McClements v Precision Industrial Services Ltd  (Constructive Dismissal )  (12 April 2002)
THE INDUSTRIAL TRIBUNALS

CASE REF:	01796/00

APPLICANT:	Robert McClements

RESPONDENT:	Precision Industrial Services Limited 

DECISION
The unanimous decision of the industrial tribunal is that the applicant was constructively dismissed.  The tribunal finds that this constructive dismissal was unfair.  The tribunal also finds that the respondent was in breach of contract in respect of the deliberate refusal or omission to pay holiday pay due.  The tribunal declines to find any other breach of contract.  The tribunal is unable to determine the matter of remedies upon the evidence before it and therefore the tribunal Orders that the matter shall be re-listed for a hearing on remedy.     

Appearances:
The applicant was represented by Mr G Scott of the Amalgamated Transport & General Workers’ Union.
The respondent was represented by Mr S Ritchie, Barrister-at-Law, instructed by Babington & Croasdaile, Solicitors.

This is a reserved decision in summary form

THE ISSUE

1.	The applicant’s claim, as set out in his Originating Application, was that the applicant had been unfairly (constructively) dismissed by the respondent.  The applicant also referred to "TUPE" in his Originating Application and claimed "breach of contract".  The respondent, in its Notice of Appearance, denied that the applicant had been dismissed by the respondent.  The tribunal accordingly had to decide whether the applicant's complaints as set out were substantiated.  

THE TRIBUNAL’S FINDINGS
 
In consequence of the written and oral evidence adduced before it the tribunal found the following facts: - 

2.	The applicant was continuously employed by a company, Spanboard Products Limited ("Spanboard") from 30th April 1984 until the 5th June 2000.  On that latter date, as was accepted by the respondent, there was an effective transfer of a part of the undertaking of Spanboard to the respondent company.  That part of the undertaking consisted of Spanboard's cleaning function.  Two employees of Spanboard were particularly affected by the transfer, the applicant and a Mr Quinn.  The contract of employment of the applicant by Spanboard transferred to the respondent on the 5th June 2000 under the Transfer of Undertakings (Protection of Employment) Regulations 1981(" TUPE").  Specifically, the effect of TUPE, Regulation 5, as that Regulation states, is that:

"…a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee."

3.	In consequence of the foregoing, all terms and conditions which would have been incorporated in the contract of employment as between the applicant and Spanboard on the effective date, the 5th June 2000, were thus brought into the terms of contract as between the applicant and the respondent, subject however to any permitted exceptions.  One such permitted exception is provided for in Regulation 7 of TUPE.  That Regulation provides that occupational pension schemes are expressly excluded from the effect of Regulation 5.  

4.	The applicant was employed by Spanboard as a driver and domestic cleaner.  Some terms of his employment are of particular significance.  Firstly, at the relevant time the applicant was paid weekly in arrears and he earned a gross wage of £198.00 and a nett wage of  £160.00 per week.  Secondly, Spanboard customarily paid holiday pay to employees in advance of their taking holidays.  Thirdly, Spanboard provided to the applicant the benefits of membership of Spanboard's Occupational Pension Scheme.

5.	Approximately one month before this transfer took place, the applicant was notified of the proposed transfer.  There then followed particular dealings between the applicant's trade union shop steward, a Mr Eakin, and the full-time officer of his trade union, Mr Scott, on the one part, and Spanboard on the other part, these dealings concerning issues relating to terms of service and other matters connected with the proposed transfer of the applicant and his colleague, Mr Quinn.  Spanboard made it clear that the respondent did not propose to offer a comparable pension scheme to the applicant.  Mr Quinn, in contrast, was to be afforded a pension arrangement, as the cost of this was relatively small.  It appears that, as far as Spanboard was concerned, the remainder of the applicant's contract terms were to transfer under TUPE.  

6.	Very shortly before the transfer date it seems that there was some confusion or indeed a dispute as between Mr Eakin, Mr Scott and Spanboard, on the issue as to whether or not the consultation process had been effectively concluded and all of the transfer terms had been agreed.  It would appear that the transfer went ahead on the 5th June 2000 without some issues being fully resolved.  Therein appears to have arisen the main source of difficulty, as far as the tribunal sees it.  Mr Eakin was no longer the applicant's shop steward from shortly after the transfer date.  Mr Scott wrote to the respondent a letter dated the 9th June 2000 apparently purporting to continue the process of negotiations, but by that time events had occurred which resulted in the employment of the respondent coming to an end.  

7.	The respondent had, some time before all of this, placed all its then weekly-paid employees on monthly pay.  In that instance, the process of negotiations had taken a number of months.  It had necessitated the respondent offering the weekly-paid workforce negotiated compensation for the change in contract terms.  The respondent clearly accepted the principle that terms of contract with affected employees could not be altered unilaterally and without negotiation.  In the applicant's case, it appears that an offer of compensation for the proposed change from weekly to monthly pay was communicated to the applicant via his trade union representative.  The respondent's offer was £50.00 by way of compensation for transfer to the status of a monthly paid employee.  The applicant rejected this offer; he did not feel that the monetary compensation offered was sufficient for what he regarded as a fundamental alteration to his contract.  There was considerable doubt as to whether the trade union official also communicated to the applicant an additional offer on the respondent's part of an interest free loan equivalent to one month's pay, repayable over four months by way of further compensation.  On balance, the tribunal believes that the applicant was personally unaware of that offer.

8.	The tribunal was faced with a conflict between the evidence of the applicant and of the respondent's witnesses as to meetings and events that occurred in the week commencing with the date of the transfer, Monday the 5th June 2000.  The respondent's evidence was that Mr Nigel Mehaffey, Contracts Manager of the respondent company, met with the applicant on the 5th June 2000, the day the transfer occurred, and engaged in discussions about the issue of monthly pay.  The tribunal, faced with a denial on the applicant's part that there was any meeting with Mr Mehaffey until Friday the 9th June 2000, thinks that it is probable that some type of induction meeting or process probably occurred on the first day or very soon thereafter.  However, the tribunal is not satisfied with the account of the respondent's witnesses, particularly the inexplicable disparity between the evidence of Mr Mehaffey to the effect that a meeting took place between him and the applicant on Thursday the 8th June, when, in contrast, all the remainder of the evidence points to that meeting having occurred in reality on the following day, Friday the 9th June 2000.  The tribunal is not entirely satisfied that the applicant fully understood whether or not negotiations as to his precise terms of contract might have been still ongoing.  The tribunal heard no conclusive evidence that this was made clear to him by the respondent or indeed by the trade union officials.

9.	A meeting took place on Friday the 9th June 2000 between the applicant and Mr Mehaffey.  The applicant was due to go on holiday at the end of that day.  He had requested holiday pay.  At this meeting there was tendered to the applicant by Mr Mehaffey a letter.  This letter appears to have been signed by Philip O'Dwyer, the respondent's Financial Controller.  It was in a form rather similar to but not identical to a copy letter dated the 9th June 2000 placed by the respondent in evidence before the tribunal.  The letter had attached to it a cheque for £205.00 representing payment of one week's holiday pay in advance.  The letter stated that it was not the respondent company's policy to pay holidays in advance.  It acknowledged that these holidays were agreed while the applicant was a Spanboard employee.  That was the reason the cheque was being paid, the letter stated.  It continued that holiday pay in future would not be given in advance.  The letter continued by informing the applicant that all the respondent's employees were paid monthly in arrears.  The payment of the cheque was not to be taken as an indication or acknowledgement that the applicant would in future be paid on a weekly basis.  The letter also made a comment about the occupational pension scheme.  This reference was not present in the document seen by the tribunal.  The precise wording of the reference to the occupational pension scheme was not available to the tribunal but the tribunal nonetheless believes, on balance, the applicant's evidence that there was such a reference in the letter placed before him.  At the foot of the letter was a paragraph stating: " I would appreciate if you could send (sic.) this letter as a receipt for the cheque and an acknowledgement of the terms, as outlined above, under which it is being paid".  There was at the foot of the letter a receipt clause intended to be signed by the applicant.  After the words: "I have received a cheque for £205"(comprising the receipt to be signed by the applicant for the cheque) were the words: "I have also read the above letter and I understand its terms and implications." 

10.	The applicant refused to sign the receipt as he felt that he was being compelled by doing so into an acceptance of the varied, and objectionable, contract terms.  The tendered cheque was immediately withdrawn.  The meeting with Mr Mehaffey came to an end at that point.  Unaccountably, Mr Mehaffey's evidence was that this meeting had taken place the previous day, Thursday the 8th June 2000.  When the tribunal drew his attention to the date of the copy letter and a copy of the cheque for £205.00, both dated the 9th June 2000, he was unable to provide any explanation.  

11.	The tribunal accepted that this action on the part of the respondent's Contracts Manager in withdrawing, in the manner in which it was withdrawn, a cheque for holiday pay to which the applicant believed he was entitled as a matter of contract, was very significant as far as the applicant was concerned.  This event followed after, as the applicant saw it, an announcement that he would be monthly paid whether he agreed or not and that there would be no occupational pension scheme.  His words were that he "…felt intimidated out of money due".  He immediately left the business premises and did not return.  He telephoned the respondent that day to state that he no longer wished to work for the respondent.  The applicant wrote an undated letter to the respondent at that time which was acknowledged as received by the respondent setting out the facts and the reason for his no longer wishing to be employed by the respondent.  The tribunal accepts that the applicant regarded himself as having been constructively dismissed and that his actions were prompt and unambiguous in response to, as he saw it, a repudiation or a serious breach of the contract of employment on the part of the respondent, sufficient to permit such an action on his part.

THE TRIBUNAL'S DECISION

12.	The tribunal first considered the applicant's representative's submission to the effect that, despite the import and effect of TUPE Regulation 7, that regulation did not affect the applicant's right in contract to have the occupational pension scheme continued with the new employer, thereby still leaving open to the applicant a claim in contract, in spite of TUPE.  The tribunal accepted that the transferee did "assume the mantle" of the transferor, but did note the statutory exception provided for by Regulation 7 of TUPE.  The particular effect of this exception is that, in the absence of an express and mutual agreement between the transferring employee and the transferee employer that any occupational pension scheme previously subsisting would transfer, Regulation 7 of TUPE would impose upon that transferee employer no obligation to provide any such scheme as a term of contract relating to the transferred employee.  A transferee is entitled, if it so desires, to regard any term in the contract of employment previously subsisting between the transferor and, in this case, the applicant, in relation to any occupational pension scheme, as excisable from the contract by virtue of the aforementioned statutory provision.  Therefore, no such contractual obligation survives in respect of an occupational pension scheme as far as any transferee is concerned.  There was no argument based upon any authority placed before the tribunal such as to entitle the tribunal to take any other or contrary view.  The tribunal itself cannot discern any authority such as to enable it to take any other view.  The disparity in the treatment of Mr Quinn is of no significance.

13.	The tribunal then considered the apparent failure on the part of the respondent to adhere to terms of the contract which, on account of TUPE had transferred.  In general terms, once an express or an implied term of a contract of employment has been breached by an employer to such an extent that there is evidence that the employer has committed a fundamental breach of contract or shows an intention no longer to be bound by the contract, the employee is entitled, as a matter of law, to treat the contract as at an end.  This is what is commonly referred to as "constructive dismissal".  The law is as set out by the Court of Appeal in England in the case of Western Excavating (ECC) Limited v Sharp [1978] IRLR 27 and in many authorities since then.

14.	Leaving aside the issue as to whether or not the matter of monthly pay was really a fait accompli or was still genuinely under negotiation as far as the respondent was concerned, the tribunal considered the conduct of the respondent on the 9th June 2000.  The tribunal noted the series of authorities concerning the implication of a term into a contract of employment, in particular circumstances, that an employer will not treat his employees arbitrarily, capriciously, or inequitably.   These cases concern inter alia such matters as, for instance, the issue of remuneration.  [See F C Gardiner Ltd v Beresford [1978] IRLR 63; Adams v Charles Zub Associates Ltd [1978] IRLR 551; R F Hill Ltd v Mooney [1981] IRLR 258; and Merco Petroleum Ltd v Forge [1987] IRLR 50].   The tribunal took the view that such an implied contractual obligation on the part of an employer - not to treat an employee arbitrarily, capriciously or inequitably - extended in this instance to the arbitrary or unfair withholding of holiday pay due to an employee by virtue of a TUPE transferred contract.  The tribunal considered whether or not, in the facts of this case, the withholding of that payment constituted, of itself, a sufficiently serious breach of that implied contractual obligation.  The applicant had sustained a material detriment by failing to be paid the sum of £205.00 for holiday pay, as he was just about to depart for a holiday period.  The tribunal was referred to the case of Cantor Fitzgerald International v Callaghan & others [1999] ICR 639 by the applicant's representative.  The tribunal noted, in the context of constructive dismissal, the distinction commented upon in that case as between an accidental and a deliberate refusal or omission to pay wages due.  In the instant case, the tribunal noted the deliberate and, in the tribunal's view it must be said the arbitrary or capricious refusal to hand over the holiday payment due.  This payment was due and remained due unless the earlier customary arrangement in Spanboard, which the tribunal took to still then have subsisting contractual force, was voluntarily waived by the applicant or altered by the agreement of both the applicant and of the respondent.  On the facts, the tribunal took the view that the contract had been significantly breached by the respondent by this action.  The respondent had breached an implied term in the contract of employment to the effect that an employer should not treat an employee arbitrarily, capriciously or inequitably in matters of payment of wages due.

15.	In every contract of employment, there is an implied obligation of good faith.  An employer must not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between that employer and any employee.   The obligation of good faith extends, in the opinion of the tribunal, to the specific implied term that had been breached by the respondent in this matter.  The breach had been serious and significant.  The reaction of the applicant to that breach in terms of distress and hurt was very clear.  As a consequence, a most significant step was taken by the applicant.  He resigned directly as a consequence from employment where he had served for in excess of 16 years.

16.	The tribunal felt that the applicant’s resignation as a consequence of the foregoing was justified upon the facts and as a matter of law, and therefore took the view that the applicant had been constructively dismissed by the respondent.  The tribunal therefore finds in favour of the applicant upon the complaint of constructive dismissal.  The tribunal finds that this constructive dismissal was unfair, as the respondent's conduct in regard to the matter was, on the facts, unreasonable and unfair and the unreasonableness and unfairness induced this action.  The tribunal also finds that the respondent was in breach of contract in respect of the deliberate refusal or omission to pay holiday pay due.  The tribunal declines to find any other breach of contract.

17.	The tribunal heard some evidence from the applicant in regard to what he had done since ceasing to be employed by the respondent.  However, a number of issues remained unresolved at the conclusion of the hearing.  The applicant had sought the remedy of re-engagement; he had remained unemployed since ceasing to be employed by the respondent.  There appeared on his evidence to be a material issue in regard to mitigation of his loss; he may have been subject to a disability which might have had some bearing on the issue.  Taking all these together, the tribunal is unable to determine remedy upon the information before it and the matter shall now be listed for a hearing on remedy.   

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Date and place of hearing:  17 January 2002, Derry

Date decision recorded in register and issued to parties: 12 April 2002