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United Kingdom Employment Appeal Tribunal |
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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Pentland Motor Company Ltd v McKenzie [2017] UKEAT 0014_16_0808 (8 August 2017) URL: http://www.bailii.org/uk/cases/UKEAT/2017/0014_16_0808.html Cite as: [2017] UKEAT 0014_16_0808, [2017] UKEAT 14_16_808 |
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At the Tribunal | |
Before
THE HONOURABLE LADY WISE
(SITTING ALONE)
APPELLANT | |
RESPONDENT |
Transcript of Proceedings
JUDGMENT
For the Appellant | Mr C Bennison (of Counsel) Instructed by: Empire Limited Empire House 117 Grandholm Drive Aberdeen AB22 8AE |
For the Respondent | Mr C Howie (Solicitor) Howie & Co Smiddy Brae Kingswells Aberdeen AB15 8SL |
SUMMARY
UNFAIR DISMISSAL - CONSTRUCTIVE DISMISSAL
The claimant had been employed by the respondent's predecessor for some 47 years but was TUPE transferred to employment by the respondent in 2015. The terms and conditions of his employment stated clearly that he would be entitled to full pay when absent from work due to sickness or injury. The respondent refused to acknowledge that entitlement and, when he was absent through illness, wrote to him stating that he would be paid only Statutory Sick pay. The claimant resigned and claimed constructive unfair dismissal. The respondent appealed.
Held : Appeal dismissed because
(1) There was no force in the respondent's first ground of appeal, that the tribunal misunderstood or misapplied the UK Supreme Court decision in Autoclenz Ltd v Belcher and Others [2011] UKSC 41. The respondent had failed to articulate a proper basis on which the clearly expressed contractual term had come to differ from the parties' understanding. The tribunal had not focused merely on a "sham" situation but also on the absence of any argument of error or variation, in finding that the contractual terms prevailed.
(2) The second ground of appeal was misconceived. The Tribunal had not failed to carry out an objective assessment of all of the circumstances before deciding whether the respondent was in fundamental breach and had followed correctly the approach required by the case of Eminence Property Developments Limited v Heeney [2010] EWCA Civ 1168. It had been entitled to find that the respondent's actings illustrated an intention not be bound by a fundamental term of the contact in relation to pay.
A cross appeal in relation to arithmetical error was well founded and was allowed.
THE HONOURABLE LADY WISE
Introduction
The Tribunal's findings in fact
"9. The claimant received particulars of his main terms of employment in 1987 (JB43) at a later date (JB44), on the 23 September 1997 (JB45) and on the 1 June 2000 (JB46) and on one other occasion (JB47). In terms of these documents the claimant was entitled to "full pay while absent from work due to sickness or injury". The claimant regarded this as an important benefit of his contract.
10. The claimant was given a further statement of terms and conditions of his employment on the 10 July 2012. He was working in the Elgin garage at this time and responsible to Frankie Ogg. The contract was signed by Mr Ogg and Mr McKenzie (JB29). Clause 10 of the terms and conditions dealt with absence due to sickness or injury. It stated: 'you'll be paid in full for any absence due to sickness and injury'.
11. The claimant was ill in 1990 because of back problems and was absent from work for a period of seven weeks. During this time he was paid his full salary.
12. He was later absent in about 1992 for seven or eight weeks again through back problems and once more he was paid his full salary.
13. Because of pressures in the business and following an incident at work involving Mr Frankie Ogg's son the claimant became upset and distressed. He did not realise initially but he had begun to suffer from stress. This stress was exacerbated by the fact that the dealership had run into difficulties with Land Rover and there were rumours regarding the sale of the business. The claimant was not told by his then employers that the company was being sold until about August 2015 although he had heard rumours from his contacts at Land Rover that this was the position.
14. In about July the respondent company received, through their lawyers, copies of employee contracts including the claimant's most current statement of terms and conditions. These were passed to Ms Julie Stewart to consider.
15. The claimant began to become increasingly unwell. His mood was low and he began suffering increased agitation. He contacted his General Practitioner who was keen to sign him off work but the claimant wanted to continue working until the business was transferred. The claimant received a sick note from his GP signing him off work from the 31 July 2015. However, he did not leave work but continued in his employment. He was keen to make a good impression on the new owners.
…
17. On the day of the transfer, the 3 August, the claimant told his new employers that he was unwell and handed them the sick note. He then left work. On the 5 November 2015 when he was certified fit to work by his General Practitioner.
…
19. The claimant was initially paid his full salary when he left work through illness. The clause in his terms and conditions dealing with sick pay was an unusual one. The majority of the other employees who had worked for Frank Ogg Limited were only paid full pay for the first two weeks. A long serving manager the Parts Manager also had a similar provision in his terms and conditions to that of the claimant entitling him to full pay whilst absent through illness.
20. The payment of full salary to the claimant caused the respondent's management concern. On the 23 September Alan McIntosh a Manager wrote to Mr Frank ('Frankie') Ogg in the following terms:
" … it would be really useful to know if & how any such extended absences ideally for Donnie but also and/or other colleagues) were historically handled in terms of sick pay arrangements). Statutory sick pay only or some form of employer supported payment up to full salary? If at full wage/salary then for how long? Are there any precedents of say full pay for 1/2/3 months & then statutory SSP only after this. Whilst we continue to seek certified medical report feedback, having knowledge of your historical treatment of any such similar absences would be another potentially valuable piece of the jigsaw to seek resolution".
…
22. The respondent did not remind Mr Ogg of the claimant's terms and conditions, they carried out no further investigations and did not put Mr Ogg's comments to the claimant for comment.
23. Following the e-mail exchange Julie Stewart wrote to the claimant on the 28 September 2015 (JBp31).
24. Ms Stewart intended meeting the claimant on his return to work to discuss his ongoing health difficulties. The company had resolved not to pay him full salary while absent through sickness.
…
27. The claimant was distressed at the position taken by the company. He believed he was entitled to payment of his full salary as provided for. He believed that failure to pay him was a breach of contract. He wrote to Ms Stewart on the 14 October (JBp34).
"I refer to your letter of 20th September and your subsequent letter of 8th October to my solicitors. I was advised by my solicitors that I am entitled to payment in full for any absence due to sickness and injury and to my employment contract and had no agreement with Mr Frank Ogg that I was only entitled to receive Company Sick Pay for a for a maximum of two weeks. As you are aware, I am currently signed off work due to work-related stress. You have made it clear that you will not pay my salary in full and that you will only pay me statutory sick pay from 30th September. This is an anticipatory and fundamental breach of my employment contract.
As you are also aware I raised a grievance with Mr Ogg concerning a threat of violence made against me by his son Jason Ogg in front of other staff members which was not dealt with by Mr Ogg. I also raised this matter with you and with Mr Miller during my introduction interview but still no action was taken to deal with this grievance. The threat against me and the company's failure to deal with the grievance was a continuing cause for anxiety which contributed towards the stress I have been suffering from. Your refusal to pay me for a period of absence that has been caused by the company's actions is intolerable I am very disappointed to have been treated this way after 48 years' unblemished service with the company.
I am resigning my employment with immediate effect due to your breach."
28. The claimant was 63 years old at the date of termination of his employment.""
The Tribunal's Reasoning
(1) Whether there was a proper basis for contending that the contractual situation in relation to sick pay was anything other than that contained in the claimant's written terms and conditions, and
(2) Whether, if the contractual position was that set out in the written terms, the respondent's contrary position had been an honest misapprehension and so not just justifying a claim of repudiation.
"42. The key issue in this case was what did the claimant's contract provide for by way of sick pay? I had no hesitation in concluding that the clause set out in the statement of terms and conditions (JB3) dated July 2012 and signed both by the claimant and Mr Frankie Ogg set out the parties' true intentions in relation to payment of full salary during absence. There was nothing whatsoever to cast any doubt on the clear terms of the clause at issue (clause 10). It reflected the terms of previous statements of terms and conditions going back to the statement issued in 1987 (JB p43). This was the position before the opening of the garage in Elgin and before the claimant worked directly under Mr Frankie Ogg. The clause also reflected the claimant's understanding of his entitlement and indeed he received full salary during lengthy absences in 1990 and 1992.
43. At the outside of the case I queried with Mr Bennison whether the respondent's position was that the contract term had been varied in some way. He indicated that this wasn't their position (and indeed there was no suggestion in the ET3 that this was their position). I noted that there was also no suggestion that the contract was in some way a sham. Against this background I struggled somewhat to understand why then express written terms were called into doubt. Mr Bennison suggested that the Tribunal should always be mindful of the 'reality' of the situation but I found it difficult to understand what the trigger was that first raised the suggestion that the written terms were not the in fact the 'reality' of the situation.
44. Although it was denied by Ms Stewart I have no doubt that the respondent were concerned about the unusually open ended nature of the liability that the clause provides for. It was odd that during the run up to the transfer that this was not identified when Ms Stewart allegedly reviewed the contracts of senior staff such as the claimant and others.
45. The Tribunal had to have regard to whether the claimant was entitled to resign. It considered the terms of Section 95(1)(c) of The Employment Rights Act 1996 (hereinafter the 'Act') which is in the following terms:-
"Circumstances in which an employee is dismissed
(1) For the purposes of this Part an employee is dismissed by his employer if (and, subject to subjection (2) …, only if) –
(a) …
(b) …
(c) the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct."
47. The Tribunal considered the guidance contained in well known case of Western Excavating (ECC) Ltd v Sharp [1978] IRLR 27 Court of Appeal to which both parties referred) which has laid down time honoured and helpful guidance on this matter. The nub of the matter is to be found in the judgment of the Master of the Rolls, Lord Denning, where he says at page 29, paragraph 15:-
"If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment; or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract; then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer's conduct. He is constructively dismissed."
50. In this case there was no attempt to argue that the dismissal would in any event have been fair. No such case was pled as an alternative.
51. The position of the claimant in the present case put simply was that although the claimant was unhappy that his 'grievance' about Jason Ogg had not been dealt with either by his former or new employers he resigned because of the anticipated failure to pay sick pay. It seemed to me that Mr Howie's submission that the respondent had, when they wrote to the claimant, a settled intention not to pay him full salary as provided for in clause 10.
52. The respondent argued that in some way the written terms of clause 10 did not apply and that the Tribunal should look at the 'true' position which was set out in Mr Ogg's response. Mr Bennison suggested that the only test was the reality of the situation. Although he referred the Tribunal to the case of Autoclenz for this somewhat sweeping proposition he did not take the Tribunal through the reasoning in that case. It should be borne in mind that the issue in that case was whether, irrespective of the written contractual terms, certain workers were properly employees and not independent contractors in other words the written 'contract' was in some sense a sham. It is interesting to note that their Lordships in the Supreme Court addressed the question of what regard should be had to the written terms at an early point in the Judgment. At paragraph 20 onwards Lord Clarke dealing with 'ordinary' commercial contracts and contrasting the approach with employment contracts wrote:
20. The essential question in each case is what were the terms of the agreement. The position under the ordinary law of contract is clear. It was correctly summarised thus by Aikens L J in the Court of Appeal:
87. … Express contracts (as opposed to those implied from conduct) can be oral, in writing or a mixture of both. Where the terms are put in writing by the parties and it is not alleged that there are any additional oral terms to it, then those written terms will, at lease prima facie represent the whole of the parties' agreement. Ordinarily the parties are bound by those terms where a party has signed the contract: see eg L'Estrange v F Graucob Ltd [1934] 2 KB 394. If a party has not signed a contract, then there are the usual issues as to whether he was made sufficiently aware of the clauses for a court to be able to conclude that he agreed to the terms in them. That is not an issue in this case.
88. Once it is established that the written terms of the contract were agreed, it is not possible to imply terms into a contract that are inconsistent with its express terms. The only way it can be argued that a contract contains a term which is inconsistent with one of its express terms is to allege that the written terms do not accurately reflect the true agreement of the parties.
89. Generally, if a party to a contract claims that a written term does not accurately reflect what was agreed between the parties, the allegation is that there was a continuing common intention to agree another term, which intention was outwardly manifested but, because of a mistake (usually a common mistake of the parties, but it can be a unilateral one) the contract inaccurately recorded what was agreed. If such a case is made out, a court may grant rectification of a contract. See, generally, the discussion in the speech of Lord Hoffmann, [48] to [66], in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 with whom all the other law lords agreed. …"
21. Nothing in this judgment is intended in any way to alter those principles, which apply to ordinary contracts and, in particular, to commercial contracts. There is, however, a body of case law in the context of employment contracts in which a different approach has been taken. Again, Aikens L J put it correctly in the remainder of para 89 as follows:
"But in cases of contracts concerning work and services, where one party alleges that the written contract terms do not accurately reflect the true agreement of the parties, rectification principles are not in point, because it is not generally alleged that there was a mistake in setting out the contract terms as they were. There may be several reasons why the written terms do not accurately reflect what the parties actually agreed. But in each case the question the court has to answer is: what contractual terms did the parties actually agree?"
53. This leads us back to the written terms and why it was suggested they did not reflect the true agreement. I queried what the circumstances were which suggested that the written terms were in some way not reflective of the agreed contractual position, perhaps through mistake or error, or if they had been varied at some point. Mr Bennison was unable to do anything other than to refer to the email from Mr Ogg which he suggested encapsulated the 'reality' of the situation. Considering the terms of that exchange it was not clear if Mr Ogg was suggesting that the written term was varied at some point or was included in the statement in error. He seems unaware of the written terms and that he had signed the statement. Incredibly these matters were never put to him nor were the previous incarnations of the clause contained in numerous such documents going back to the 1980s. Mr Ogg was not called to give evidence.
54. I have no doubt that the claimant and his employer for many years were aware and had agreed that this important benefit should be reflected in the statement of terms and condition and that both parties expected that it should be honoured and that it accurately reflected that agreement.
55. Mr Bennison argued that even if I found that the true contractual position was as stated in that clause there was no breach as the respondent had an honest misapprehension as to the true nature of the contract. He referred the Tribunal to the case of the Eminence Property Developments Ltd which in turn cited the words of Lord Wright in the case of R T Smyth and Co Ltd: ' … a mere apprehension, especially if open to correction, will not justify a charge of repudiation" I would suggest that there is a difference between an assertion and the situation where a party to a contract goes further as the respondent have here by taking a fixed position on the matter at issue. I find it difficult in the current circumstances to hold that there was in any event what could be classed as an honest belief given the failure to investigate the matter thoroughly after receiving Mr Ogg's email.
56. As Lord Wilberforce put it in Woodar Investment Development Ltd v Wimpey Construction UK Ltd. (supra), at page 283 " … Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations".
57. Here in Scotland the decision in Woodar Investment Development Ltd v Wimpey Construction UK Ltd. (supra), was approved by the Second Division of the Court of Session in Blyth v Scottish Liberal Club. The issue was considered by Lord Hamilton in the Outer House in the case Edinburgh Grain Ltd v Marshall Food Group Ltd. At page 22 he noted: "What, in my view, is required for repudiation is conduct demonstrative of an intention not to perform fundamental contractual obligations as and when they fall due."
58. The position in Scotland seems to be reflected in the case of Robert supra to which I was referred by Mr Howie. In that case an employee was entitled to generous sick pay if he was absent through injury. The employer interpreted this as applying only to a physical injury and told the employee that his sick pay was going to be reduced because he was absent because of stress and depression and not a physical injury. The contract properly interpreted was held to cover psychological injury. At paragraph 18, after reviewing the authorities The Honourable Mrs Justice Slade writes:
"18. … A pay term is, as was explained in Callaghan, a term which goes to the route of the contract. As Judge L J explained in that case, it may not be a fundamental breach of contract for an employer not to honour a pay term if that arose from an error or a simple mistake.
However, where an employer intends to reduce pay to a material extent and that intention does not arise from an error or a simple mistake, it is likely to be otherwise.
19. In our judgment, on the facts found by the Employment Tribunal and the material before it and the Judgment of Employment Judge Tickle, the Respondent was indicating an intention to pay half pay. This was found by the Employment Tribunal to be a settled intention. Since the date of the proposed reduction was two days away from the date of resignation, it was an anticipatory breach of contract. The Respondent did more than insist that its view of its contractual obligations was the correct one. It is plain from the findings of fact by the Employment Tribunal, which are not appealed, that the employer had a settled intent to implement the reduction in pay, which would take effect two days after the resignation. In our judgment, the reduction in pay by half was a significant reduction. However, we do not accept that whether such a reduction is fundamental depends on its effect on employees. If that were so, whether or not the reduction in pay was a fundamental breach of contract would be different for different employees arising out of the same reduction in pay carried out by the employer."
59. The issue is whether in all the circumstances the employer, or any party to a contract, is indicating that they will not be bound by a material term. The clause relating to sick pay is a material term. The employer made it clear that they would not be paying the claimant his salary when absent through illness even after their position was challenged by the claimant's lawyers.
60. This is not a case where the issue revolves around the proper interpretation of a clause in a contract. The written term is clear. Rather it is a situation where the employer denies the whole effect of a written express term and in doing so repudiates the contract. It is difficult to accept that the respondents had when he described as an honest misapprehension of the situation given the clear terms of the clause. I regret that my view was that Mr Bennison's approach to these matters and his interpretation of the law was misconceived.
62. It is my conclusion that the claimant was entitled to resign from his employment because of the respondent's actions in stating that they would not be honouring the terms of his written terms and conditions of employment and by doing so committing an anticipatory breach of contract. I then had to consider if the dismissal was fair or unfair in terms of section 98(4) of the Act. I had no hesitation in finding the dismissal unfair. There was no pressing business need to change the claimant's contractual entitlement, no consultation, and this was not in any event the reason the respondent acted this way. A clear written term was overridden without a clear reason for doing so and following virtually no investigation of the matter. The claim for unfair dismissal therefor succeeds as does the claim for unpaid salary/sick pay.
The Arguments in the Substantive Appeal
"I have yet to learn that a party who breaks a contract can excuse himself by saying that he did it on the advice of his lawyers: or that he was under an honest misapprehension. Nor can he excuse himself on those grounds from the consequences of a repudiation."
Mr Howie accepted that an honest misapprehension on interpretation does not of itself amount to a fundamental breach of contract. The point being made in The Nanfri and subsequently cited with approval in Eminence was that if a misapprehension was honest that did not excuse the consequences of a party's action if they had also committed a fundamental breach.
Cross Appeal
"(1) The amount of ……. (b) a compensatory award to a person calculated in accordance with Section 123, shall not exceed the amount specified in sub-section (1ZA).
(1ZA) The amount specified in this subsection is the lower of -
(a) £8,541 and
(b) 52 x weeks pay of the person concerned "
Mr Howie submitted that the cap should only have been applied for the compensatory award and not to the basic award. The total monetary award should have been £87,732 made up of a basic award of £14,250 and a compensatory award, capped at the amount of the claimant's gross annual salary, of £73,482.
Discussion
31. In my view, the argument advance by the respondent on this point is misconceived. There is no conflict between the position as stated in Eminence and the conclusion reached by the tribunal in this case. At paragraph 36 of Eminence the following clear direction appears ;-
" The question is not what the owners wanted or wished in the recesses of their minds, but did they by their conduct evince an intention no longer to be bound by the contract or to perform it only in a way inconsistent with their obligations under the charter"
Applying that to the facts of this case, as found by the tribunal, the respondent had made clear that they would perform their obligation to pay the claimant only in a way inconsistent with their obligations under the written contract. It is clear that such actions were capable of being regarded as an intention to refuse to perform an essential term of the contract. The tribunal was entitled to look at all of the circumstances and conclude that the intention of the respondent was not to perform. The case of Haberdashers Monmouth School for Girls v Turner does not assist the respondent's argument because in that case the employer had not acted upon its honest misapprehension. In the present case there was more than an assertion in relation to the interpretation of a contract, there was a formal statement in the letter that the respondent would not be paying sick pay in terms of that contract but would be paying only Statutory Sick Pay. The tribunal acknowledged the distinction between the two situations, stating that "….there is a difference between an assertion and the situation where a party to a contract goes further as the respondent have ( sic) here by taking a fixed position on the matter at issue." (paragraph 55). It was for the tribunal to examine the respondent's actings as part of the whole circumstances and decide whether they went beyond mere assertion and amounted to a stated intention to breach the contract. There was no discernible failure to carry out the sort of objective assessment required by Eminence. Accordingly, as the tribunal's analysis demonstrates no error of law and the conclusion ( at paragraph 62) that the respondent had committed an anticipatory breach of contract was one that it was entitled to reach on the available evidence, the second ground of appeal must also fail.
32. So far as the cross appeal is concerned, as already indicated, Mr Bennison very fairly did not seek to mount a challenge to the proposition that there had been an error in the calculation of the monetary award in that the statutory cap should not have been applied to the basic award. There had been an attempt to rectify this by reconsideration but the point seems to have been overlooked by the tribunal. Accordingly, I will allow the cross appeal and substitute a total award of £87,732.
Disposal
33. For the reasons given above, I will dismiss the respondent's appeal, but allow the cross appeal, such that the total monetary award is now increased to £87,732.