THE LONDON BOROUGH OF SOUTHWARK v MR D MUNGUL [2000] UKEAT 1359_99_0311

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2000] UKEAT 1359_99_0311

Case No Appeal No. EAT/1359/99

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

THE LONDON BOROUGH OF SOUTHWARKAPPELLANT

MR D MUNGULRESPONDENT

Before

Mr Justice Lindsay

Date 3 November 2000

[1]APPEARANCES For the Appellant MR B UDUJE (of Counsel) Instructed by: Legal (Contract) Services London Borough of Southwark 30-32 Peckham Road London SE5 8UB For the Respondent MR IMTIAZ AZIZ (Consultant) Crescent and Star Counsulting 386 Hanworth Road Hounslow Middlesex TW3 3SN MR JUSTICE LINDSAY (PRESIDENT) We have before us by way of a full hearing the appeal of the London Borough of Southwark in the matter Mungul against that London Borough and today, before us, we have had argument from Mr Uduje on behalf of the Appellant Borough and Mr Aziz on behalf of the Respondent, Mr Mungul.

[2]The history of the matter is as follows: on 10 February 1998 an IT1 was lodged by Mr Dev Mungul claiming, inter alia, that he was still employed by Southwark but that he had been unfairly dismissed by them not, as is the ordinary course, in having been dismissed altogether from employment (because that was stated to be ongoing) but from his post and his contract as a Care Manager; he claimed that that had occurred on the 19 November 1997.

[3]On 3 March 1998, Southwark lodged its IT3. Then, on 13 May, Mr Mungul lodged a second IT1 alleging sex and race discrimination and, on 2 March 1999, a third one, it seems, was lodged, on the subject of unlawful deduction of wages. Then on 8, 9, 10, 11 and 12 March 1999 and on 2 and 3 August 1999 there was a hearing at the Tribunal at London South. Then, on 1 October 1999, the Decision of that Tribunal under the chairmanship of Mr I S Lamb was sent to the parties and it was held that the complaint of unfair dismissal was well founded. There were other aspects of the case that are not necessary for us to go into, but the Employment Tribunal did hold that Mr Mungul had been discriminated against on the grounds of race and that he had suffered unlawful deduction from wages; but, as I say, we are not concerned with those aspects today for reasons which will become apparent.

[4]On 9 November 1999, Southwark lodged a Notice of Appeal and on 1 February 2000 at the preliminary hearing before the Employment Appeal Tribunal the appeal was allowed to go forward to a full hearing as to unfair dismissal only. That is therefore the only point in front of us. It is difficult to proceed without first mentioning some puzzlement and without giving a warning of a possible difficulty to come. As we mention, Mr Mungul succeeded as to racial discrimination, unfair dismissal and deduction of wages, and the Tribunal said, in (iv) of their decision :- "(iv) By consent, the Respondent shall pay to the Applicant not later than 24 August 1999, the sum of £13000.00, in satisfaction of all sums to which the Applicant is entitled by reason of the complaints which have been determined to be well founded by this decision. The said sum is inclusive of interest". So, on the face of things, the £13000.00 included a monetary award by consent for unfair dismissal, but no ascertainable part of the global £13000.00 is there, or anywhere else that we have seen, attributed to unfair dismissal, and, of course, it was an award made by consent.

[5]As a further difficulty, the Tribunal also said this in (v) of the Decision:- "(v) In respect of the issue of reinstatement as a remedy for the unfair dismissal, the issue is adjourned for further discussions between the parties, with liberty to either party to apply for a further hearing, and subject in any event to being relisted by the Tribunal of its own motion after 4 October 1999". But if an award of compensation was made for unfair dismissal, as it seems it was, even though one cannot put a separate figure to the amount attributed to unfair dismissal, it may be said that that is an indication that no Order under Section 113 for reinstatement was, or can be made: see Section 112(4). There will plainly be difficulties in the way ahead if the decision stands, but we shall not attempt to resolve them here but instead will look only at unfair dismissal and at the Employment Tribunal's reasoning on that subject, because that is the only matter, strictly, before us.

[6]An unusual but not unique feature of the case, as we have mentioned, is that unfair dismissal was claimed although Mr Mungul remains in the Council's employ. He had been a manager of a residential unit which provided full time residential care for people with learning difficulties. There was a so-called 'Capability Hearing' under the Council's Capability Procedure in November 1997 and he was removed from his post and instead became demoted to a lower status and a lower salary and was transferred to another care unit. He has, though, continued to be in the Council's employ.

[7]The capability process used by the Council was held by the Tribunal to have been infected by racial discrimination but the Tribunal did not hold that the process's outcome would have been different if only it had been free of racial discrimination: what they said on that was this:- "28:…..It is not possible to say what the outcome would have been if the proceedings had been free of that discriminatory factor, and conducted on the basis of accurate advice and information." The Tribunal turned to unfair dismissal only at the very end of their extended reasons. Racial discrimination and sexual discrimination had plainly taken up by far the greater part of the case. When unfair dismissal came to be dealt with, Mr Mungul's arguments, so far as one can tell, ran on these lines: firstly that the Council had no contractual right to demote him and to reduce his salary; we see that in paragraph 21 of the Tribunal's Extended Reasons where they say:- "32. We now turn to the complaint of unfair dismissal. This was put forward on the basis of an argument that the Respondent did not have a contractual power to demote Mr Mungul and reduce his salary." And the argument, as we assume, then ran on from that to say that for the Council to have done as it had done - demoting him and putting him on a lower salary - represented a fundamental breach of its contract with him and that there was, therefore, in consequence, a dismissal, with a new and lesser contract being unilaterally substituted for the former one, and that that represented not only a dismissal but a dismissal that was unfair.

[8]That, we take it, is the way that the argument ran below. We deal first with the question of whether there was, indeed, a contractual right to demote and to reduce the salary of Mr Mungul by reason of capability and the Capability Procedure; this is dealt with in paragraph 33 of the Tribunal's Extended Reasons where they say this:- "33 The relevant contractual documents were before the Tribunal. Having considered them, the Tribunal accepts the argument put forward on behalf of the Applicant. It is only where there is a disciplinary procedure, and a disciplinary hearing, that a sanction may be imposed of demotion and/or transfer. Under the Capability Procedure, which is what Mr Bucknill followed, the action which arises may be a transfer, but not a demotion."

[9]Two forms of the Capability Procedure were put before the Tribunal. The Tribunal did not, in terms, accept one and reject the other; nor is it clear whether they saw any written terms or heard any oral evidence as to any oral agreement whereby the Capability Procedure was incorporated into Mr Mungul's contract of employment. It does seem, though, not to have been disputed that it was so incorporated, and, indeed, that a corresponding disciplinary procedure was also so incorporated. If that was not proven, it was at least common ground as far as we can tell.

[10]There was also unchallenged evidence of a Miss Toothill, a Principal Personnel Officer, that such procedure - and she was talking there of the Capability Procedure - was incorporated generally into the Council staff's contracts of employment. So, assuming that both the Disciplinary Procedure and the Capability Procedure were, indeed, given contractual force by incorporation, we need to look at them.

[11]The first form that we need to look at is one that is headed "Capability Procedure": it was marked originally with page 209 and it now begins at our page 57. It is unclear whether this was for the guidance of Council officers, unclear whether it was shown to employees and whether it was intended to have contractual force between employer and employee, but as I mentioned, we take that to have been common ground. There is no mention, in fact, in the extended reasons of what were the terms of any standard or other conditions of employment by this employer.

[12]The Capability Procedure that we are talking about falls into two parts: a relatively informal one headed "Initial Procedure" and a more formal one. An option open to the employer under the initial procedure is:- "transfer (efficiency or medical) by mutual agreement". The reference there to "medical", in its context plainly relates to a case where the employee's capability has come into question because of some medical condition or its consequences. That being so, and the word "efficiency" being in the very same brackets, "efficiency" must be taken there to refer to cases where capability has come into question, because of some supposed inefficiency. The word "transfer" is not further explained. However, under that initial procedure, transfer can only be "by mutual agreement" and there is no heading suggesting that another option open to the employer is to reduce salary or other financial benefits, either by agreement or at all. That is the informal procedure.

[13]The formal procedure, where that is followed, gives an option to the employer in the absence of underlying medical reasons described as "transfer (efficiency)". "Efficiency" must there have the same meaning as the one we have just explained in relation to the initial procedure, in the same document, and, again, transfer is not further explained. But there is a further sub-heading, marked by an asterisk, and this seems to be a further option in cases where there were non-medical reasons, and it runs as follows:- " Supplementary Management Action Accompanying the above warnings, withholding of allowances/benefits/ increments etc". It is notable that there is no reference to demotion or to a reduction in basic salary. Read together with the other provisions, this suggests that whilst, where the formal procedure is being duly followed, and upon some relevant incapability thus having been established, the Council may, without the employee's agreement, vary a man's contract by transferring him, still within its employ, to another job or another place, it cannot, on that account, reduce his salary or demote him to a lower grade; so much for that first form of the Capability Procedure.

[14]There is another one, also marked "Capability Procedure" and said to be effective 1 August 1991, that has the provisions of the procedure on the left hand side of the page in a column, and to their right, columns marked "Management Guidelines" and "Social Services Guidelines" . Given this layout, it is intrinsically unlikely, as it seems to us, that this form was intended to have contractual force in full. But two things are striking: firstly, the provisions of the procedure do not differ from the other print of them, which we have described, and secondly, that against the left-hand column "Transfer (efficiency)" the "Management Guidelines" runs as follows:- "- Requires suitable post. - Any preservation of terms and conditions affects revenue budgets/trading account. - At this stage, would be in consultation with employee only." And against the left-hand heading of "Termination with Notice" the management guideline is as follows:- "Examples would include … where a transfer is not possible because no post is available" Neither of those management guidelines suggests that the Council considered that a unilateral reduction in basic salary or a demotion was to be an option that the manager could consider.

[15]The Tribunal was, in our view, plainly right to contrast those provisions of the Capability Code with those of the Disciplinary Code, wherein one does find "demotion and/or transfer" is amongst the expressly mentioned available supplementary sanctions. Given, as we have assumed, that both codes, Disciplinary and Capability, can be assumed to have been within the one contract of employment if either was, the fact that one expressly provides for demotion, while the other does not is, in our view, a telling factor: it indicates that when the draftsman meant to provide for demotion, he knew how to do so, and that when he did not so provide, one might take it that he had not meant to do so. As it is more pithily put, "expressio unius est exclusio alterius"

[16]Against the view, so far expressed, as to the written parts of Mr Mungul's contract, Southwark, by Mr Uduje, asserts that the parties understood demotion to be a contractual possibility. That argument is based on the unchallenged evidence of Miss Toothill that:- "5 It is my belief that the authorised manager, having due regard to procedures, does under the capability procedure have the contractual authority to efficiency transfer. This is expressly provided for within the agreed procedure. Further, it is my opinion that demotion clearly falls within the ambit of the term "transfer efficiency". I have personal knowledge of this procedure being adopted in a number of cases in Social Services." But that evidence falls hopelessly short of showing either that the ability to demote was part of the contract with Mr Mungul by reason of an established custom or practice or that it ought to be implied on any other ground, or that Mr Mungul knew of it and had agreed it, or that he was estopped from saying that it did not apply to him. None of those is sufficiently shown by that short paragraph. We find no error of law in paragraph 33 of the Tribunal's Decision cited above; its reasoning might have been very compressed, but it is not at fault.

[17]We now turn to its paragraph 34, which reads as follows:- "34 The demotion involved both a reduction in salary and a loss of status. It follows, in our judgment, that there was a fundamental breach of the contract of employment. Therefore, there was a dismissal. There is no evidence that the Respondents believed that they were entitled to dismiss him, so it cannot be argued that it was a reasonable decision on their part. A new contract of employment was effectively substituted. See Alcan Extrusions Ltd-v-Yates [1996]; Cantor Fitzgerald-v-Callaghan

[1999] IRLR 234

" It is necessary first to find out what the law is in this area. In Cantor Fitzgerald International v Callaghan

[1999] IRLR 234

, in the Court of Appeal, the case cited by the Employment Tribunal, one finds at paragraph 38 and 40 on pages 238 as follows:- "In Rigby v Ferodo Ltd

1988 IRLR 516

in the House of Lords it was common ground that the unilateral imposition by an employer of a reduction in the agreed remuneration of an employee constitutes a fundamental and repudiatory breach of the contract of employment, which, if accepted by the employee, would terminate the contract forthwith'. The point was not therefore argued, and in the end was not central to the decision. Strictly speaking, the agreement between counsel is not binding on this court. On the other hand, Lord Oliver, in a speech adopted by the House, noted the principle agreed between the parties without expressing any reservation or hesitation about it. That alone is highly persuasive that counsel in Rigby had accurately formulated the relevant principle."

[18]Lord Justice Judge, with whom Lords Justices Nourse and Tuckey agreed, explained that there can, of course, be cases of simple error in the payment of remuneration that would not amount to a repudiatory breach of contract. But in paragraph 42 he continued as follows:

"Therefore an emphatic denial by the employer of his obligation to pay the agreed salary or wage, or a determined resolution not to comply with his contractual obligations in relation to pay and remuneration, will normally be regarded as repudiatory. To the extent that Gillies suggest otherwise, it does not accurately reflect the relevant legal principles"

. That is a reference to Gillies v Richard Daniels & Co

1979 IRLR 457

. A little later,

Lord Justice Judge says:

"However an apparently slight change imposed on a reluctant employee by economic pressure exercised by the employer should not be confused with a consensual variation, and in such circumstances an employee would be entitled to treat the contact of employment as discharged by the employer's breach. In the present case, the amount in issue was not in the context of the overall package very great, although the sums at stake were not trivial. However the refusal to pay was deliberate and determined, motivated by a desire improperly to pressurise the defendants into harder work. The decision wholly undermined the contract of employment and constituted a repudiatory breach."

[19]Those passages in Cantor Fitzgerald taken together suggest to us this: that, first of all, normally, but not inescapably, a unilateral reduction in salary which is not merely some administrative error but which is in breach of contract will be regarded as a repudiatory breach of contract. Secondly that the motive for the reduction may be a relevant consideration in the assessment of whether the breach was truly repudiatory, and, thirdly, that when the reduction is an exercise of economic pressure by the employer upon the employee, that is likely to tell against the employer and to conduce to making the breach a repudiatory one.

[20]Thus understood, Cantor Fitzgerald does not in our view, conflict with the only other case which the Employment Tribunal had in front of them, namely: Alcan Extrusions Ltd v Yates [ 1996 ] IRLR 327 in the Employment Appeal Tribunal. In Alcan the Employment Appeal Tribunal was reminded of and cited Lord Oliver's dictum in Rigby-v-Ferodo

1987 IRLR 516

, and accordingly in Alcan one finds in paragraph 18 the following quote:- "Further, he relied upon the dictum of Lord Oliver in his judgment in the case of Rigby-v-Ferody

[1987] IRLR 516

at p.518 12 where the learned Law Lords said:-'For my part, I can see no reason in logic or law why, leaving aside for the moment the extreme case of outright dismissal or walk-out, a contract of employment should be on any different footing from any other contract as regards the principle that "an unaccepted repudiation is a thing writ in water and of no value to anybody": per Asquith LJ in Howard-v-Pickford Truck Co Ltd

[1951] 1KB 417

at 421'." Later on in the Alcan case, one finds this at paragraph 25:- "In our judgment, counsel for the Respondents, Mr Bowers, was correct in submitting that whether or not the action of an employer in imposing radically different terms has the effect of withdrawing and thus terminating the original contract, must ultimately be a matter of fact and degree for the industrial tribunal to decide, provided always that they ask themselves the correct question, namely, was the old contract being withdrawn or removed from the employee?"

[21]Running those two cases together then, and dealing with position as it is in the case at hand, where the employee remains within the employer's employment, one sees first of all that a unilateral reduction in salary or a demotion by the employer in breach of contract is very likely to be taken to be a repudiatory breach. But it is not invariably a repudiatory breach - see also Harvey at D1 -222 - and the cases there cited; whether it is or is not is a question of fact and degree which requires a look at the surrounding circumstances. The motive for the reduction or demotion and the manner of its imposition may, amongst those surrounding circumstances, be relevant.

[22]The question for the Tribunal was whether the former contract was, in breach of contract, withdrawn or removed from the employee; that question has to be answered with a recognition on the Employment Tribunal's part both that a departure from a former contract can be so substantial as to amount to a withdrawal of the whole contract but also that it can, alternatively, be properly regarded as a variation of it. Even where there is a repudiatory breach by the employer, if it is not accepted as such by the employee, it will be of no effect. Accordingly (and especially might this be the case where, as in the case at hand, the employee remains in the employer's employ) the question of whether the employee accepted the repudiation as such or, by his conduct, lost the right to treat it as repudiatory, or lost the right to complain of it altogether, will be likely to arise.

[23]With all that in mind, we revert to that rather terse paragraph 34 and the passages that reads that there was a reduction in salary and status and what then followed it, namely:- "34….…there was a fundamental breach of the contract of employment. Therefore there was a dismissal." But it does not follow in law, simply because there was a fundamental breach, that there was a dismissal. A unilateral reduction in salary and demotion is not invariably a repudiatory breach, and even where it is, the repudiation may not be accepted as such, or not be accepted as such in good time, and the original contract could thus continue or could perhaps properly be regarded as only varied. The word "therefore" in the phrase "Therefore, there was a dismissal" is, in our view, in error of law, and shows no awareness that the matter is not one of inevitable consequences, night following day, but rather is one for a very careful assessment of all surrounding circumstances.

[24]We are not saying that there was not a dismissal: it may be that there was; what we do say is that, baldly to state, after saying there has been a fundamental breach, that "therefore" (in other words, that by reason of that and that only) there was a dismissal, leaves out stages in the legal reasoning, and accordingly, either the reasoning was defective, on account of leaving out those steps, or if the Tribunal had those steps in mind -but failed to mention them - then the extended reasons are defective for failing to satisfy the Meek -v -City of Birmingham test that the loser has to be given sufficient reasons as to why he has lost in order to show him whether he has a point of law that he could take to appeal.

[25]Then, the Tribunal says, still within paragraph 34:- "There is no evidence that the Respondents believed that they were entitled to dismiss him, so it cannot be argued that it was a reasonable decision on their part." The logic of that is not apparent to us. Assuming that there was a dismissal, the employer's reason for it, we would think, was argued to have been one of capability within Section 98(2)(a) and 98(3)(a). It would, of course, be relevant to show, where an employer was asserting capability as the reason for a dismissal, that he had, in fact, no belief at all in there truly being a capability matter to complain of, but that is not what is said. Whether the employer realised or believed that what he was doing amounted to a dismissal is unimportant, perhaps even totally irrelevant; if it was in law a dismissal, then he has to show the reason for it - Section 98(1). Once he has done that, the examination moves on to Section 98(4). Nothing precludes an employer saying something on the lines of "I did not think that what I was doing was a dismissal, but I did believe that I was acting reasonably, on account of capability, and if you now tell me that, in law, what I did, did amount to a dismissal then I still say I believed I was acting reasonably and on account of capability and I still assert that what I did was within the band of reasonable responses open to a reasonable employer". Something on those lines represents a perfectly sensible and appropriate response. It was an error of law to hold, if the Tribunal did hold - and it is not entirely clear- that the employer's activity was unfair within Section 98(4) simply because he did not realise that in law what it represented was a dismissal, even assuming that it did.

[26]Next, in paragraph 34 the Tribunal said:- "A new contract of employment was effectively substituted." Again, we do not say that that is not the case; it may have been, but we do say that as that conclusion was apparently reached in consequence of the two preceding sentences and as each of those two preceding sentences was pregnant with error of law, one cannot take this third one to be a safe conclusion that in some way wipes the reasoning clean of the earlier errors. Accordingly, we find error of law in the Tribunal's very terse treatment of unfair dismissal. But the case is far from being so clear that we could say that the only conclusion reasonably open to the Tribunal was that the dismissal was fair.

[27]Accordingly, we allow the appeal and set aside the decision as to unfair dismissal but remit the matter of unfair dismissal. This is not, in our view, a case where either side has any good ground for saying that it has totally lost confidence in the Tribunal that heard the matter first time round and the existing Tribunal will have the advantage of knowing how the case was put as to racial discrimination and thus being better able and more expeditiously able to separate out racial discrimination from what is relevant to unfair dismissal, should that separation become relevant. Moreover, insofar as it may become necessary to know how the £13000.00 was arrived at, the existing Tribunal may already have information that a new Tribunal would not know about, and, of course, they do know how the matter was conducted in front of them.

[28]There may well prove to be difficulties about Mr Mungul having affirmed, perhaps, a variation in his original contract rather than accepting a repudiation and, after all, as far as we can tell he sued for unlawful deduction of wages and presumably did so on the basis of the earlier higher salary which he was complaining he had no longer had a contractual right to.

[29]But those matters are not in front of us. We remit the issue of unfair dismissal to the same Tribunal as before, to hear the matter afresh and in the light of the judgment which we are now delivering. Both sides are to be at liberty to adduce fresh evidence at the remitted hearing or to rely on evidence previously given, or both, but in order that neither side is taken by surprise, then the parties agree to dispense with it, there is to be a directions hearing to be heard by the existing same Employment Tribunal, as before, before the substantive hearing of the remitted issue, and they can give such directions as are appropriate, in respect of documentary and oral evidence, and as to whatever other directions are then in issue between the parties.