Western Excavating (ECC) Ltd v Sharp [1977] EWCA Civ 2 (14 November 1977)

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
EAT/319/76

Royal Courts of Justice.
14th November 1977.

B e f o r e :
THE MASTER OF THE ROLLS (Lord Denning)
LORD JUSTICE LAWTON
and
LORD JUSTICE EVELEIGH

WESTERN EXCAVATIONS
Appellants
v.
 
COLIN JOHN SHARP
Respondent

 

(Transcript of the Shorthand Notes of the Association of Official Shorthandwriters Ltd.,
Room 392, Royal Courts of Justice, and 2 New Square, Lincoln’s Inn, London, W.C.2).

____________________MR. A.C. SMITH (instructed by Messrs. Stephens & Scown, Solicitors, St Austell) appeared on behalf of the Appellants.
MR. F. GILBERT (instructed by Messrs. Whitford & Son, Solicitors, St. Columb) appeared on behalf of the Respondent.

____________________

HTML VERSION OF JUDGMENT
____________________

THE MASTER OF THE ROLLS: Mr. Sharp was only employed by the China-Clay Company for twenty months. He left of his own accord. Yet he has been awarded £658 as compensation for unfair dismissal. There seems something wrong about that award. What is it? To fill in the details, he started work with the Company on 9th July, 1974. One of the terms was that, if he worked extra time, he could have time off in lieu. One day in February 1976 he wanted to play a card game for a team. He asked the foreman for three hours off. The foreman said that he could not have it that afternoon as there was a lot of work to be done. But Mr. Sharp took it off and played his game of cards. Next morning – Friday, 27th February, 1976 – the foreman dismissed him, giving him two weeks’ notice for failing to carry out a reasonable order. He appealed to a panel set up by the Company under its disciplinary procedure. On 5th March, 1976 the panel allowed his appeal, saying:

“Having considered all the evidence presented to us, we are of the; unanimous decision that the Dismissal be withdrawn, as there was room for confusion the way the situation was left, but having regard to the seriousness of what has happened, we substitute the Dismissal with five working days suspension without pay”.

Thus he lost five days’ pay. He does not dispute the justice of the panel’s decision. But it left him in financial difficulties. He was living with a woman who was, in modern terminology, his “common law wife” and their two children. His take-home pay was £42.40 a week. He had no savings, but he had holiday pay accrued to him of £117.17 net.

As a result of the five days loss of pay, he had no money to pay his household expenses. He went to the Social Security and was given £6.45. But that was not enough to carry on. So he went to his employers. He asked for an advance on his accrued holiday pay. He was told, quite correctly, that it was against company policy to pay holiday pay unless the holiday was itself actually taken. He then asked for a loan. He said he wanted £40. The welfare officer told him that the Company could not make him a loan to that extent. The welfare officer suggested that Mr. Sharp should see him again to discuss the details. That did not satisfy Mr. Sharp. He said:

“If the Company cannot help me, I must sort it out myself. I shall have to obtain my holiday pay”.

That is just what he did. He went to see the workshop manager, and said:

“I don’t want to leave, but circumstances force me to do so. I am leaving and want my holiday pay now”.

So on 11th March, 1976 he picked up his holiday pay of £117.17, and left. He went straight off to the Industrial Tribunal and claimed compensation for unfair dismissal.

The Industrial Tribunal were divided in opinion. Two of them thought Mr. Sharp should be compensated. He should be awarded £658. They said that the Company “ought to have leant over backwards to help him”: and that the Company’s conduct “justified Mr. Sharp in terminating his employment in order to obtain his accrued holiday pay and so meet his commitments”. The third member disagreed. He thought that Mr. Sharp ought to have talked to the welfare officer again. He held that

“Mr Sharp’s decision to resign was not caused or originated by any misconduct on the part of the Company, but was solely his own personal decision. There had, therefore, been no dismissal whether constructive or otherwise.

The Company appealed to the Employment Appeal Tribunal. They said significantly:

“If each one of us individually had been sitting on this industrial tribunal, we would have been minded to take the same view as that of the minority member”.

But they dismissed the Company’s appeal because they said they were

“forced to the conclusion that it is impossible to say that this industrial tribunal went so badly wrong in law, or reached such a conclusion that no reasonable tribunal could have come to it”.

So Mr. Sharp (who left work of his own accord, because he was not granted a loan as to the full amount he asked) was awarded . £659 compensation. It does seem strange. Especially as the Industrial Tribunal said that:

“…in finding against the Company, we imply no criticism of their general treatment of Mr Sharp or of their personal administration and procedures as a whole. On the contrary, we consider all these aspects to have been quite excellent, and the Company to have been good, responsible and careful employers. We regard the events of 9th and 10th March as something exceptional.”

THE LAW

Until recently, an ordinary servant had no security of tenure. He could be dismissed on a month’s notice or a month’s salary in lieu of notice, although he might have served his master faithfully for years. That was altered by the provisions of the Industrial Relations Act, 1971, which have now been re-enacted in Schedule 1 of the Trade Union and Labour Relations Act, 1974. Paragraph 4 says that:

“… every employee shall have the right not to be unfairly dismissed by his employer”.

If he is unfairly dismissed, he can complain to an Industrial Tribunal. The Tribunal may recommend that he be reinstated in his job, if that is practicable. Alternatively, it may award him compensation in such amount as is fair and equitable. It may be as much a £5,200. So, whereas at common law an employer could dismiss a man on a month’s notice or a month’s wages in lieu, nowadays an employer cannot dismiss a man even on good notice, except at the risk of having to pay him a large sum should the Industrial Tribunal find that the dismissal was unfair.

These provisions are not confined to cases where the employer himself dismisses the man. They also apply to cases where the man leaves of his own choice – if he can show that it was due to the way the employer treated him. In other words, compensation is payable, not only for actual dismissal, but also for “constructive dismissal”. We have here to consider the doctrine of “constructive dismissal”.

THE STATUTORY PROVISIONS

The circumstances in which an employee qualifies as being “dismissed” by his employer were first set out in the Redundancy Payments Act, 1965 in these words: An employee shall

“be taken to be dismissed by his employer if, but only if, –

(a) the contract under which he is employed by the employer is terminated by the employer, whether it is so terminated by notice or without notice, or

(b) where under that contract he is employed for a fixed term, that term expires without being renewed under the same contract, or (c) the employee terminates that contract without notice in circumstances such that he is entitled to terminate it by reason of the employer’s conduct”.

A similar provision was contained in Section 23 of the Industrial Relations Act, 1971, but with the significant omission of sub-section (c).

In the Trade Unions and Labour Relations Act, 1974, the original provision was re-enacted, but with sub-section (c) restored. But on being restored there was an important amendment. The amended sub-section (c) reads:

“(c) the employee terminates that contract, with or without notice, in circumstances such that he is entitled to terminate it without notice by reason of the employer’s conduct”.

Those words “with or” were inserted because it was realised that sub-section (c) as enacted in 1965 left a gap. A man who was considerate enough to give notice was worse off than one who left without notice.

Sub-sectlon (c) has given rise to a vast body of case law as to what comes within it. It is spoken of as “constructive dismissal”. It has given rise to a problem upon which there has been a diversity of views among chairmen of Industrial Tribunals and among the Judges of the Employment Appeal Tribunal. On 28th July, 1977 the Employment Appeal Tribunal attempted to settle these differences in the case of Wetherall (Bond St. W.l) Ltd. v. Lynn [1977] IRLR 333 : but they were unsettled again by the discovery of some obiter dicta in this Court in Turner v. The London Transport Executive (unreported, but given on 6th May, 1977). This led the Employment Appeal Tribunal on 4th October, 1977 to think that they ought to follow those obiter dicta and to give guidance accordingly. It is to be found in their decision in Scott v. Aveling Barford Ltd. (at present unreported). But this guidance was expressed to be given as an interim measure pending an authoritative statement of the law by the Court of Appeal or the Court of Session.

It is with diffidence that we approach the task. The rival tests are these:-

THE CONTRACT TEST

On the one hand, it is said that the words of sub-section (c) express a legal concept which is already well settled in the books on contract under the rubric “Discharge by breach”. If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment; or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract; then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer’s conduct. He is constructively dismissed. The employee is entitled in those circumstances to leave at the instant without giving any notice at all or, alternatively, he may give notice and say he is leaving at the end of the notice. But the conduct must in either case be sufficiently serious to entitle him to leave at once. Moreover, he must make up his mind soon after the conduct of which he complains: for, if he continues for any length of time without leaving, he will lose his right to treat himself as discharged. He will be regarded as having elected to affirm the contract.

THE UNREASONABLENESS TEST

On the other hand, it is said that the words of sub-paragraph (c) do not express any settled legal concept. They introduce a new concept into contracts of employment. It is that the employer must act reasonably in his treatment of his employees. If he conducts himself or his affairs so unreasonably that the employee cannot fairly be expected to put up with it any longer, the employee is justified in leaving. He can go, with or without giving notice, and claim compensation for unfair dismissal.

It would seem that this new concept of “unreasonable conduct” is very similar to the concept of “unfairness” as described in paragraph 6(8) which says that:

“… The determination of the question whether the dismissal was fair or unfair, having regard to the reason shown by the employer, shall depend on whether the employer can satisfy the tribunal that in the circumstances (having regard to equity and the substantial merits of the case) he acted reasonably in treating it as a sufficient reason for dismissing the employee”.

Those who adopt the “unreasonable test” for dismissal say quite frankly that it is the same as the “unreasonableness” test for fairness. That was the view taken by Lord Justice Megaw in Turner’s case. He said:

“… So far as (c) is concerned, the wording of that sub-paragraph is not a wording which involves or implies, the same concept as the common law concept of fundamental breach of contract resulting in its unilateral repudiation and acceptance of that unilateral repudiation by the innocent party. The employer’s ‘conduct’ there is employer’s conduct to be adjudged by the Industrial Tribunal by the criteria which they regard as right and fair in respect of a case in which the issue is whether or not there has been ‘unfair’ dismissal”.

PREVIOUS CASES

The only previous case in this Court on the words is Marriott v. Oxford and District Co-operative Society Limited (1970) 1 Queen’s Bench 18S. It was under the Redundancy Payments Act, 1965. Sub-paragraph (c) did not apply because in that Act it only applied where the employee terminates without notice; whereas Marriott had terminated it with notice. So this Court put it on sub-paragraph (a). But since the amendment to sub-paragraph (c), it would have been more properly brought under sub-paragraph (c). It was not really an (a) case: but we had to stretch it a bit. It was not the employer who terminated the employment. It was the employee: and ho was entitled to do so by reason of the employer’s conduct.

All the other cases are in the Employment Appeal Tribunal. We have studied them all, but I hone I will be excused from going through them.

THE RESULT

In my opinion the contract test is the right test. My reasons are as follows: (i) The Statute itself draws a distinction between “dismissal” in paragraph 5(2)(c) and “unfairness” in paragraph 6(8). If Parliament intended that same test to apply, it would have done so. (ii) “Dismissal” in paragraph 5(2) goes back to “dismissal” in the Redundancy Payments Act, 1965. Its interpretation should not be influenced by paragraph 6(8) which was introduced first in 1971 in the Industrial Relations Act, 1971. (iii) Paragraph 5(2)(c) uses the words which have a legal connotation, especially the words “entitled” and “without notice”. If a non-legal connotation were intended, it would have added “justified in leaving at once” or some such non-legal phrase. (iv) Paragraphs 5(2)(a), and 5(2)(c) deal with different situations. Paragraph 5(2)(a) deals with cases where the employer himself terminates the contract by dismissing the man with or without notice. That is, when the employer says to the man: “You must go”. Paragraph 5(2)(c) deals with the cases where the employee himself terminates the contract by saying: “I can’t stand it any longer. I want my cards”. (v) The new test of “unreasonable conduct” of the employer is too indefinite by far. It has led to acute difference of opinion between the members of tribunals. Often there are majority opinions. It has led to findings of “constructive dismissal” on the most whimsical grounds. The Employment Appeal Tribunal tells us so. It is better to have the contract test of the common law. It is more certain: as it can well be understood by intelligent laymen under the direction of a legal chairman. (vi) I would adopt the reasoning of the considered judgment of the Employment Appeal Tribunal in Wetherall v. Lynn [1977] IRLR 336 : “Parliament might well have used the words – (such as to make the criteria whether the employer’s conduct had been reasonable having regard to equity and the substantial merits of the case) – but it neither laid down that special statutory criteria or any other. So in our judgment the answer can only be ‘entitled’ according to law, and it is to the law of contract that you must look”. (vii) The test of reasonableness gives no effect to the words “without notice”. They impose a legal test which no test of “unreasonableness” can do.

CONCLUSION

The present case is a good illustration of a “whimsical decision”. Applying the test of “unreasonable conduct”, the Industrial Tribunal decided by a majority of 2 to 1 in favour of the man. The Employment Appeal Tribunal would, all three of them, have decided in favour of the employer, but felt that it was a matter of fact on which they could not reverse the Industrial Tribunal. So, counting heads, it was 4 to 2 in favour of the employers, but yet the case was decided against them – because of the test of “unreasonable conduct”.

If the “contract test” had been applied, the result would have been plain. There was no dismissal, constructive or otherwise, by the employers. The employers were not in breach at all. Nor had they repudiated the contract at ail. Mr. Sharp left of his own accord without anything wrong done by the employers. His claim should have been rejected. The decision against the employers was most unjust to them. I would allow the appeal, accordingly.

LORD JUSTICE LAWTON: Two questions require to be answered in this appeal. First, did the Industrial Tribunal at St. Austell which adjudicated upon Mr. Sharp’s claim for compensation for unfair dismissal direct itself correctly in law when purporting to apply to the evidence in the case paragraph 5(2)(c) of the first Schedule to the Trade Union and Labour Relations Act, 1974. Secondly, even if it did, could it reasonably have decided as it did on the evidence before it? In my judgment the answer to each of these questions is “no”.

The answer to the first question turns upon the construction of paragraph 5. It has a legislative history going back to the Redundancy Payments Act, 1965; but for my part I prefer to get the meaning out of paragraph 5(2)(c) from the enacted words and the context in which they were used. Paragraph 4 established an employee’s right not to be dismissed unfairly. What meaning was to be applied to dismissal? What to unfair? There could be no unfairness until there had been a dismissal. The word “dismissal’ is a noun connoting a state of affairs – the condition of being sent away. That state of affairs either exists or it does not. The word is positive and definitive. The adjective “unfair” qualifies the state of affairs which amounts to a dismissal. Paragraphs 5(2)(c) and 6 reflect the difference between the noun and the adjective. The former states what in law constitutes the state of affairs which is to be considered as a dismissal. Paragraph 6 deals with fairness. From the concept which is inherent in the word “dismissal” the state of affairs amounting to a dismissal must be clearly indentifiable. Sub-paragraph 5(2)(a) defines one state of affairs amounting to dismissal by reference to the termination of the contract of employment. This necessarily involves the tribunal in considering the ending of contractual rights. Sub-sub-paragraph (a) does not apply at all unless the employee’s contractual rights have been terminated. Contractual rights have to bo considered again under sub-sub-paragraph (b). It would be odd if they did not have to be considered under sub-sub-paragraph (c) which sets out the circumstances in which an employee can terminate his contract of employment. When he does so, he purports to release himself from his contractual obligations; but he can only do so in the circumstances specified which must be “such that ho is entitled to (do so) without notice by reason of the employer’s conduct”. The word “entitled” in this context connoted the existence of a right. The only right which the employee can have to terminate his contract of employment is that which the law gives him. His right is of a specified kind. It is a right to terminate “without notice by reason of the employer’s conduct”. In my judgment this is the language of contract; language which has a significant meaning in law in that it confers a right on an employee to be released from his contract and extinguishes the right of the employer to hold the employee to it. Any other construction would produce an odd result. As Mr. Smith pointed out in argument, if sub-sub-paragraph (c) did not bring the contract to an end altogether the nonsensical position would arise that the employee could terminate it but the employer could sue him for damages for doing so without notice. In my judgment contracts can only be brought to an end in ways known to the law.

For the purpose of this judgment I do not find it either necessary or advisable to express any opinion as to what principles of law operate to bring a contract of employment to an end by reason of an employer’s conduct. Sensible persons have no difficulty in recognising such conduct when they hoar about it. Persistent and unwanted amorous advances by an employer to a female member of his staff would, for example, clearly be such conduct; and for a chairman of an industrial tribunal in such a case to discuss with his lay members whether there had been a repudiation or a breach of a fundamental term by the employer would be for most lay members a waste of legal learning. There may occasionally be border-line cases which would require a chairman to analyse the legal principles applicable for the benefit of the lay members; but when such cases do occur ho should try to do so in the kind of language which 19th century judges used when directing juries about the law applicable to contracts of employment, rather than the language which nowadays would be understood and appreciated by academic lawyers. I appreciate that the principles of law applicable to the termination by an employee of a contract of employment because of his employer’s conduct are difficult to put concisely in the language judges use in court. Lay members of industrial tribunals, however, do not spend all their time in court and when out of court they may use, and certainly will hear, short words and terse phrases which describe clearly the kind of employer of whom an employee is entitled without notice to rid himself. This is what paragraph 5(2)(c) is all about; and what is required for the application of this provision is a large measure of commonsense.

This it did not get from the St. Austell Industrial Tribunal. The appellant did not suggest, nor could he have done so, that the respondents had been in breach of their contract with him. He had been guilty of misconduct at work and had been dismissed. Under a procedure between the respondents and the unions represented in their undertaking he had successfully appealed against his dismissal, which was varied to a five days suspension without pay. He had no right to be given any money other than that which he had earned; and at the material time because of his own acts ho had earned hardly any. To suggest as the majority of the tribunal did that in these circumstances the respondents should

“have leant over backwards to ensure that the same result as the discredited dismissal was not to be achieved through administrative blockage or any over rigid adherence to criteria or procedures not designed for this abnormal situation”

is to cut adrift from commonsense and reason and to decide cases on the kind of whimsical grounds to which Mr. Justice Philips referred and disapproved of in Scott v. Aveling Barford Ltd. (unreported).

The statutory provisions which have been under consideration in this case have brought social justice into labour relations; but this now and desirable factor must be based on justice, not on whimsy or sentimentality. No justice was shown to the Respondents in this case. In blunt legal terms, this was a perverse decision.

The Master of the Rolls has reviewed the case law relevant to this appeal. I agree with what he has said about it and have nothing to add.

I too would allow the appeal.

LORD JUSTICE EVELEIGH: I agree with both judgments and have nothing

to add.

(Order: Appeal allowed with costs, not to be enforced without leave. Award below set aside. Interim payment of £300 to be repaid. Leave to appeal to the House of Lords refused).

 

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