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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Safeway Stores Plc v Burrell [1997] UKEAT 168_96_2401 (24 January 1997)
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Cite as: [1997] UKEAT 168_96_2401, [1997] IRLR 200, [1997] ICR 523

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JISCBAILII_CASE_EMPLOYMENT

BAILII case number: [1997] UKEAT 168_96_2401
Appeal No. EAT/168/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
             At the Tribunal
             On 6 November 1996
             Judgment delivered on 24 January 1997

Before

HIS HONOUR JUDGE PETER CLARK

MR D CHADWICK

MRS P TURNER OBE



SAFEWAY STORES PLC APPELLANT

MR P BURRELL RESPONDENT


Transcript of Proceedings

JUDGMENT

Revised

Copyright 1997


    APPEARANCES

     

    For the Appellants CHRISTOPHER JEANS
    (of Counsel)
    Messrs Cartwrights
    Solicitors
    Marsh House
    11 March Street
    Bristol
    BS99 7BB
    For the Respondent DAMIEN BROWN
    (of Counsel)
    Miss K O'Neill
    USDAW
    'Oakley'
    188 Wilmslow Road
    Fallowfield
    Manchester
    M14 6LJ


     

    JUDGE PETER CLARK: What is redundancy? That basic question arises in this case, 30 years after the passing of the Redundancy Payments Act 1965 ["RPA"], mainly due to the various tests purportedly propounded by the Courts over the years. Our unavoidable task is to seek to resolve what may at first blush appear to be conflicting lines of authority in order to identify the true test or tests for deciding what is a dismissal by reason of redundancy.

    The facts

    On 19th March 1990 Mr Burrell, the applicant, commenced employment with Safeway as petrol station manager at their filling station located at their store site in Penzance, Cornwall. He remained so employed until his admitted dismissal which took effect on 20th May 1995. By the Spring of 1995 there were a total of 210 full and part-time employees at the Penzance site.

    A management structure had developed within the Safeway stores nation-wide based on product groups. At the head was the store manager; below that level was the deputy manager; assistant managers responsible for different products retailed through the store; then further managers, including the petrol station manager, and below them departmental supervisors.

    Senior management decided that the structure was top heavy and too departmentally orientated. Accordingly a reorganisation called Safeway 2000 was set up; one of its aims was to de-layer the management structure.

    Under the new structure it was envisaged that the store manager would have four managers reporting to him or her responsible for stock replenishment; customer services; administration and support services and Human Resources. Each of those managers would have controllers reporting to them. One of those controllers was the petrol filling station controller. The post of petrol filling station manager was to disappear under the reorganisation.

    On 15th March 1995 store managers were briefed on the proposed reorganisation. They were informed that there would be redundancies as there would be less management positions than before. There was to be a selection process based on each individual's skills in relation to the requirements of the new posts.

    On 19th April the Penzance store manager, Mr Kelly, was on leave. In his place Mrs Little gave two presentations, first to the deputy manager, two assistant managers and the personnel and training manager and secondly to departmental heads and supervisors, including the applicant. At that second meeting it was explained that the store reorganisation made all current management and supervisory roles redundant.

    Following his return from leave Mr Kelly saw the applicant on 2nd May. By that time the applicant was aware that the new post of petrol filling station controller, the most likely slot for him in the new structure, carried an annual salary of 11,000, compared with his existing salary as petrol filling station manager of 13,052.

    The applicant told Mr Kelly that he would find it difficult to live on the lower salary.

    Shortly thereafter the applicant informed Mr Kelly that he would not be applying for the controller's job. It was agreed that he could continue in his old job at the higher salary on a temporary basis.

    During the week commencing 15th May the applicant told Mr Kelly that he had found a new job selling insurance which was to start on Monday 22nd May. It was agreed that his employment with Safeway would terminate on 20th May; that he would receive a redundancy payment and pay in lieu of notice. He would not have to work out his notice. He duly left Safeway on 20th May.

    The new structure came into operation at Penzance on 26th May. A new job description was issued for the post of petrol filling station controller which differed on paper to some extent from the previous manager's job description.

    The Complaint

    On 26th July 1995 the applicant presented a complaint to an Industrial Tribunal claiming that he had been unfairly selected for redundancy, that is, that he was unfairly dismissed. However, in his details of complaint he said this:

    "It is my opinion that in my case it is just a cost cutting exercise and as my job is exactly the same the position is not redundant."

    In its Notice of Appearance Safeway admitted that the applicant had been dismissed; alleged that the dismissal was by reason of redundancy/some other substantial reason justifying dismissal and set out the nature of its case under the grounds for resistance. It was, first, that his position as manger had ceased to exist and that he was redundant. Secondly, it was said that his employment came to an end because he found alternative employment and the dismissal related to his conduct and was fair. In addition, by the earlier reference to some other substantial reason, the ground refer to the management restructure.

    The tribunal decision

    The complaint was heard by an Industrial Tribunal sitting at Truro on 20th and 21st November 1995. By a majority the tribunal found that Safeway had not established redundancy as the reason for dismissal and therefore the dismissal was unfair. The case was adjourned for a remedies hearing in the absence of agreement between the parties.

    The tribunal's reasoning is set out in its full written reasons dated 9th January 1996. Having referred to the factual background, the tribunal list the functions of the petrol filling station manager and controller as they appeared on the respective job descriptions, together with the applicant's comments in evidence on the differences. They made no detailed findings of fact where the applicant's version diverged from that of Mr Kelly, who was called to give evidence by Safeway.

    At paragraph 19 they say:

    "19 The applicant thought that the main work no longer required by the controller was catalogue and "till con" checking which involves some 3 to 4 hours a week. On the other hand Mr Kelly thought that the significant difference between the manager's job and the controller's job was something in the order of 30%."

    Again, there is no finding as to which account the Industrial Tribunal preferred.

    The tribunal then parted company as to the effect in law of such findings of fact as they did make. They expressed themselves thus:

    "20 It is clear to us that many of the responsibilities which the applicant had on paper he was not in fact called upon or allowed to exercise in practice; that in practical terms he was doing what, under the new structure was called a controller's job for most of his time, but that his job title was manager and was paid at that rate. Our difficulty is in assessing the effect of this. The two members, in the majority, consider that the Tribunal should look at the work which the applicant was required to do, and actually did in order to decide whether the job has or has not disappeared, and in doing so comes to the conclusion that, for substantial purposes, the work which the applicant was doing still has to be done, but by somebody having a different title.
    21 On the other hand the Chairman in the minority considers that the respondents could have called upon the applicant to have exercised many more responsibilities than he actually did and would have been able lawfully to do so. He was not fully doing the work which he was employed to do, or could be called upon to do, and that the job that he was employed to do as manger no longer existed.
    22 Accordingly, the majority decide that the requirements of the respondent's business at Penzance for the applicant to carry out work of a particular kind which substantially he had been doing had not ceased or diminished nor were likely to cease or diminish and accordingly that the applicant was not redundant."

    There is no mention in the tribunal's decision or reasons as to Safeways alternative ground for dismissal, namely some other substantial reason. Nor did they find it necessary in the light of their majority finding that the reason for dismissal was not redundancy to go on to consider the question of reasonableness under section 57(3) of the Employment Protection (Consolidation) Act 1978 (now section 98(4) of the Employment Rights Act 1996).

    The Appeal

    Against that decision Safeway now appeal. The short point taken by Mr Jeans is that even if the applicant was not dismissed by reason of redundancy it was incumbent on the tribunal to go on to consider whether in the alternative the employer had established some other substantial reason for dismissal, namely business reorganisation. Not to make a finding on this alternative ground amounted to an error of law. Mr Brown, for the applicant, accepts that this issue was before the tribunal and that no adjudication on the point has been made. In these circumstances it seems to us that the decision cannot stand, and on this ground alone the proper course would be to remit the case to a fresh Industrial Tribunal for rehearing. However, that is not the end of the matter. Mr Jeans' primary submission is that the majority applied the wrong legal test in concluding that the applicant was not dismissed by reason of redundancy, and that if the correct test is applied to the facts as found an Industrial Tribunal would inevitably conclude that that was the true reason for dismissal and further, would go on to conclude that Safeway acted reasonably in treating that reason as a sufficient reason for dismissal. Accordingly he invites us to so find, and to substitute a finding of fair dismissal. Mr Brown resists that contention, submitting that the majority applied the correct test and reached a permissible conclusion on the facts. It is in these circumstances that we must ask ourselves, what is redundancy?

    The legislation

    The RPA was solely concerned with the question as to whether or not an employee who lost his employment was entitled to a statutory redundancy payment. Protection against unfair dismissal was later introduced by the Industrial Relations Act 1971. At the time of this tribunal hearing both statutory regimes were consolidated within the Employment Protection (Consolidation) Act 1978 ["the 1978 Act"]. They are now to be found in the 1996 Act. We shall, for the purposes of this judgment, refer to the relevant provisions in the 1978 Act.

    The concept of redundancy as a reason for dismissal was imported into the law of unfair dismissal in this way. By section 57 of the 1978 Act it is first, for the employee to establish that he was dismissed. That is admitted in this case. Secondly, it is for the employer to show that his reason or principal reason for dismissal falls within one of the prescribed categories set out in section 57(2) or was for some other substantial reason. Section 57(2)(c) provides that one of the prescribed reasons is that the employee was redundant. Finally, the tribunal must consider the question of reasonableness under section 57(3).

    It is therefore necessary to look to Part VI of the 1978 Act for the meaning of redundancy. The relevant definition for present purposes is contained in section 81(2)(b) of the 1978 Act (now section 139(1)(b) of the 1996 Act). It repeats verbatim the original definition contained in section 1(2)(b) of the RPA, and it is this:

    " (2) For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to-
    ...
    (b) the fact that the requirements of that business for employees to carry out work of a particular kind, ... have ceased or diminished or are expected to cease or diminish."

    Free of authority, we understand the statutory framework of section 81(2)(b) to involve a three stage process:

    (1) was the employee dismissed? If so,

    (2) had the requirements of the employer's business for employees to carry out work of a particular kind ceased or diminished, or were they expected to cease or diminish? If so,

    (3) was the dismissal of the employee (the applicant before the Industrial Tribunal) caused wholly or mainly by the state of affairs identified at stage 2 above?

    The position is, however, not free of authority. Far from it. It is therefore to those authorities, with the assistance of Counsel, which we must now turn.

    The authorities

    Over the years the authorities in the Court of Appeal and this appeal tribunal and its predecessors (there is no relevant House of Lords authority) have spawned what commentators have variously dubbed 'the overall requirement test', the 'kind of employee test', 'the contract test', 'the function test', and 'bumped redundancies'. Can they all flow from one comparatively simple sub-sub-section of an Act of Parliament; are they inconsistent with each other; if so, which is right and which is wrong?

    Redundancy situation

    This imprecise expression, not found in the words of the statute, is nevertheless frequently used a short-hand to describe what we have called stage 2 of the enquiry. That is, whether the employer's requirements for employees to do work of a particular kind have ceased or diminished or are expected to cease or diminish. We are not, in this case, concerned with the place of work.

    Lord Denning MR used the expression on a number of occasions during the course of his judgment in Johnson v Nottinghamshire Combined Police Authority [1974] ICR 170, 176G-177F. However in the later case of Lesney Products & Co Ltd v Nolan [1977] ICR 235, at 238D-F, he said:

    " ... The relevant principles were stated by this court in Johnson v. Nottinghamshire Combined Police Authority [1974] I.C.R. 170, 176:
    [He refers to a passage in his judgment in that case]
    While I adhere to what I there said, I think the phrase "a redundancy situation" may be misleading. It is shorthand: and it is better always to check it by the statutory words. The dismissal must be attributable to "the fact that the requirements of that business for employees to carry out work of a particular kind ... have ceased or diminished," etc."

    We bear that dictum firmly in mind when considering the decided cases in this field, remembering always the words of the statute.

    Reduction in the work

    From time to time the mistake is made of focusing on a diminution in the work to be done, not the employees who do it. One example will suffice. In Carry All Motors Ltd v Pennington [1980] ICR 806 the applicant before the Industrial Tribunal, employed as a transport clerk, was dismissed by his employers following their decision that his depot was overstaffed; they concluded that the work of the transport manager and transport clerk could be carried out by one employee only. The transport manager was retained and the applicant dismissed.

    On his complaint of unfair dismissal the employer relied on redundancy as the reason for dismissal. An Industrial Tribunal held that the requirements of the business for employees to carry out particular work had not ceased or diminished. The same work remained. Accordingly there was no redundancy but simply a reorganisation. The dismissal was unfair.

    On appeal the Employment Appeal Tribunal reversed the Industrial Tribunal's findings. It held that the question was not whether the requirement for particular work had diminished, but whether the requirement for employees to do that work had diminished. Since one employee was now doing the work formerly done by two the statutory test of redundancy had been satisfied. In reaching that conclusion the Employment Appeal Tribunal followed and applied the approach of the National Industrial Relations Court in the case of Sutton v Revlon Overseas Corporation [1973] IRLR 173.

    In our view Pennington and Sutton correctly applied the law to the facts in those cases. It is necessary to look at the overall requirement for employees to do work of a particular kind; not at the amount of work to be done.

    Business reorganisation

    A complication has arisen where there is a business reorganisation followed by dismissals. The fact that there has been a reorganisation does not of itself answer the stage 2 question one way or the other. It is simply part of the factual background. It may be relevant to an alternative ground of some other substantial reason if that it is advanced by the employers.

    In Robinson v British Island Airways Ltd [1978] ICR 304 the applicant employee worked as flight operations manager, reporting to the general manager operations and traffic. A reorganisation took place in the interests of efficiency and economy. The two former posts mentioned above were abolished and replaced by a single post of operations manager. That was a more important post than the two previous posts combined; both original post-holders were dismissed and a new employee appointed operations manager. Before the Industrial Tribunal the applicant complained that he was not redundant and had been unfairly dismissed. The tribunal dismissed his complaint, holding that he had been dismissed fairly by reason of redundancy. The applicant's appeal to the Employment Appeal Tribunal was dismissed. In giving the judgment of this tribunal Phillips J said this at 308D-G:

    "... Cases concerning redundancy arising out of a re-organisation always cause difficulties. Certain passages in some of the judgment in Johnson v. Nottinghamshire Combined Police Authority [1974] I.C.R. 170 and Lesney Products & Co. Ltd. v. Nolan [1977] ICR 235 have been taken as suggesting if a dismissal has been caused by a re-organisation the reason for dismissal cannot be redundancy. We do not think that this is the meaning of the passages, or what was intended. In truth a re-organisation may or may not end in redundancy; it all depends upon the nature and effect of the re-organisation. In Johnson v. Nottinghamshire Combined Policy Authority there was no redundancy because in the opinion of the Court of Appeal the change in the hours of work involved in that case did not change the particular kind of work being carried on. In Lesney Products & Co. Ltd. v. Nolan there was no redundancy because on the correct analysis of the facts (it was in the analysis of the facts that the appeal tribunal and the industrial tribunal were in error) there was no cessation or diminution of the requirement for employees to carry out work of a particular kind. The number of employees, and the nature of the work, remained the same, and all that changed was the ability to earn overtime. What has to be done in every case is to analyse the facts and to match the analysis against the words of section 1 of the Redundancy Payments Act 1965. In doing this it is of no assistance to consider whether as a matter of impression there was or was not a "redundancy situation". The question is whether the definition is satisfied."

    Again, we adopt that analysis as a correct statement of the law, dealing, as it does, with the effect of the earlier Court of Appeal decisions in Johnson and Lesney, themselves consistent with the previous decision of the Court of Appeal in Chapman v Goonvean [1973] ICR 310, where withdrawal of a free bus service for seven employees, who were constructively dismissed and claimed redundancy payments, was held not to give rise to dismissals by reason of redundancy, since the work continued to be performed by an identical number of new employees, recruited to replace the seven who had left.

    The contract and function tests

    The picture built up so far appears to us to present a clear and consistent approach to the question of whether a dismissal is by reason of redundancy, based as it is on the words of the statute. We now enter more troubled waters. The so-called 'contract test'.

    The starting point for the development of the contract test is the Court of Appeal decision in Nelson v BBC (No.1) [1977] ICR 649. In that case Mr Nelson, who conducted his own case, was employed by the BBC as a producer under the terms of their standard form contract of employment. Clause 8 was in wide terms: it gave the employer the right to direct the employer to serve wherever he may be required. In 1974 he was working under his contract of employment in the Caribbean Service in a managerial, production and editorial capacity. In the interests of economy the BBC decided to terminate the Caribbean Service. Mr Nelson was directed to transfer to a post of equivalent grade in overseas regional service, subject to a report being made on his suitability after three months in the new post. Mr Nelson did not like that proposal. He protested. An ultimatum was given; move or be dismissed by reason of redundancy. He still refused. Accordingly he was dismissed.

    He brought a complaint of unfair dismissal; the BBC responded by saying that he was dismissed by reason of redundancy and that the dismissal was fair. Mr Nelson contended that redundancy was not the reason for his dismissal.

    The Industrial Tribunal apparently found that it was a term of the contract of employment that he should be employed only for programmes for the Caribbean. The tribunal went on to find that the dismissal was by reason of redundancy and that the dismissal was fair.

    The Employment Appeal Tribunal dismissed Mr Nelson's appeal, reluctantly upholding the tribunal's finding that the reason for dismissal was redundancy.

    The Court of Appeal reversed the decisions below. Roskill LJ concluded that the tribunal was wrong to find that redundancy was the reason for dismissal. He expressed his reasoning thus at 656D-G:

    " The corporation's case before the industrial tribunal was simplicity itself: "This man was employed for the purpose of the Caribbean Service. The Caribbean Service was being shut down as a result of Treasury demands for economy. Therefore we could no longer keep him there; his services were not required; and therefore he became redundant; and because he became redundant he cannot claim to have been unfairly dismissed."
    The industrial tribunal, as I said at the beginning of this judgment, accepted that argument and rejected the claim. They went into the matter with very great care. They held that Mr Nelson had become redundant. They reached that conclusion because of an argument that was apparently put forward that it was a term of Mr Nelson's employment that he should be employed for, and for all practical purposes only for, programmes for the Caribbean. That emerges very clearly from the industrial tribunal's reasons. It was said that, notwithstanding the very wide words of clause 8 of the agreement none the less:
    "We think it was a term of Mr Nelson's contract of employment, arising by necessary implication or inference from the primary facts, that he was employed for the purposes of broadcasts to the Caribbean."
    With great respect to the tribunal, that seems to me to be an impossible conclusion as a matter of law, for this reason: it is a basic principle of contract law that if a contract makes express provision (as clause 8 did) in almost unrestricted language, it is impossible in the same breath to imply into that contract a restriction of the kind that the industrial tribunal sought to do."

    Browne and Megaw LJJ agreed with the conclusion of Roskill LJ as to redundancy, but without adding any reasoning of their own.

    The matter came back before the Court of Appeal following remission to an Industrial Tribunal for a remedies hearing. Nelson v BBC (No.2) [1980] ICR 110. During the course of his judgment in the second appeal, Brandon LJ explained the basis of the first court's reasoning in this way at 126E-H:

    " That judgment [in Nelson No.1] shows that the attitude adopted by the corporation through its officers was substantially wrong in law, and the attitude adopted by Mr Nelson substantially right in law. By that I mean that the corporation were wrong in law in treating Mr Nelson as a person who, because the work which he was employed to do had come to an end, was redundant; and further wrong in law in asserting that the proposal which they were making to him was an offer of alternative employment rather than a proposal for re-assignment under his existing contract. What the corporation was really doing, because they took an erroneous view of the legal position, was to use an unjustifiable threat of making Mr Nelson redundant as a means of persuading to give his consent to a misdescribed proposal for which his consent was not in law required.
    By contrast Mr Nelson was right in law in maintaining that, because the work which he was employed to do continued to exist, he was not redundant; and further right in law in asserting that the proposal which the corporation were making to him was not reality an offer of alternative employment, but a proposal to re-assign him to other work within the scope of his existing contract of employment, which they were entitled to do irrespective of any consent on his part. What Mr Nelson was doing, therefore, was to assert correctly, and stand firmly on, his legal rights under his contract of employment."

    What we understand the effect of Nelson No.1 to be is this. Although a potential redundancy situation existed when it was decided to close the Caribbean Service, because contrary to the Industrial Tribunal's finding, Mr Nelson's contract of employment provided that he could be directed to serve wherever he was required, his eventual dismissal was not by reason of the closure of the Caribbean Service but because of his refusal to transfer as directed. That was not a dismissal by reason of redundancy. The effective cause of his dismissal was his refusal to transfer. The reason why the BBC lost their case was on a pleading point. The only reason which they advanced for the dismissal was redundancy; no alternative reason was advanced, and in the absence of establishing a prescribed reason it followed that the dismissal was unfair.

    It seems to us that Nelson is authority for no more than this proposition; where a redundancy situation arises and a potentially redundant employee is directed to transfer to other work within the scope of his contract of employment, if he refuses that transfer and is then dismissed, the reason for dismissal will not be redundancy.

    We turn next to Cowen v Haden Ltd [1983] ICR1. There the employee was a quantity surveyor by profession. He commenced employment with the employer in June 1977 as regional surveyor - southern region. His work in that post took him as far afield as Nigeria. In August 1978 he suffered a mild heart attack, causing him to be off work for two months. Upon his return to work his employers wished to lighten his load by reducing the amount of travelling which he had previously carried out. He therefore agreed to accept a new post of divisional contracts surveyor, assisting the divisional surveyor, Mr O'Donnell. Subsequently a Mr Richmond was appointed regional surveyor.

    Later, the employers were looking for reductions in expenditure. Mr O'Donnell decided that there was no need for a divisional contracts surveyor; there was no alternative employment available for the employee. He was dismissed. He complained to an Industrial Tribunal that his dismissal was unfair.

    The Industrial Tribunal expressed their conclusion as to the reason for dismissal with admirable conciseness in two sentences:

    "We are satisfied on the evidence that the employers no longer had a requirement for a divisional contracts surveyor. There was a redundancy within the meaning of section 81 of the Employment Protection (Consolidation) Act 1978."

    They found the dismissal to be fair.

    The employee appealed to the Employment Appeal Tribunal; like Mr Nelson he conducted his own case. The judgment of Browne-Wilkinson J appears at page 3F-8F of the report. The basis of the employee's appeal is set out at 5B-G:

    " The employee argues that that decision involves a misdirection in law by the industrial tribunal. He submits that it cannot be said that he was redundant under section 81(2)(b) unless the employers have shown a diminution in the requirements of their business for employees to carry out work, not only of the kind done by a divisional contracts surveyor, but of the kind which under his contract of employment he could have been required to do. He submits, plainly correctly, that the industrial tribunal have not applied that test but have directed themselves simply to the question "was there any longer a requirement for a divisional contracts surveyor?" The industrial tribunal had no regard to any other work which the employee under his contract of employment could have been required to carry out. Therefore, he says that there has been a fundamental misdirection in law in that the reason for dismissal under section 57(2) has not been shown to be redundancy.
    If the matter were free from authority, we would have had little hesitation in dismissing the employee's submission on that point. If one simply reads the words of section 81(2) themselves, there is nothing in them which requires one to look at the terms of the particular claimant's contract of employment. What the Act on its face requires is that one should look at the business of the employer to see whether there is a diminution in the requirements of that business for employees to carry out work of a particular kind, unrelated to any definition of the work which the particular employee who is making the claim can be required to do. In practice, in the experience of all of us on this tribunal a redundancy is accepted as having been shown where it is demonstrated that the actual job which the claimant was carrying out had ceased to exist. In our experience, nobody has previously sought to say: "Even though my job has gone, look at what I might otherwise have been required to do" and to go on to submit, as the employee does in this case, that an employer cannot show that there is a redundancy under section 81(2)(b) unless he is able to show that there is a diminution in the employer's requirements, not only for the work that the claimant was actually doing, but for all types of work that he could be required to do. That is our experience of recent practice.
    There being nothing in the words of the Act to support the employee's submission, and, the submission running contrary to the way in which (so far as we are aware) for a considerable time the section has been applied in practice, we would not have upheld his submission."

    Pausing there, we should have thought that the Employment Appeal Tribunal's initial view, expressed by Browne-Wilkinson J, was plainly and obviously correct.

    However, the appeal tribunal did not maintain that preliminary view. It went on to hold that it was bound by the Court of Appeal decision in Nelson to arrive at a conclusion which did not accord with its view of the correct construction of the statute (see page 7H). That conclusion is expressed at page 7F in this way:

    " We are unable to treat the composite effect of those two decisions of the Court of Appeal [in Nelson]as being other than a decision binding on us that in considering section 81(2)(b) of the Act of 1978 it is not sufficient in order to establish redundancy to show merely that the requirements of the employers for employees to carry out work of the kind on which the employee was actually engaged has ceased or diminished: it is necessary to show such diminution or cessation in relation to any work that he could have been asked to do."

    The employee's appeal was allowed and leave was given to the employer to go to the Court of Appeal.

    The Court of Appeal allowed the appeal and restored the decision of the Industrial Tribunal. In reaching that decision the Court of Appeal did not decide any of the arguments advanced in the original Notice of Appeal, but allowed the appeal solely on a further ground introduced by way of amendment during the hearing of the appeal which read:

    "(d) If contrary to the [employers'] primary submission there is a requirement that there should be a diminution or cessation in the work which the employee could have been required to do under his contract of employment, then Nelson v British Broadcasting Corporation (No. 1) is distinguishable on its facts from the instant case and should have been distinguished by the Employment Appeal Tribunal:" [the amendment goes on to particularise the respects in which Nelson was distinguishable.]

    Since that amended ground of appeal proceeded on the false premise, as we understand the statute, that for redundancy to exist there should be a diminution or cessation in the work which the employee could have been required to do under his contract on employment, the Court's finding on that basis does not advance the true position at all. We prefer to view the decision of the Court of Appeal in that case as being correct in the result, which was to overturn the erroneous decision of the Employment Appeal Tribunal and uphold the orthodox finding of the Industrial Tribunal as to the reason for Mr Cowen's dismissal.

    Unhappily, Cowen v Haden has led to further developments of the 'contract test'. In Pink v White [1985] IRLR 489 the employee was employed at the employer's shoe factory as a making and finishing room operative. He was mainly engaged in the work of a sole layer/pre-sole fitter. In 1983 it became necessary to reduce the workforce at the factory. Three employees were selected for dismissal, including Mr Pink.

    On his complaint of unfair dismissal the Industrial Tribunal, in reaching the conclusion that the dismissal was fair, considered first the reason for his dismissal and having referred to the definition of redundancy in section 81(2)(b) of the 1978 Act, applied this test:

    "What it amounts to is, was the applicant dismissed because the respondents had a diminishing need for employees doing the kind of work for which the applicant was employed."

    Counsel for the appellant employee is then recorded, at paragraph 9 of the report, as submitting to the appeal tribunal that the tribunal had misconstrued section 81(2)(b). He contended that the question was not whether there was a diminishing need for the kind of work which the appellant was required to perform under his contract of employment, but for the particular kind of work which he was actually carrying out. This approach typifies the so-called function test as against the contract test.

    In response, counsel for the employers is recorded as submitting, at paragraph 10 of the judgment delivered by Tudor Evans J on behalf of the appeal tribunal:

    " ... that when considering whether work of a particular kind has ceased or diminished, the scope of enquiry is not as to the work which the employee was actually doing at the time of his dismissal but as to the work which he was required to perform under his contract of employment."

    Thus counsel for the employers advanced the contract test as against the function test.

    Before going to the appeal tribunal's reasoning in this case we should say at once that in our judgment the approach taken by the Industrial Tribunal, counsel for the employee and counsel for the employers, respectively, was misconceived, and had no basis in authority. Each misapplied the words of the statute. The common flaw was to elide what we have called stages 2 and 3. Stage 2 requires the tribunal to determine whether there is a diminution in the requirement for employees (not the employee/applicant) to carry out work of a particular kind. On the facts of the Pink case that test is met; the findings of fact recorded at paragraph 2 of the judgment are that:

    "In 1983 there was a recession in the shoe trade. The factory at Earls Barton lost an expected export order. The employers decided that it was necessary to reduce the workforce. They selected for redundancy three employees of whom the appellant was one."

    Not only was there a diminution in the requirements of the employers for employees to carry out work of a particular kind, that was the only cause of the applicant's dismissal on those facts. He was dismissed by reason of redundancy.

    It was impermissible for the Industrial Tribunal to rewrite the words of the statute to import a further stage, that there must be a diminishing need for employees to do the kind of work for which the applicant was employed.

    However, counsel for the appellant appeared to accept this approach by the Industrial Tribunal, but submitted that it was necessary to look at the work which the applicant actually did, rather than the work which he could contractually be required to do. Counsel for the employers contended for the contract test by reference to Nelson and Cowen v Haden.

    In these circumstances it is hardly surprising that this tribunal was taken along a path which has in turn led to the contract test becoming fully-formed.

    Having considered the submissions and the two Court of Appeal authorities Tudor Evans J summarised the conclusions of this tribunal at paragraph 14 thus:

    " It follows from the passage which we have just read and which is binding upon us that the Industrial Tribunal was not in error when, in paragraph 20 of the decision, they applied as the test, the diminishing need for the kind of work which the appellant was employed to do under his contract of employment."

    We are bound to say that we find Pink to be a distortion of both the statute and the authorities. In our view it should not be followed. From first to last the reasoning and approach taken by the Industrial Tribunal, counsel and this appeal tribunal was erroneous, although the result is plainly correct on a proper application of the law to the facts.

    Unfortunately one weakness of our common law system of precedent is that errors once made are replicated in subsequent cases, so that the heresy becomes the received wisdom. We have been referred by counsel to two recent decisions of this appeal tribunal following Pink.

    In Johnson v Peabody Trust [1996] IRLR 387 Judge Colin Smith QC said at paragraph 22:

    " In our judgment it is reasonably clear from the authorities, especially Nelson v British Broadcasting Corporation (No.2) [1979] IRLR 346 at p. 353, 69-70 per Brandon LJ, as he then was, the decision in the Court of Appeal in Haden Ltd v Cowen [1982] IRLR 314, and the very helpful judgment of Mr Justice Tudor Evans in the case of Pink v White and White & Co (Earls Barton) Ltd [1985] IRLR 489, where the learned judge, after very careful analysis of the cases in the Court of Appeal, so concluded that the so-called 'contract' test is the correct one rather than the 'function' test."

    With that view we must respectfully disagree.

    In Horton v Farnel Electronic Services Ltd [(EAT/755/95). 7th October 1996. Unreported]. Judge J Hicks QC, giving the judgment of the tribunal, said this at page 10A of the transcript:

    " We therefore approach this case on the basis that the Court of Appeal in the first Nelson case, powerfully reinforced by the view of a differently constituted Court of Appeal in the second Nelson case and by the Court of Appeal dealing with Cowen v Haden Ltd, did hold that the test for whether work of a particular kind ceased or diminished must be answered by reference to the contractual obligations of the employee."

    That approach was based on a citation of Pink by counsel for the employer, and the references to Nelson and Cowen v Haden to be found in the judgment of Tudor Evans J. Again we cannot agree with that analysis.

    Against the background of this growing body of authority it is also unsurprising that experienced counsel before us have sought to espouse the contract test in the course of their submissions. Thus Mr Jeans criticises the majority members of the Industrial Tribunal for applying the function test. He submits that in deciding whether the requirements for an employee to carry out work of a particular kind have ceased or diminished regard must be had to the whole of the contractual duties the employee could be required to perform and not simply to those duties he was in fact performing.

    Mr Brown responds that the majority looked at the applicant's contract in a common sense manner to ascertain the basic task which he was contracted to perform.

    In our judgment the approach of both the majority and minority members of the tribunal and the submissions of counsel must be rejected.

    The correct approach

    Like the appeal tribunal in Cowen v Hadens we started by looking at the statute and construing the words free of authority. Similarly, we have looked at the authorities. Unlike that tribunal we return to our original approach and conclude first, that it was correct, and secondly that no binding authority causes us to abandon that position. We would summarise it as follows:

    (1) There may be a number of underlying causes leading to a true redundancy situation; our stage 2. There may be a need for economies; a re-organisation in the interests of efficiency; a reduction in production requirements; unilateral changes in the employees' terms and conditions of employment. None of these factors are themselves determinative of the stage 2 question. The only question to be asked is; was there a diminution/cessation in the employer's requirement for employees to carry out work of a particular kind, or an expectation of such cessation/diminution in the future? [redundancy]. At this stage it is irrelevant to consider the terms of the applicant employee's contract of employment. That will only be relevant, if at all, at stage 3 (assuming that there is a dismissal).

    (2) At stage 3 the tribunal is concerned with causation. Was the dismissal attributable wholly or mainly to the redundancy? Thus;

    (a) even if a redundancy situation arises, as in Nelson, if that does not cause the dismissal, the employee has not been dismissed by reason of redundancy. In Nelson the employee was directed to transfer to another job as provided for in his contract. He refused to do so. That was why he was dismissed.

    (b) if the requirement for employees to perform the work of a transport clerk and transport manager diminishes, so that one employee can do both jobs, the dismissed employee is dismissed by reason of redundancy. See Pennington. The same explanation applies, on the facts, to the eventual decision in Robinson. In Cowen v Haden the requirement for employees to do the work of a divisional contracts surveyor ceased. The post-holder was dismissed. That was a dismissal by reason of redundancy.

    (c) conversely, if the requirement for employees to do work of a particular kind remains the same, there can be no dismissal by reason of redundancy, notwithstanding any unilateral variation to their contracts of employment. See Chapman, Lesney and Johnson.

    (d) the contract versus function test debate is predicated on a misreading of both the statute and the cases of Nelson and Cowen v Hadens. Save for the limited circumstances arising from Nelson where an employee is redeployed under the terms of his contract of employment and refuses to move, and this causes his dismissal, the applicant/employee's terms and conditions of employment are irrelevant to the questions raised by the statute.

    (e) this explains the concept of 'bumped redundancies'. Take this example; an employee is employed to work as a fork-lift truck driver, delivering materials to six production machines on the shop floor. Each machine has its own operator. The employer decides that it needs to run only five machines and that one machine operator must go. That is a stage 2 redundancy situation. Selection for dismissal is done on the LIFO principle within the department. The fork lift truck driver has the least service. Accordingly one machine operator is transferred to driving the truck; the short service truck driver is dismissed. Is he dismissed by reason of redundancy? The answer is yes. Although, under both the contract and function tests he is employed as a fork-lift driver, and there is no diminution in the requirement for fork-lift drivers, nevertheless there is a diminution in the requirement for employees to carry out the operators' work and that has caused the employee's dismissal. See, for example, W Gimbert & Sons Ltd v Spurett [1967] 2 ITR 308; Elliott Turbomachinery v Bates [1981] ICR 218. In our judgment the principle of 'bumped' redundancies is statutorily correct, and further demonstrates the flaw in the 'contract test' adumbrated in Pink.

    (f) our approach is also consistent with the decision of the Court of Appeal in Murphy v Epsom College [1985] ICR 80. There, the applicant was one of two plumbers employed by a school. His work consisted mainly of general plumbing work. The employers decided to employ a heating technician to maintain their improved heating system. They then decided to dismiss one of the two plumbers and selected the employee for dismissal. The Court of Appeal upheld the majority view of the Industrial Tribunal that the reason for dismissal was redundancy. The employer originally had two plumbers; now it only required one. The employee was dismissed by reason of redundancy.

    The instant case

    In our judgment the tribunal fell into error in the following respects:

    (1) the majority failed to apply the correct statutory test in finding that the applicant's dismissal was not by reason of redundancy. It failed to ask itself whether there was a stage 2 redundancy situation, looking at the overall requirement of the employer for employees to carry out work of a particular kind, and then to consider whether that redundancy situation caused the applicant's admitted dismissal.

    (2) the majority failed to consider whether Safeway had, in the alternative, established some other substantial reason for dismissal.

    (3) it follows that the tribunal made no finding as to whether or not the employer acted reasonably in treating the true reason for dismissal as a sufficient reason.

    The appeal is allowed.

    Disposal

    Mr Jeans invites us to find that the reason for dismissal was redundancy, alternatively some other substantial reason, and that it was fair. Mr Brown asks us to remit the case, if we allow the appeal for a rehearing on all issues. We prefer the submission of Mr Brown. The Industrial Tribunal made insufficient findings of fact to allow us to decide the case and therefore it must be remitted to a fresh Industrial Tribunal which should consider;

    (1) whether the employer has shown that the reason for dismissal was redundancy, applying the approach which we have identified above;

    (2) if not, was the dismissal for some other substantial reason? See Hollister v National Farmers' Union [1979] ICR 542.

    (3) if either reason is made out, did the employer act reasonably or unreasonably under section 98(4) of the 1996 Act? Absent a prescribed reason being made out, the dismissal will have been unfair.


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