COORS BREWERS LTD v MR S P ADCOCK & OTHERS [2006] UKEAT 0460_05_3003

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2006] UKEAT 0460_05_3003Case No Appeal No. UKEAT/0460/05Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
COORS BREWERS LTDAPPELLANTMR S P ADCOCK & OTHERSRESPONDENT
Before
His Honour Judge Peter Clark Mr M Clancy Mr B WarmanDate 30 March 2006
[1]APPEARANCES For the Appellant MR THOMAS LINDEN (of Counsel) Instructed by: Messrs McDermott Will & Emery UK LLP 7 Bishopsgate London EC2N 3AR For the Respondent MR DIJEN BASU (of Counsel) Instructed by: Messrs Rowley Ashworth Solicitors No. 1 Snow Hill Plaza St Chad's Queensway Birmingham B4 6JG SUMMARY 10, 8R Unlawful Deduction from Wages Practice and Procedure; appellate jurisdiction HIS HONOUR JUDGE CLARK This is a substantial claim, with an estimated total value of over £600,000, brought by 509 individual Claimants, Mr Adcock and others, with the assistance of their trade union, the Transport & General Workers' Union ("the Union") against their employer, the Respondent Coors Brewers Ltd. We shall so describe the parties in this judgment.[2]It has proceeded in the Leicester Employment Tribunal. Following a five day hearing in April 2005 before a Tribunal chaired by Mr C J Goodchild that Tribunal, by a reserved judgment promulgated with reasons on 5 June 2005, upheld the individual claims and declared that each Claimant was entitled to a sum amounting to 4% of his or her gross income for the year 2003, properly payable in 2004 and unlawfully deducted from each Claimants' wages. Against that judgment this appeal is brought by the Respondent. The Issues[3]The appeal raises the following questions for our determination:(1) What is the proper scope and extent of the cause of action created by Part II of the Employment Rights Act 1996 (not the Employment Relations Act (1999) to which the Tribunal erroneously refer in the first line of their reasons) which we shall call for convenience "the Wages Act" claim (a reference to the 1986 Act replaced by Part II of the 1996 Act) as contrasted with a claim for breach of contract which was not available to these Claimants, who remained in the Respondent's employment (see the Employment Tribunals Extension of Jurisdiction (England & Wales) Order 1994 , Article 3(c) ("the 1994 Order")?(2) Has this Tribunal complied with its obligation, now enshrined in Rule 30(6) of the Employment Tribunal Rules of Procedure 2004 , to give adequate reasons for its judgment, that is reasons which are "Meek-compliant", to borrow that expression coined by Sedley LJ in Tran v Greenwich Vietnam Community Project [2002] IRLR 735 by reference to the leading case of Meek v Birmingham District Council [1987] IRLR 250 (CA)?(3) Has this Tribunal reached a conclusion which is legally perverse, in the sense explained by the Court of Appeal in Yeboah v Crofton [2002] IRLR 634 and earlier cases? The Facts[4]As the Tribunal correctly observed at the outset of their judgment, there is little dispute as to the primary facts, the issue is as to the interpretation of what occurred. Nevertheless, careful findings as to the material facts are essential before analysing the legal issues and applying the law to the facts as found in order to arrive at a permissible conclusion.[5]In summarising the facts we have had regard not only to the findings contained in the Tribunal's reasons, but also certain facts agreed between the parties as a result of assertions made by the Respondent as to undisputed evidence given below, not recorded in the reasons, appearing at paragraphs 13 and 15 of the Notice of Appeal. As an aside, this case is a good illustration of the practice now developed in the EAT, particularly by Burton P, of requiring parties to agree evidence which was given below, but not recorded in the Tribunal's reasons, which is or may be material to the issues raised in the appeal, thereby by-passing the need for Chairman's notes of evidence. Of course, this procedure requires a responsible and co-operative approach by the parties and their representatives; something which both Counsel in the present case have shown in abundance. We are grateful to them for the good sense which each has shown in the preparation and presentation of their respective cases and in their level of mutual co-operation.[6]At all relevant times, the Claimants were employed at a brewery in Burton-on-Trent. From 1998 until August 2000 their employer was Bass Brewers Ltd (BBL) part of the Bass Group (Bass).[7]Bass operated a scheme called the Bass Employee Profit Share Scheme (BEPSS) ("the Scheme") whereby eligible employees, including those Claimants then employed by Bass, were entitled to the allocation of shares in the Bass holding company based on a proportion of annual group profits assigned to the scheme by the main board of directors at their discretion. The scheme was tax-efficient under the terms of the Finance Act 1978 until a change in the relevant legislation, taking effect in December 2002, rendered it tax-inefficient. Generally, the sum allocated for share purchase for the benefit of the scheme members, to be held on trust for them, worked out at between 4%-5% of each member's annual wage during the 20 or so years of its operation between 1980 and 2002. Additionally, of course, the value of the shares fluctuated according to market conditions.[8]There were conditions attached to the Scheme, including a minimum period during which the shares had to be held in order to take advantage of the tax break on re-sale under the taxation legislation and, significantly, members of the scheme were only eligible to participate in the scheme for so long as they remained employed by the Bass Group.[9]In August 2000 Interbrew SA completed the acquisition of BBL by way of a share acquisition. Thereafter the former Bass employee members of the scheme who remained in employment with Interbrew became ineligible for continued membership of the scheme by virtue of cessation of their Bass employment. That gave rise to this potential inequity. The scheme year ran from 1 October to 30 September. Thus BBL scheme members would not derive any benefit from their contribution to any profits made by the Bass Group during the year commencing 1 October 1999, normally to be reflected in a share allocation in February 2001. The Tribunal found (reasons paragraph 14) that any prior contractual obligation owed by Bass to the BBL (Burton) scheme members ceased on the acquisition by Interbrew. If nothing had been said at the time, there would have been no continuing obligation on the new owners. However, the Tribunal placed significance on certain questions and answers appearing on the BBL website (Brewnet) as indicating a commitment by the company to put in place a scheme equivalent to the previous BEPSS. The Tribunal put it in this way; it was a commitment which the company intended to honour to put in place a scheme that would "pay the equivalent value as the former share holding scheme had", taken with oral evidence given to the Tribunal by Kirsty Derry, Head of Rewards, that this was a promise by the company that was to be acted upon by the workforce.[10]On 5 January 2001 an announcement was placed on Brewnet by the Chief Executive of BBL, Ian Napier. It is common ground between Counsel that, although not specifically identified, it is this announcement to which the Tribunal refer at paragraph 20 of their reasons where they say under the heading "Conclusion":
"20. We believe that the original shareholders' scheme was part of a contract of employment package. In 2000, because of the events, the scheme ceased. Following cessation after the shareholding had been transferred to Interbrew the company by its chief executive promised to replace it with a scheme that would make a payment of equivalent value. That was not just a promise for the next 12 months but was continuing."
[11]Since the Chief Executive's announcement of 5 January 2001 played a significant role in the Tribunal's determination in this case and forms part of the focus of this appeal, we should set it out in full. "BEPSS Replacement 2001 I am pleased to tell you that for the financial year 2000 people who would have qualified for BEPSS (Bass Employee Profit Share Scheme) shares and were still in employment on 1st January 2001 will be granted a special cash payment of 5% of Shareable Earnings. Shareable Earnings replicates the calculation used under the Bass PLC plan and means P60 (gross) earnings for April 2000, including shift and overtime pay but excluding items such as Divisional Bonus. Payment will be made 7th March 2001 for weekly and four weekly paid employees and will be subject to deductions for tax and national insurance. This special cash payment of 5% of shareable salary substitutes the share allocation that would have been made had we still been part of Bass PLC and honours our commitment to substitute the previous scheme. Following the announcement made on Wednesday January 3rd we will defer a decision of the future shape of this reward benefit and an announcement will be made at the appropriate time regard nature in the future. If you have any further questions, please telephone the Employee Services Help Desk on 7200 3456 Option 2".[12]On 28 February 2001 Mr Napier wrote to employees in these terms:
"Dear Colleague Bass Brewers Incentive Scheme I am delighted to inform you that Bass Brewers' has achieved 103% of our budgeted target for Operating Profit for the Interim Bonus Scheme (1st October – 31 st December 2000). This triggers a Bonus award of 1% of your base salary. £«bonus». In accordance with the recently announced cash replacement for BEPSS, you will also receive £«bepss». This one-off payment honours our commitment to substitute the share allocation that would have been made had we still been part of Bass PLC. These payments will be subject to tax and National Insurance in the normal way and will be paid into your bank account on 7th March 200I, along with your normal pay for that period. This has been a tremendous achievement in an intensely competitive and changing market and I am proud of everyone's contribution. Bass Brewers continues to be a tremendously successful company despite all the uncertainty surrounding us - let's keep it that way. The focus of our Incentive Scheme for the current financial year, January-December 200I, is Operating Profit. Our performance against target will trigger an incentive payment of 3.5%. Our number one priority is to crush the competition and smash our targets in 200I. The year has started well and if we maintain this level of performance we will all share in the rewards of our efforts through this Incentive Scheme."
[13]In evidence, it is common ground before us, Mr Builth, the union shop steward on the Burton site and principal witness for the Claimants, accepted that the 5 per cent payment, made in March 2001, was a one-off and that the position in relation to any future replacement of BEPPS was unresolved at that stage as between the Company and the union.[14]Following a ruling in September 2001 by the DTI the Burton BBL business was acquired by Adolph Coors Inc: by share transfer on 2 February 2002, and its name was changed to Coors Brewers Ltd, the present Respondent. Meanwhile, on 21 December 2001 employees received a letter from BBL headed 'One-off discretionary payment'. It began:
"I am delighted to confirm that you, as an employee who would have qualified under the old BEPSS Scheme, will receive a one off discretionary cash payment of 5% of Shareable earnings as a gesture of good will."
The letter went on to outline what was described as an Interim Company Incentive Scheme for the period 1 January 2002 until Bass Brewers separated from Interbrew.[15]On 28 February 2002 the Respondent wrote to employees announcing the 'Coors Brewers Incentive Scheme' (CBIS), described as a 'a new and enhanced discretionary Incentive Scheme' to be operated for the remainder of the Coors' financial year, 3 February – 31 December 2002. It provided for a scale of payments of between 2 and 8.5 per cent depending on growth performance of the Burton operation (as opposed to Group performance as under the old BEPSS). That letter continued:
"…Coors Brewers will make a one-off discretionary payment of £500 as a gesture of goodwill…"
A payment was duly made on 3 April 2002.[16]The Respondent's performance in 2002 led to incentive payments to the employees in early 2003, following a failure to agree between the Company and the union as to the method of calculation under the CBIS 2002. The payments were in the order of 4.8 per cent of wages.[17]In January 2003 the Respondent announced its incentive scheme for 2003 (CBIS 2003) based on a formula measuring the Company's Earnings Before Interest and Tax (EBIT). Growth on performance set against 2002 results. Under this formulation any result representing less than 91.6 per cent of target growth would result in no payment to employees, rising to a payment representing 8.5 per cent of wages if 107 per cent of planned growth was achieved.[18]In the event, once it became clear that targets would not be reached, lower targets were set in August 2003 but these were not reached and no payment was made under CBIS 2003, leading to these proceedings. Wages Act and Breach of Contract claims[19]Part II ERA replacing the Wages Act 1986 , owes its origins to the Truck Acts 1831 – 1940 , originally designed to protect Victorian workers from being paid in tokens redeemable only in the poor value company stores. Although contemporary moves to cashless pay are inconsistent with the original statutory obligation on employers to pay wages by coin of the realm, the principle that workers should not suffer unauthorized deductions from their wages remains.[20]Thus, section 13 ERA contains that prohibition defining a deduction in section 13(3) in this way:
"Where the total amount of wages paid on any occasion by an 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 purpose of this Part as a deduction made by the employer from the worker's wages on that occasion."
Section 27(1) defines wages as:
"(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 …bonus…or other emolument referable to his employment, whether payable under his contract or otherwise…"
[21]Before turning to the learning on the definition of wages, it will be seen that section 27(1)(a) refers to sums payable under the contract or otherwise. And yet the right to bring a claim for damages for breach of contract before an Employment Tribunal, contained in the 1994 Order, arises only on termination of the contract, not before. See Capek v Lincolnshire County Council [2000] IRLR 590. What, if any, distinction lies between a Wages Act claim and one for breach of contract? We note that in Capek , having found that the claim for breach of contract was brought prematurely before termination of the employment, the Court of Appeal then remitted the case to the Employment Tribunal to determine whether it was properly to be regarded as a claim under Part II ERA .[22]Some assistance may be derived from the split decision of the Court of Appeal in New Century Cleaning Co Ltd v Church [2000] IRLR 27 (Sedley LJ dissenting). In the majority, Morritt LJ observed that to be wages properly payable to the worker the sum claimed must be one to which the worker has some legal, but not necessarily contractual entitlement.[23]Section 27(3) ERA is of interest in the present case. It provides:
"(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."
[24]It is a curious provision, since on its face it refers to a non-contractual bonus actually paid. Thus, it is not immediately apparent how any question of unauthorized deduction arises. The bonus has been paid.[25]That provision was considered by the EAT in Farrell Matthews & Weir v Hansen [2005] IRLR 160 (Nelson J). There, the Claimant was informed that she would be paid a (non-contractual) bonus of £12,000 payable by instalments. £3000 was paid but not the remainder. She brought a Wages Act claim in the Tribunal for the balance, which was upheld. On appeal the employer argued that a non-contractual bonus only became 'wages' once paid, applying section 27(3). The argument failed, the EAT holding that a discretionary bonus once declared was part of the worker's wage and properly payable under section 13(3). It fell within the section 27(1)(a) definition.[26]In Church , Beldam LJ observed (paragraph 62) that a bonus may be payable otherwise than under the contract of employment; it may be customary or required by collective agreements without express provision being made in the contract of employment.[27]Mr Linden submits that for Part II ERA to apply there must be a legal obligation on the employer to pay a specific sum on the occasion in question. If no specific sum can be ascertained the claim is effectively one for unliquidated damages for breach of contract and that claim is impermissible in the Tribunal by virtue of Article 3(c) of the 1994 Order. In support of that proposition he relies on an observation by Nicholls LJ in Delaney v Staples [1991] ICR 331, 340 E-F. We accept that this part of the Court of Appeal reasoning was not subject to challenge in the House of Lords [1992] ICR 483. In that passage, referring to the predecessor to section 13(3) ERA ( Wages Act , section 8(3)), Nicholls LJ said; in relation to the word 'occasion' in the sub-section:
"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 made from his wages on that occasion."
[28]That observation, submits Mr Linden, is consistent with the contention that in order to engage the Wages Act jurisdiction there must first be a contractual or other legal right to a specified sum payable by way of liquidated damages.[29]Mr Basu does not accept that proposition. He points to an earlier passage in the judgment of Nicholls LJ in Delaney at 339H – 340B. There he said:
" The Act is, indeed, concerned with unauthorised deductions. But section 8(3) makes plain that, leaving aside errors of computation, any shortfall in payment of the amount of wages properly payable is to be treated as a deduction. That being so, a dispute, on whatever ground; as to the amount of wages properly payable cannot have the effect of taking the case outside section 8(3). It is for the industrial tribunal to determine the dispute, as a necessary preliminary to discovering whether there has been an unauthorised deduction. Having determined any dispute about the amount of wages properly payable, the industrial tribunal will then move on to consider and determine whether, and to what extent, the shortfall in payment of that amount was authorised by the statute or was otherwise outside the ambit of the statutory prohibition…"
[30]In order to bring a Wages Act claim the Claimant must show a legal entitlement to an ascertainable sum which, although properly payable, has not been paid in whole or in part. Where the legal entitlement is said to arise from a contractual term, the monetary value of that entitlement must be clear. The point does not turn on whether the legal entitlement amounts to liquidated or unliquidated damages for breach of contract.[31]That brings us to the different ways in which a contractual right to payment may be established. Three possibilities arise:(1) express term of the contract of employment;(2) implied term of the contract, applying the approach in Clark v Nomura International plc [2000] IRLR 766 (Burton J);(3) a term to be implied by custom and practice – see Quinn v Calder [1996] IRLR 126. We shall return to further analyse those different possibilities later in this judgment. The present claims[32]By their Originating Applications to the Employment Tribunal the Claimants contended that the Respondent's predecessors operated schemes whereby employees could become entitled to additional payments by virtue of the Company's performance. In 2003 the Respondent put in place a replacement scheme which produced a similar financial benefit; however in 2004 no bonus payment was made in March, as in previous years and no replacement scheme was put in place. They had suffered unauthorized deductions from their pay.[33]By the end of the Tribunal hearing the claims were put in a more legally refined way by Mr Basu in his closing submissions. His starting point was that the BEPSS Scheme was a right under the contract of employment (express term). That term was varied by the substitution of subsequent incentive schemes by which the employer was contractually bound. Alternatively it was an implied term of the contract that the employer intended to be expressly bound by the terms of the subsequent incentive schemes, producing similar returns to the relevant employees. A proper exercise of the employer's discretion in relation to the amount of bonus in 2004 would have resulted in the payment to employees of a bonus equivalent to 5 per cent of annual earnings. That is a reference to the principle in Clark v Nomura . Finally, and in the further alternative it was submitted that the payment of a cash bonus was due and payable under a customary arrangement. Reliance was placed on the observation of Beldam LJ in Church , paragraph 62, to which we have referred. This was said to be a non-contractual legal entitlement to a bonus payment, although we think it is properly to be regarded as an implied term of the contract. See Quinn v Calder .[34]Thus all three possibilities which we mentioned earlier were raised in argument before the Tribunal by the Claimants. The Tribunal decision[35]Faced with the three different ways in which the Claimants put their case to a legal entitlement to unpaid wages, each of which was disputed by the Respondent, the Tribunal, taking a broad brush approach, concluded that(a) BEPSS was part of the contract of employment package and(b) that following the transfer to Interbrew the Chief Executive promised to replace BEPSS with a scheme that would make a payment of equivalent value and that was a continuing promise; it amounted to a contractual term, so that it was a term of a contract that in 2004, for the year 2003, the employees would receive money equivalent to what they would have received under BEPSS.[36]In assessing the sum payable but unpaid they found that somewhere between 4 and 5 per cent of annual salary was properly payable. They settled on 4 per cent. The Appeal Adequacy of reasons[37]In his written skeleton argument Mr Linden respectfully submitted that the Tribunal's conclusion was the result of the application of "palm tree justice" rather than legal principle.[38]Whilst we do not underestimate the intuitive feel of an Employment Tribunal, in this case consisting of a highly experienced Chairman sitting with members well-versed in the realities of industrial life, for the justice of the case and what seemed to them to be a fair result, We are reminded, re-reading the dissenting judgment of Sedley LJ in Church (paragraphs 19-20) that it is not enough simply to leave the proper construction of the expression 'properly payable' in section 13(3) to the good sense of Industrial (Employment) Tribunals.[39]The obligation of a Chairman of Tribunals, expressing the Tribunal's written reasons for their Judgment, is now formalised by Rule 30(6) of the ET Rules of Procedure. Rule 30(6) requires the Tribunal to identify the issues relevant to the claim; make findings of fact relevant to those issues; give a concise statement of the applicable law and state how the relevant findings of fact and applicable law have been applied in order to determine the issues.[40]Mr Basu was constrained to accept that this Tribunal's reasons did not comply with rule 30(6); however, he contended that the reasons passed the test formulated by the Court of Appeal in English v Emery Reinbold & Strick Ltd [2002] 1 WLR 2409 , namely that while a judge was not obliged to deal with every argument or identify or explain every factor which weighed with him, the issues the resolution of which were vital to his conclusion should be identified and the manner in which he resolved them briefly but clearly explained.[41]We are unable to accept that submission. In our judgment Mr Linden is correct in submitting that the reasons fall short of being Meek – compliant, however the duty to give reasons is formulated, in the following respects:(1) There is no identification of the factual and legal issues arising in the case.(2) There is no clear self-direction as to the applicable law. The relevant Part II ERA provisions are not referred to (indeed the wrong statute is cited). There is no analysis of the three different ways in which the legal entitlement to payment is put by the Claimant. Although there is reference to the "officious bystander", a reference to the principle of implying contractual terms to be found in the old case of The Moorcock [1889] 14 PD 64 , the test is mis-stated by the Tribunal. For example, at paragraph 11 of their reasons the Tribunal say:
"We have had to ask ourselves as officious bystanders whether the shareholding scheme was non-contractual or contractual."
The test is whether an officious bystander, suggesting an express provision for the agreement between the parties, would be testily suppressed by them with a common "Oh, of course"; the term being so obvious that it went without saying. The Tribunal returned to their self-appointed role as officious bystanders at paragraph 15 of their reasons, viewing the position after Interbrew's share acquisition. However, when reaching their conclusions, beginning at paragraph 20, the Tribunal appear to be finding that there was an express, not implied, term of the contract that the employees would receive the money equivalent of the BEPSS share allocation scheme in 2004 in respect of the year 2003. There is no analysis of what, in law, amounts to an express term of the contract. Nor is there any analysis of the legal requirements for implication of a contractual term by custom and practice or under the Clark v Nomura principle. (3) The Tribunal's findings of fact are set out discursively; insufficient findings are made (hence the agreement between counsel as to the undisputed material evidence heard below). One specific issue raised by the Respondent, the position of a Claimant, Mr Gosling, whose case raised different contractual questions to other Claimants, is not referred to at all in the Tribunal's reasons. (4) At paragraph 18 of their reasons they refer to an argument saying that it was not pursued by Mr Linden. It is common ground between counsel that it was. (5) It necessarily follows that in stating their conclusion we cannot say by what process of reasoning the Tribunal arrived there. The Wages Act point[42]We have earlier considered the rival submissions of counsel dealing with Mr Linden's point that it is not open to an Employment Tribunal, on a Wages Act claim, effectively to quantify an unliquidated claim for damages for breach of contract. In our judgment the claims do not fail inevitably on this basis. It will depend upon precisely what if any legal entitlement is found by the Tribunal. Perversity[43]Mr Linden submits that the Tribunal's finding that the Respondent unlawfully deducted 4 per cent of annual wages in 2004 is perverse. Mr Basu accepts that, on the facts of the case, the Tribunal's apparent conclusion that the Respondent was in breach of an express term of the contract may be so characterized. However, he submits that the result is plainly and unarguably correct (see Dobie v Burns International [1984] ICR 812 ) on the basis either of breach of the implied contractual term that the employer will not perversely exercise his discretion under a non-contractual bonus scheme ( Clark v Nomura ) or on the basis that a term as found by the Tribunal fell to be implied by custom and practice, applying the principles in Quinn v Calder . We reject that submission. Neither of these ways of putting the Claimant's case was properly considered by the Tribunal and we are not in a position to say with the degree of certainty required what the outcome of such consideration would be.[44]Equally, we are not persuaded by Mr Linden that claims put in these alternative ways are bound to fail, applying the perversity test as explained in Yeboah v Crofton . Conclusion[45]This is not a case in which we find it appropriate to remit the matter to the same Tribunal for further findings. cf Sinclair Roche & Temperley v Heard [2004] IRLR 763 (Burton P), approved by the Court of Appeal in Barke v SEETEC [2005] IRLR 633 . The proper course, in our judgment, is to allow this appeal and remit the matter for re-hearing before a fresh Employment Tribunal.[46]At the next hearing the principal issues for the Tribunal to determine are:(1) whether the Claimants had a legal entitlement to a bonus payment in 2004 based on: (a) an implied term of the contract of the kind identified in Clark v Nomura , or (b) a term to be implied by custom and practice, applying the approach in Quinn v Calder .(2) if so, whether that bonus payment is clearly ascertainable and(3) if so, whether a sum properly payable has been unlawfully deducted from their wages.