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United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Slade & Others v TNT (UK) Ltd (Unfair Dismissal : Reasonableness of dismissal)  UKEAT 0113_11_1309 (13 September 2011)
Cite as:  UKEAT 0113_11_1309
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EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
At the Tribunal
Judgment handed down on 13 September 2011
MR J MALLENDER
Transcript of Proceedings
(One of Her Majesty’s Counsel)
Linder Myers LLP Solicitors
45 Cross Street
70 Great Bridgewater Street
UNFAIR DISMISSAL – Reasonableness of dismissal
Where an employer has sought to change terms of employment and has made an offer to “buy out” certain existing terms, but warning that refusal will result in dismissal with an offer of re-engagement on the proposed new terms, the ET did not err in concluding that the employer did not act unfairly where the terms of offered re-employment did not include the terms of the “buy out” as part of the new terms.
THE HONOURABLE MR JUSTICE WILKIE
1. This is an appeal against a decision of the Employment Tribunal sitting in Birmingham between the 27 September – 1 October 2010 which, by a decision promulgated on the 23 December 2010, dismissed the claims of each of the four Claimants; Mrs I Slade, Mr I Ball, Mr M Webster and Mr D Brown, for unfair dismissal.
2. The Tribunal, in its reasons, set out the background and the circumstances. The 4 claims being heard were from a total of 183 claims for alleged unfair dismissal. The 4 cases were test cases; Mrs Slade and Mr Ball were loading bay operatives (LBOs) based respectively at Atherstone and Kingsbury. Mr Brown was a traffic clerk based at Atherstone and Mr Webster was a shunter driver based at Kingsbury. They were “non LBOs”.
4. At those 2 hubs were approximately 660 employees. 470 of them had been contractually entitled to receive an “end of sort (EOS) bonus” which had been introduced by the Respondent in 1983. That bonus scheme had been discontinued for new starters in August 2005. Employees who started after that date were entitled to an “attendance bonus” which had a lower value than the EOS. In 2009 the Respondent decided to discontinue EOS for those 470 employees still entitled to receive it. They sought to negotiate its removal with the Trade Union and, in due course, a final offer was made to those employees working in grades which were represented by the Trade Union. The union conducted a ballot of those employees on the offer and, by a narrow majority, they rejected it. It was in response to that rejection that the Respondent gave formal notice of termination of the contracts of service to each of those employees, coupled with an offer of immediate re-engagement on the same terms as before but excluding the EOS bonus.
6. The Respondent, through the good offices of ACAS, settled the prospective unfair dismissal claims of all those employees save for 183, who made the claims the subject of this litigation, by means of a payment which was greater than the “buyout” payment which had been offered in negotiations with the trade union and which had been the subject of the ballot. The 183 Claimants, of which these 4 were test cases, pursued their claims for unfair dismissal to the Tribunal.
i) Were the Respondent’s reasons for the dismissals sufficient to amount to “some other substantial reason for the purposes of section 98(1) of the 1996 Act”.
ii) If such reason was established were the dismissals fair or unfair by reason of section 98(4) of the 1996 Act.
iii) Did the Respondent follow a fair procedure, which included consideration of the extent of the consultations between the Respondent and Claimants through their representatives or individually.
iv) Whether the positions in respect of (i)-(iii) differed between those employed at Atherstone compared with Kingsbury and those employed as loading bay operatives (LBO’s) as opposed to those employed in other capacities (“non LBOs”).
8. The Tribunal heard evidence from 14 witnesses and read 2 witness statements. They heard from 10 Claimants, including the 4 test case Claimants, and a national official for the recognised Trade Union. They found that all the witnesses were honest. They summarised the position in paragraph 9 as follows:
“The bonus appeared to represent something in the order of 18% of claimant salaries. Unsurprisingly a reduction of pay of this extent caused considerable hardship. In some cases that hardship was mitigated by the availability of additional overtime but not all the claimants were actually in a position to make themselves available for overtime …”
9. The Tribunal then set out its finding of fact. The operation with which the Tribunal was concerned involved the collection of goods from the customers’ premises for delivery to various destinations. Those goods were delivered to local depots of which there were 56 nationwide. There, loading bay operatives processed the goods for shipment to the onward destinations. Following that process the goods were transmitted onward to either of the hubs at Atherstone or Kingsbury where box trailers were unloaded by other LBO’s and sorted out on to onward line haul vehicles. For the efficient operation of the business it is essential for the sorting of loads at the hub to be completed by certain deadlines. The payment of the EOS bonus had been agreed in 1983 to incentivise the workers at the hubs to complete the sort on time. However, by 2005, the Respondent was negotiating with the union to discontinue the payment of the bonus and to replace it with an attendance bonus which was less advantageous to employees. The outcome of those negotiations was that new starters did not receive the EOS bonus but did receive the attendance bonus, whereas existing employees retained their entitlement to the EOS bonus. The Respondent agreed to “red circle” the bonus structure. Those new arrangements came in to effect from 1 August 2005.
10. Following pay negotiations in December 2006 the sum of £20.70 per week of the EOS bonus was consolidated into the basic pay of the LBOs. That consolidation did not extend to non LBOs who were entitled to receive the EOS bonus, for example shunters and traffic clerks.
11. During the final quarter of 2008 the Respondent’s business started to feel acute financial pressure caused by the recession. The operating profit in the year between 31 December 2007 and 2008 fell from £68.5M to £33.8M and in the year to 31 December 2009 it fell to £11.9M. This created pressure on local operating managers to reduce their costs. The long term viability of the business was at risk if that decline could not be arrested. In response, between 1 November and 31 December 2008 the Respondent made over 300 redundancies. There were other cost reduction initiatives including closures of air hubs at Cardiff, Teesside and Liverpool, applying reductions to sub contractor rates, zero pay increases for all employees and reductions in the use of agency staff and temporary labour.
12. At a management meeting on 20 January 2009 it was resolved that, as part of the cost cutting programme, the EOS bonus scheme should be discontinued. The Tribunal found that the reasoning for this was a combination of:
(a) A belief that it would reduce costs.
(b) The payment of the bonus was divisive because an increasing proportion of employees at the hubs did not receive it despite doing the same work as those who did.
(c) The Respondent believed the effect of the bonus was that the night workers at the hubs were being paid an overall rate which was 26% above market rate for comparable work.
13. Between 11 February and 7 May 2009 there was a series of meetings between the Respondent and the union and other representatives. Those negotiations included tentative proposals to replace the bonus scheme but mainly centred on proposals to pay a lump sum to those entitled to receive the bonus in return for their agreement to change their terms and conditions. The proposals, as they developed, were the subject of three work force ballots but ultimately no agreement was achieved.
14. The Tribunal addressed one of the themes in the evidence - that the Respondent had failed to listen or to consider proposals made by the employees’ representatives at various meetings. The Tribunal concluded that there was no evidence to support that view and gave detailed reasons why they came to that view.
15. The Tribunal found that when it became clear that matters would not be agreed by negotiation the Respondent made a “final offer” to the work force for the payment of a lump sum in return for agreement to discontinue the bonus. On 12 May 2009 it wrote to the workforce setting out its point of view, making it clear that if the final offer was not accepted in a forthcoming ballot, then employees would be issued with contractual notice to terminate their contracts of employment. In fact that final offer was revised and, on 22 May 2009, Mr Harper of the Respondent wrote to all affected employees giving details of the revised final offer making clear that if this could not be achieved by agreement then termination of employees contracts would follow. This revised final offer was also rejected.
16. On 5 June 2009 those employees who were represented in those negotiations and who, by the ballot, had rejected the final offer, received contractual notice terminating their contract of employment. The notice period varied depending on each employee’s length of service. They continued to be paid the bonus throughout their contractual notice period. Each employee was offered re-engagement on the expiry of their contractual notice on the existing terms and conditions but excluding entitlement to the EOS bonus.
17. On 8 June 2009 a number of employees lodged a collective grievance against that termination, but all the affected employees accepted the offer of re-engagement under protest and without prejudice to their right to bring a claim of unfair dismissal in relation to the termination of their contract of employment.
18. Following intervention by ACAS, a majority of the affected employees accepted terms of settlement for prospective unfair dismissal claims against the Respondent and did not present claims for unfair dismissal. The Tribunal was considering the claim of the 183 who did present such claims. The grievance was referred to ACAS and was encompassed within the offer of settlement which was accepted by the majority.
“.. the removal of the bonus resulted in the loss of net income of around 18%; undoubtedly a reduction of income on this scale has caused difficulty and hardship, to some of the employees more than to others. Some have been able to mitigate the consequences of the loss of bonus by increasing their hours of work. Not all have been in a position to do that. Whilst we accept the truth of the evidence given by the claimants with regard to hardships we heard nothing that would be unexpected or which would not apply to any worker in almost any situation suddenly faced with such a marked reduction in net pay.”
20. The Tribunal then set out the relevant statutory provisions and referred to a number of the relevant cases as well as to the provisions of the ACAS code. The Tribunal, at paragraph 34, set out its approach. There is no criticism made of its statement of its approach. They did so on the basis that they must: first, consider, and make a finding, whether the reason for the dismissal was a substantial reason, the burden of proof being on the Respondent. Second, if the reason for the dismissals was for a sound business reason, or one which the Respondent reasonably believed was a sound business reason, then it would be a substantial reason. It was not necessary for the action to be the only available action to avert a business disaster, but on the other hand a reason must not be trivial. Third, if the Respondent satisfied the Tribunal as to the reason for the dismissal and that it was a reason of substance, the Tribunal must consider whether the dismissal was fair having regard to section 98(4). The Tribunal said of this,
“In this exercise our focus must be on the reasonableness of the respondent’s conduct. This involves an exercise balancing the advantages to the business of proceeding in the way that the respondent’s did compared with the effects on the claimants.”
Finally they had to consider the question of procedural fairness.
21. The Tribunal then set out, in 9 subparagraphs at paragraph 35 the matters relied on by the Claimants in support of their contentions that the dismissals were unfair and, at paragraph 36 – 38, they summarised the Respondent’s submissions.
22. They then set out their conclusions on the question of the reasons for the dismissals. They found that the reason was a business restructuring, namely a change of remuneration structure with a view to reduction of costs and an increase in efficiency to combat falling revenues and an alarming fall in operating profits. They found that the Respondent had not been successful in all it set out to do in terms of cost reduction, but were satisfied they had an honest and reasonable belief that taking the proposed steps would achieve those aims. Those aims were legitimate and necessary and constituted a substantial reason satisfying the provisions of section 98(1). That conclusion is not challenged in this appeal.
“40. Having attempted as they did to secure the desired change by negotiation and having failed after several months and many meetings it was, in our judgment, a wholly reasonable response on the part of the respondents to terminate the employee’s contracts and offer re-engagement. That is not to say in our view the claimants were unreasonable in refusing to accept a proposal which would result in a substantial reduction in their net pay. In our judgment both parties acted reasonably in the circumstances but the focus of our consideration must be the reasonableness of the respondent’s conduct.”
24. They then considered consultation and repeated their conclusion that there was no evidence to support the contention that the proposals made by the employees’ representatives had been ignored and gave their reasons. They then dealt briefly with the question of appeal.
“The claimants’ submission … was that, as the respondent had been in a position to offer a sum of money, in effect to buy the claimants out of their entitlement to EOS bonus, then any fair dismissal resulting from the failure of those negotiations would have had to have at least have included a payment of that sum of money contemporaneous with the dismissal. The respondent, on the other hand, sought to point to the fact that the majority of the effected employees had ultimately accepted the sum of money they offered (it must be emphasised that the monies had not been accepted in order to change terms and conditions, no employee had accepted the change of terms and conditions). A majority of employees, post dismissal, had accepted a sum of money to compromise their potential claim to an employment tribunal for unfair dismissal. Neither argument is, in our judgment, sound. A reasonable employer is perfectly entitled, if he wishes, to change contractual terms and conditions to make proposals as to how this may be done by agreement. The employees reject those proposals as these employees did they have no legitimate expectation to receive the offered benefit for their agreement when an agreement was not forthcoming. So far as the respondent’s argument is concerned the fact that a number of employees who may have had potential claims agreed to compromise those claims in return for an offered sum of money does not in any way undermine the validity of the remaining claims by employees who did not accept the compromise.”
26. Red Circling. They then considered the impact of the 2005 red circling of the EOS bonus and concluded that it had no great relevance to the issues they had to decide. At paragraph 45 they set out their understanding of the legal position namely that red circling did not mean that the contractual entitlement must exist for all time. What it meant was that it would continue for as long as the contract of employment subsisted and constituted an acknowledgment by the Respondent that any attempt to remove that entitlement would be in breach of contract. But the Respondent’s acknowledged that if they wished to remove the bonus against the wishes of the employees they would first have to determine the contract and that is what they did.
“The effect of re-engagement without the EOS bonus operated more harshly on the non LBO’s than on the LBO’s because they had not had the benefit of consolidation of part of the bonus into basic pay. One outcome of the negotiations however was the basic pay of the non LBO’s would be the subject of further consideration and we understand that that process is continuing. We were not provided with any evidence as to why the non LBO’s had not participated in the consolidation in the first place. Ultimately in our view this factor did not render unfair dismissals which we have found otherwise to be fair.”
i) Although they correctly identified that fairness required them to undertake a balancing exercise in the event they did not apply that test sufficiently or at all.
ii) In determining the issue of fairness the Tribunal applied the wrong legal test in considering the reasonableness or otherwise of the Respondent not mitigating the loss to the employees’ wages by the payment of a lump sum at least equal to that it identified as affordable during negotiations and which it did pay to employees who accepted settlement agreements. The Tribunal erred by focussing on the much more limited basis of what the Claimants “legitimate expectations” required.
(iii) The ET gave no reasons at all for their conclusion that the dismissals of the non LBO’s were fair, despite the disparately large impact on them by reason of the non-consolidation into basic pay of part of their bonus.
29. The Appellant reminded us of the numerous cases which had been decided in this area prior to the ET’s decisions. They pointed out that this was an unusual if not unique, case. The amount of the pay cut was very substantial. The Claimants did not represent a very small number of “refusniks” whereas the vast majority of employees had accepted the change. Rather, the Respondent, having not succeeded in obtaining the agreement of the workforce, sought to impose a change on the whole of the relevant workforce which it must have known would impact very severely. The Appellant placed some emphasis on the decision of the EAT in Garside & Laycock Ltd v Booth UKEAT/0003/11/CEA, which post dated the Tribunal’s decision and in which the Tribunal (Mr Justice Langstaff presiding) emphasised the importance of the concept of equity in the 98(4) evaluation of fairness.
30. In effect, the criticism made by the Appellants under this ground was that paragraph 40 of the decision, which contains the totality of its consideration on fairness, does no more than contain an assertion that each side acted reasonably by its own lights, but that, as the focus had to be on the reasonableness of the Respondent in adopting the course that it did, a finding that the Respondent adopted a reasonable position was enough to determine the issue of fairness against the Appellants. The Appellants contend that in this way the Tribunal failed to engage with the evidence of hardship and/or the various points made by the Claimants in their submissions to the Tribunal.
31. The Respondent says that this is a mis-reading of the decision. Paragraph 40 of the Tribunal’s decision should be placed in context. It states the reasoned conclusion of the Tribunal having made detailed findings of fact both in respect of the reasons for the Respondent taking the course that it did, the prospective benefits to the Respondent of so acting, and the adverse impact upon the employees affected by that action. Accordingly, when they came to the conclusion that the employer had acted reasonably it was implicit that the Tribunal only did so having undertaken the balancing exercise which they stated they were required to do and on the basis of the findings of fact on benefit and impact which they had made. Further it was implicit that the Tribunal found that the employer in taking the decision to dismiss was well aware of the arguments put forward by the employees on the impact of the decision upon them and the various other arguments which had been put forward in the course of the negotiations.
32. In our judgment the Respondent’s contention on this ground is correct. The decision is a careful one in which the Tribunal examines the reasoning for the need, as perceived by the Respondent, for getting rid of the EOS bonus, the way in which the negotiations proceeded, the reasons given by the employees why such an imposed change would be unreasonable and, ultimately, when the final offer was rejected by the ballot, the course which the Respondent then followed by imposing the change by terminating everyone’s contract of employment and offering them immediate re-engagement on the new terms. The Tribunal was well aware of the scale of the reduction in earnings which the removal of the bonus involved and the hardship that would necessarily involve, though in some cases less so than others. The Tribunal’s judgment that the Respondents had acted reasonably in so acting was, in our judgment, informed by those findings and applying them to the question which they had to determine. Their conclusions on this issue are set out sufficiently at paragraph 40. Accordingly, in our judgment this ground of appeal does not succeed.
33. Ground 2. The issue raised under this ground focuses on the concept of “equity”. It is said that it cannot have been equitable for the Respondent, in conducting a balance between the benefit to them of the change and the adverse effect on the workforce of being subjected to the change, for it to withdraw the offer of a “buy-out” lump sum when offering re-employment upon terminating their current employment in circumstances in which, having failed to achieve agreement through the ballot, it sought to impose the change by dismissal coupled with immediate re-engagement. The argument runs that if the Respondent could afford to mitigate the impact of the change on its workforce when it made the final offer, then it must be inequitable for it not to offer that same mitigation when it proceeded, not by way of an agreement but by way of imposition. In either case the balancing exercise must be the same namely achieving the desired aim of removing the bonus in a way which adversely affects the employees to the least degree which, by way of payments by way of mitigation, the Respondent could reasonably afford.
34. The Appellant argues that the Tribunal erred in law by focussing not on the concept of “equity” but on the concept of “legitimate expectation”. The Appellant conceded that, in legal terms, the employees did not have a legitimate expectation that, having turned down the buyout sum offered for their agreement to remove the bonus, that same sum would be on offer if the Respondent proceeded to remove the bonus by dismissal and immediate re-engagement. However, they contend, that is not the test. The test under section 98(4) focuses on equity and, for the above reasons, it is said the Tribunal erred in law by applying the wrong test. Had it applied the right test it would have concluded that the dismissal was unfair because it was not coupled with the mitigating lump sum buy-out figure in the terms of re-engagement which were immediately offered.
35. The Respondent seeks to argue that what is in issue is the fairness of the dismissal not the terms upon which re-engagement were offered and, therefore, the question whether the Respondent chose to offer, as part of its terms of re-engagement, a lump sum buy-out is too remote for the Tribunal to have considered. In our judgment that is an erroneous argument. The Tribunal is obliged, in considering section 98(4), to focus on all the relevant circumstances and it is plain that the decision to dismiss was explicitly and intimately linked with the contemporaneous offer of re-engagement. Thus, the terms upon which re-engagement were offered, in our judgment, must form part of the ambit of enquiry by the Tribunal.
36. What the Respondent says, in addition, however, is that the Respondent, acting within the band of reasonableness, was entitled to take the view that a sum which it had offered to secure an agreement, thereby removing the risks of industrial action and/or litigation arising out of a dismissal, did not need to be offered where, responding to the refusal of the work force to agree, it took the course of dismissal coupled with an offer of re-engagement. That course exposed it to the risks of industrial action and/or litigation which agreement would have removed. It was, says the Respondent, within the band of reasonableness for it to take the view that, as it had not received the benefit which the lump sum buy out offered had sought to achieve, it was not required, as an incident of reasonableness, to make that offer where it would not have that benefit. In those circumstances it was reasonable for the Respondent to elect not to make the offer of a lump sum payment where it was not receiving any of the benefits for which that lump sum payment had initially been offered in the course of the negotiation.
37. The Respondent further argues that, were the law to require it to offer the same lump sum payment, but for no benefit, as a requirement of acting reasonably then it would have a significant and adverse effect on the ability of employers to conduct sensible negotiations by making appropriate offers in order to secure an agreement. The leverage of such offers being made to secure agreements would be removed and such sensible offers would be less likely to made.
38. In our judgment the Tribunal focused on the correct question, which was whether the employer acted reasonably, that is to say within the band of reasonable responses. In so doing, it rejected the contention that the only reasonable response for the Respondent would be to offer re-engagement on terms which included the buy-out sum. We agree with the Respondent that the lump sum had been offered in order to secure a benefit to the Respondent – agreement to the changes it wished. When they were unable to proceed by agreement, there was no obligation upon them as reasonable employer to include that lump sum in the terms of re-engagement they were offering in the aftermath of dismissal where they were not going to achieve any of the benefit of an agreement for which the lump sum had been offered. They were entitled to take the view that they would hold back that lump sum payment in order to remove the risks of litigation by way of settlement, which was in fact what happened in the majority of cases.
39. In our judgment the large number of cases in this area point up the wholly fact sensitive nature of this area of the law and the fact that there is no “one size fits all formulation”. In our judgment the Tribunal applied itself to the correct test and came to a conclusion which was open to it, namely that what the Respondent did was within the bands of reasonable responses to the situation in which it found itself. Accordingly, in our judgment this ground of appeal does not succeed.
40. Ground 3. Is a “reasons” ground: that is to say it is said by the Appellant that the very brief treatment of the position of the non-LBO’s in paragraph 47 does not begin to explain to the Appellants why they did not succeed.
41. Despite the contentions of the Respondents, that paragraph 47 is not to be seen in isolation and that the entire decision must be viewed as informing their conclusion, in our judgment the Appellants are correct in their criticism of the reasons given by the Tribunal for this significant part of the case.
42. It was apparent that the non-LBO’s were in a different position from the LBO’s. This had to be the case because they were losing, on average, £20.70 from every £100 bonus payment, whereas LBO’s were not losing that sum because the bonus payment to them did not include that £20.70. That sum was consolidated in their basic rate of pay which was unaffected.
43. There is nothing in the decision, other than a very brief statement that loss to the employees was in the order of 18%, to reflect or explain what the Tribunal found was the additional impact of this historical anomaly upon the extent to which the non-LBO’s suffered greater loss than LBO’s with the loss of the bonus. We are also puzzled as to what the Tribunal thought was the significance of the fact that, in the course of the negotiations, there appeared to have been some agreement that the issue of the non-LBO’s anomalous position be addressed subsequently. We were told that there was a certain amount of evidence about these issues. In particular, there was a dispute as to whether the 2 Claimants who were non-LBO’s accepted the level of reduction in their earnings being put forward by the Respondent and there is no finding by the Tribunal in respect of that. Furthermore, there was evidence that, after some 16 months of negotiations, only one of three groups of non-LBO’s had had their anomaly addressed. The other 2 remained in dispute about it. In any event it is not clear to us how the Tribunal thought that the availability of this alternative avenue for ironing out the anomaly impacted on the decision which had to be taken as of the time of dismissal.
44. This was an important and quite complex issue and potentially legally difficult. Unfortunately, the Tribunal has dealt with it so succinctly that it is not clear to us, as it was not to the Appellants, precisely what was the reasoning of the Tribunal in concluding that the dismissals of the non-LBO’s was fair. It is very difficult for the Appellants to identify what, if any, errors of law the Tribunal may have made in coming to that conclusion. Accordingly, in our judgment the appeal on this ground must succeed to the extent that the matter must be remitted to the Tribunal for it to amplify its reasoning in respect of the claims of Mr Webster and Mr Brown, the non-LBO’s.
45. Conclusion: In conclusion therefore, the appeals of all 4 Appellants are dismissed in respect of grounds 1 and 2, but the appeals of Mr Webster and Mr Brown in respect of ground 3 we order that the case be remitted to the same Tribunal for it to amplify its reasoning in respect of that issue which currently is contained exclusively in paragraph 47 of its reasons.
47. In the event that the appellants wish to pursue the appeal in respect of ground 3 in the light of the amplified reasoning they must give notice of continuance within 28 days of receipt by them of the amplified reasons with amended grounds of appeal. The respondent may respond to those amended grounds within 28 days of the amended grounds being served. The matter must be listed before the EAT (not necessarily the same composition) for a substantive hearing of the outstanding grounds of appeal as soon thereafter as is convenient.