Appeal No. UKEAT/0315/09/DA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 8 February 2010

Before
HIS HONOUR JUDGE RICHARDSON
MR D BLEIMAN
MR M WORTHINGTON

KEY ORGANICS LTD	APPELLANT

DR P BILLINGTON	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MISS REBECCA THOMAS
(of Counsel)
Instructed by:
Messrs Bond Pearce LLP
Ballard House
West Hoe Road
Plymouth
Devon
PL1 3AE	
For the Respondent	MR ANGUS HALDEN
(of Counsel)
Instructed by:
Messrs Veitch Penny Solicitors
Manor Court
Dix’s Field
Exeter
Devon
EX1 1UP	

SUMMARY

1. 	The Employment Tribunal ought to have held that the dismissal of the Claimant was automatically unfair, because the Respondent did not comply with step 2 of the Standard Procedure.

2. 	The Employment Tribunal’s reasoning on the Polkey issue was inadequate to explain its finding of a 25% chance of employment at £45,000 per annum.  Case remitted and guidance given by reference to Software 2000 v Andrews [2007] IRLR 568 (Elias P) and  Virgin Media Ltd v Seddington & Eland [UKEAT/0539/08].

HIS HONOUR JUDGE RICHARDSON 

1.	We have before us an appeal and a cross appeal against a judgment of the Employment Tribunal (Employment Judge Housego presiding) sitting at Truro dated 30 April 2009.  By its judgment the Tribunal held that Dr Philip Billington had been unfairly dismissed by his employers Key Organics Ltd (“the Company”) and concluded that there was a 25% chance that he would have been retained at a salary of £45,000 per annum.

The Background Facts
2.	The Company carries on business in the field of industrial chemistry.  It is based in Camelford, Cornwall.   It is in effect privately owned.  The ultimate owners are the Chairman Mr Gingell and Mr Alexander, a non-executive director.

3.	Dr Billington was employed by the Company from November 1989 until his dismissal took effect on 14 October 2008.  He was variously known as operations director or chief operating officer.  He was an executive director of the company.   His role was clearly distinguished, however, from that of managing director – it was an operational rather than a strategic role.  His salary was £80,000.

4.	During 2005 and 2006 the workforce of the Company had reduced in size considerably, from about 120 to about 55.  The managing director stood down with health problems.  The search began for a new managing director.  Eventually Dr Harris was appointed at a salary of £90,000.  His brief was to increase the profit of the Company from £300,000 to £500,000 over 3 years.  His first board meeting was 12 December 2007.  It was recorded that he was to carry out a review of the management structure.  Dr Billington, as the Tribunal found, was expecting management changes to take place.

5.	Dr Harris wrote a report.  He recommended substantial reductions in management costs.  In particular he recommended the removal of the role of operations director.  He saw that the management of the company was the same as it had been when the workforce was twice the size.  He did not feel that there was a need for both a managing director at a salary of £90,000 and an operations director at a salary of £80,000.  The plan (which was in due course carried out) was to divide up the responsibilities of operations director – some being carried out by Dr Harris himself, some being devolved to chemists, some (relating to site) being carried out by another employee, Mr Cunningham.

6.	On 5 January 2008 the report was presented to Mr Gingell and Mr Alexander.  Mr Gingell was surprised to find it recommended that Dr Billington should be made redundant – he had not expected Dr Harris to feel that he could do without him.  Nevertheless the report was largely approved.  As the Tribunal found, the decision to dismiss was effectively made on 5 January 2008.

7.	On 10 January 2008 Dr Harris saw Dr Billington in a brief meeting and gave him a short letter explaining that he was at risk of redundancy because management was being streamlined.  On 14 January there was a further brief meeting.  Dr Billington was informed that he was to be made redundant.  Dr Harris declined to discuss any other changes to be made or who might be affected on the basis that this was confidential to those people.  As the Tribunal found, there was no discussion or consultation of any sort prior to the decision, or prior to the implementation of the decision.  On that very day a letter was sent to Dr Billington, giving him notice to terminate his employment on 14 October 2008.  He appealed; his appeal was heard on 22 February at a meeting which lasted only 10 minutes.   It was unsuccessful.

8.	In fact Dr Billington worked until 15 July 2008 and was given garden leave for the rest of his notice period.  He had been, apart from Dr Harris, the highest paid employee by some margin.  The next most senior person in the Company was paid £45,000.  He was asked whether he might be interested in alternative employment as a chemist at £33,000.  He took that no further.

Statutory Provisions
9.	It is convenient next to set out the statutory provisions which the Tribunal had to apply.  The principal provisions relating to unfair dismissal are found in the Employment Rights Act 1996 in the form which it took prior to April 2009.  There have been important recent amendments, introduced by the Employment Act 2008.  As the Tribunal noted, these were to come into force just a few days after the hearing, which took place on 26 March 2009.  But they were not in force at the time of the hearing, and were in any event not retrospective.

10.	Section 98(1) provides that it is for the employer to establish the principal reason for dismissal and that it is of a kind specified in section 98(2) (or some other substantial reason).  Section 98(2) specifies redundancy.  Section 98(4) provides that where the employer has fulfilled the requirements of section 98(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”

11.	Section 98(4) was, however, expressed to be subject to section 98A: see section 98(6)(a).  This section, which has now been repealed, provided as follows –
“98A Procedural fairness
(1)	An employee who is dismissed shall be regarded for the purposes of this Part as unfairly dismissed if - 
(a)	one of the procedures set out in Part 1 of the Schedule 2 to the Employment Act 2002 (dismissal and disciplinary procedures) applies in relation to the dismissal,
(b)	the procedure has not been completed, and
(c)	the non-completion of the procedure is wholly or mainly attributable to failure by the employer to comply with its requirements.
(2)	Subject to subsection (1), failure by an employer to follow a procedure in relation to the dismissal of an employee shall not be regarded for the purposes of section 98(4)(a) as by itself making the employer’s action unreasonable if he shows that he would have decided to dismiss the employee if he had followed the procedure.
(3)	For the purposes of this section, any question as to the application of a procedure set out in Part 1 of Schedule 2 to the Employment Act 2002, completion of such a procedure or failure to comply with the requirements of such a procedure shall be determined by reference to regulations under section 31 of that Act.”

12.	For the purposes of this case the relevant procedure under the Employment Act 2002 was the Standard Procedure set out in Schedule 2.  It will suffice for the purposes of this appeal to set out the provisions of step 1 and step 2.
“Step 1: statement of grounds for action and invitation to meeting
1.	(1)	The employer must set out in writing the employee’s alleged conduct or characteristics, or other circumstances, which lead him to contemplate dismissing or taking disciplinary action against the employee.
	(2)	The employer must send the statement or a copy of it to the employee and invite the employee to attend a meeting to discuss the matter.
Step 2: meeting
2.	(1)	The meeting must take place before action is taken, except in the case where the disciplinary action consists of suspension.
	(2)	The meeting must not take place unless-
(a)	the employer has informed the employee what the basis was for including in the statement under paragraph 1(1) the ground or grounds given in it, and 
(b)	the employee has had a reasonable opportunity to consider his response to that information.
	(3)	The employee must take all reasonable steps to attend the meeting.
	(4)	After the meeting, the employer must inform the employee of his decision and notify him of the right to appeal against the decision if he is not satisfied with it.”

The Tribunal’s Reasons
13.	The Tribunal dealt firstly with section 98A(1) – “automatic unfair dismissal”.   This provision renders a dismissal automatically unfair, regardless of section 98(4), if the procedural requirements of the Employment Act 2002 have not been completed, and this failure is attributable to failure by the employer to comply with its requirements.

14.	The Tribunal found that the letter dated 10 January, informing Dr Billington that he was at risk of redundancy, was sufficient to comply with step one of the procedure.

15.	As regards step two, the Tribunal’s conclusions are contained in paragraphs 30 and 31 of its reasons.
“30. There was then a step 2 meeting on 14 January 2008.  Mr Halden submits that this was not a proper step 2 meeting on the basis that paragraph 2(ii)(a) was not satisfied.  He says that there must be something other than just a step 1 letter because that paragraph says the employer must inform the employee what the basis was for the ground given in the step 1 letter.  Since there was no information and no consultation, he says the meeting does not satisfy that ground, particularly given that an email sent to Dr Harris by Dr Billington.  This is at page 56 headed “Meeting”.  It says:
‘I suggest we go ahead as planned.  Simply because the amount of time allowed is irrelevant as I have no idea what the content of the meeting is.  A letter suggesting the streamlining of the management and nothing else does not allow me to prepare or fully participate.’
31. This is a logical argument.  However we reject it.  The procedures have long been felt by all employment lawyers to be at best unsatisfactory, they are to be removed within the next few days, and it is unfortunate to decide cases on technicalities.  The argument, ingenious as it is, was not backed up by any case law.”

16.	The Tribunal went on to find that step 3 had also been complied with, and therefore that there was no automatic unfair dismissal.

17.	Turning to ordinary unfair dismissal, the Tribunal found that the reason for dismissal was redundancy, and that it was reasonable to select Dr Billington for redundancy.  It was, said the Tribunal, a proper management decision that the company did not need an operations director on £80,000 per annum and in addition a managing director on £90,000 per annum when the Company was half the size it had been a couple of years before.

18.	The Tribunal then turned to consider the process followed.  It held that the process was unfair.  It said –
“36. We then turn to Section 98(4).  The process was unfair.  There was no meaningful – or indeed – any consultation with Dr Billington.  The jobs that were suggested that he might have been interested in were not suitable alternative employment.  Dr Harris did not discuss the matter with Dr Billington at any time.  When Dr Harris informed the Claimant that he was to be dismissed at the “exploratory meeting” on 14 January 2008, he refused to discuss with the Claimant what changes were being made or who else was affected.  There could not be a more comprehensive refusal to engage in consultation or discussion.”

19.	Later, when the Tribunal considered remedy, in the context (we think) of deciding how long a fair process would have taken, the Tribunal also said this –
“43. There was no consultation about the need for redundancy.  There is an Employment Appeal Tribunal decision from the then president, Mr Justice Elias that there should be consultation about the need for redundancy.  We think there is just enough here for that not to be the case; at the Board Meeting of 12 December it was clear there were going to be management changes, which would necessarily involve diminution of the number of people.  Dr Billington knew at the time that the management was top heavy.”

20.	The Tribunal also criticised the appeal process.  In the course of doing so it found as a fact that Dr Billington did not see any part of Dr Harris’s report until some of it was disclosed as part of the appeal process.  It found that the appeal was a rubber stamping exercise.

21.	It was for these reasons that the Tribunal found the dismissal unfair.  It went on to consider the question of remedy.

22.	It held that a fair procedure would have taken longer and that Dr Billington was entitled to a month’s full pay to reflect the additional length of time that a fair procedure would have taken.

23.	It then went on to consider whether there was any chance of Dr Billington doing some job with the Company had a fair process been followed.  The key passages in which it considered this point are the following.
“46. We considered whether there were any chances of him doing some job with the respondent.  There was a question of hurt pride – he had been passed over again (as although in October the Board had indicated that anyone who wished to apply should put his name forward, this was after six months of searching for a replacement; Dr Billington, in our view entirely correctly thought there was no point in suggesting that he might be the person).  Dr Billington had refused to entertain a job at £33,000.  He would have known how difficult it would have been to find another job.  Whether it will be possible for him to have negotiated a part time job, undertaking an operational role such as Mr Cunningham now undertakes, or some other role, one simply does not know.
47. We have an innate aversion to a Claimant being so badly treated and yet having no remedy at all.  We are aware of the EAT’s opinion that we should not be put off by the argument that we would be ‘embarking on a sea of speculation’ simply because we have so little information on which to base our decision and it cannot be right that the worse the Respondent treats a Claimant the more likely it is that there is no remedy precisely because that treatment will result in there being less information on which we might work.
49. Had this been approached by a sensitive employer looking at a man who had been employed for 18 years, who is regarded as competent and a safe pair of hands, if not the person to whom they trust strategic vision for the company, there must have been some chance that a way forward could have been found.  It would not have been at £80,000.  It would have been at more than £33,000.  The next level down was about £45,000 and there must be a chance – which we put at 25% - that had this been approached in that spirit that would have been a possible outcome.”

Automatic Unfair Dismissal
24.	Logically the first point to consider arises from the cross appeal.   Is there any error of law in the Tribunal’s conclusion that the Standard Procedure was complied with by the Company?

25.	On behalf of Dr Billington Mr Halden attacks the findings of the Tribunal concerning Steps 2 and 3 of the Standard Procedure.  He submits that the reasons of the Tribunal concerning Step 2 are nothing to the point.  If the Tribunal had addressed the correct test it would have found that there was a failure to comply with Step 2.  He submits that the Tribunal also ought to have found a failure to comply with Step 3, given that the decision was “rubber stamped”.

26.	On behalf of the Company Ms Thomas seeks to uphold the findings of the Tribunal concerning Step 2 and Step 3.  In particular she submits that prior to the meeting the Company had “informed the employee what the basis was” for his dismissal for redundancy.  She submitted that Dr Billington clearly understood that Dr Harris had been tasked with obtaining increased profitability and that there was to be a restructuring of top heavy management in which he held a unique position.  As regards Step 3, the requirements were purely procedural and the Company complied with them.

27.	Our conclusions on the question of automatic unfair dismissal are the following.

28.	As regards Step 2 of the Standard Procedure, the question for the Tribunal was whether, prior to the meeting on 14 January, the Company had informed Dr Billington what the basis was for saying in the letter dated 10 January that he was at risk of redundancy.

29.	The Tribunal’s reasoning does not engage with this question.  The Tribunal noted that the procedures laid down by the 2002 Act “have long been felt by all employment lawyers to be at best unsatisfactory” and “it is unfortunate to decide cases on technicalities”.  The Tribunal’s remarks concerning the 2002 Act may indeed provoke widespread sympathy.  Nevertheless the legislation was applicable and it was the Tribunal’s duty to grapple with it.  There is at this point an error of law in the reasoning of the Tribunal.

30.	The Appeal Tribunal deals only with questions of law.  We cannot make our own findings on this issue.  However, if there are findings elsewhere in the reasoning of the Tribunal by reason of which the answer to the question is plain, we can give effect to those findings.  We have reached the conclusion that such findings exist in this case.

31.	In Alexander and anr v Bridgen Enterprises [2006] IRLR 422 the Appeal Tribunal discussed the requirements of step 2 of the Standard Procedure in the context of a redundancy case.  The passage is too long to cite in full in this judgment, but we have had careful regard to it.  Building on a valuable discussion of the purposes of the statutory procedures (see paragraphs 34 to 37) the Appeal Tribunal held that step 2 required an explanation to be given to an employee not only as to why there is a redundancy situation but also as to why the employee is being selected – so that the employee can make representations about his own selection.  In the ordinary case, where an employee was selected according to a matrix, this involved his being given his own scores, though not the individual scores of others.  See for the full discussion, paragraphs 41 to 46.  That, the Appeal Tribunal held, was the minimum required to meet the basic standard of fairness required by the statute.

32.	At this point the Appeal Tribunal has the advantage of within its membership of experience from both sides of industry.  We are all satisfied that in the case of an employee in the position of Dr Billington it was not sufficient for him to know that the management of the company was top heavy and that savings needed to be made.  It was necessary for him to be told why it was his job which was to be made redundant when the work which he did continued to be necessary – which in his case entailed explaining why and how his work was to be divided up.  Without this explanation he was not in any position to comment on the Company’s proposal to make him redundant or to put forward any concrete proposal himself.

33.	It is entirely plain from the findings of the Tribunal that this did not take place.  The Tribunal found that the Company did not consult with him at all.  It did not show him any part of the report of Dr Harris until the appeal stage even though he was a Board member.  All he received was an uninformative letter.

34.	In these circumstances we think it is plain beyond argument that the Company did not meet the requirements of step 2, and that the dismissal was automatically unfair by virtue of section 98A(1).

35.	In the light of this finding we do not need to consider in detail the arguments concerning step 3 of the Standard Procedure.  It will suffice to say that we would have accepted the submissions of Miss Thomas on this point.

Section 98A(2)
36.	Since this dismissal was, on our findings, unfair by virtue of section 98A(1), the issue which would have arisen under section 98A(2) falls away.  But we should record the argument which Miss Thomas has ably put before us on this issue.

37.	She submits the Tribunal only found the dismissal unfair by reason of the Company’s failure to follow a procedure.  Therefore the Tribunal ought to have considered section 98A(2).  She submits that even if neither party had expressly addressed argument to section 98A(2) the Tribunal was bound to consider it: see, in particular, Loosley v Social Action for Health [2007] UKEAT/0378/06 at paragraphs 16-20.

38.	Miss Thomas further submits that if the Tribunal had considered section 98A(2) it would have found that the Company would have decided to dismiss Dr Billington in any event.  This followed from the Tribunal’s finding that he had only a 25% chance of obtaining work with the Company, even then in a lesser role.  There was therefore a 75% chance that he would have been dismissed.

39.	Miss Thomas accepts that in Alexander v Bridgen Enterprises [2006] IRLR 422 at para 64 Elias J was inclined to hold that it was implicit in section 98A(2) that applied only if the employer showed  that the employee would have been dismissed at the same time as he actually was.  She further accepts that this view of the law appeared to be reflected in guidance given by the Appeal Tribunal in Software 2000 Ltd v Andrews [2007] IRLR 568.  She submits that these remarks were obiter and wrong.  She submits that section 98A(2) contained no such requirement.  On the clear and unambiguous wording of section 98A(2), she submitted, the issue was whether the employer, if he had followed a fair procedure, would have dismissed the employee.  She submitted that section 98A(2) was intended to be a statutory reversal of the principle in Polkey v AE Dayton Services Ltd [1988] ICR 142; but if it applied only to cases where dismissal would have taken place at exactly the same time it would have virtually no effect.  She seeks to invoke the rule in Pepper v Hart (1993) IRLR 33 and submits that an examination of Hansard debates did not support the interpretation which Elias J suggested.

40.	These are interesting and powerful submissions; but, as is plain from the reasoning of Elias J, which was, we accept, obiter, there are powerful countervailing considerations.  Anything we said about the issue would be obiter, in view of our earlier findings.  It seems to us undesirable to add further obiter remarks on the meaning and scope of section 98A(2), now repealed, in a case where the issue does not arise for decision.

41.	On the Pepper v Hart point, we should say that we looked on a provisional basis at the Hansard debates which Miss Thomas showed us, and found nothing of particular assistance on the question.  We do not think this point, should it ever arise in any other case, will be assisted by reference to Hansard.

The 25% Finding
42.	We turn then to the question of remedy.  Neither side has questioned the Tribunal’s assessment that one month’s pay should be awarded to reflect the additional time which a fair procedure would have taken.  This finding is securely based in the evidence.

43.	Both sides, however, question the Tribunal’s finding that there was a 25% chance that Dr Billington would have been employed in a role at £45,000 per annum.

44.	On behalf of the Company, Ms Thomas submits that there was no evidential basis at all for this finding.  She has taken us to the guidance given by the Appeal Tribunal in Software 2000 v Andrews [2007] IRLR 568 (Elias P) and also to Virgin Media Ltd v Seddington & Eland [UKEAT/0539/08].   On analysis she submits that the evidence was all one way.  Dr Billington could not point to any likelihood that he would be retained in his present role – there was no requirement for an operations director.  So the question was whether he would be employed in some other role.  The only vacant positions were at £33,000 – they had been refused.   An employer is not under any obligation to create a vacancy in some new, unspecified role.  If necessary, she submitted that the Tribunal’s decision was perverse.

45.	On behalf of Dr Billington, Mr Halden submits that the Tribunal ought to have made a full award of compensation to Dr Billington, making no deduction.  He accepts that the precise reasoning of the Tribunal is not easy to understand.  He submits that a Tribunal was not required to make any deduction in a case of this kind.  He submits that the Tribunal did not reason, or find, that the Company was obliged to find a role for Dr Billington.  Rather it reasoned that, if a consultation process had been followed, there was a chance that it would have done so.

46.	We have had regard to the guidance of Elias P in Software 2000 Ltd v Andrews (paragraph 45).  This guidance is now well known and we will not set it out in this judgment.  We have also borne in mind the discussion on the question of burden of proof contained in Virgin Media Ltd v Seddington and anr [2009] UKEAT/0539/08 at paragraphs 15-16.  The guidance contained in this case was not available at the time of the Tribunal hearing; but it provides valuable assistance for a case of this kind.
“15. The issue which determines loss is whether the Claimants would have found, and accepted, alternative employment.  As to that, we do not think that the burden can be regarded as being at all points on the employer.  The burden may indeed be on him to raise the issue (if the employee has not) – that is, to assert that there was no suitable employment that the employee could or would have taken – and he will also have to provide appropriate evidential support for that assertion: the basic facts about alternative employment will be within his knowledge and not – at least not always or not completely – within the employee’s.  But if he raises a prima facie case to that effect, it must, it seems to us, be for the employee to say what job, or kind of job, he believes was available and to give evidence to the effect that he would taken such a job: that, after all, is something which is primarily within his knowledge.  To the extent that any uncertainty about the position is the result of the absence of evidence which the burden was on the employee to supply, then it would be unfair for that uncertainty to be deployed against the employer.
16. But what the case illustrates is that reliance on the burden of proof in borderline cases is inherently unsatisfactory.  In the field of compensation in particular, there may often be uncertainty as to precisely who has to prove what, and in what degree of detail, before the burden shifts to the other party.  Parties would be well-advised to make clear well in advance of any hearing what their case is on any point of importance, irrespective of the burden of proof, and to be prepared to adduce appropriate evidence (and if necessary seek appropriate disclosure).  It is not right that tribunals should have to consider the issue on the basis of inadequate evidence – or, in an extreme case, decline to decide it at all – because the parties have failed to anticipate it or because each has thought that the burden was on the other.”

47.	We confess that we have been unable to understand precisely what the chance was which the Tribunal had in mind when it reached its assessment of 25%.  If it had in mind the creation of some entirely new job, we can see no basis for doing so in any primary finding of fact which it made.

48.	We have speculated that the Tribunal, in its reference to a role, may have had in mind a combination of an available vacancy, such as chemist at £33,000, with an element of the operation role.  For example, it may have been taking into account the availability of work as a chemist together with the fact that Dr Billington was capable of combining with it part-time some of the operational work which was being spread about the Company.  If this was the Tribunal’s reasoning, we do not think we could say on present material that it would be perverse.  Dr Billington was a long serving employee regarded as competent and a safe pair of hands.  There were vacancies for chemists at £33,000.

49.	However, it is simply not possible to spell clear out of the Tribunal’s reasoning what it had in mind.  We do not think its findings on the Polkey issue can stand; the reasons do not tell the parties adequately why they have won or lost.  Accordingly, on the Polkey issue, the appeal is allowed and the issue is remitted for reconsideration by the Tribunal.

50.	When the matter is considered afresh at Tribunal level, both parties would do well to consider, in the light of Virgin Media how to put their case. The Tribunal would be well advised to consider and direct itself specifically in accordance with the approach in Software 2000 and to take into account Virgin Media.

51.	We have considered and heard submissions on the question whether the matter should be remitted to the same Tribunal or to a different Tribunal.  We have considered and applied the well-known guidance in Sinclair Roche Temperley v Heard.  We consider that the remission should be to the same Tribunal.  We are confident that the Tribunal will approach the issue conscientiously and professionally.  We are confident that it will do so afresh, having regard to the guidance we have given and any further evidence it hears.  We acknowledge that it may well hear further evidence from Dr Billington or Mr Gingell; remission to the same Tribunal means that it will be able to consider such evidence in the round.

52.	Accordingly the appeal is allowed only to the extent that the Polkey issue is remitted for rehearing; and the cross appeal is allowed, the Appeal Tribunal declaring that that the dismissal was automatically unfair by operation of section 98A(1) of the 1996 Act.