and claiming constructive dismissal, but the employee does not leave and accepts the altered terms of employment; if subsequently a series of actions by the employer might constitute together a breach of the implied obligation of trust and confidence; is the employee then entitled to treat the original action by the employer which was a breach of the express terms of the contract as a part - the start - of the series of actions which, taken together with the employer's other actions might cumulatively amount to a breach of the implied terms? In my judgment the answer to this question is clearly 'yes'."From that it is clear that the final straw, the last action by the employer that leads to the employee leaving does not itself have to be a breach of the contract, whether a breach of an express term or breach of the implied obligation of trust and confidence. The question is whether that final action taken cumulatively with what has gone before, amounts to a breach of the implied term or a continuation of the breach of that implied term.The Industrial Tribunal did not, so far as we can discern, approach the matter in that way. Somewhat confusingly, the Industrial Tribunal addressed breach of the implied term in two different ways. In paragraph 19(5), the tribunal addressed the demotion and the denial of holiday entitlement and said in respect of both:

"The Respondent's actions also breach the implied duty of trust and confidence."

Taking the matter there, the tribunal appear to be looking to not only the September but also the October breaches as breaches in their own right, and breaches of the implied duty.But, in paragraph 21, the paragraph of final conclusions, the tribunal spoke differently.
"The implied term of trust and confidence was in our view broken at the date of the first breach of contract and cannot be said to have been broken only when the company refused to operate the prolonged illness sick pay scheme."
It is not at all clear to us why the tribunal found that the implied term was broken only at the date of the first breach in September 1995. They do not in this final paragraph refer to a further or continuing breach in October 1995. We cannot discern why not, though it may be that the concept of continuing breach was not in the mind of the tribunal at all.Furthermore, we have difficulty in discerning what is to be made of the words:
"cannot be said to have been broken only when the company refused to operate the prolonged illness sick pay scheme"
Is that a finding that the Company's refusal was in fact such a breach, even though not a breach of an express term or not?Nor did the tribunal address Mr Gates's real point that despite his long and good service, it was the requirement that his sickness cut in to his already depleted holiday entitlement that was the last straw; and that that, though not in itself a breach of contract, was all part of a series of events that amounted cumulatively to breach of the implied term.It seems to us that because it did not consider the Lewis case, the tribunal did not ask itself the right questions on what I may call the "last straw point". Those questions in summary seems to us to be these. First, was it the action of the employer that led to the employee leaving? Secondly, if so, was that action which, though not necessarily in itself a breach of an express term of the contract, or not necessarily in itself a breach of the implied obligation as to trust and confidence, was nonetheless an action in a cumulative series of actions which taken together amount to a breach of the implied term. Accordingly those questions are not addressed in the extended reasons which reflect accordingly some lack of clarity as to what were the relevant considerations as to whether Mr Gates acted too late.Accordingly, it seems to us, that the decision of the tribunal is flawed by that error of law.We have been asked in the event we allow this appeal, we should substitute a decision of our own. But we could only do that if on a proper application of the law to the facts as found that the answer was plain.It seems to us, however, that had the tribunal asked itself the last straw questions, there is more than one possible answer on the facts as found and on the evidence upon which no finding of fact was expressed. For example, it would be open to the tribunal to find that the events which Mr Gates said was the last straw were indeed that. On the other hand, the tribunal could find that in reality that was not relevant. That, for example, the letter of resignation and the doctor's letter of 19th June 1996, more accurately reflect what led Mr Gates to leave. Those are matters of fact for the tribunal. In giving those examples I do not mean to limit the tribunal's application of the facts to the question it should ask, they are examples only. But they serve to illustrate that, whilst we have considered carefully who should give this case further deliberation, our unanimous view is that it should go back to the tribunal constituted as is was for the decision which is the subject of the appeal. That tribunal had the evidence. It has findings of fact; and in so far as it has not made findings because it did not consider it necessary to do so, it has the evidential basis upon which to proceed.The case will accordingly be remitted to the same tribunal for consideration upon the law as I have indicated it should be approached.Before we leave this case I say a word to the parties. It is regrettable that the case has to go towards a further stage of litigation which is burdensome both for Mr Gates and for Cosworth Engineering and if the parties were to consider between themselves whether any course is open to them that obviates a need for further litigation, then that deliberation would have our encouragement and blessing.No order for costs.