POWERMARQUE LIMITED v MR G SYKES [2004] UKEAT 0954_03_2903

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2004] UKEAT 0954_03_2903

Case No Appeal No. UKEAT/0954/03

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

POWERMARQUE LIMITEDAPPELLANT

MR G SYKESRESPONDENT

Before

Mr Justice Burton

Date 29 March 2004

[1]APPEARANCES For the Appellant MR C SMITH (of Counsel) Instructed by: Messrs Halliwell Landau Solicitors St James Court Brown Street Manchester M2 2JF For the Respondent MR G WONG (of Counsel) Instructed by: UNISON Employment Rights Unit 1 Mabledon Place London WC1H 8AJ SUMMARY Redundancy The issue raised by the appeal is as to the true nature of the employee's contractual rights arising on dismissal for redundancy. It involves a question as to the correct interpretation of various documents. THE HONOURABLE MR JUSTICE BURTON (PRESIDENT) This has been an appeal by the Respondent, Powermarque Limited, against the unanimous Decision of the Employment Tribunal at Leeds, that the Applicant was entitled to £25,000 in respect of an enhanced redundancy scheme, which the Tribunal found was contractually operative. The Respondent clearly can be sympathised with in relation to this case because it inherited a contractual structure arranged by its predecessor in 1993, but there is no issue as to the fact that it is bound by the terms of a Collective Agreement entered into between what was then the National Rivers Authority and four trade unions for the "Management of Change", dated 23 November 1993; and subsequently, when this Applicant became redundant on 23 August 2002, he claimed entitlement as a result of an accepted position that the content of that Collective Agreement was incorporated into his contract of employment.

[2]The term in question in the Collective Agreement was Clause 11:

" Redundancy Payments Redundancy payments will be in accordance with the Severance and Early Retirement Scheme of the Authority as may be in force from time to time."

The issue between the parties, which the Tribunal resolved in favour of the Applicant, was whether the figures which were being claimed by the Applicant, pursuant to that Scheme, were discretionary or were, as a result of that clause, in whole or in part, a contractual entitlement overriding any discretion.

[3]The appeal is brought on the basis that the Tribunal erred in its construction of that clause. It was put by Mr Smith in his persuasive Skeleton Argument on the basis of a perverse decision or interpretation by the Tribunal, nervous, as no doubt all practitioners rightly are, about persuading an appeal body to interfere with a decision of an experienced Employment Tribunal, which expressed its decision in this case forcefully. Indeed, at paragraph 32 and 33 the Tribunal said as follows:

"32 The interpretation that we put on paragraph 11 is that the agreement reached was that in the future if a compulsory redundancy situation arose, an employee being made compulsorily redundant would receive benefits set out at page four of the bundle. In our view, in the context of industrial relations, the paragraph is unambiguous. The paragraph created a right that was not subject to managerial discretion. 33 We reach our view on the unambiguous nature of the paragraph 11, on the basis that the earlier document states that it is specifically a voluntary severance scheme and sets out the manner in which discretion will be exercised. In summary, where an employee approaches the employer asking for voluntary severance, it would be a matter for the management to assess whether they could afford to let him/her go or not. If the decision was that they could afford to let him go, then he would receive the benefits set out at page 4. The collective agreement, at paragraph 10 refers to compulsory redundancy and paragraph 11 refers to what will be paid in such circumstances."

[4]However, we do not conclude that the Appellant needs to be nervous about an appeal of this kind; this is not a perversity appeal, this is an appeal on the basis that the Tribunal erred in law in its construction of the document. There was no relevant oral evidence called, and no dispute as to the factual context in which the document is to be construed, and it was, as Mr Smith has submitted, simply a question of construction of the series of documents, to which we will refer, which formed the Severance and Early Retirement Scheme executed in June 1993 and the Collective Agreement of November 1993, to which we have referred. Mr Smith has complained of the statement, in paragraph 32 of the Tribunal's Decision, that "in the context of industrial relations the paragraph is unambiguous", and has submitted that the Tribunal ought not to have been, if it was, looking at this clause by some broad industrial relations approach, but by applying a legal construction to the agreement, and he submits that a legal construction ought to have led the Tribunal to the opposite conclusion.

[5]The Scheme, as we shall call it, was contained in two documents. The first was described as "Employees Guide to the NRA's Severance and Early Retirement Scheme", and the second, which accompanied it, was described as "Personnel Guidance Notes on the NRA's Severance and Early Retirement Scheme". The following provisions are relevant in the Employees Guide as follows:

"The NRA has adopted a national Severance and Early Retirement Scheme. It came into effect in June 1993 and provides a range of benefits based on age, length of service and pay. This is an "open" scheme which allows any eligible employee to make a voluntary application to leave the NRA and receive payments in accordance with Scheme terms. However, any offer of Scheme terms is entirely at management's discretion."

Then, under the heading "Is there a guarantee of severance?" it says:

"The Scheme is discretionary and the final decision on whether to offer Scheme terms rests entirely with the NRA. It is not the intention of the Authority to release employees unless this is to the benefit of the NRA and can be justified in financial terms"

Then, under "How much will I get?":

"All payments are discretionary but in general depend upon age, pay and length of service after age 18"

[6]There follows a large box, broken into three segments, one for age 40 and below, one for age 41 to 49 and one for age 50 and above. It is the last of these three which is relevant to the Applicant, who was 52 at the material time, and it reads as follows:

"Age 50 and above 0.5 weeks pay for each 12 months of service age 18 to 21 plus 1 weeks pay for each 12 months of service age 22 to 40 plus 1.5 seeks pay for each 12 months of service age 41 to 64 (subject to maximum total of 30 weeks pay) plus half the total of the above plus up to 30% of annual pay as a lump sum or as 8 quarterly payments* plus 2 weeks pay for each week of contractual Notice of Appeal plus immediate benefits from the pension scheme plus up to 6 2/3rds additional years of service without any reduction of severance payment or up to 10 additional years with a reduction in severance payment."

Outside the box it continued as follows:

"*Subject to three years continuous service and discounted for early payment if paid as a lump sum. The minimum severance payment for those eligible under the Scheme is 10 weeks pay and the maximum is 18 months pay. In addition, staff approaching age 65 cannot receive more in severance payments than the pay they would have received had they continued to work to age 65"

[7]In the Personnel Guidance Notes the following paragraphs are relevant:

"1.2 The Scheme and the application of its provisions is entirely at management's discretion. It is not, and will not become, a joint agreement. However, it is an "open" scheme which allows any eligible employee to make application for Scheme terms. There is at present no time limit either for requesting an estimate or for registering an interest in voluntary service. However, any offer of Scheme terms is entirely at management's discretion."

Then under the heading "2 Severance Provision":

"2.3 The Scheme applies to permanent staff only. Staff on temporary or fixed term contracts are not eligible for benefits ……. 2.4 A payment may be made to permanent employees consisting of ……" and then there is a summary set out, putting into slightly more cursive language what is set out in the box which we have quoted. "2.5 The minimum severance payment for eligible employees is 10 weeks pay and the maximum severance payment is 18 months pay…."

And under the heading "Operation of severance and early retirement provisions":

"4.1 The granting of requests for severance or early retirement and the payment of additional years are entirely at management's discretion. However, it is recognised that there will be situations where application of the Scheme may be required. …."

And then six examples are there set out, the first of which is:

"redundancy within the statutory meaning where the requirement of the business for employees to carry out work of a particular kind has diminished or ceased at the place that they were employed."

Finally, at paragraph 13 under the heading "Status of the Scheme":

"13.1 The Scheme will not form part of any agreement with the trade unions, and will be applied at the discretion of the NRA. … 13.3 It is also important that the Scheme is seen to operate at the NRA's discretion. All references to the Scheme must make clear that it is being operated on a management only and discretionary basis. This discretion applies not only to any entitlement for severance on voluntary terms, but also to the level of benefit payments available under the Scheme."

[8]The double repetition in that latter document in paragraph 1.2 and 13.1 that the Scheme was not, and would not become, a joint agreement, and would not form part of any agreement with the trade unions, was plainly overtaken by the Collective Agreement six months later, to which we have referred, and the emphatic assertion of the discretion of the NRA thereby was overtaken by what occurred six months later.

[9]There are, it seems clear, three areas of potential employer discretion in relation to what we have just recited.(1) The Scheme, but for the arrival on the scene six months later of the Collective Agreement, was entirely discretionary in the sense that no one was entitled to benefit from it at all, i.e. any entry into the scheme at all was entirely within the discretion of the employer. It is conceded that that was overtaken by the Collective Agreement.

(2) On the face of it, as we have read in the Employees Guide, "all payments are discretionary" and in the Personnel Guidance Notes the words "This discretion applies not only to any entitlement for severance on voluntary terms but also to the level of benefit payments available under the Scheme" Again, but for the interposition of the Collective Agreement, which is of course what this case has been about, it would be clear that even once an applicant was eligible for the Scheme, the insistence upon discretion extended as far as the precise quantification of any payment, although, as Mr Smith has said, the contents of the box would certainly amount to the expression of something which would give an employee an expectation of what he or she would receive, if eligible.

(3) The Collective Agreement, once it did come in, was expressly subject to the Severance and Early Retirement Scheme of the Authority "as may be enforced from time to time", which would appear to have given the employer the right not only to change the Scheme, which of course neither the Respondent's predecessor nor the Respondent in fact did, as far as we know, or to remove it entirely. So to that extent, there would be, if not a discretion, certainly a flexibility or empowerment on the part of the employer, no doubt subject to the possibility of resistance from the unions if it sought to do so.

[10]There was some argument below at the Tribunal, in relation to the exercise of the discretion, insofar as that arose, and there was specific reference made to Clark -v- Nomura

[2000] IRLR 766

and Mallone -v- BPB Industries Ltd

[2002] ICR 1045

in that context. The Tribunal concluded that if the question of the employer's discretion had arisen, it would have considered that there was no ground for challenge to that discretion on the basis of those authorities. The employer's discretion was, on the face of it, untrammelled; it had to be exercised rationally, that is in accordance with Clark -v- Nomura on the basis that it could not be said to be a discretion which no reasonable employer would have exercised, and in the light of the circumstances known to the Tribunal. Had it been a question of discretion, the Decision of the Tribunal to award twenty five weeks pension, which was more than the minimum of ten weeks, to which we have referred, would not have been challengeable, but the case for the Applicant was that his entitlement did not depend upon discretion.

[11]As we have indicated, it plainly would have depended on discretion if there had been a claim to be eligible for the scheme as a voluntary application, but, as a result of Clause 11, the Applicant asserted that, this being a compulsory redundancy, he was entitled to receive redundancy payments "in accordance with the Severance and Early Retirement Scheme of the Authority" i.e. in accordance with the box.

[12]It is not entirely clear from the Tribunal Decision as to how far that entitlement of the Applicant was either pushed before the Tribunal or formed the basis of its conclusion. Mr Wong, for the Applicant, who did not appear below, has made it entirely clear before us that the Applicant's case is that he is entitled to all those sums which can be calculated in accordance with the box, to which we have referred, without reference to the figures which are plainly discretionary, on their face, namely those with the preface "up to". It is common ground between the parties that if the Applicant is and was entitled on that basis, then a sum of at least the £25,000 awarded, as being the maximum recoverable in the Employment Tribunal was payable, and so no calculation of the precise entitlement or as to the difference between an entitlement on that basis and an entitlement by reference to the "up to" provisions is necessary.

[13]Mr Smith submits that the consequence of the Collective Agreement was that an employee who was to be made compulsorily redundant thereafter would receive payment in accordance with the scheme, that is that he or she would receive a minimum of ten weeks, but any further sum would be entirely discretionary, and the exercise of the discretion no longer being challengeable, nothing further than what was in fact paid, which could have been a minimum of ten weeks but was in fact twenty five weeks, is recoverable. The case for the Applicant is that the clause gave the Applicant and other employees in his position (although it turns out that there are none) a right to payment, in accordance with the Scheme, that is of all of those sums which are calculated, as we have described, in the box.

[14]Mr Smith submits that the Collective Agreement should not be construed as overriding the discretionary nature of the payments under the Scheme, but only as overriding the discretionary nature of the entitlement to take part in the Scheme. His submissions are as follows. First, he refers to the words in paragraph 11 "as may be in force from time", so as to emphasise the discretionary nature even of that that was given by the Collective Agreement.

[15]Secondly, he submits that sense can be made of the Scheme, which would otherwise, if there were no arguments such as we shall describe, suggest that in fact an employee got nothing out of that clause apart from an expectation, by pointing to the minimum severance payment and indicating that that was what was guaranteed to an employee made compulsorily redundant by Clause 11, plus the hoped for operation of a discretion.

[16]Thirdly, he points to the provisions in the box which are dependent on the words "up to" so as to show that although the Applicant in this case does not rely on those provisions, accepting that those provisions are discretionary, nevertheless, their very inclusion flavours the discretionary nature of the agreement as weight, as he puts it, for his argument.

[17]Fourthly, and centrally, he submits that although the words of Clause 11 can and do override certain parts of the discretionary emphasis of the wording of the Scheme, written as it originally was for different purposes, there are two passages which he submits cannot be overridden, and show that what was intended was simply to override any discretion as to entry to the Scheme, without removing any discretion that the employer had as to the precise calculation of payment.

[18]Those passages, out of all those that we have quoted, are these: first of all the passage in the Employees Guide "All payments are discretionary", and, secondly, and he submits even more clearly, in the Personnel Guidance Notes at paragraph 13.3 the words "This discretion applies not only to any entitlement to severance on voluntary terms, but also to the level of benefit payments available under the Scheme".

[19]We do not agree with Mr Smith, and we conclude that the result of the Collective Agreement was to give an employee made subject to compulsory redundancy thereafter, so long as the Scheme remained in force, the terms in the box, absent any entitlement to, as opposed to an expectation of, the figures governed by the words "up to".

[20]We so decide for the following reasons.(1) We are not impressed by the reference by Mr Smith to the provision in paragraph 11 "as may be in force from time to time". What that does not, in our judgment, emphasise is any discretionary nature of entitlement to the existing scheme, but it rather emphasised that the existing scheme might change, or, indeed, entirely disappear, and that it was only to the terms of whatever scheme might, at any given time, be in existence, that an employee was now to have an entitlement. It, in our judgment, casts no reflection on the Scheme itself; it simply emphasises the fact that that Scheme might thereafter alter. It addresses the third of the roughly described discretions to which we referred at the beginning of this judgment.

(2) We do not accept the magic nature of the minimum payment to which he referred. He submits that, as we put it, it gives some sense on his case as to what an employee was getting; he was to receive the minimum payment, but nothing more apart from an expectation. If in fact his case is right that "all payments are discretionary" means that an employee would not, even by reference to Clause 11, be entitled to receive any sum at all, then even the minimum severance payment would, to that extent, be discretionary, and once the concession is made that the minimum severance payment is not discretionary, that in itself eats into the basis of his argument as to the totally discretionary nature of any payment, an argument to which we will return. We are satisfied that what the minimum payment provision does is to govern the contents of the box, and so that whatever comes out of the box is subject to a minimum of ten weeks pay, and, indeed, a maximum of eighteen months pay. If, therefore, there is an employee who would otherwise have, under the box, received less than ten weeks, he would get a minimum of ten weeks. That is, in our judgment, all that the minimum payment was ever intended to do, and that is all it continues to do, after the change in the nature of the voluntary agreement into a compulsory one, once paragraph 11 was implemented in November 2003.

(3) We accept and understand Mr Smith's reference to the provisions which themselves are discretionary, in the box, of the "up to" provisions, but we do not believe that it assists his argument; indeed, in the end, those provisions are, in our judgment, neutral. They reflect on the one hand the need for the Applicant to eschew them in alleging a contractual entitlement, but do not support the argument for the Respondent because the Respondent's case is not only that those provisions are totally discretionary, but that all the provisions are.

[21]What appears to us, and we turn now to the nub of his case, to be a powerful obstacle in his way, is the consistent reference throughout the two documents to "Scheme terms". It appears to us that what was intended by the original voluntary document was to emphasise and re-emphasise the discretionary nature of it; but once an applicant was in the scheme, he was entitled to "Scheme terms". What is emphasised, for example, in the Employees Guide document is that any offer of "Scheme terms is entirely at management's discretion", and in the Personnel Guidance Notes, an employee is encouraged "to make application for Scheme terms".

[22]What occurred by reference to the Collective Agreement is that employees made compulsorily redundant were now to be entitled to Scheme terms. In our judgment, what was agreed by paragraph 11 was that the employee now had an entitlement to those Scheme terms, i.e. an entitlement, subject always to the discretionary nature of the "up to" provisions, to receive payment on the basis of the box.

[23]Mr Smith's last bastion is the words in paragraph 13.3, which we have quoted, and that was an emphasis about the totally discretionary nature of the Scheme. It is a reflection, and an expansion, of the words in the Employees Guide document "The Scheme is discretionary" and "All payments are discretionary"; but, in our judgment, the existence of the words "Scheme terms" betrays the fact that the reality is that the fundamentally discretionary nature of the Scheme was its bar to entry. In our judgment, the proper construction of paragraph 11 was that it gave an entitlement to an applicant not only to enter the Scheme, but also to the benefit of those Scheme terms which were not themselves dependent on the exercise of a further discretion, and the words relied upon by Mr Smith in paragraph 13.3 indeed can be construed on the basis of the fact that some of the benefit payments contained in the box did, indeed, require a further discretion, as we have earlier indicated.

[24]The only sense that can be made, not simply from an industrial relations point of view, but on the basis of a legal analysis of the result of imposing the Collective Agreement of November 2003 on what was, in fact, an entirely different animal, namely the voluntary scheme, is that, as a result of the Collective Agreement, the compulsorily redundant employee became entitled to the figures in the box, so far as they did not depend upon the exercise of further discretion.

[25]In those circumstances, but for slightly different, and, perhaps, rather longer reasons, we are satisfied that the Tribunal was right in its conclusion to award this Applicant £25, 000 and the appeal is consequently dismissed.