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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Orme v United Bright Bar Co Ltd [1995] UKEAT 533_93_2601 (26 January 1995) URL: http://www.bailii.org/uk/cases/UKEAT/1995/533_93_2601.html Cite as: [1995] UKEAT 533_93_2601

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BAILII case number: [1995] UKEAT 533_93_2601

Appeal No. EAT/533/93

I N T E R N A L

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 26 January 1995

Before

THE HONOURABLE MRS JUSTICE SMITH

MISS C HOLROYD

MR G H WRIGHT MBE

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MR D C ORME          APPELLANT

UNITED BRIGHT BAR CO LTD          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellant MR J SWIFT

(Of Counsel)

Messrs Higgs & Sons

Solicitors

Inhedge House

31 Wolverhampton Street

Dudley

West Midlands

DY1 1EY

For the Respondents MR M YOUNG

(Of Counsel)

Messrs Rees Page

Solicitors

44 Queen Street

Wolverhampton

WV1 3BN


 


MRS JUSTICE SMITH: This is an appeal from the decision of an Industrial Tribunal sitting at Birmingham on three days during February, March and April 1993. The unanimous decision of the Tribunal was that the dismissal of the Appellant by the Respondent Company had not been unfair.

The Tribunal found that there had been relatively little conflict on the evidence and they made the following findings of fact. The Respondent Company was a firm of steel manufacturers employing about 30 people, 20 on production work and 10 in administration and management.

The Appellant was appointed Chief Accountant and Financial Controller to the Respondent Company in November 1988. When he joined the Company, its financial systems and records were not computerised, but he knew that he would be required to install and operate a computerised system. His duties included handling the firm's banking arrangements including its overdraft and the control of sales accounts, wages and salaries, cash and credit and the processing of purchasing.

The Tribunal found that no complaint or criticism was made of his work during the first 12 months. At the end of 1989, a computer system was installed and the Appellant was given four months in which to computerise the financial accounting system. At the same time, he was instructed to submit regular monthly management accounts in a stipulated form within 25 working days of each month end.

During 1990 the Respondent Company experienced cash flow problems and its relationship with its banker became delicate. At a meeting between the Directors and the bank in July 1990, it emerged that the Company had an overdraft of £400,000 which was to be reduced to its proper limit as a matter of priority.

In November 1990, it appeared that the overdraft limit had been exceeded by 40%. The Applicant and the Managing Director had jointly authorised substantial payments which had contributed to that situation. However, the Tribunal found that the Appellant had not forewarned the Directors of the overdraft position, nor had he put on written record any cautionary advice. The Company's bankers began to take a very firm line with the Company and this resulted in the Directors issuing instructions to the Appellant to improve the Company's financial position. This was to be done, in particular, by means of aggressive debt collection, the reduction of credit periods and the preparation of monthly cash flow statements.

In June 1991, one of the two Directors of the Respondent Company who were not based at the factory premises at Birmingham, wrote to the Managing Director setting out three specific complaints about the Appellant. These were first his failure to notify the Directors of the excess overdraft in the previous year, to which we have already alluded; second, his failure to meet financial reporting deadlines by providing monthly management accounts; and third, his failure to implement the computer system. The Tribunal found that the Managing Director spoke to the Appellant about these complaints, but did not show the Director's letter to him as he had been requested to do and did not confirm the complaints to the Appellant in writing. They noted the habitual informality of the relationship and communications between the Appellant and the Managing Director.

At the same time, June 1991, the two Directors wrote to the Managing Director and to the Appellant providing a clearly worded set of action points for the financial management of the Company for the future. Two months later, on 6 August 1991, the Respondent's directors wrote to the Appellant expressing concern about the loss shown in the June accounts and drawing attention to an error in the current balance sheet.

In December 1991, the Respondent Company appointed a new Chief Executive. He took up his duties on 1 January 1992. During the first few weeks of his employment he had a number of meetings with the Appellant, as the result of which it appears that he formed an unfavourable view of the Appellant's abilities. On 9 February he held a meeting to which the Appellant was summoned, without prior notice, at which he reviewed numerous aspects of the Company's financial management. He expressed dissatisfaction that the Accounts Department was not fully computerised and said that this had impeded the effectiveness of the Company's financial management. The cash collection had not, for the past two years, been rigorously pursued and financial reports had not been produced to time.

We interpose to say that those were no more and no less than the criticisms which had been levelled at the Appellant in the previous year.

During the first weeks of 1992, the new Chief Executive decided, as the Tribunal found, that it was likely that he would wish to replace the Appellant as Principal Financial Officer to the Company. He advertised for a Financial Controller and interviewed candidates in February. On 16 March 1992 he offered the post to the successful candidate.

On 22 or 23 March the Chief Executive held a meeting with the Appellant. The computerisation of the company's accounts and the late production of management accounts were discussed. On 23 March, the Chief Executive delivered a severe reprimand to the Appellant. The Appellant acknowledged the letter but did not, as it appears from the Tribunal's finding, accept the full force of the reprimand.

On 30 March 1992, the Chief Executive wrote to the Appellant saying that because of his failure to put the Respondent Company's accounts records on to computer, to control cash collection, to keep to the agreed overdraft limit and properly to run the Accounts Department, he was to be dismissed as from 30 April. He was told in that letter, that a new Company Accountant was to take up his duties from 1 April 1992.

The Tribunal then turned their attention to the law. They referred themselves to Sections 54 and 57 of the Employment Protection (Consolidation) Act 1978. They recorded that they must have regard to the reasonableness or otherwise of the Respondent Company's action in treating the Appellant's work performance as sufficient reason for his dismissal.

They referred themselves to the guidelines established in British Home Stores Ltd v Burchell [1978] IRLR 379. They also referred to a number of other cases which it is not necessary to list. They included the case of Polkey v A E Dayton Services Ltd [1988] ICR 142. They then set out the reasons for their conclusions.

First, they noted with concern that the Respondent Company had no written procedures and did not use formal contracts of employment, job descriptions or written particulars of employment. They noted also that the management style within the Respondent Company was informal and generally relaxed, and they considered that that, together with the absence of formal procedures, meant that criticism of work performance was blunted and blurred in its impact and lacked clarity and firmness.

They went on to conclude that in spite of that, the Appellant was undoubtedly a member of senior management and the Tribunal believed that he knew, because of written and oral communications from the Directors during 1990 and 1991, that he was failing to meet their reasonable expectations. They set out, in some detail, the extent to which he was causing dissatisfaction and they say that they cannot believe that the Appellant was unaware of these factors.

In summary, having discussed the several respects in which the employer had expressed dissatisfaction about the Applicant's capabilities, they said this:

"12 .... the tribunal felt that the employer's requirements were not unreasonable, and there was no evidence to suggest that the applicant had been prepared to adapt his own and his assistant's working programme to see that they were met, and to explain to the directors what other work might have to be delayed as a consequence".

They considered that the appointment of the Chief Executive had the result of putting additional pressure upon the requirement of the Applicant to conduct the Company's financial systems satisfactorily, in particular in relation to the computer. They expressed the view that by the end of 1991, the employers had lost confidence in the Appellant as their principal financial officer, in his capacity to understand and respond to their priorities, in his ability to meet important deadlines, in his dealings with their bankers, in his reluctance to delegate, and in his general reliability.

They then went on to consider in some detail the procedures which the Respondent Company had followed prior to the dismissal of the Appellant and they said this:

"15 The tribunal was decidedly unimpressed with the respondent company's procedures leading to the applicant's dismissal; it was clear from the evidence that a decision had been taken in January 1992 to replace him, and his post had been advertised and at least one candidate seen before the applicant had been given a formal interview on 9 February; this interview had been called at short notice, without prior indication that it was to have formal significance and without opportunity for the applicant to prepare for a formal disciplinary inquiry; it was followed by a letter to the applicant that specified a number of shortcomings attributed to him by the Chief Executive, expressed the hope that the applicant would `make the necessary improvements', and offered a progress review meeting in about three weeks.

16 In the event, no such meeting was held: a formal offer of the post of financial controller to the respondent company was made on the 16 March, and it was not until the 23 March that the applicant received a letter purporting to be a severe reprimand, but not notice of termination of his contract; the tribunal deplored this procedure for its utter lack of frankness and openness; nevertheless, we believed the respondent company had had reasonable grounds to come to the conclusion that they had, namely that the applicant, whatever his merits, had not performed and was not performing his duties as the company's principal financial officer to the satisfaction of the respondent's directors, and had lost their confidence, which is a matter primarily of capability and is vital to the relationship between an employer and its senior management.

17 For these reasons, the tribunal concluded that the respondent company had reasonable grounds for its dissatisfaction with the applicant, that the applicant was aware of the directors' disquiet and had done little to allay their apprehension, and that although the process culminating in his dismissal left much to be desired, that dismissal was not, in all the circumstances, unfair".

This appeal has been focused entirely on paragraphs 16 and 17 of the Tribunal's decision. Mr Swift, on behalf of the Appellant, has submitted first that the Industrial Tribunal misdirected itself in law. He submitted that the Tribunal had not applied the correct statutory test under Section 57(3) of the 1978 Act. He submitted that in paragraph 16, the Tribunal did not apply its mind at all to the statutory test under Section 57(3). That paragraph was concerned only to identify the reason for dismissal, as is required by Section 57(1), that reason being one of capability. In the alternative, if he were to fail in his submission that there had been an error of law in the Tribunal's approach to Section 57(3), and if this Appeal Tribunal were to find that the correct test had been applied, he submitted that the Tribunal's decision was perverse in that, in the light of the serious procedural defects which had been identified, the Tribunal could not rationally conclude that the employer had acted reasonably in treating the employee's incapability as a sufficient reason to dismiss him.

In support of the Appellant's first ground, Mr Swift cited the well known case of Polkey v A E Dayton Services Ltd [1988] ICR 142. In that case, as is well known, the House of Lords overruled the decision in British Labour Pump Co Ltd v Byrne [1979] ICR 347 and approved the views of Browne-Wilkinson J., as he then was, in the case of Sillifant v Powell Duffryn Timber Ltd [1983] IRLR 91. In effect, the House of Lords there said that in a case where an Industrial Tribunal had identified a sound reason for dismissing the employee, but had also found non-compliance with the procedures normally required by good industrial practice, the Industrial Tribunal must not ask itself whether the employer could reasonably have decided to dismiss if he had followed fair procedures. He must not ask himself whether, following a fair procedure would have made any difference to the result. In particular Mr Swift referred us to the passage of Lord Mackay's speech at page 513 D where he said:

"Where there is no issue raised by Sections 58 to 62 [of the Employment Protection (Consolidation) Act 1978] the subject matter for the Tribunal's consideration is the employer's action in treating the reason as a sufficient reason for dismissing the employee. It is that action and that action only that the Tribunal is required to characterise as reasonable or unreasonable. That leaves no scope for the Tribunal considering whether, if the employer had acted differently, he might have dismissed the employee. It is what the employer did that is to be judged, not what he might have done. On the other hand, in judging whether what the employer did was reasonable, it is right to consider what a reasonable employer would have had in mind at the time he decided to dismiss as the consequence of not consulting or not warning. If the employer could reasonably have concluded in the light of the circumstances known to him at the time of dismissal consultation or warning would be utterly useless he might well act reasonably even if he did not observe the provisions of the Code. Failure to observe the requirement of the Code relating to consultation or warning will not necessarily render a dismissal unfair. Whether in any particular case it did so is a matter for the Industrial Tribunal to consider in the light of the circumstances known to the employer at the time he dismissed the employee".

He also referred us to a passage from Lord Bridge's speech at page 163 A.

"If an employer has failed to take the appropriate procedural steps in any particular case, the one question the Industrial Tribunal is not permitted to ask in applying the test of reasonableness posed by Section 57(3) is the hypothetical question whether it would have made any difference to the outcome if the appropriate procedural steps had been taken. On the true construction of section 57(3) this question is simply irrelevant. It is quite a different matter if a tribunal is able to conclude that the employer himself at the time of dismissal, acted reasonably in taking the view that in the exceptional circumstances of the particular case the procedural steps normally appropriate would have been futile, could not have altered the decision to dismiss and therefore could be dispensed with. In such a case the test of reasonableness under Section 57(3) may be satisfied".

Mr Swift submits that this Tribunal fell into the error of asking itself the forbidden question. He also submits that the Tribunal have led themselves into error by a failure to realise that in recent years there has been shift in emphasis and that the courts have made it plain that it is only now in very rare cases (very exceptional circumstances to use Lord Bridge's expression) that a dismissal made in serious breach of procedural requirements will be found to be fair. He drew our attention first in this regard to the case of James v Waltham Holy Cross & District Council [1973] ICR 398. Lord Donaldson, the President of the National Industrial Relations Court at page 404 E said this:

"In the field of capability similar problems frequently arise. If an employee is not measuring up to the job, it may be because he is not exercising himself sufficiently or it may be because he really lacks the capacity to do so. An employer should be very slow to dismiss upon the ground that the employee is incapable of performing the work which he is employed to do, without first telling the employee of the respects in which he is failing to do his job adequately, warning him of the possibility or likelihood of dismissal on this ground, and giving him an opportunity of improving his performance. But those employed in senior management may, by the nature of their jobs be fully aware of what is required of them and fully capable of judging for themselves whether they are achieving that requirement. In such circumstances, the need for warning and an opportunity for improvement is much less apparent. Again, cases can arise in which the inadequacy of performance is so extreme that there must be an irredeemable incapability. In such circumstances, exceptional though they no doubt are, a warning and opportunity for improvement are of no benefit to the employee and may constitute an unfair burden on the business".

We pause there to observe that this Industrial Tribunal were referred to this decision and must, as we consider, have had it very much in mind.

Mr Swift relied in contrast with that passage from James case, upon a passage from the speech of Lord Bridge in Polkey to which we have already referred, the passage in question being at page 162 F.

"Employers contesting a claim of unfair dismissal will commonly advance as their reason for dismissal one of the reasons specifically recognised as valid by section 57(2)(a), (b) and (c) of the Employment Protection (Consolidation) Act 1978. These, put shortly are: (a) that the employee could not do his job properly; (b) that he had been guilty of misconduct; (c) that he was redundant. But an employer having prima facie grounds to dismiss for one of these reasons will in the great majority of cases not act reasonably in treating the reason as a sufficient reason for dismissal unless and until he has taken the steps, conveniently classified in most of the authorities as `procedural', which are necessary in the circumstances of the case to justify that course of action. Thus, in the case of incapacity, the employer will normally not act reasonably unless he gives the employee fair warning and an opportunity to mend his ways and show that he can do the job; .... ".

Mr Swift also sought to rely upon the decision of Sping v Express Group Ltd [1990] IRLR 320. However, we do not propose to cite from that case as we take the view that it was not a case in which any principles of significance were sought to be laid down. Indeed in our view, none of the cases to which we have referred, lays down any matter of principle. Lord Donaldson in James was only giving examples of cases where a dismissal on the ground of incapability might be fair, even though there had not been much by way of warning of dissatisfaction or opportunity to improve. He gave as a particular example, the case of a senior employee who must be taken to have realised that he was not giving satisfaction. Similarly in our view, Lord Bridge was merely stating the general proposition that it would usually be necessary to give a warning and an opportunity to improve in cases where incompetence or incapability was to be alleged. It seems to us that he recognised exceptions to that general rule.

We think that there is no sign that the law has changed during the years since 1973 and the case of James. In our judgment, it was then and still is the case that it will usually be necessary for an employer, who wishes to show that he has acted reasonably in dismissing on the ground of incapability, to demonstrate that he has given advance warning of his dissatisfaction and an opportunity for the employee to improve, but that there always will be exceptions to that general rule. We do not consider that the category of exceptions has, in any way, been narrowed by developing authority. Nor indeed do we consider that the assessment of whether the case falls into an exceptional category is to be judged by reference to previous authorities. We consider that there is no better expression of the law in this regard than the passage to which we have already referred in the speech of Lord Mackay in Polkey where he said:

"Failure to observe the requirement of the Code relating to consultation or warning will not necessarily render a dismissal unfair. Whether in any particular case it did so is a matter for the Industrial Tribunal to consider in the light of the circumstances known to the employer at the time he dismissed the employee. In other words, it is a question of fact for the individual Industrial Tribunal".

Looking again, in the light of those observations, at paragraphs 16 and 17 of the decision, we do not consider that the Industrial Tribunal has asked itself the forbidden question. We see no sign that they have considered whether, if the employer had followed proper procedures it would have made no difference. The Tribunal is saying that the procedures at the later stage (that is during 1992) were very poor. On the other hand, the employer had good reason to reach its conclusion that it had lost confidence in the Appellant. Then, at paragraph 17, as it seems to us, they gave their conclusion under Section 57(3). It is true that they did not use the statutory words. Perhaps it would have been easier for this Tribunal if they had done so, but the sense of what they say is, in our judgment, clear. They are saying in our view, that there were good grounds for dissatisfaction. Moreover, the employer had expressed his dissatisfaction and given time for improvement. So although the procedure was unsatisfactory, they did not consider that the dismissal was unfair. That exposition we think satisfies the test set out in Section 57(3).

We have also considered Mr Swift's submission that at paragraph 16 the Tribunal were not considering the statutory question under Section 57(3) and that they in fact failed at any stage to do so. We see the force of his submission in respect of paragraph 16 standing alone. It does appear to us that it may be said that, at that stage, the Tribunal were not asking the proper statutory question, whether the employer had acted reasonably in treating incapability as a sufficient reason for dismissing the employee. However, we do consider for the reasons which we have just given that that question was properly and adequately covered in paragraph 17 of the decision.

We turn then to the second submission which is that the Tribunal, having directed themselves properly in law, nonetheless reached a conclusion which was perverse on the facts, a conclusion which no reasonable Tribunal could have reached bearing in mind their conclusions as to the inadequacies of the Respondents' procedures.

It is not suggested in this case that any of the Industrial Tribunal's findings of fact had been inadequately based upon the evidence. We accept that some Tribunals may have felt that in this case the procedural shortcomings were so serious that the decision to dismiss must be regarded as unfair. However, we bear in mind that this Tribunal heard evidence over a period of three days. They have recorded their findings of fact clearly. It appears to us that they have weighed the issues with great care. They have made findings and drawn conclusions which are favourable on the one hand to the Appellant, and on the other hand to the Respondents. We consider that there is no warrant for the suggestion that their conclusion was irrational.

For these reasons therefore, this appeal must be dismissed.