Shaw v B&W Group Ltd (Contract of Employment : no sub-topic) [2012] UKEAT 0583_11

SUMMARY

CONTRACT OF EMPLOYMENT

Wrongful dismissal

Damages for breach of contract

The Claimant’s contract of employment provided that he might be summarily dismissed for due cause. The Respondent summarily dismissed him for having committed conduct that might be classified as gross misconduct. The Employment Tribunal found that the Claimant had been dismissed for due cause because the Respondent employer had reasonably believed that he was guilty of serious misconduct. The Respondent did not attempt to prove that he had in fact committed gross misconduct, nor did the Employment Tribunal find that he had.

The Employment Appeal Tribunal concluded that the Employment Tribunal had misdirected itself and that in cases of wrongful as opposed to unfair dismissal it was necessary for the Respondent to prove that the Claimant had actually committed a repudiatory breach of contract. Reasonable belief in guilt was irrelevant in cases of wrongful dismissal.

Case remitted to the same Employment Tribunal for rehearing.

HIS HONOUR JUDGE SEROTA QC

Introduction

1. This is an appeal by the Claimant from a decision of the Employment Tribunal at Brighton, Employment Judge Guyer and lay members. The decision was sent to the parties on 26 July 2011. The Employment Tribunal dismissed the Claimant’s claim for breach of contract brought under Article 4 of the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994. The Claimant had initially made a claim for unfair dismissal also. At an earlier hearing the Employment Tribunal had held that both claims had been presented out of time and they therefore did not have jurisdiction to hear them. The Claimant appealed, and the Respondent cross‑appealed, from the decision of the Employment Tribunal that it would have had territorial jurisdiction to hear Mr Shaw’s claim for breach of contract if it had not been dismissed as being presented out of time.

2. The appeals came before this Tribunal on 25 January 2011, presided over by Slade J, who sat with lay members. The appeal was allowed in relation to the Claimant’s appeal as to jurisdiction to entertain his claim for breach of contract, but the appeal in relation to jurisdiction to entertain the unfair dismissal claim was dismissed. The Employment Tribunal held, so far as concerned the claim for breach of contract with which we have been dealing, that it was lodged within time and the Employment Tribunal had the appropriate territorial jurisdiction to entertain the claim. The appeal was referred to a full hearing by HHJ Peter Clark on 11 November 2011. The Claimant had previously sought a review of the decision of the Employment Tribunal, but this was rejected by the Employment Tribunal on 25 August 2011.

The factual background

3. The Claimant is a gentleman who is normally resident in Hong Kong; indeed, he has not attended today and has apologised by reason of the expense of travelling from Hong Kong to London, and we have accordingly dealt with the matter on the basis of his written submissions. The Respondent is a substantial company with a global turnover in excess of £100 million, producing and selling loudspeakers and associated equipment. Its offices are in Worthing.

4. While in England on 1 January 2007 the Claimant entered into a contract with the Respondent whereby he was appointed as “General Manager Procurement, Pacific Rim” for a term of 36 months commencing on 8 January 2007. During the course of his employment there appear to have been issues as to his management style and concerns that he had behaved in an inappropriate manner towards a number of female employees. It is fair to say the Claimant has always denied the allegations. He has made certain admissions, if one can call them that, but has denied any impropriety at all.

5. The Claimant’s case – and this is probably not controversial – is that while he was in Malaysia with the Respondent’s Managing Director, Mr Edwards, on 10 April 2008 he was told by Mr Edwards that he wished to terminate the Claimant’s employment forthwith and he could resign, in which case he would be paid three months’ salary, or, if he refused, there would be a summary dismissal invoked with no pay and the releasing of an “amazing announcement” – this is the way the Claimant put it – would be made as to his employment and its termination. By chance the Claimant met Mr Edwards the following day at the airport in Hong Kong, and on that occasion Mr Edwards pressed him for a letter of resignation. The Claimant was told his behaviour amounted to harassment and there were serious issues with his performance and management. There was, again, a reference made to going down the dismissal procedure route, or the Respondent could accept his resignation and the Claimant would receive a settlement package. In its ET3 the Respondent denied that it dismissed the Claimant, and contended his employment was terminated by mutual agreement. On 11 April 2008 the Claimant resigned by email. We believe that he in fact has been paid three months’ salary.

6. We now turn to the terms of the contract, which we have in our papers. As we have already said, the contract provided for a three‑year term (see paragraph 2). I draw attention to paragraph 7(1), which provided that the Claimant should be subject to non‑competition restrictive covenants, and he agreed with the Respondent that he would be bound with restrictive covenants for a period of six months if:

“(1) dismissed with cause as defined in the Employment Rights Act 1996 [ERA], during the period of six months following the termination of his employment hereunder or (2) if dismissed without cause, for as long as the Employee continues to receive payment pursuant to Clause 9(1)(b) [to which we shall come shortly] hereunder, or (3) if the Employee resigns his employment […].”

7. The reference to the ERA is a reference to section 98, which provides that for the purposes of this part, whether the dismissal of an employee or unfair, it is for the employer to show the reason, and a reason falls within section 98(2) as being a reason that:

“[…] (a) relates to capability or qualification of the employee for performing work of the kind which he was employed by the employer to do,

(b) relates to the conduct of the employee […].”

8. I do not think it necessary to refer to further provisions of section 98. Paragraph 9(1) of the contract is critical:

“This Agreement shall be subject to termination:

(a) by the Company without prior written notice if the Employee shall at any time:

(i) commit any serious breach of [sic] repeated or continual breach of any of his obligations hereunder or,

(ii) be guilty of any serious misconduct or serious neglect in the discharge of his duties hereunder or,

(iii) become bankrupt or apply for a receiving order or have a receiving order made against him or make any arrangement or composition with his creditors or,

(iv) be convicted of any criminal offence other than an offence that in the reasonable opinion of the Board does not affect his position as an employee of the Company hereunder,

(v) by his action or omission bring the name or reputation of the Company or any other B&W Group company into serious disrepute or prejudice the interest of the Company or any other B&W Group company or,

(vi) be or become of unsound mind or shall be or become a patient for the purpose of any statute relating to Mental Health.

(b) by either party giving to the other not less than three months’ notice in writing. If the Company dismisses the Employee without due cause, the Company shall continue to pay the Employee his salary on a monthly basis for the lesser of six months or the balance of the term of this Agreement.”

9. The Claimant was also provided with an employee handbook. It is probably relevant to draw attention to page 68 of our bundle and in particular to page 28 (page 69 of our bundle) which provides, in relation to gross misconduct:

“If the manager believes that the breach of rules was so severe as to constitute an act of gross misconduct, then the Company reserves the right to dismiss without notice. This will only happen after the matter has been investigated and the employee has had the opportunity to explain their actions at a disciplinary meeting.”

Examples of Gross Misconduct

Any act of gross misconduct will result in summary dismissal. The following will be regarded as gross misconduct.

Unauthorised removal of Company property.

Offences of dishonesty.

Sexual offences.

Sexual harassment/misconduct.

Fighting/physical assault.

Theft, including theft by any other kind of fraud or false claim.

Malicious damage to Company property.

Smoking in non‑smoking areas.

Drug abuse on company premises.

Drug sales on company premises.

Drunkenness.

Consumption of alcohol on company premises (without the consent of a Senior Manager)

Deliberate breach of health and safety rules.

Threatening behaviour of any kind.

Loading any software other than that licensed to B&W Group and loaded by the BT department.

Any criminal offence punishable by the courts.

Bringing the company into disrepute.

Conviction for a criminal offence outside work, other than an offence that in the reasonable opinion of management does not effect [sic] the position as an employee (e.g. a minor driving offence) may result in the Company taking a view as to the suitability of a person as a continued employee, particularly if the offence is of a dishonest or violent nature. If a person should place himself or herself in a situation where others have reasonable grounds to be afraid, fearful or distrustful of them, then this may also affect their employment.

The list is by no means exclusive nor exhaustive and there may be other acts, which the Company would consider to be gross misconduct and for which summary dismissal may be appropriate.”

The Employment Tribunal decision

10. We now turn to the decision of the Employment Tribunal. The Employment Tribunal found, and this is not the subject of controversy so far as this appeal is concerned, that the Claimant was dismissed rather than being treated as having resigned. This was a case of “resign or be dismissed”, and that amounts to a dismissal; the authority for that proposition is in the case of Sandhu v Jan de Rijk Transport [2007] ICR 1137, cited by the Employment Tribunal. The Employment Tribunal at paragraph 9 identified the issues:

“i. Was the Claimant dismissed?

ii. If dismissed, was this for due cause?

iii. If dismissed not for due cause are calculations primarily based on six months salary. In any event what is the amount and what possible adjustments are there to arrive at a sterling sum? […]”

11. It then referred to a duty to mitigate, and, finally:

“v. If an award is made, is there an adjustment for three months salary paid pursuant to agreement either on normal contract law principles or because of the terms of any agreement between the parties. If so, how much?”

12. At paragraph 18 one finds a reference to the Claimant’s evidence that he spoke to Mr Hayward, the Personnel Manager of the Respondent, at the time he entered into his contract about what the words in paragraph 9(1)(b) meant. Mr Edwards at the Tribunal was also asked about clause 9(1)(a), and Mr Edwards told the Tribunal he considered the purpose of the clause was to give some comfort to prospective employees who might be joining from other high‑paid jobs that they would not be dismissed without adequate compensation. The Employment Tribunal then turn to a critical matter in the case; that is, the meaning of “due cause”:

“21. In our determination ‘due cause’ in this context means for a reason that is referred to in s.98 Employment Rights Act 1996 and is referable to the conduct or capability of the Claimant. It would not be right to extend the definition to other reasons within s.98 that do not refer to the Claimant’s conduct in construing a clause clearly meant for the benefit of the Claimant. Ms Hudson accepted our construction.

22. In determining whether or not the Respondent dismissed the Claimant for due cause we remind ourselves that although this contract of employment incorporates many of the characteristics one would find in a UK employment contract with references to the Employment Rights Act 1996 we are concerned with a contract claim. In our judgment in order to justify a dismissal for ‘due cause’ the Respondent would have to show that it genuinely dismissed for a reason such as we have stated. That is they needed to have a genuine belief. However as we are not considering an unfair dismissal claim the test of reasonableness does not arise.”

13. We now move on to paragraph 53 of the decision of the Employment Tribunal, where the Employment Tribunal were clear that the Respondent dismissed the Claimant because of its concerns both as to management style and a belief that he was not a team player. There were also concerns over what it regarded as inappropriate behaviour towards female staff. We draw attention to the use of the term “concerns”, because the Employment Tribunal at no stage sought to determine whether in fact the Claimant was guilty of the matters as to which the Respondent was concerned.

14. At paragraph 54 the Employment Tribunal then went on to ask itself whether the belief of the Respondent was a genuine belief; “genuine belief” seems to be somewhat tautologous, but we understand what is meant:

“We are quite clear that the Respondent had sufficient evidence and had made sufficient investigation to conclude that it had a genuine belief which as far as the main facts in relation to inappropriate behaviour were concerned was admitted by Mr Shaw although he was at pains to stress there was an entirely innocent explanation therefore.”

15. The Tribunal continued:

“55. We do not believe we have to determine whether the conduct it considered Mr Shaw to have been guilty of would have given rise to grounds for summary dismissal on grounds of gross misconduct.

56. Accordingly we determine that Mr Shaw was dismissed for ‘due cause’ and thus no contractual right to payment of six months salary arises.”

16. It is clear therefore that the Employment Tribunal found that the concerns of the Respondent in which it had a genuine belief constituted due cause within the meaning of paragraph 9(1) of the contract.

17. Finally, we draw attention to paragraph 61, where the Employment Tribunal summarise the question it had to determine; that was, and we quote again:

“[…] whether the Respondent genuinely believed that they had reasonable grounds for dismissing the Claimant and if in our judgment the grounds upon which they relied amounted to due cause. We find they did.”

18. Just looking at that, it does seem that the Employment Tribunal, while recognising there was a difference between wrongful and unfair dismissal, has conflated the relevant concepts. It has conflated a reasonable belief that there has been serious misconduct, which may be sufficient to justify a dismissal as not being unfair, but would not apply in the case of a claim for wrongful dismissal, which depends upon a breach of contract, the breach having to be proved. The test for determining if there is a repudiatory breach of contract is not whether an employer reasonably believes there has been such a breach but proof that there has actually been such a breach.

The Notice of Appeal

19. The Notice of Appeal was prepared by the Claimant as a litigant in person. We draw attention, however, to ground 7.1, at page 14 of our bundle: “Ground 1 – ET misconstrued the term ‘due cause’ in the employment contract as a matter of law.” It then goes on to give reasons in support, but it is clear that he is challenging the construction of ‘due cause’ that was given to the phrase by the Employment Tribunal. He has submitted that it was necessary to construe the contract of employment in conjunction with the handbook and that the failure to go through disciplinary proceedings in accordance with the contractual terms meant that the Respondent could not have the necessary reasonable belief in his wrongdoing. He drew our attention to well-known authorities on construction of documents: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 2 WLR 945. He refers to construction as against a matrix of fact, which in fact comes from the decision of the House of Lords in Simmons, and he also submitted that the contract should be construed contra proferentem against the Respondent.

20. The second grounds of appeal were those of perversity. He has in effect asserted that the decision was wrongful because the Respondent failed to comply with the British Home Stores Ltd v Burchell [1978] IRLR 379 tests. The point was not expressly taken by the Claimant, although it is one that we would have suggested to him he might consider had he appeared, that the construction of the phrase “due cause” by the Employment Tribunal was wrong. It must mean, in the context of this case, dismissal for some conduct that would entitle the Respondent to summarily dismiss the Claimant; in shorthand, gross misconduct.

The grounds of resistance

21. For the Respondent, Mr Mansfield was minded to submit that the Employment Tribunal was correct in its interpretation of the phrase “due cause”, and further, if necessary, he would submit that the Claimant’s conduct did in fact amount to gross misconduct. He also sought to argue that the Claimant’s case could not succeed in any event, because there had been an agreement in full and final settlement of his claim. So far as the Claimant’s case that his dismissal was wrongful because the Claimant had failed to comply with the contractual dismissal procedures, he suggested that this was irrelevant to the question of a dismissal for due cause on contractual grounds as opposed to what the case might be if this had been a claim for unfair dismissal. He submitted that the handbook was not contractual and that it was only binding on the Claimant.

22. He submitted to us that the construction of the phrase “without due cause” had to be seen in its context. In his skeleton argument at paragraph 19(b) he suggested:

“Absent grounds for summary determination, the default position is that the Agreement is terminable on three months’ notice from either side. The significance of a termination without due cause is that it gives an added entitlement to a longer period of notice payment. The Tribunal did not resolve the question of whether clause 9(1)(b) operates to give an entitlement to six months in place of three months, or to six months in addition to three months.”

23. We will come shortly to his submissions, which were that the Claimant was only entitled to receive compensation of three months’ salary. Mr Mansfield pointed out to us the right, which is unfettered on the Respondent as a matter of contract, to terminate the contract on three months’ notice and it had no obligation, were it to exercise that right, to act fairly. He submitted that there was no basis for incorporating the principles of unfair dismissal into this case, which was a straightforward breach of contract case. He drew our attention to the fact that one cannot make a claim in relation to the manner of one’s dismissal; see, for example, Johnson v Unisys [2001] IRLR 279 and Edwards v Chesterfield Royal Hospital NHS Trust [2012] IRLR 129. He also pointed to the provision of the contract at paragraph 7 relating to restrictive covenants, pointing to the fact that due cause is wider than simple gross misconduct.

24. Mr Mansfield sought to persuade us that the provision entitling the Respondent to terminate the contract on three months’ notice would be inconsistent with a construction of the agreement whereby the Claimant would be entitled, if he was dismissed otherwise than for good cause, to six months’ salary. If the Respondent was entitled to terminate on three months’ notice, possibly with pay in lieu of notice, there should be no entitlement to anything beyond the three months. In his submission, clause 9(1)(b) and the reference therein to “without due cause” governed the question as to whether the Respondent was obliged to give effectively three or six months’ notice. He did, however, accept that if the Employment Tribunal in order to find there had been a dismissal for due cause, and if that required it to make a finding of gross misconduct, there was no such finding. He submitted that the construction point, to which we have already drawn attention, was a new point and we should not allow it to be raised.

25. So far as the facts were concerned, Mr Mansfield pointed out that the Claimant had made factual omissions, and he also submitted that the Claimant’s credibility was such that the Employment Tribunal would have found the factual allegations against him had it had to do so. He also sought to argue the full and final settlement point and submitted, in so far as the Claimant was challenging factual findings, the Claimant had failed to cross the high threshold for perversity appeals. As it is irrelevant to the decision, we do not find it necessary to deal in any detail with the perversity arguments, relating as they do to facts.

Discussion and conclusions

26. Is it sufficient that the Respondent acted reasonably in deciding to dismiss the Claimant? In our opinion, whether the Respondent acted reasonably or not is not determinative. It may be relevant to the issue as to whether the Claimant had been guilty of gross misconduct, but the essential question, in our opinion, is, was the Claimant actually in breach to the extent that his conduct might be regarded as repudiatory, not whether the Respondent, reasonably or otherwise, believed that he was. Although the Employment Tribunal was aware of the different concepts of wrongful dismissal and unfair dismissal, it appears to have conflated them. In our opinion, the phrase “due cause” must be construed in the context of an employment contract and one that permits immediate or summary dismissal without compensation. It is clear to us that due cause therefore must be something that would justify the premature termination of the contract; that is to say, some serious breach of contract on the part of the Claimant, which in shorthand we have described as gross misconduct. In our opinion, it is not sufficient simply to allege a reason for which one might have a reasonable belief if there is to be a valid dismissal on due cause; the Respondent must be able to prove the due cause.

27. We draw attention as well, relevant to the construction of the clause, to the matrix of fact as described by Mr Edwards, whereby the purpose of the clause was considered to be to give comfort to prospective employees who might be joining rather high‑paid jobs that they would not be dismissed without adequate compensation. We have no reason to construe clause 9(1)(b) otherwise than as intended to protect employees who were wrongly dismissed or to exclude them from compensation equal to six months’ pay even if their contracts are terminated on three months’ notice. There is no reason why the payment of six months’ salary should be regarded as part of or constituting a severance package for bringing to a premature close a three‑year contract. The law in relation to wrongful dismissal is quite clear: one applies the conventional contract test. It is not my intention to refer to numerous authorities, but, for example, in the case of Farrant v Woodroffe School [1998] ICR 195 HHJ Peter Clark said:

“The expression ‘gross misconduct’ is steeped in industrial history. Many employers set out, in written disciplinary procedures, examples of behaviour which amount to gross misconduct capable of leading to summary dismissal. Such examples often include theft from the employer, fighting, drunkenness and so forth.

As a matter of law, the significance of gross misconduct pre‑dates the unfair dismissal legislation, commencing with the Industrial Relations Act 1971. It was shorthand for behaviour which would normally justify summary dismissal at common law.”

28. He drew attention to the Judgment of Evershed MR, as he then was, in Laws v London Chronicle Ltd [1959] 2 All ER 285 at 287E:

“To my mind, the proper conclusion to be drawn from the passages which I have cited and the cases to which we were referred is that, since a contract of service is but an example of contracts in general, so that the general law of contract will be applicable, it follows that, if summary dismissal is claimed to be justifiable the question must be whether the conduct complained of is such as to show the servant [using the language of the 1950s] to have disregarded the essential conditions of the contract of service. It is no doubt, therefore, generally true that wilful disobedience of a criminal order will justify summary dismissal, since wilful disobedience of a lawful and reasonable order shows a complete disregard – a complete disregard – of a condition essential to the contract of service, namely, the condition that the servant must obey the proper orders of the master. Unless he does so, the relationship is, so to speak, struck out fundamentally.”

29. It is clear that the concept of repudiatory breach applies both to breaches of contract by the employee as well as by the employer. Later on in his Judgment HHJ Peter Clark, when considering whether a dismissal could be regarded as one of gross misconduct, said:

“The first question is whether the reason for dismissal relates to the conduct of the employee. A genuine, even if mistaken, belief on the part of the employer as to the conduct of the employee relied upon will be sufficient to discharge the burden of establishing this potentially fair reason for dismissal.”

30. This is contrasted with the position in cases of wrongful dismissal, where, for example, the question as to whether an instruction disobeyed by the employee was lawful, was critical, but only relevant, not decisive. In cases of unfair dismissal when considering the reasonableness of the dismissal under section 98(4) Sedley LJ in Buckland v Bournemouth University Higher Education Corporation [2010] ICR 908 had this to say at paragraph 18:

“Is the occurrence of a fundamental breach of a contract of employment at least on the employer’s part to be gauged by a conventional contract test or by a ‘range of reasonable responses’ test?”

31. The Court of Appeal emphatically held that it was the conventional contract test. He drew attention to the speech of Lord Nicholls in Mahmud and Anor v BCCI [1997] IRLR 462 when he said that:

“[…] the test of breach of a fundamental term of a contract of employment is objective: ‘A breach occurs when the proscribed contact takes place’.”

32. As we have said, the Claimant is a litigant in person. He did challenge the construction of due cause by the Employment Tribunal. In our opinion, as we have said, the construction is obviously wrong. Even if the Claimant did not point to the specific defect made by the Employment Tribunal in relying upon the Respondent’s reasonable belief, there is no reason why we should not construe the clause in accordance with the law as we understand it. In our opinion, the three‑month notice period is irrelevant for the construction of the clear words of the last sentence of paragraph 9(1)(b); there is no reason at all why the three‑month payment, on the other hand, should not be taken into account if the Claimant is entitled to six months’ salary. We reject the submission that it is sufficient if the Respondent acted reasonably in deciding to dismiss the Claimant; whether the Respondent acted reasonably or not is not determinative, albeit it might be relevant. The question is whether the Claimant actually was in breach of contract, not whether the Respondent believed reasonably or otherwise that he was.

33. So far as the arguments that the Claimant had accepted a sum in full and final settlement of his claim are concerned, this does not appear in the ET3, nor does it appear to have been argued before the Employment Tribunal. It is not one of the issues identified by the Employment Tribunal in paragraph 9, and we do not consider it can be properly raised upon an appeal.

34. In the circumstances, and we have raised with Mr Mansfield what we should now do, it seems to us that the proper course is for this matter to be remitted to be heard by the original Employment Tribunal. We are aware that remitting a case to the same Employment Tribunal can cause significant administrative problems. This matter should be remitted to the same Employment Tribunal, but if that is not reasonably practicable, then the Regional Employment Judge should nominate a fresh Tribunal to hear it. The Employment Tribunal will be directed to reconsider the matter on the basis of this Judgment in relation to whether the Claimant was dismissed for due cause, and, if he was not dismissed for due cause, on the basis that he should be entitled to six months’ compensation. Further, the Employment Tribunal will have to consider whether or not a Claimant must give credit for the three months’ salary he has received and also, if it is satisfied that there was a breach of the dismissal procedures, whether the Claimant has suffered any loss as a result.

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