POLYFLOR LIMITED v MR I OLD [2003] UKEAT 0482_02_1305

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2003] UKEAT 0482_02_1305Case No Appeal No. EAT/0482/02Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
POLYFLOR LIMITEDAPPELLANTMR I OLDRESPONDENT
Before
His Honour Judge Peter Clark Ms J Drake Mr J HoughamDate 13 May 2003
[1]APPEARANCES For the Appellant MR B CARR (Of Counsel) Instructed by: Messrs Eversheds Solicitors 70 Great Bridgewater Street Manchester M1 5ES For the Respondent MR TIMOTHY PITT-PAYNE (Of Counsel) Instructed by: Messrs Wright Johnston & MacKenzie Solicitors 302 St Vincent Street Glasgow G2 5RZ JUDGE CLARK This claim of unfair dismissal, brought by the Applicant Ian Old against his former employer, the Respondent Poliflor Limited was heard by an Employment Tribunal sitting at Manchester under the chairmanship of Mr J D Brain. We now have before us an appeal by the Respondent (we shall use the same description of the parties as below) against that Employment Tribunal's liability decision, promulgated with Extended Reasons on 26 March 2002, upholding his complaint and a cross-appeal by the Applicant against part of the Employment Tribunal's subsequent remedies decision promulgated with Extended Reasons on 8 November 2002 dealing with pension loss. Background[2]Prior to their appointing the Applicant Senior Project Controller on 1 February 2000 the Respondent divided the United Kingdom into 4 sales regions with a manager assigned to each region, covering day-to-day sales and project work. His appointment was to a new post designed to manage the project work countrywide, leaving the regional managers free to concentrate on sales. The Applicant had some 26 years experience in the industry in which the Respondent operated.[3]Without prior warning or discussion the Applicant was called to a meeting with Mr Trelease, the Respondent's UK Sales Director to be informed that his job was redundant with effect from 30 June 2001. He was told that jobs with the Respondent were available in Southampton, South West England and Lancashire, but he was not given details of those jobs nor whether he could, if he chose, take one of those jobs. It turned out that if he applied he would be in competition with external candidates.[4]In the event he was not given formal notice of termination of employment until 2 July, that notice to expire on 30 September 2001. The Applicant enquired about available vacancies and about possible relocation expenses (he lived in Scotland). The Employment Tribunal found that the Respondent failed to answer any of his concerns, the relocation package simply being described as negotiable. Meanwhile, in the absence of any formal application by the Applicant the vacancies in Southampton and South West England were filled by external candidates. In the circumstances he was told by Mrs Thompson, the Human Resources Manager, on 19 July that he would not be redeployed and his notice duly took effect on 30 September. The Employment Tribunal decisions Liability[5]It was the Respondent's primary case that the reason for the Applicant's dismissal was redundancy, a potentially fair reason for dismissal (Employment Rights Act 1996 (ERA) s98(2)(c). The Employment Tribunal was not satisfied that the Respondent had made out that reason, nor any other substantial reason (s98(1)(b)). On that basis the complaint of unfair dismissal succeeded without more.[6]However, the Employment Tribunal went on to make an alternative finding that even if a potentially fair reason had been made out the dismissal was nevertheless unfair, applying s98(4), both procedurally and substantively, in that there was no or no adequate consultation prior to the Respondent notifying the Applicant that 'his position was redundant' (Decision, paragraph (v)); it could not be said that consultation would have been utterly futile; no fair selection procedure had been devised; the Respondent's attempts to find him alternative employment were substantively unfair. In these circumstances any ' Polkey reduction' under s123(1) ERA, contended for by the Respondent, was inappropriate. Remedy[7]Thus, approaching the remedy of compensation on a full loss basis the Employment Tribunal awarded the Applicant the total sum of £27,897.94 in respect of the basic and compensatory award. Within the compensatory award were items of £5,572.88 and £10,732.96 in respect of past and future pension loss respectively. The Employment Tribunal's approach to this head of loss was simply to take the employer's contribution of 15.3 per cent of the Applicant's salary from 1 October 2001 until the date of the remedies hearing held on 14 October 2002 (past loss) and 2 years future loss on the same basis, using the annual salary figure which he would have received had he still been in employment on 1 October 2001. The employee's contribution, from 1 August 2001, was 7.5 per cent. The Appeal[8]In support of the Respondent's appeal against the liability decision Mr Carr takes 5 points. It is convenient to consider those arguments under 3 heads. (1) Reason for dismissal[9]First, Mr Carr submits that the Employment Tribunal misdirected themselves as to the meaning of s98(1) and (2) ERA.

(i) ) the Employment Tribunal observe:

"We agree with the applicant's submission that the Respondent has failed to establish a fair reason."
[10]The submission is that in so directing themselves the Employment Tribunal fell into error. They have elided the requirement under s98(1) and (2) for the employer to establish a potentially fair, i.e. prescribed reason for dismissal with the later question of the fairness of treating that reason as a sufficient reason for dismissal under s98(4).[11]Secondly, he submits, the Employment Tribunal misdirected themselves as to the meaning of redundancy for the purposes of s98(2)(c). As appears from paragraph (i) in their Decision, the Employment Tribunal were concerned that the Respondent's evidence fell well short of demonstrating an economic need to cut cost; or make the Applicant's position redundant.[12]It is now well-established law (see Murray v Foyle Meats Ltd [1999] IRLR 562 (HL) approving what was said by the Employment Appeal Tribunal in Safeway Stores Plc v Burrell [1997] IRLR 200 ) that the question under s139(1)(b) ERA (the equivalent Northern Irish provision was considered in Murray ), dealing with the definition of redundancy, is whether the dismissal is attributable to a diminution in the requirements of the employers' business for employees to do work of a particular kind. It is not necessary for an employer to show an economic justification for its decision to make redundancies, properly so-called.[13]Here, the evidence went one way. Having created a new post of senior project controller the Respondent then found that such a post was not required. The work of that post- holder, the Applicant, could be redistributed among other employees. The requirement for a senior project controller had gone. The post disappeared. The post-holder, the Applicant, was dismissed as a result of that cessation of the Respondent's requirement for a senior project controller. He was dismissed by reason of redundancy. A potentially fair reason for dismissal had been made out by the Respondent.[14]In answer to those arguments Mr Pitt-Payne submits first that it is wrong to look at the Employment Tribunal's use of the expression 'a fair reason' in isolation. It must be viewed in the overall context of the Employment Tribunal's reasons taken as a whole. He contends that the Employment Tribunal's use of that expression is merely short-hand for a potentially fair reason. That is amply demonstrated by the fact that the Employment Tribunal went on to consider, in the alternative, the question of fairness under s98(4), showing that they appreciated the statutory distinction between the reason for dismissal and its fairness.[15]We could allow of the construction of the Employment Tribunal's reasons urged on us by Mr Pitt-Payne if we had confidence in their approach to the meaning of redundancy; however we do not. We do not accept Mr Pitt-Payne's interpretation of the Employment Tribunal's reference to the employer's need for economies. It is not necessary, as Mr Pitt-Payne acknowledges, for the Respondent to make out a business case for redundancies. The question is that posed by s139(1)(b) ERA, referred to earlier. The Employment Tribunal plainly found that the post of Senior Project Controller disappeared. There was no longer a requirement for an employee to do work of that particular kind. That is why the Applicant was dismissed. It is a classic redundancy dismissal. No economic justification was required of the Respondent.[16]In these circumstances we uphold the second point taken in the appeal. The Respondent has made out a potentially fair reason for dismissal, redundancy. The Employment Tribunal was wrong in law to find otherwise. (2) Fairness[17]Mr Carr repeats the argument, that consultation would have been an utterly futile exercise (see Polkey v AE Dayton Ltd [1987] IRLR 503 , per Lord Mackay, paragraph 5; Lord Bridge, paragraph 28). He submits that in this case there was, contrary to the findings of the Employment Tribunal, no question of selection; the Applicant was in a category of one and redundancy lay where it fell. The Respondent having decided that that job was to go it was not for the Respondent to have to establish an economic case for its deletion. Further, there were no findings by the Employment Tribunal as to whether, if alternative employment had been offered to the Applicant, he would have taken it.[18]We have considered those submissions, some of which require revisiting when we come to consider the next head of appeal, 'The Polkey deduction'. However for present purposes we are not persuaded that there is any ground in law for interfering with the Employment Tribunal's finding, rejecting the Respondent's case that on the facts this dismissal fell within the Polkey exception referred to earlier. In these circumstances Mr Carr accepts that the lack of consultation of itself provides sufficient foundation for the Employment Tribunal's finding of unfairness under s98(4) ERA. We agree. On this basis alone the finding of unfair dismissal must stand. (3) The Polkey deduction[19]At paragraph (xi) of the 'Decision' section of their Extended Reasons the Employment Tribunal say:
"However, in this case, the absence of any proper consultation and the inevitable speculation as to what would have occurred had proper consultation and the adoption of a proper selection criteria taken place, makes it impossible for the Tribunal to even begin to assess what chance the applicant has lost of being retained. In those circumstances, and the burden being upon the respondent to adduce such evidence, the Tribunal takes the view that the applicant is entitled to his remedy with no "
Polkey" reduction."[20]Mr Carr attacks that finding on the basis that the Employment Tribunal have 'ducked' the very question posed by the House of Lords in Polkey , namely what is the percentage chance that the Applicant would still have lost his employment had a proper procedure being followed.[21]Mr Pitt-Payne contends that the Employment Tribunal took a permissible approach in line with the Scottish Court of Session decision in King v Eaton Ltd (No 2) [1998] IRLR 686. At paragraph 19 Lord Prosser draws a distinction between failings by the employer which may be termed procedural and substantive. In the case of the latter it may not be possible sensibly to reconstruct the world as it might have been. Mr Pitt-Payne submits that this is just such a case.[22]It should be remembered that the issue in King v Eaton (No 2) was whether, at a remedies hearing, the Respondent having been found to have dismissed the Applicant employees unfairly by reason of redundancy, should be allowed to lead evidence as to what would have happened had the matter been conducted properly. The Court of Session upheld the Employment Tribunal's ruling excluding such evidence.[23]In the present case, as Mr Carr points out, there was evidence before the Employment Tribunal of the actual position, in particular, the evidence of Mr Trelease, that on the Respondent's analysis, having decided to dispense with the single post, held by the Applicant, redundancy should lie where it fell. To that Mr Pitt-Payne counters that the pool for selection ought to have included also the 4 regional managers who were retained. The Employment Tribunal made no finding on this issue. It was, in our judgment, incumbent upon them to do so.[24]Secondly, the question of redeployment. Again, the Employment Tribunal did not make any findings as to whether, in their judgment the Applicant would have taken any of the jobs available. We think that they should have done so.[25]In these circumstances, it seems to us, this was a case in which the Employment Tribunal could and should have carried out the Polkey exercise. It was not impossible to do so, nor inappropriate applying the principles in King v Eaton (No 2) .[26]Accordingly we uphold Mr Carr's submission on this part of the appeal. The appeal is allowed to the extent only that the issue of whether any Polkey reduction ought to be made is remitted to a fresh Employment Tribunal for rehearing. Our finding of unfair dismissal by reason of redundancy on the basis of a lack of consultation will form a starting point for that exercise. The question of selection, alternative employment and on Mr Pitt-Payne's submission whether proper consultation might have led to a postponement or even abandoning of the decision to declare the Applicant's post redundant, will need to be examined at the remitted hearing. The Cross-appeal[27]The Applicant's advisers commissioned a report from an actuary, Mr John Pollock, dated 13 May 2002. A copy was disclosed to the Respondent, who did not serve their own report in reply.[28]On the day of the remedies hearing, 14 October 2002, Mr Pollock was unwell and unavailable to give evidence although it had been the intention of the Applicant's solicitor to call him. The matter therefore proceeded solely on the basis of the Applicant's oral evidence Mr Pollock's written report and, on the Respondent's side, the oral evidence of Mr Oliver, their Group Financial Director, whom the Employment Tribunal found to be a 'most impressive, compelling and honest witness'.[29]The Applicant was born on 5 September 1944. He joined the Halstead Group Pension Scheme, having joined the Respondent, on 1 February 2000. At that stage he transferred his previous accrued pension entitlements from earlier schemes which, according to Mr Pollock's report, provided him with a service credit of 12 years 11 months. The Halstead Group Scheme operated on a final salary basis, depending for final entitlement on reckonable years service expressed as a proportion of final salary (1/60th per year). When he left the scheme on 30 September 2001 he was entitled to a deferred pension at age 65 (5 September 2009) of £8,612 pa based on service of 14 years 7 months and a final salary on leaving of £35,434 pa.[30]The Applicant's case, based on Mr Pollock's actuarial approach, was to claim loss of pension rights to date of hearing; future loss until aged 65 and, as a separate head, loss of enhancement of accrued pension rights (effectively the difference in value of the deferred pension awarded with and without allowance for pay to grow at a faster rate than inflation). The Applicant was in non-pensionable employment at the time of the Employment Tribunal remedies hearing.[31]The Employment Tribunal eschewed that approach and took that described earlier, based on the Respondent's past contributions and those for the next 2 years. They appear to have applied that cut-off on the basis of Mr Oliver's evidence that the final-salary scheme had been closed to new entrants and was likely to be substantially altered (in what way is unclear from the Employment Tribunal's findings) over the next 2 years. (reasons, paragraph 12).[32]Mr Pitt-Payne makes 2 complaints in this cross-appeal as to the Employment Tribunal's approach to pension loss: the first relates to the Employment Tribunal limiting future loss to 2 years; secondly, he submits that they were wrong to disregard the head of loss of enhancement of accrued rights.[33]Mr Carr counters that the Employment Tribunal was entitled to take the view that it was unlikely that the Applicant would have remained in the Respondent's employment for the 8 years remaining until retirement age of 65 and that there was a significant chance that the Halstead Group Scheme would not exist in its present form in 2 years' time. Having so found the Employment Tribunal were entitled to award past pension loss and future loss limited to 2 years on the basis of the Respondent's contributions, making no deduction for accelerated receipt (offset by lack of future pay increases, we would add).[34]On this part of the case we prefer the submissions of Mr Pitt-Payne. As to his first point, we accept that the Employment Tribunal has failed to make any clear finding as to what would have happened in 2 years' time. The scheme had already been closed to new entrants; was it likely that for existing members (including the Applicant) the benefit would be removed for future service or would earlier benefits be removed or would it simply be that the existing scheme would be closed and if so, was it anticipated that existing members would be transferred to another and if so what form of scheme? These questions, in our view required further investigation.[35]As to the second point, it is clear that the Employment Tribunal made no allowance for loss of enhancement of accrued pension rights. That such a separate head of loss will arise was recognised by the Employment Appeal Tribunal in Clancy v Cannock Chase Technical College [2001] IRLR 331 (Lindsay P presiding). In our judgment that question also requires proper examination.[36]For these reason the cross-appeal is allow. Conclusion[37]In these circumstances we shall allow the appeal to the extent that the Polkey deduction point will be remitted to a fresh Employment Tribunal for rehearing: at the same time that Employment Tribunal will reconsider the question of pension loss. The parties will be free to call all necessary and relevant evidence on those 2 points to enable the new Employment Tribunal to reach a final decision on remedy for the Applicant's unfair dismissal.