Appeal No. EAT/0444/02 RN

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 28 January 2003

Before
THE HONOURABLE MR JUSTICE RIMER
MR C EDWARDS
MR J HOUGHAM

KVAERNER OIL & GAS LTD	APPELLANT

(1) MR M G PARKER	RESPONDENTS
(2) MR P FORD
(3) MR S M GRIFFITHS
(4) MR A MAYO

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR SEAMUS SWEENEY
(of Counsel)
Instructed by:
Messrs Crutes Solicitors
7 Osborne Terrace
Jesmond
Newcastle Upon Tyne NE2 1RQ	
For the Respondents	MR EDWARD LEGARD
(of Counsel)
Instructed by:
Messrs Newbys with Thomas, Bingham & Spark Solicitors
100 Borough Road
Middlesbrough
Cleveland TS1 2HJ	

THE HONOURABLE MR JUSTICE RIMER

1	This is an appeal by Kvaerner Oil & Gas Limited (which we will call “KOG”) against the decision of an Employment Tribunal, chaired by Dr I J Watt, sitting at Thornaby on Tees on 25 February 2002.  The Tribunal’s extended reasons were promulgated on 18 March 2002.

2	The Tribunal’s decision was on complaints presented to it by four applicants: Melvin Parker, Peter Ford, Stephen Griffiths and Alan Mayo.  They are former employees of KOG.  By their originating applications they claimed they had been unfairly dismissed and that is what the Tribunal held.  KOG appeals against one aspect of the Tribunal’s reasoning by which it arrived at that conclusion.  That issue is as to whether the Tribunal misdirected itself in its decision as to the defining of the appropriate pool for selection in what was admittedly a redundancy situation within the meaning of section 139 of the Employment Rights Act 1996.  

3	We should point out that, by its appeal, although KOG challenges the Tribunal’s decision on that particular issue, it does not challenge the Tribunal’s overall decision that the dismissals were unfair.  That being so we raised with Counsel, Mr Sweeney for KOG and Mr Legard for the applicants, whether we had any jurisdiction to entertain what was in effect no more than an isolated question relating to one part of the process of reasoning leading to the ultimate conclusion.  We add, though, that Mr Sweeney disclaimed that this meant that the appeal was academic, because he said that success on the point might be relevant to KOG’s position on the forthcoming remedy hearing.  In the event, however, having considered the relatively wide terms in which section 21 (1) of the Employment Tribunals Act 1996 is framed, which identifies the jurisdiction of this Appeal Tribunal, Mr Legard was not disposed to argue that we did not have jurisdiction to deal with the appeal and we accordingly proceeded to do so.
4	The applications arose against a complicated historical background which the Tribunal outlined in somewhat general terms at the beginning of its reasons.  We need to summarise that background as so outlined.  

5	KOG is a successor to a number of companies and inherited with them many employees who continued in employment with KOG under their former terms and conditions.  Many of the constituent operations of KOG’s Teesside businesses were originally part of the Trafalgar House Group.  In 1986, Trafalgar House split its Teesside operations into two companies – Offshore Engineering Services Ltd, which in 1988 changed its name to Redpath Engineering Services Ltd (“RESL”), and Redpath Offshore.  Those companies were involved in the engineering and construction industry.  Pipework, fabrication and contracting work was located at a facility at Portrack.

6	The hourly-paid workers at Portrack were employed under so called “P” agreement terms.  In 1994, RESL acquired the Central Engineering Resources of ICI, together with the workforce.  The ICI workers so acquired had different contractual terms and conditions and were referred to as “the big E” employees.  New employees were engaged under yet further sets of conditions and this became known as “the little e” agreement.

7	In 1995, a decision was made to concentrate all the fabrication work at the Wilton site, which was a former ICI workshop.  The Portrack employees who were transferred there continued to be employed under the “P” agreement.  The result was that there were then three sets of terms and conditions applying to the workforce at Wilton.  The Tribunal found that “the big E” terms were more favourable than the “P” terms, which were in turn more favourable than “the little e” terms.

8	In 1996, a Kvaerner company acquired the Trafalgar House Teesside operations.  KOG was the corporate result of a number of mergers in 1999, and it acquired the various operations to which we have referred.  In early 2000, there was a further internal reorganisation in KOG as a result of which two separate business units with their own management and budget structures were created.  These were not separate companies, they were simply separate constituent units of KOG.  One unit was known as Kvaerner Field Development (“FD”) and the other as Kvaerner Maintenance Modifications and Overhalls (“MMO”).  Both of these businesses operated from the Wilton site.

9	The closure of the construction yards at Port Clarence on Teesside in January 2000 and a material reduction in the activity at Methil in Fife resulted in most of the construction work at FD being lost, with a consequential reduction of some 3,600 employees between October 1999 and February 2001.  As a result of this decline, the fabrication shop at Wilton was eventually closed completely in June 2001.  In contrast, the maintenance work carried on by MMO continued, and still does, albeit with a reduced workforce.  The Tribunal found that, as the FD construction work declined, the FD workforce undertook maintenance work of a similar nature to that undertaken on a commercial basis.  About 30% of the maintenance work it did came from MMO – in effect under a sub-contract or sub-contracts – and the remainder of its maintenance work resulted from direct contracts entered into with FD.

10	Of the applicants, Mr Parker, Mr Griffiths and Mr Mayo were Grade 3 welders and were part of the FD workforce engaged and employed under “P” agreement terms.  The fourth applicant, Mr Ford, also an FD worker, was a plater who was also engaged under “P” terms.  The Tribunal found that the applicants did not appreciate the organisational distinctions between FD and MMO, although it appears that there was evidence from Mr Orchard of KOG that the workforce as a whole did recognise the two separate entities represented by FD and MMO.

11	The applicants were dismissed by reason of redundancy on 29 December 2000.  Mr Ford was identified for redundancy on the basis of “last in, first out”, or “LIFO”, and the others on the basis that they were Grade 3 welders.  No basis for selection appears to have been discussed or agreed with either the union or the individual applicants but it appears from the Tribunal’s decision that LIFO was the standard and accepted basis for selection for redundancy within KOG’s undertaking.  

12	During the final year of the applicants’ employment most of the work they had undertaken was in the nature of maintenance work.  Their case before the Tribunal was that the FD and MMO operations at Wilton were, or should have been regarded as, essentially one operation and that there should have been one pool for selection for redundancy comprising both MMO and FD workers.  They said that LIFO had been the agreed basis of selection for redundancy for many years, and that this had also been the practice which had been adopted, and they complained that the December 2000 redundancies were unfair because MMO employees with substantially less service than them had not been selected.  They claimed that KOG’s motives in confining the redundancy pool to FD workers were ones of cost.  They asserted that KOG had adopted an artificially restricted pool in order to get rid of the relatively expensive “P” workers.

13	KOG disputed this.  Its position was that FD and MMO represented identifiably separate business units and so they regarded them as separate pools for redundancy selection purposes.  Their case was that, historically, it had been accepted that groups of workers dedicated to particular kinds of work formed the appropriate redundancy pool if that work dried up and that was the policy which they had applied in selecting FD workers as the appropriate redundancy pool.

14	The Tribunal recorded that it was satisfied that a redundancy situation had arisen, indeed the four applicants, all former FD employees, had conceded this.  This was, therefore, a potentially fair reason for the dismissal of the applicants (see section 98 (1) of the Employment Rights Act 1996), but the issue for the Tribunal was whether the dismissal was or was not in fact fair or unfair for the purposes of section 98 (4) of the 1996 Act.  That provides:

98	(4)	“Where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) –
(a)	depends on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee; and
(b)	shall be determined in accordance with equity and the substantial merits of the case.”

15	The applicants’ points before the Tribunal were that KOG had acted unreasonably in connection with the dismissals, both in relation to the obligation to consult them prior to the decision to make them redundant, and also in relation to its choice of pool for selection for redundancy.  The Tribunal found in favour of the applicants on both points.  By this appeal, KOG challenges only the Tribunal’s conclusion with regard to the choice of pool for selection.

16	As to this, the Tribunal referred in paragraphs 7 and 8 of its reasons to the legal arguments put before it.  It there said:

7	“The applicant contended that the pool for selection was unfair and cited an unreported case British Steel v Robertson EAT 601/94.  In that case the employer excluded a group of short service craftsmen described as multi-skilled and made the redundancies from a pool of long-serving mechanical and electrical engineers on the basis of LIFO.  This was held to be unreasonable.  The applicant also made a number of other contentions in this regard, namely, that where there are no agreed or customary procedures regarding the constitution of the pool the employer has to show that it acted reasonably.  Some of the factors to be considered are whether other groups of employees are doing similar work, whether the jobs are interchangeable, whether the employees’ inclusion is consistent with his previous position and whether the selection unit was agreed with the union.  Although not cited by the applicant these factors were considered and approved in Thomas and Betts Manufacturing Ltd v Harding [1980] IRLR 255 CA.  The applicant also cited Blundell Permoglaze Ltd v O’Hagan EAT 540/84 as authority for the proposition than employees whose work is interchangeable should be included in the pool.
8	In relation to the issue of fairness the respondent referred to NC Watling and Co. v Richardson [1978] IRLR 255.  In relation to these authorities the Tribunal acknowledges that it is not for it to substitute its view for that of the respondent and that in assessing the respondent’s actions the band of reasonable responses test applies.  However, in British Aerospace v Green [1995] IRLR 433 the issue for the Tribunal is whether the employer has “set up a system of selection which can reasonably be described as fair” and has applied “it without any overt sign of conduct which mars its fairness”.”

17	Having so acknowledged and cautioned itself as in the second sentence of paragraph 8, the Tribunal’s decision on the issue about the appropriate pool in the circumstances of the present case was contained in paragraph 10 of its decision:

10	“The Tribunal is satisfied that [KOG] was operating within the single business two separate streams of business activity which were separately accounted for and managed.  Equally the Tribunal was satisfied that the applicants did not appreciate these organisational distinctions.  So far as they were concerned they were working in the same location doing very similar work.  [KOG] did not dispute that most of the work in the period preceding the redundancies was maintenance type work.  The Tribunal is therefore satisfied on the evidence that the work was capable of being interchangeable between MMO and FD notwithstanding that it had been procured through separate contractual routes.  In the light of the authorities cited to the Tribunal it would seem that financial and management structures are not the primary determinant of the reasonableness of excluding or including particular groups of workers.  Accordingly, the Tribunal concluded that there should have been one not two pools in these circumstances and therefore the dismissals were thereby rendered unfair.”

18	For KOG, Mr Sweeney submits that in approaching the resolution of the issue as to the appropriate pool in the way that it did the Tribunal lost sight of the crucial question it had correctly identified in paragraph 8: namely whether, in the light of KOG’s reasons and the evidence before it, a reasonable employer could have limited the pool to FD workers.  KOG’s evidence was that historically thousands of redundancies had been made over the years and the principle which had been applied had been to limit the pool for redundancy selection purposes to the discrete business unit involved.  It is said that this practice was one that KOG was entitled to continue to apply when it came to deciding on redundancies in consequence of the decline in work at the fabrication shop operated by FD at Wilton.  Mr Sweeney submits that, in the light of this evidence, there was no rational basis on which the Tribunal could conclude that KOG’s decision to limit the redundancy selection pool to FD workers was outside the band of reasonable responses or options open to a reasonable employer.  He does not suggest that it would not have been open to a reasonable employer to have widened the pool so as to include MMO employees, but he says that is not the point.  The point is that, provided KOG’s decision was one that was open to a reasonable employer, it was not for the Tribunal to substitute its own different decision as to what the appropriate pool should be.  Mr Sweeney submits that that is what the Tribunal in fact did in paragraph 10.

19	Mr Legard argues otherwise.  He refers in particular to the Tribunal’s findings that the applicants were working in the same location and, to the extent that FD began to take on maintenance work, were undertaking identical work to those assigned to the MMO business stream.  He underlines that most of the work done by the FD workers during the months preceding the redundancies was maintenance work.  He refers to the fact that the Tribunal found, in paragraph 10, that this work was interchangeable between MMO and FD even though it had been procured through separate contractual routes.  He says – although it is unclear that the Tribunal was actually referring, or having regard to this, in its reference to “interchangeability” – that there was in fact evidence before the Tribunal that some of the employees listed in the schedule of employees for FD also appeared in the schedule of employees for MMO, and he refers to the clear overlap and similarity of skills enjoyed by both workforces.  He refers also to the Tribunal’s conclusion that the financial and management structures were not the “primary determinant of the reasonableness of excluding or including particular groups of workers.”  He also points out that the Tribunal was also satisfied that KOG’s actions in relation to pre-redundancy consultation were inadequate and failed to meet the minimum requirements of reasonableness.  In that connection the Tribunal found in terms that the applicants should have been made aware of the proposal that, of the two separate streams, only one was to constitute the pool for redundancy selection.  It found that the applicants should have had the opportunity to make representations about this but were not given it.  Whilst Mr Legard acknowledges that the Tribunal’s reasoning overall is not as full as it might ideally have been, he submits that there is no sound basis for any conclusion, by this Appeal Tribunal that, in arriving at the conclusion they did in paragraph 10 the Employment Tribunal was doing other than setting out its reasons for concluding that KOG’s decision fell outside the band of reasonable responses open to a reasonable employer.

20	In resolving the difference between the two lines of argument advanced to us by Counsel, we consider that the starting point is, and must always be, whether or not the Tribunal was correct to conclude that the dismissals were unfair by reference to the considerations set out in section 98 (4) of the 1996 Act.  But in approaching that exercise it is important to underline that the authorities show that different people can quite legitimately have different views about what is or is not a fair response to a particular situation.  The mere fact that A considers that solution X is the fair one, whereas B favours solution Y, does not mean that one or other of them must be adopting an unfair solution.  In most situations there will be a band of potential responses to the particular problem and it may be that both of solutions X and Y will be well within that band.  The Employment Tribunal is of course charged with determining the fairness or otherwise of a particular dismissal, but that does not mean that merely because it forms its own view that solution X was or would have been the fairest one, the employer’s different solution Y must necessarily have been an unfair one.  The question is whether or not the employer’s solution did or did not fall within a band of reasonable responses open to it and, if it did, then whatever its own views as to the matter, it will not ordinarily be open to the Tribunal to substitute those views and conclude that the employer acted unfairly.

21	We were referred to the decision of this Appeal Tribunal in NC Watling and Co. Ltd v Richardson [1978] IRLR 255, also a case concerning the fairness of the selection by the employer of a particular worker for redundancy.  We do not propose to cite from it but merely record that it provides a valuable reminder of the applicability of the requirement that the employer’s actions must be assessed by reference to whether or not it acted in a way in which a reasonable employer would have acted.  Both Counsel were agreed as to the question which the Tribunal should have asked itself.

22	The particular difficulty we have with the present appeal is that the brevity of the reasoning in paragraph 10 leaves us with at least some uncertainty as to the precise processes of the Tribunal’s reasoning.  But the critical question, which is really at the heart of the way in which Mr Sweeney advances KOG’s appeal, is whether on a fair reading of paragraph 10 it can be said that the Tribunal has ignored the cautionary reminder it gave itself just two paragraphs before and was there simply substituting its own views as to the identification of the appropriate pool without, as it should have done, asking itself whether the narrower pool selected by KOG was one which a reasonable employer could or would have selected.

23	We have had the benefit of persuasive arguments both ways and express our appreciation of them.  We have come to the conclusion that to interpret paragraph 10 as one in which the Tribunal has in fact simply ignored the warning it had given itself in paragraph 8, is to misinterpret it.  What the Tribunal is doing in paragraph 10 is identifying factors which it regards as critical to the selection of the appropriate pool.  It expressly has regard to KOG’s point that FD and MMO were two separate streams of business, which were separately accounted for and managed.  It then refers to what seems to us to be a central and obvious factor, namely that during most of the period preceding the redundancies the FD workers were doing maintenance work of a like kind as the MMO workers and it refers to what it found to be the interchangeability of the work in FD and MMO.  It then includes the important observation that 

“In the light of the authorities cited to the Tribunal it would seem that financial and management structures are not the primary determinant of the reasonableness of excluding or including particular groups of workers.”

24	We have been referred to the authorities to which the Tribunal may there have been referring.  They turn mainly on their own particular facts and we are doubtful whether they can be said to establish the precise point which the Tribunal has apparently derived from them.  But the importance of this sentence is that it is one in which the Tribunal is concluding that the fact of the formal separation of the two business structures represented by FD and MMO is not a feature which can or should be regarded as a primary consideration in identifying the reasonableness of the choice of a particular pool for redundancy.  It is, in effect, there referring to the consideration which primarily motivated KOG in its choice and is finding that a decision as to the pool which appears to have been centred on the formally different structures of the two entities, is one which gives undue weight to such factors.  Its overall conclusion was that both the FD and MMO workforces should have been identified as the applicable pool.  
25	In our view, although the Tribunal does not spell out its reasoning as fully as would have been helpful, the proper inference to draw from its reasons as a whole, and from paragraphs 8 and 10 in particular, is that it was finding that in identifying the appropriate pool KOG had adopted too narrow an approach and that the reasonable employer would have adopted a wider one and would have brought into consideration the other factors to which the Tribunal refers in paragraph 10.  We consider that a fair reading of the decision as a whole is that the Tribunal concluded that KOG’s decision as to the applicable pool fell outside the range of options open to a reasonable employer.  In short, we consider that the Tribunal both asked itself the right question and also answered it.  The result is that we have come to the conclusion that this is not a case in which it can be said that the Tribunal was simply improperly substituting its own views for those of KOG.  The appeal fails and must be dismissed.