FARRELL MATTHEWS & WEIR v MS NINA HANSEN [2004] UKEAT 0078_04_2610

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2004] UKEAT 0078_04_2610Case No Appeal No. UKEAT/0078/04Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
FARRELL MATTHEWS & WEIRAPPELLANTMS NINA HANSENRESPONDENT
Before
Mr Justice Nelson Mr D J JenkinsDate 26 October 2004
[1]APPEARANCES For the Appellant MR IAN SCOTT (of Counsel) Instructed by: Messrs Reynolds Porter Chamberlain Solicitors Chichester House 278/282 High Holborn London WC1V 7HA For the Respondent MS SANDHYA DREW (of Counsel) Instructed by: Ms Nina Hansen 57 Lower Richmond Road London SW15 1ET SUMMARY Unlawful Deduction from Wages / Unfair Dismissal Failure to pay non-contractual bonus, which had been declared amounted, to unlawful deduction from wages. The Employment Tribunal wrongly failed to deal with the Appellant's argument on section 27 (3) of the Employment Rights Act 1996 but this omission had no effect on its decision as it had correctly held that the declared bonus constituted wages under the Act. There was evidence upon which the Employment Tribunal could properly conclude that the Respondent's solicitor had been constructively dismissed as a salaried partner and the correct test for breach of the implied term of trust and confidence was applied. The finding was not perverse. Appeal dismissed. THE HONOURABLE MR JUSTICE NELSON This is an appeal against the decision of the London (Central) Employment Tribunal of 25 November 2003 in which it held that the Respondent, Nina Hansen's wages had been unlawfully deducted and that she had been unfairly, constructively dismissed by the Appellant, Farrell Matthew & Weir, with effect from 28 October 2002.[2]The Respondent was employed by the Appellant as an Assistant Solicitor, specialising in family law, with effect from 2 March 1998. Her salary was £45,000 per annum. There was no contractual right to any bonus, though bonuses were paid on an "ad hoc basis" depending upon how well the fee-earners and the firm were doing.[3]On 1 September 1999 the Respondent entered into a salaried partnership agreement with the two equity partners at the firm. Under that agreement she was not liable to contribute to the expenses, taxes, outgoing and losses of the firm and the two equity partners agreed to indemnify her against liability in respect of such matters, save those caused by fraud or wilful acts or omissions on her part. The Respondent raised the question of access to the firm's accounts before accepting the offer of salaried partnership. Such access had been available to her at her previous firm. Mr Clive Matthews, the Senior Partner of the Appellant, informed her that salaried partners did not see the accounts due to the special nature of the firm's particular salaried partnership agreement. The bank or accountants could have confirmed the stability then, and over the previous 16 years. The Respondent did not raise the issue of access to the accounts again before accepting the offer of salaried partnership.[4]Mr Ian Weir, one of the equity partners, retired from the practice with effect from 30 March 2002. The Tribunal found that thereafter, when Mr Matthews was the sole remaining equity partner, the salaried partners became increasingly concerned as to the financial viability of the practice without the personal and financial support represented by Mr Weir's contributions.[5]The Respondent received one ad hoc bonus of £5,000 in November 2000. This was stated to be an exceptional non-formula based discretionary bonus, in lieu of the September 2000 annual review. The Respondent received no increase in her basic salary throughout the time that she was with the Appellant and until June 2002 no bonus other than that of £5,000 in November 2000.[6]In April 2002, when the Respondent was informed by Mr Matthews of her monthly "cash-in" target for the year from 1 May 2002, she was notified of a proposed new trial bonus scheme to be based on the total value of the excess of the paid claims delivered by each fee-earner over three times their remuneration, taking into account expenses. The Respondent was concerned at the level of the monthly target which she had been set, as this had not been discussed with her beforehand.[7]The Respondent had been considering her position within the firm for some time. She had first raised this with Mr Matthews in November 2001 when he had talked of making people redundant due to lack of cash flow and yet she had still not been allowed access to the accounts. The Tribunal found that she was unhappy at the failure to declare a bonus and repeated in February 2002 that she would have to consider her position.[8]On 28 June 2002 a meeting took place between Mr Matthews and the Respondent. She was then informed that her bonus was fixed in the sum of £12,000 which would be paid in monthly instalments over a period of 12 months, commencing in May 2002, as long as she did not give notice to terminate her employment. There was to be an immediate payment of £3,000 for May, June, July 2002. Mr Matthews, who was aware and was again told that she was considering her position within the firm, told her that if she decided to leave the practice no further instalments would be payable.[9]When the Respondent said that the bonus was too low Mr Matthews referred to losses within the practice but did not accede to her suggestion that he should make the accounts available to her to justify this. He said that 2001/2002 had been a very bad financial year for the practice and that taking that into account, an effective salary of £57,000 (i.e. £45,000 basic salary plus £12,000 bonus) was fair.[10]By a letter dated 1 July 2002 Mr Matthews confirmed the discretionary bonus of £12,000, and the payment by instalments and stated:
"Also, please note that, as the payments have to be made out of cash flow, if notice is given either way for any reason, including redundancy, no further payments will be made with immediate effect from the date notice is given and bonus payments will not be made during notice. This applies to everyone."
[11]In her reply, by letter dated 9 July 2002, the Respondent expressed her disappointment at the declared bonus and said that as the bonus was for the financial year ending in April 2002 she did not see how it could be paid in instalments without her express agreement. Nor did she accept that her bonus would no longer be payable should Mr Matthews make her redundant or should she decide to leave.[12]An exchange of emails took place between Mr Matthews and the Respondent after this date which included a proposal by the Respondent on 14 July 2002 for a new wage structure for the care team incorporating an incentive bonus scheme. A meeting was arranged for 29 July 2002 to discuss the dispute as to her bonus, and her future bonus scheme, and ideas for the firm generally. In an exchange of emails on 23/24 July 2002 the Respondent made it clear that she considered that her bonus should be the topic for discussion at the meeting. It was not just the sum, but also the method of payment and the threat of determination which she said she found unacceptable and that those issues should be discussed before anything else.[13]During July 2002 the Respondent explored the job market for an alternative position. She let it be known to her friends that she was considering a move. She received a number of offers for alternative employment, including one from a firm of solicitors who wished to open a family department. This offer was made by telephone on 26 July 2002 after she had attended an interview on 22 July 2002. Her evidence to the Tribunal, as can be seen from the Chairman's notes of evidence, was that she loved her job at the Appellant (tab 17 (7)), that she did not want to leave and had fixed a meeting for 29 July (tab 17 (5)), that she assumed the bonus could be agreed and that Mr Matthews would not be insisting in taking away the instalments and would take away the threat (tab 17 (7)). She also said that she probably would have resigned on 29 July in any event as she had other job offers, but that she would have preferred to have stayed at the Appellant but could not tolerate the circumstances (tab 17 (5)).[14]At the meeting which took place on 29 July 2002 the Respondent informed Mr Matthews of her decision to resign and take up the offer of alternative employment. Mr Matthews offered to increase the bonus to £17,000 but, the Tribunal found, the Respondent was not prepared to accept the conditions would still be attached to the bonus and also not having access to the accounts. Attempts to persuade the Respondent to reconsider her decision failed and on 24 September 2002 the Respondent wrote to Mr Matthews requesting that the balance of her bonus was paid. She said that she had been given an effective remuneration package of £57,000 for April 2001 to April 2002 but had only received £48,000 of that sum. In setting out the history of the matter she stated:
"My first reaction to the letter of 1 st July was to hand in my resignation immediately, as it appeared from that letter you wished me to do. However on reflection, after considering the impact my resignation would have on other staff; (which included you informing me that you would have to close the firm) and after considering how much work Stewart and I had put in to building such a strong reputable team; I decided to try to negotiate with you. To mitigate the risk of loss I also started looking for another job. Despite what you have made public you know I am leaving because of the way you have handled my remuneration (in particular your threat not to pay it) and because I cannot remain held out as a partner in a practice where the 'books' remain closed. I can understand your wish to keep your own income private but when you rely on 'losses' as an excuse to not pay a fair remuneration and then refuse to disclose the books I find that unacceptable. As I am held out as a partner in this firm I am liable for the losses. Over the last year you have made much of these losses with threats to close the practice as a result being only a part. You told me that you did not want to show me the books because then you have then have to show our other partners them. You did not want to do this because you did not trust one of them and named that person. I was shocked by that allegation and I would have to say in my opinion that allegation is without foundation. I now understand that the firm is expanding into new departments and I question therefore the level of loss you say the firm sustained in any event."
[15]The Appellant declined to pay the remaining £9,000 on the basis that a discretionary bonus of £12,000 was only to have been paid provided the Respondent remained an employee for the entire financial year.[16]As a consequence of this dispute the Respondent brought the proceedings before the Employment Tribunal claiming that she had been constructively dismissed by the Appellant, that the bonus was part of her wages under the Employment Rights Act 1996 (" ERA "), and that in withholding the balance of £9,000 the Appellant was making an unauthorised deduction from her wages under section 13 of that Act. THE TRIBUNAL'S FINDINGS[17](1) There was no contractual entitlement to a bonus, though one bonus payment of £5,000 was made in November 2000, and the subject was very much in the minds of both the Respondent and Mr Matthews. The fact that the Respondent received no increase in basic salary from the date she joined the firm was part of the relevant background to the question of bonus and the importance to the Respondent of her having a bonus;(2) The bonus of £12,000 declared on 28 June 2002 was in respect of the financial year 2001/2002 not, as Mr Matthews had contended, the forthcoming financial year of 2003/2003.(3) From 28 June 2002 there was a legal obligation on the Appellant to pay the bonus as declared, that is, by monthly instalments so long as the Respondent did not herself terminate her employment.(4) By his letter of 1 July 2002 Mr Matthews added a further condition, namely that the payment of the instalments of the bonus would cease were the Respondent to be given notice of termination by the Appellant, including by reason of redundancy. Thus, the Tribunal found, the Respondent could be deprived of a bonus, to which she had acquired a legal entitlement, through no fault of her own or action on her own part. Although the extra conditions were claimed by Mr Matthews to be by reason of the poor financial state of the firm, he was not willing to give the Respondent sight of the accounts whereby she might judge for herself whether she was, for example, likely to retain her employment or be dismissed by reason of redundancy, a possibility which Mr Matthews had raised.(5) The Respondent was constructively dismissed by the Appellant. The Tribunal stated its finding on this issue in paragraph 12 of its decision as follows: "12. Against this background, we find that the Applicant's decision to resign was caused by the unreasonable imposition of the condition whereby the Applicant could be deprived of the balance of her bonus entitlement, without any fault or action on her part. She looked for and found other employment. When Mr Matthews, at the meeting of 29 July 2002, adhered to these conditions and still refused to give her access to the accounts upon which his decision to impose the conditions was claimed to be based, the trust and confidence which ought to have existed between Mr Matthews and his salaried partner, the Applicant, was therefore destroyed. This amounted to a fundamental breach of the implied term of mutual trust and confidence in the contract of employment and the Applicant was entitled to and did resign, having been constructively dismissed on the expiry of the notice period which she worked, namely, on 28 October 2002."(6) The claim for wrongful deduction of wages in respect of £6,000 of the £9,000 balance of the bonus of £12,000 succeeded. There was a legal obligation upon the Appellant to make payment to the Applicant of £12,000 bonus by instalments, as declared, provided she did not herself bring an end to her employment. This proviso did not extend to circumstances in which the Applicant gave notice in response to a fundamental breach of contract, thereby being constructively, unfairly dismissed.(7) At the date of the issue of the proceedings before the Employment Tribunal instalments from August 2002 to January 2003 totalling £6,000 were due and well-founded, but as the remaining 3 instalments had not accrued by the date of the presentation of the date of the Originating Application there was no jurisdiction to make any award in respect of those instalments.(8) There was in addition a claim for wrongful deduction of wages in respect of holiday pay which was dismissed.(9) At a remedies hearing determined by the decision of 27 January 2004 the Respondent was awarded a total of £13,110 including a compensatory award of loss of bonus between February and April 2003. THE SUBMISSIONS[18]The Appellant submits that the Employment Tribunal erred in concluding that the non-contractual discretionary bonus fell within the meaning of 'wages' under sections 13 and 27 (3) of the ERA and failed to deal with the Appellant's argument to this effect in its decision. Further, the Appellant submits that the Employment Tribunal wrongly concluded that the Respondent had been constructively dismissed. We shall set out our conclusions on each of the submissions in turn. (1) Unlawful deduction of wages[19]It was central to the claim for unlawful deduction of wages pursuant to section 13 ERA that the Employment Tribunal should decide whether the bonus fell within the meaning of 'wages' under section 27 (3) of the Act.[20]The Appellant submitted that on the true interpretation of section 27 (3) the bonus could not amount to wages and hence the claim made by the Respondent under the Act must fail. In spite of the fact that this matter was raised in both written and oral submissions and that the Chairman was provided with the IDS brief upon the matter, the Employment Tribunal wholly failed to mention this central argument in their decision. Had they considered, properly construed and applied the plain wording of section 27 (3) ERA to the facts of this case, the Appellant submits that the Employment Tribunal should have concluded that the monthly instalments of the discretionary bonus which had not been "made" were not recoverable under section 13 ERA as they could not properly be deemed to be wages within the meaning of the statute.[21]The relevant sections of the ERA are as follows:
"13 Right not to suffer unauthorised deductions (1) An employer shall not make a deduction from wages of a worker employed by him unless – (a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or (b) the worker has previously signified in writing his agreement or consent to the making of the deduction. … (3) Where the total amount of wages paid on any occasion by the employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion. … 27. Meaning of "wages" etc. (1) In this Part "wages", in relation to a worker, means any sums payable to the worker in connection with his employment, including - (a) any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise, … (3) Where any payment in the nature of a non-contractual bonus is (for any reason) made to a worker by his employer, the amount of the payment shall for the purposes of this Part - (a) be treated as wages of the worker, and (b) be treated as payable to him as such on the day on which the payment is made."
[22]Mr Ian Scott on behalf of the Appellant submits that a discretionary bonus cannot be deemed to be 'wages' pursuant to section 27 (3) of the Act unless the payment has actually been made. The words of the section are entirely clear and must be given their normal meaning. The section cannot be said to apply to prospective payments which would have been made, provided certain qualifying circumstances applied, for example in this case that notice of termination had not been given. A bonus only becomes wages under the Act when it has actually been paid, not when it has been declared, but falls to be due. This is the logical interpretation which fits in with section 13 (3) of the Act.[23]It is to be noted that under section 27 (3) (b) the bonus is only treated as payable on the date it is paid. This confirms the argument, Mr Scott submits, that actual payment is required.[24]It is accepted on behalf of the Appellant that a failure to pay at all can amount to a deduction under section 13 (3), as if an employee is due to be paid and receives nothing non-payment is to be treated as a deduction from his wages on that occasion ( Delaney v Staples [1991] ICR 331 at 340). It is further accepted by Mr Scott that once a bonus is declared it can probably not be withdrawn as once the discretion has been exercised by the employer there is a commitment to pay the bonus subject to its terms. Nevertheless, it remains the case that where a bonus has been declared and hence an indication given by the employer to pay it on the terms of the declaration, it only becomes 'wages' when it has actually been paid. It is essential that "pay day" arrives and payment is actually made. In the case of a totally discretionary bonus, it is not payable under section 13 (3) unless pay day arrives.[25]Mr Scott relied, both before the Employment Tribunal and before us, upon obiter dicta in Kent Management Services v Butterfield [1992] IRLR 394 and New Century Cleaning Co Ltd v Church [2000] IRLR 27 . In Butterfield Wood J found that a sum was payable to a worker by his employer in connection with his employment within the definition of 'wages' if it was within the reasonable contemplation of both parties that in ordinary circumstances it would be payable. This case is to be distinguished, Mr Scott submits, from the present because it concerns a contractual as opposed to a non-contractual bonus and in any event can no longer stand after the decision in the Court of Appeal's decision in Church . There is, however, a passage in Butterfield which Mr Scott submits supports his submission. At paragraph 10 of the decision Wood J said, obiter dicta:
"10. Under subsection (3) it is envisaged that a payment has in fact been made. The present case of course is that the calculation has been made, the figure is identified but it has not actually been paid. However, there is an indication that possible non-contractual bonuses shall be considered 'wages' at least once they have in fact been paid."
[26]Wood J was there dealing with section 7 (3) of the Wages Act 1986 , which is in the same terms as its successor section 27 (3) ERA .[27]In the Court of Appeal decision in Church which concerned teams of window cleaners paid collectively on a piecework system, Morritt LJ, said that the word 'payable' in section 13 (3) "clearly connotes some legal entitlement". He continued:
"43. … The adverb 'properly' is also consistent with a legal requirement, but is not necessarily limited to a contractual entitlement. This is confirmed by the provisions of s.27 (1) (a), which show that the wages 'properly payable' may not be due under the contract of employment. But the words 'or otherwise' do not, in my view, extend the ambit of 'the sums payable to the worker in connection with his employment' beyond those to which he has some legal entitlement. With the exception of the 'bonus' referred to in s.27 (1) (a), all the subparagraphs of that subsection refer to sums to which the employee has some legal entitlement. The case of a bonus is specifically dealt with in s.27 (3), which provides that the amount of the bonus paid is to be treated 'as payable'. The bonus is thereby deemed to have been a legal entitlement. In my view, the provisions of s.27 (1) and (3) confirm that 'the wages properly payable by him [sc. the employer] to the worker' are sums to which the employee has some legal, but not necessarily contractual, entitlement."
[28]This passage in the judgment of the Court of Appeal, again obiter, does suggest, Mr Scott submits, that his interpretation of section 27 (3) cannot properly be described, as the Respondent describes it, as absurd.[29]The central point to bear in mind, Mr Scott submits, is that there has to be a pay day which becomes due and payment is made. Section 27 (3) is not, as the Respondent contends, limited to a one-off ex-gratia payment as the section does not say that. The wording of the section is quite clear, but even if it were, as the Respondent submits, vague and ambiguous and Hansard can be considered by virtue of the decision in Pepper v Hart [1993] AC 593 , it does not avail the Respondent as the Minister's comments are equally applicable to the Appellant's argument as to the Respondent's.[30]The Employment Tribunal's failure to address the Appellant's argument under section 27 (3) amounted to a serious error of law, as, had they properly considered the contention, they would have found that those instalments of the discretionary bonus which had not been paid were not recoverable as wages under the statute.[31]The Respondent submits that the Employment Tribunal must have had the argument as to section 27 (3) in mind as it had been dealt with extensively in argument by both parties. The Employment Tribunal rightly concentrated on the key issue which is whether there was a legal entitlement. Their decision is both correct and sufficient in its findings.[32]Furthermore, the Appellant's interpretation of section 27 (3) is wrong. If the legal entitlement arises from the declaration of bonus, how can the right to sue under the statute arise only when payment has been made? The Appellant's argument leads to the absurdity of a bonus which has been paid in part being recoverable as a deduction whereas a bonus which had been withheld completely would not. This must defeat the purpose of the statute which is to ensure that earnings are not arbitrarily reduced by employers (see Sedley LJ's dissenting judgment in Church ). Nicholls LJ in Delaney said at 340E-F:
"If, come his "pay day", a worker is in law entitled to a particular amount as wages and he receives nothing then, whatever be the reason for non-payment, that amount is to be treated as a deduction from his wages on that occasion."
[33]The true interpretation of 27 (3) the Respondent submits, is that a non-contractual bonus which has been made pursuant to no obligation is to be treated as payable. This construction is consistent with section 27 (1) (a), which includes payable non-contractual bonuses, and does not limit this to non-contractual bonuses which have been paid. Section 27 (3) mirrors section 13 (3) and is a provision relating to the withholding of sums.[34]As the Appellant's argument would lead to an absurdity, reference to Hansard is permissible under Pepper v Hart . In the House of Commons the Paymaster General, the Minister for Employment said in relation to what was to become section 7 (3) of the Wages Act 1986 , the precursor of section 27 (3):
"Amendment 47 deals with payments made to a worker by his employer of sums to which the worker is not contractually entitled. It can be called a 'non-contractual bonus'. When the sums are paid to the worker, they would not, as originally defined in the Bill, count as wages because they are not legally payable. The amendment ensures, that for the purposes of Part I of the Bill repayments are treated as wages subject to the provisions."
[35]Ms Drew submits on behalf of the Respondent that the cases of Butterfield and Church do not assist to any significant extent. Church was decided on its own facts, the decision turning on non-notification of wages and Morritt LJ's reference to section 23 was therefore obiter. Wood J in Butterfield went no further than saying non-contractual bonuses might be considered wages "at least once they have in fact been paid". He was not ruling out such bonuses being wages under the statute when they were payable as opposed to paid. Furthermore, the decision in Butterfield is closer to the present case on its own facts and would still be decided the same way even after the decision in Church as the key question is legal entitlement and Mr Butterfield's bonus payment would have been deemed to have been a legal entitlement in any event, as suggested in Harvey paragraph 261.[36]There is also a cross-appeal by the Respondent contending that the Employment Tribunal erred in holding that the right to the bonus did not accrue on 28 June 2002 or at the latest on the termination of Ms Hansen's employment. In the alternative, it is submitted that the Tribunal erred in holding that they had no jurisdiction in respect of £3,000 of the £9,000 claimed because those sums only accrued after the date of the presentation of the ET1. A court may make an order stating whether some will fall payable and make an order in respect of that sum. Robertson v Blackstone Franks Investment Management Ltd [1998] IRLR 376 . Conclusion (1): Unlawful Deduction from Wages[37]The failure to deal in its decision with the Appellant's argument on section 27 (3) when that had been fully argued before the Tribunal by both parties, was a surprising omission. Whether it be because the Tribunal concentrated on what it regarded as the central issue, namely legal entitlement, or whether they simply overlooked the argument or avoided its potential difficulty, the failure to address it was an error on their part. Nevertheless, as Mr Scott's submissions acknowledged, the failure to address the argument would not enable the appeal to succeed on this ground unless the Tribunal's conclusion that the bonus, or £9,000 of the bonus, constituted wages which had been wrongfully deducted was wrong in law.[38]We have come to the clear conclusion that the Appellant's interpretation of section 27 (3) is incorrect and that the Respondent's bonus, once she had a legal entitlement to it, became a wage properly payable to her under section 13 (3) ERA .[39]A bonus may be payable by reason of the terms of a contract of employment, or in some other way. As Beldam LJ said in Church at paragraph 62:
"62 For wages to be 'properly payable' by an employer, he must be rendered liable to pay, either under the contract of employment or in some other way. Section 27 contains some examples of sums which may be payable, either under contract or because for some other reason the employer is liable to make payment as an addition or supplement to 'wages'. An example of a sum properly payable otherwise than under contract would be a minimum wage payable by order of a wages council. Nor is it difficult to see how a fee, bonus, commission, holiday pay or other emolument referable to employment may be payable otherwise than under the contract of employment. Such payments may be customary or required by collective agreements without express provision being made in a contract of employment."
[40]Each of the above examples of non-contractual bonuses fall within section 27 (1) (a) "…payable under his contract or otherwise". What brings them within this definition is the fact that there is a legal obligation upon the employer to pay the bonus and a legal entitlement to receive it on behalf of the employee. In the case of a discretionary bonus, whether contractual or by custom, or ad hoc, the discretion as to whether to award a bonus must not be exercised capriciously (see United Bank Ltd v Akhtar [1989] IRLR 507 and Clark v Nomura International plc [2000] IRLR 766). But until the discretion is exercised in favour of granting a bonus, provided the discretion is exercised properly, no bonus is payable. Once, however, an employer tells an employee that he is going to receive bonus payments on certain terms, he is, or ought to be obliged to pay that bonus in accordance with those terms until the terms are altered and notice of the alteration is given ( Chequepoint (UK) Ltd v Radwan CA 15 September 2000). This situation applies equally where a discretion to award a bonus is granted under contract, as in Chequepoint , or by custom or by ad hoc decision. Mr Scott was right to concede that once the Appellant had declared the bonus it could not be withdrawn. Whilst there was no contractual entitlement to a bonus within the Appellant's firm, bonus payments were made, or offered subject to targets being achieved.[41]There may also be situations in which a payment, which could properly be regarded as a bonus, is paid on an ex gratia or one-off basis. Such a payment may be made where there is no obligation by contract, custom or practice to make such a payment but where the employer chooses to make it. In such circumstances it may well be that there is no legal liability on the employer to make such a payment. Section 27 (3) in our judgment is designed to cover situations where such a payment has in fact been made.[42]We see no reason to construe section 27 (3) as meaning that all non-contractual bonuses as opposed to fees or commission, cannot fall within the definition of 'wages' unless they are actually paid. Such a construction limits the inclusion of bonuses as wages under the Act in a manner which is inconsistent with the terms of section 27 (1) (a) and the purpose of the Act. It also has inconsistent consequences for a bonus fully paid, and a bonus partially paid but declared.[43]The proper interpretation of section 27 (3) is not that it applies to all bonuses thereby limiting the application of section 27 (1) (a) but only to non-contractual bonuses to which no legal entitlement or legal liability to pay arises. When they are paid, however, they are, as Morritt LJ said in Church , treated "as payable". The bonus is thereby deemed to have been a legal entitlement.[44]Section 27 (3) (b) is not inconsistent with this interpretation; its effect is to deem the legal entitlement, i.e. "payable", to be the day on which the ex gratia payment is made.[45]Neither the decision in Church , nor the obiter dicta deal precisely with the point under consideration in this case. We have considered in particular the dicta of Morritt LJ and Beldam LJ and do not consider that either of them is inconsistent with our conclusion. Insofar as Butterfield is concerned, again, Wood J did not in his obiter dicta deal with the point at issue in this case.[46]It has not been necessary to use Hansard in order to interpret section 27 (3) but we note that the Minister stated in the House of Commons that the amendment which became section 7 (3) of the Wages Act 1986 and subsequently section 27 (3) ERA was meant to cover payments to a worker which were not "legally payable". That statement is consistent with the interpretation we consider that the words of the statute properly bear. This interpretation avoids the strange result which would follow from the Appellant's literal interpretation, namely that a bonus which had been paid in part would be recoverable as a deduction but a bonus which had been withheld completely would not, even though it may, as the Employment Tribunal found here, become legally payable.[47]We therefore conclude that whilst the Employment Tribunal should have expressly considered the Appellant's argument on section 27 (3) it would have made no difference had they done, so as the argument would have, if correctly considered, failed. (2) Constructive Dismissal[48]The Appellant submits that the Employment Tribunal wrongly applied a test of reasonability in determining the question of constructive dismissal rather than the proper test of whether there had been a significant breach going to the heart of the contract. Clark v Nomura shows that the proper test to apply as to whether conditions apply to an award of a discretionary bonus amount to a breach of contract is one of irrationality or perversity, i.e. no reasonable employer would have exercised his discretion in this way (para. 40). A reasonability test is even more inappropriate in the case of a non-contractual discretionary bonus.[49]This submission is based on the premise that the reason found by the Employment Tribunal for the resignation was the unreasonable imposition of the condition relating to notice by redundancy. If, however, the EAT formed the view that the Employment Tribunal's finding as to constructive dismissal was that it resulted from Mr Matthews' refusal to give access to the accounts having adhered to the conditions he attached to the bonus, and that it was this that caused the loss of trust and confidence and the resignation, that finding was perverse for the following reasons:(a) It was not part of the Respondent's case that Mr Matthews had adhered to the condition. It was not in her statement, nor in her evidence, nor in her case on constructive dismissal as clarified at the request of the Employment Tribunal at the close of the Respondent's case. The Respondent then said that constructive dismissal was due to (i) withholding money due and (ii) withholding information which, in all the circumstances, an employee needs access in order to perform duties and/or respond to pay decisions. The first reference to "unreasonable conditions" came in the Respondent's final submissions.(b) Non-access to the accounts was a known and accepted practice. Continuing to rely on such a practice could not therefore be destroying trust and confidence.(c) The Respondent said in evidence that she assumed that the bonus would be agreed on 29 July 2002 and the conditions no longer insisted on. In such circumstances the importance of such conditions and indeed the opening of the accounts was diminished or undermined. Once the conditions were taken out of the picture, all that remained was the access to the books to which there was no contractual right.[50]There is no evidence that on 29 July 2002 Mr Matthews insisted on the conditions remaining, even though he did say that he would not open the books. Before a breach of trust and confidence could arise there would have to be very clear evidence that awful financial consequences would result. Anything less than that would not suffice. Being able to check on the redundancy situation would not be sufficient; it would require, for example, a partner acting ultra vires or taking money from the firm.[51]The Respondent submitted that the Tribunal directed themselves comprehensively as to the relevant law, as can be seen from (a), (b), (c) and (d) at page 4 of their decision. They clearly had the correct contractual test well in mind.[52]The Employment Tribunal found the relevant facts and that having heard and considered the evidence concluded that there had been a breach of the duty of trust and confidence. There was evidence which enabled them to make such finding. None of their findings were perverse and they had the appropriate law in mind when reaching their conclusion.[53]The Respondent's sense of security within the firm was paramount. There was concern about the financial viability of the firm after Mr Weir's retirement and the variation of the conditions by the addition of the condition relating to redundancy, as found by the Employment Tribunal, should be seen against that background. Mr Matthews had emphasised the extent to which the year 2001/2002 had been bad and further that if the Respondent left he may have to close the firm. The refusal to permit her to see the books in the circumstances, and particularly with the condition relating to redundancy, was clearly capable in the circumstances of amounting to a breach of the implied term as to trust and confidence. Such a finding was open to the Employment Tribunal.[54]The adherence to the condition at the meeting on 29 July 2002 was an important feature but was just the last in the line of actions by Mr Matthews which led to the breakdown in trust and confidence. The evidence was clear that Ms Hansen loved her job, Ms Drew submitted, and would have preferred to have stayed with the Appellant had trust not broken down. She had, on the evidence, assumed that she and Mr Matthews would reach agreement on the bonus and had drafted a scheme which she had sent to him on 14 July 2002. She was in fact entitled to leave after 1 July when Mr Matthews imposed his further condition. There is no evidence that she had affirmed the contract. Mr Matthews did not withdraw the condition re redundancy prior to the Respondent's resignation on 29 July 2002, and it was only after the resignation that he offered £17,000 by way of bonus. The fact that the Employment Tribunal did not say that Mr Matthews adhered to the conditions at the beginning of the meeting does not amount to an error in law.[55]What was affecting trust and confidence was the manner in which pay had been dealt with, conditions imposed and varied, and access to the accounts refused when, without them, the Respondent was not able to assess the risk of redundancy or the validity of the condition as to instalments.[56]In the Chairman's notes at page 3 it is recorded that the Respondent was asked about paragraph 23 of her witness statement, which concerned the meeting of 29 July 2002, in cross-examination. When asked whether it was the failure to open the books which was the trigger for her handing in her notice, she replied as follows:
"What he was saying was that we could reach agreement on financial aspects, but he couched it in the way that if you don't stay you don't get paid, a blackmailing issue. He also said he would not open the accounts. He also named a partner whom he didn't trust. He had used this excuse before. I was shocked. I was not sure I could trust his financial management. It was the principle. I handed in my notice."
[57]There was therefore, the Respondent submitted, ample evidence before the Employment Tribunal to support their finding of breach of the implied term of trust and confidence. The Tribunal were entitled to find that refusing the Respondent access to the accounts was such a breach and that finding cannot be said to be perverse. It was the Respondent's case before the Tribunal that it became a breach of the term to refuse access to the accounts in the particular circumstances. The Employment Tribunal accepted that case and rejected the Appellant's and did not in doing so commit any error of law. Conclusion (2): Constructive Dismissal[58]The Employment Tribunal set out the relevant law accurately in their decision and there is nothing in their conclusions which indicates that they had lost sight of the direction in law which they had given themselves. Furthermore, paragraphs 9, 10, 11 and 12 of the decision which should be read together, do not indicate that the unreasonable imposition of the condition re redundancy was the only basis for the finding of breach of the implied term of trust and confidence. When paragraph 12 is read as a whole it is in our judgment clear that Mr Scott's alternative interpretation is correct and that it was the existence of the conditions, the adherence to them at the meeting of 29 July 2002 and the refusal to give access to the accounts which would have enabled the Respondent to judge for herself whether she was, for example, likely to retain her employment or be dismissed by reason of redundancy, which amounted, in the view of the Employment Tribunal, to a fundamental breach of the implied term of mutual trust and confidence entitling the Respondent to resign.[59]We are satisfied that the Employment Tribunal did not apply a reasonability test or in any other manner direct themselves incorrectly in relation to their finding that there had been a breach of the term of trust and confidence.[60]Nor do we consider that the findings of the Tribunal were perverse. There was evidence that Mr Matthews had adhered to the conditions at the meeting of 29 July 2002, as appears from the Chairman's notes of evidence. When asked about the meeting on that date, the Respondent said, as we have already set out, that although Mr Matthews was saying that they could reach agreement on financial aspects, he couched that in such a way that "if you don't stay you don't get paid, a blackmailing issue. He also said he would not open the accounts."[61]Whilst adhering to the conditions was not expressly pleaded by Ms Drew in her clarification of the case for the Respondent on constructive dismissal, it was included in her final written submissions and dealt with before the Employment Tribunal by both parties without objection. We are satisfied that there was evidence before the Employment Tribunal which enabled them to make the finding which they did, namely that it was the adhering to the condition as to instalments and to redundancy, coupled with the refusal to give access to the accounts upon which the decision to impose the conditions was claimed to be based, which caused the breach of the implied term as to trust and confidence. The Employment Tribunal was entitled to come to their conclusion on the material before it and it was not barred from doing so by the manner in which the Respondent's case was presented and the Appellant's reply to it.[62]Further, the Employment Tribunal heard the evidence of the Respondent and Mr Matthews, appreciated that the Respondent regarded Mr Matthews attitude towards the imposition of the conditions to be "a blackmailing issue"; that she was not sure that she could trust his financial management (notes page 3); that there was talk of redundancy and targets and his lack of proper financial management caused her concern (notes page 4); that she would have preferred to stay at the Appellant but could not tolerate the circumstances (notes page 5); and that she had been given so many stories about the state of the books she questioned his ability to look at the set of figures and give an accurate statement (notes page 6). There was therefore evidence upon which the Tribunal could conclude that the combination of the conditions and the refusal to give access to the books to enable the Respondent to assess these conditions, created, in the circumstances of losses, cash flow and potential redundancy, a breach of the term of trust and confidence. It was for the Tribunal to make its own conclusions upon the evidence before it. On its findings the Respondent's assumption that the bonus issue would be agreed was immediately proved wrong when Mr Matthews raised what she described as the blackmailing issue.[63]We see no merit therefore in the Appellant's criticism of the Tribunal's findings as to constructive dismissal. CONCLUSIONS[64]It follows that the Appellant has not succeeded on any ground of appeal and that this must therefore be dismissed. The cross-appeal does not arise. COSTS[65]The Respondent claims costs in respect of the wasted hearing of 29 April 2004 which was vacated when the Chairman's notes had not been obtained. We refuse that application. There is no proper basis for concluding that the Appellant was guilty of unreasonable delay in pursuing an application for notes of evidence. An award of costs would not be appropriate in the circumstances.