Employment Cases Update

St James Management Services Ltd v Power UKEAT/0562/10/SM

Date published: 31/05/2011

Appeal against a ruling that the dismissal of the claimant was unfair. Appeal dismissed.

The claimant was selected for redundancy by the MD of the respondent and she attended various meetings but at no time was she provided with financial information so that she could have any input on the central issue of cost-cutting. The respondent gave her a step 1 letter which was followed by a meeting. At the meeting she was told that the decision to dismiss had been taken and she was given a pre-prepared letter confirming that fact. The decision to dismiss had therefore been taken prior to the step 2 meeting. The claimant claimed sex discrimination, sexual harassment and unfair dismissal: the unfair dismissal claim was upheld by the Tribunal. The matter was further complicated by the fact that the claimant and the MD of the respondent had had an affair. The Tribunal found that the respondent had not acted fairly in treating redundancy as a reason for the dismissal of the claimant and rejected the argument that s98A(2) applied. The failings by the respondent were much more than procedural. The entire background had to be considered: whilst the dismissal was not an act of sex discrimination, the Tribunal was satisfied that the manner in which the MD had arbitrarily decided to dismiss the claimant was in significant part due to the intimacy there had been between them. The respondent appealed, claiming that s98A(2) did apply and thus the dismissal was fair.

The central issue was whether this case should have been depicted as a fair dismissal because of procedural defects and not an unfair dismissal. The EAT considered the legal principles to be applied to s98A(2) which are found in Alexander & Hatherley v Brigden Enterprises. They agreed with the ET that s98A(2) was not relevant in this case because the prior sexual relationship between the claimant and the MD went to the heart of the decision making – this was not a procedural defect.

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Appeal No. UKEAT/0562/10/SM

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 26 April 2011

Before

HIS HONOUR JUDGE McMULLEN QC, MR K EDMONDSON JP, MR G LEWIS

ST JAMES MANAGEMENT SERVICES LTD (APPELLANT)

MISS N POWER (RESPONDENT)

Transcript of Proceedings

JUDGMENT

APPEARANCES

For the Appellant
MR MARK JONES (Solicitor)

Messrs Ormerods Solicitors
Green Dragon House
64-70 High Street
Croydon
Surrey
CR0 9XN

For the Respondent
No appearance or representation by or on behalf of the Respondent

SUMMARY

UNFAIR DISMISSAL – S.98A(2) ERA

The Employment Tribunal did not err in holding s98A(2) did not make this dismissal fair. On a generous reading of its judgment applying Fuller v Brent and Bowater, this was not a procedural defect "by itself" for the dismissal was caused by the Respondent's attitude to his previous sexual relationship with the Claimant. A Polkey hearing will follow.

HIS HONOUR JUDGE McMULLEN QC

1. This case concerns the application of section 98A(2) of the Employment Rights Act 1996, known as the reversal of Polkey, that is Polkey v AE Dayton Services Ltd [1988] ICR 142 HL. It turns what would otherwise be an unfair dismissal to a fair dismissal. It is the Judgment of the court to which all members experienced by statute for their diverse specialist experience of employment relations have contributed. We will refer to the parties as the Claimant and the Respondent.

Introduction

2. It is an appeal by the Respondent in those proceedings, against a Judgment of an Employment Tribunal sitting at East London Hearing Centre over seven days, including two in chambers in 2010, registered with reasons on 6 September 2010. The Claimant contended that she was treated less favourably on the grounds of gender and subjected to harassment contrary to the Sex Discrimination Act 1975 and was unfairly dismissed.

3. The Respondent denied the claims. The Respondent was represented there and here by Mr Mark Jones, Solicitor; the Claimant appearing in person. Today the Claimant makes no appearance and is content to rely on the reasons of the Employment Tribunal, which found in her favour on unfair dismissal, dismissing her claims of sex discrimination.

4. The Respondent appeals against the Judgment in what HHJ Peter Clark described as an unnecessarily prolix Notice of Appeal, seeking to re-argue factual matters. Only one aspect of the Notice of Appeal comes forward to a full hearing, as ordered by Judge Clark, and that is the finding in favour of the Claimant on section 98A(2). That is that the dismissal was not one which fell within the procedural defect to which 98A(2) applies.

5. The relevant provision of the legislation is as follows:

"98A(2) Subject to subsection (1), failure by an employer to follow a procedure in relation to the dismissal of an employee shall not be regarded for the purposes of section 98(4)(a) as by itself making the employer's action unreasonable if he shows that he would have decided to dismiss the employee if he had followed the procedure.

98(4) In any other case where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) -

(a) depends on whether in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee, and

(b) shall be determined in accordance with equity and the substantial merits of the case."

The Facts

6. The facts necessary to decide the narrow issue now live on appeal are as follows. The Respondent was engaged in providing services to airlines and to BAA. The majority of the people in the small business were close social friends. The Claimant was employed by Mr Mudge as the MD and his wife too was engaged in the business. At the hearing the Tribunal noted the difficulty faced by the Claimant because it found there had been an intimate sexual relationship between Mr Mudge and the Claimant during the course of her career. The career began in 2006. There had been a relationship between her and Mr Mudge.

7. The difficulty encountered by the Claimant was this:

"16. Although they were all again consistently at pains to say they did not feel under any pressure to give evidence the Tribunal has come to the conclusion that their evidence was questionable and not to be accepted where it conflicted with that of the Claimant. The Claimant faced with a very difficult situation of acting in person and having to cross examine the person who denied any relationship with her and her old friends remained professional and consistent in her answers throughout."

8. The Respondent business faced difficulties and it is now not contended by the Claimant that there was a genuine redundancy situation. She contended however that the selection of herself for dismissal was unfair. The movement towards dismissal took place at the end of 2007. A number of meetings were called, for example 6 December 2007. At this meeting she was told that she was at risk of redundancy.

9. On 10 December 2007 there was a further meeting, and no information was provided to the Claimant so that she could have any input on the central issue of cost-cutting. On the same date - it is not clear whether it was at or after the meeting but it seems likely to have followed it - a step one letter, in accordance with the Employment Act 2002 (Dispute Resolution) Regulations 2004 was sent to her and a further meeting, which would consist of a step two meeting under the regulations, was held on 17 December 2007. There was then a discussion of the cost of the Claimant's job within the overall nature of the business.

10. The Claimant was there told that the decision to dismiss her was based on the need to cut costs, but no sufficient financial data was made available to her, to enable her to put forward other cost-saving proposals (see paragraph 61).

11. The Tribunal found that the decision to dismiss was taken at that meeting on 17 December 2007, and a pre-prepared letter confirming that fact was given to her. As the Tribunal held the decision to dismiss her had been taken prior to the step two meeting. She was placed on garden leave.

12. She did not appeal the decision. She said that she had not been given any financial information. She could still not put forward any further material at an appeal hearing about cost-cutting. It would have made no difference had she appealed.

13. The Tribunal dismissed the allegations of sex discrimination and sexual harassment, and these are taken no further, but in the conclusions, which include conclusions directed at the sex discrimination claims, the Tribunal makes what we regard as an important finding, in the following terms:

"85. […] The circumstances in the hypothetical comparison would be, as here, where there had been some intimacy of a sexual nature, which the employer regretted and was embarrassed by. That, the Tribunal is satisfied is what caused Mr Mudge to behave in a dismissive manner towards the Claimant and not to involve her in any warning of or consultations with regard to the redundancy selection. He further considered the financial side of the business to be his domain as MD and would therefore have failed to provide meaningful financial information as part of the consultation process to that hypothetical comparator."

14. It then turned to the issue of unfair dismissal and found that, pursuant to section 139, the business required less staff, and so the reason for dismissal of the Claimant was redundancy. There were, however, the following caveats, and we will replicate the Judgment in full on this part, because it has been the subject of very detailed examination by Mr Jones in his oral and written submissions:

"88. The Tribunal does not however find that the Respondent acted fairly in treating redundancy as a reason for dismissal of the Claimant. There was no warning or meaningful consultation. No adequate information was provided to the Claimant to enable her to make constructive proposals to avoid redundancies being necessary. Further, the Respondent had earlier made a unilateral decision to remove training from the Claimant and therefore she was only doing ID managerial work.

89. It was not suggested on behalf of the Respondent that "the consultation was unimpeachable" (closing submissions paragraph 27). It was acknowledged that Mr Mudge could have explained the options he had considered and why he had ruled them out and could have given more information on the financial background. It is however argued that this would not have changed the fundamental position that a management level between Assistant ID Manager and MD was no longer required and there was no alternative position available. The dismissal it is argued was unavoidable. It was therefore argued that applying the provisions of Section 98A(2) the dismissal was fair; the employer having shown that "he would have decided to dismiss the employee if he had followed the procedure".

90. The Tribunal does not accept the Respondent's arguments and does not find the dismissal fair under Section 98A(2). The failings by the Respondent were much more than procedural. The entire background has to be considered. Whilst bound by B v A to find that the dismissal was not an act of sex discrimination the Tribunal is satisfied that the manner in which Mr Mudge arbitrarily decided to dismiss the Claimant was in significant part due to "intimacy" there had been between them. Part of her role had been unilaterally removed. There was no prior warning or meaningful consultation with her. The Tribunal has not been told of any selection criteria having been set let alone discussed with and applied to the Claimant. These are all more than procedural requirements but go to the substantive issue of unfairness."

15. On the basis of those findings section 98A was not applicable. The dismissal was unfair, but it is open to the Respondent to argue Polkey at a remedies hearing, which we understand to have been set for two days for the percentage chance of the Claimant succeeding in continuing in employment will be assessed.

16. It will also be noted that the Tribunal made a number of comments, which will be explored at the remedy hearing no doubt, about the work undertaken by the Claimant for remuneration while employed by the Respondent and thereafter. She has now relocated to Australia.

The Respondent's Case

17. The Respondent's case on the single issue now exigible on appeal, could not be simpler. It is that in the passages we have cited, the Tribunal points and points only to procedural defects. Procedural defects is the territory of section 98A. Mr Jones points out that the Tribunal did not set out section 98A but he takes no issue with the summary citation given in paragraph 89 above, and his own written submission to the Tribunal where the subsection relied upon by the Respondent is précised.

18. The central issue therefore is whether this case should have been depicted as a fair dismissal because of procedural defects and not an unfair dismissal leading to what might be the same conclusion at a Polkey hearing.

The Legal Principles

19. The legal principles to be applied to section 98A(2) are found in Alexander & Hatherley v Brigden Enterprises [2006] IRLR 422 in the Judgment of Elias P, where he said the following:

"55. Mr Toms accepts that the effect of the subsection is in part to reverse Polkey. However, he contends that it does so only in narrowly prescribed circumstances. He distinguishes between what he terms 'procedural' and 'substantive' defects. He points out that the provision refers to the failure to follow a 'procedure'. He submits that a failure to consult is more than simply an error in following a procedure; it is what he terms a substantive matter which goes to the heart of the decision itself. He says that the concept of procedures in that subsection envisages written procedures adopted by the employer and that only relatively minor or technical breaches would fall within the scope of that subsection.

56. We see no justification for so limiting that provision. There is no basis at all for considering that the concept of procedure merely applies to such procedures as have been reduced into writing by the employer, nor is there any limitation on the nature of the failure to comply found within the terms of the subsection itself. It is of course the case that if there is a fundamental failure, including a wholesale disregard of procedures, then that will almost inevitably mean that there is a breach of the relevant statutory dismissal procedure rendering the dismissal unfair under Section 98A(1), and in that case Section 98A(2) does not apply at all and the Polkey analysis continues to apply. Subject to that, we see no limitation on the nature of the procedural breaches caught by the subsection. We recognise that the section refers to 'a procedure' but we do not think that this is limited to cases where the employer fails to comply with his own established procedures (whether written or otherwise). In our view it simply means any procedure which the Tribunal considers in fairness the employer ought to have complied with. If the employer has failed to comply with a procedure which ought to have been carried out, that will not render the dismissal unfair if the employer shows that the employee would have been dismissed anyway even had that fair procedure been adopted. (To this extent we would respectfully part company with the decision of this Tribunal in Pudney v Network Rail [2006] UKEAT/0707/05 (HHJ McMullen QC presiding) in which, obiter, a narrower construction of the section was suggested, but in circumstances where the wider construction we have adopted does not appear to have been suggested by either party.)

57. In short, we consider that Section 98A(2) applies to all procedures, which we take simply to mean the steps which ought to be taken by an employer before determining that he will dismiss a particular employee. Those steps will of course vary depending on the reason for the dismissal. There is no magic in the word 'procedure' and there is no justification for seeking to redefine some steps which would naturally be described as 'procedural', such as the duty to consult, as 'substantive' merely on the basis that they are said to provide particularly important safeguards for the employee. All procedural requirements are important for employees.

58. It follows that we agree with the submission of Mr Barnett on this point. Polkey now has only limited application. First, it is still relevant where the statutory procedures have been infringed so that the dismissal is automatically unfair. In the light of our conclusions on the first point, it is therefore relevant here. Second, although we have heard no argument on this point, it seems to us that even where the statutory procedures are complied with but the dismissal is unfair under Section 98(4). Polkey will still apply where on the balance of probabilities the employee would not have been dismissed even had a fair procedure been complied with, but where there is a chance that he might have been, (That chance would of course have to be less than 50% otherwise Section 98(2) would bite and the dismissal would be fair.) The compensation would in those circumstances have to be reduced accordingly."

Since the giving of that Judgment, there have of course been many judgments on the now defunct regulations.

20. As to the approach of an appellant body, to a Judgment of an Employment Tribunal on unfair dismissal, it is important now to bear in mind the language of Mummery LJ in a majority Judgment given in Fuller v London Borough of Brent [2011] IRLR 414 (CA). Provided a Tribunal addresses itself correctly on the law it will be unusual if it does not follow through that into the application of the law to the facts.

21. A generous approach is to be taken to the reading of a Judgment of an Employment Tribunal and, in observations he made in that case, applicable to all appellant bodies above an Employment Tribunal, he expressly said that there should be no pernickety, fussy or hyper critical approach to the reading of a Judgment of an Employment Tribunal.

Discussion and Conclusions

22. We agree with HHJ Peter Clark's indication that the Tribunal committed an error, arguably in its approach to section 98(2). We agree with Mr Jones that some of the matters which are set out in the passages we have cited are to do with what are classically procedural defects. No warning of a meeting; no proper consultation; no provision of adequate information to enable the meeting to be meaningful, are all issues which go to procedure. However, there is more to it than this.

23. First, the Tribunal says that what it has identified is beyond procedural requirements and go to the substantive issue of unfairness. It uses the term arbitrary in respect of Mr Mudge's decision. Although it says that it is the manner in which he decided to dismiss, the important word is the introduction of the adverb 'arbitrarily.' It was Mr Mudge who arbitrarily decided to dismiss the Claimant.

24. What in our judgment is also important, as we have indicated, is the finding of facts relevant to the sex discrimination case. Causation as to what was in Mr Mudge's mind is there found. It was the prior sexual relationship between the two of them. This is not a procedural defect. This goes to the heart of the decision-making. There are subsidiary issues, such as the categorisation by Mr Mudge that finance was his domain, and that precluded his giving the material to the Claimant, upon which he could argue.

25. It follows that application of section 98A(2) was not relevant in this case. The defects which the Tribunal have identified are not by themselves those which cause the dismissal to be unfair, but as the Tribunal summarises it: "The entire background has to be considered". The entire background includes, importantly, the existence of the sexual relationship between Mr Mudge and the Claimant, which he denied at the Tribunal.

26. It is hardly surprising, therefore, that the Tribunal found that there was more than a procedural fault in his approach to the Claimant's continued employment. For that reason, we see no error. We agree, the Tribunal could have been more specific as to its finding, but we are not allowed to intervene in this case, unless we find a clear error of law, which we do not.

27. Applying Fuller v Brent and Bowater, this Tribunal directed itself, correctly assisted by written submissions by the legal representative of the Respondent, the Claimant being unrepresented, and it did not slip in the move from citation of the legal test to its application to the facts.

28. All is not lost for the Respondent in this case for, as we have indicated, a remedy hearing beckons. Mr Jones is pessimistic that he is able to argue for more than a 50 per cent reduction. At the moment though, without any argument about this, that may seem to be a restriction which is not to be placed on this matter. It is for argument before the Employment Tribunal, but there are other indicators about likely decision-making in this case found in the ET Judgment.

29. This appeal will be dismissed and the case will revert now to the same Employment Tribunal for it to conduct the remedy hearing. We are very grateful to Mr Jones for his careful argument today, which has been succinctly put. The appeal is dismissed.