(In)decision time
Date: 27 January 2012
Authors: Ian Smith
Issue: Vol 162, Issue 7498
Categories: Features, Employment, Damages, TUPE
There was a considerable element of judicial desk clearance before the Christmas break, to such an extent that it has been difficult to choose the case law most meriting comment here. Pride of place must go to a Supreme Court decision on contractual liabilities on dismissal, which is of most note for what it did not decide. This case takes up most of this column, but it also contains briefer coverage of another much awaited Supreme Court case, this time on how statutory holidays apply to offshore workers (and possibly to others with unusual working patterns), and an important Court of Appeal decision on a tricky point of TUPE law, arising where there are contemporaneous administration proceedings (often in so-called “pre-pack” cases).
Edwards v Chesterfield
The decision of the Supreme Court in Edwards v Chesterfield Royal Hospital NHS Trust; Botham v Ministry of Defence [2011] UKSC 58, [2011] All ER (D) 101 (Dec) stops a potentially major extension of contractual liability on termination, particularly for high earners wanting to recover “loss of career” damages well in excess of the statutory limit for unfair dismissal. However, although the overall result is tolerably clear (albeit by a narrow margin in Edwards) the problem is that the reasoning varies within the majority. This is arguably because the case shows one of the benefits of the reconstituted Supreme Court (sitting with more justices, here seven) without the supposed complementary benefit of a change in decision making (consolidation into one overall judgment or, at worst, one majority and one dissenting). The majorities here are complex.
The facts & lower court decisions
It will be recalled that these cases concerned claims for open-ended contractual damages for alleged breaches of employment contracts by the employers in the way that the claimants were disciplined and dismissed. In Edwards the claim was that the trust had used the wrong procedure, not the one laid down in his contract; the argument on fact then was that if the right procedure had been used (with a consultant present and a legally qualified chairman) he would not have been dismissed and rendered unemployable because of the “reputational damage” so caused. The claim was for in excess of £4m. The claimant had commenced but then discontinued tribunal proceedings for unfair dismissal.
In Botham the claim was that there had again been breaches of the contractual procedure in the process of his dismissal; that dismissal had led to his being placed on the child protection register, causing again career-threatening reputational damage, even though he was in fact taken off the register. That followed his success in a tribunal action in which he had recovered approximately £63,000 for wrongful and unfair dismissal. He then commenced a High Court action for contractual damages for loss of career.
In Edwards Nicol J applied age-old law to hold (under Addis v Gramophone Co [1909] AC 488, [1908-10] All ER Rep 1) that there can be no general damages for wrongful dismissal in relation to matters such as hurt feelings or loss of career and that his only entitlement here was wages for what should have been his notice period plus a little extra for the time it would have taken to use the proper contractual procedure (the “Gunton extension”, as it is known to employment lawyers). In Botham (where there had already been an award by the tribunal for missing notice) Slade J dismissed the claim on the basis that it concerned his dismissal and so came within the “Johnson v Unisys exclusion zone”, where common law claims are not permitted because to do so would undermine the statutory scheme of unfair dismissal. There was nothing there to frighten the horses. However, a significant element of equine terror was then caused when Edwards went to the Court of Appeal where the decision of the judge was overturned, a “difficult” decision was given (how tactful) and the claimant’s action was allowed to proceed. In the light of this an appeal in Botham was allowed by consent and both cases were sent to the Supreme Court. The result of that was that the appeals of the employers in both cases were allowed and the claims dismissed.
The Supreme Court decision: policy or remoteness?
The theoretical ratio of the decision (facts plus decision) is thus that, in these circumstances, there cannot be an open-ended action for damages for breach of contractual terms on disciplinary procedures to be followed, leading to dismissal. This will be a major relief for employers likely to have faced such actions had the case gone the other way (for example in the NHS). However, the problem for legal analysis for future cases is the variety of the reasoning, and what is the practical ratio in the law more generally. As to the actual decision, there are three judgments in the majority, by Lord Dyson (with whom Lord Walker agreed), Lord Phillips and Lord Mance. Lady Hale dissented in both cases. Lord Kerr gave the final judgment (with the concurrence of Lord Wilson) which would have agreed with the majority to allow the employer’s appeal in Botham, but would have dismissed the employer’s appeal in Edwards and allowed his claim to proceed. Edwards (arguably the more important case on the facts) thus ended up 4–3, but the complication is that Lord Phillips agreed that the result of Lord Dyson’s principal judgment was “plainly right” but on reflection preferred to reach it by a different route. It would therefore be possible to view the result on law as 3–1–3, hardly ideal. This is reflected in a passage in Lord Dyson’s judgment which purports to “interpret” Lord Phillips’s view as being impliedly consistent with the principal approach; on that basis it could be said that there is an absolute majority on the law, but it may be a bit of a stretch.
Lord Dyson considered the matter under Johnson v Unisys [2001] UKHL 13, [2001] 2 All ER 801 and started by dividing the issue into two:
(i)whether the Johnson exclusion zone applies to rights under an express term covering disciplinary procedures (Johnson itself having concerned the implied term of trust and confidence); if so
(ii) whether these cases on their facts fell within that exclusion zone.
He reviewed the development of the law on unfair dismissal, holding that (as a necessary matter of the implied intention of Parliament and the parties to an employment contract) the vital rules on disciplinary procedures are meant to take effect only in the context of unfair dismissal. They are not meant to provide extra contractual relief which could undermine the statutory scheme provided by Parliament and deliberately made subject to limitations, for example as to maximum amounts of compensation. In this, he followed Lord Hoffmann’s views in Johnson. He accepted that there are some difficult distinctions here—for example, a suspension in breach of procedure could give rise to contractual damages, and where there is a threatened dismissal in such breach the claimant might be eligible for injunctive relief. However, he held that none of this is inconsistent with the principle of the exclusion zone where there has actually been a dismissal. Thus, Johnson does apply to breach of an express term.
On the second question, it was easy to hold that Botham came within the zone and could not sue because all reputational damage there flowed from the dismissal itself. On the more extended facts of Edwards, the claimant had argued that the wrong procedure was an anterior and separate breach from the dismissal, thus not coming under the exclusion. On this point, the judgment cites extensively from Eastwood v Magnox Electric plc [2004] UKHL 35, [2004] 3 All ER 991, and crucially holds that applying the ruling there on the limits of the zone, it is impossible to divorce the procedure from the eventual dismissal, so that the exclusion applied here too. Lord Mance gave a concurring judgment backing this view strongly, stating that any breach of procedure had not in itself caused the harm to the employee following his dismissal; it was a “single process”, leaving the employee to any remedies under the law of defamation or wrongful dismissal.
Lord Phillips said that he thought this result clearly right but was worried about the artificiality of relying on the presumed intent of Parliament and the parties. Instead, he preferred to treat the case as one of “remoteness” (corrected by Lord Mance to mean “causation”) and to rely instead on the limitations on damages on Addis, thereby either treating these cases as really ones of wrongful dismissal or extending Addis to cover cases analogous to that action. However, at the end of his judgment he does come back to the Johnson exclusion, holding that any ways round it are not to be created, to allow a type of damages for breach of a disciplinary code which are not available for wrongful dismissal itself. This gives some credence to Lord Dyson’s view of what Lord Phillips “really” meant.
The dissents: as varied as the majority
As for the dissents, that of Lady Hale is avowedly short because she was clearly on her own. It largely takes the form of saying that, in fairness, there ought to be a remedy for a breach of employment contract, including a term relating to disciplinary procedures, but without being very specific as to how that should be done. Lord Phillips commented that in reality her dissatisfaction was not just with the limitations imposed in these cases but with the whole legal edifice erected by Addis, Johnson and Eastwood. It is in the light of that that the dissent of Lords Kerr and Wilson can be seen as much more limited. On first reading, starting with The Donovan Report and the evolution of unfair dismissal, it seems as if they are about to attack the exclusion zone itself, but then it becomes clear that they are in fact accepting it, but reconsidering whether these cases come within it on their facts. They accept that Botham does, because the harm flowed from the dismissal itself (so that they allow the MOD’s appeal, providing a majority there of 6–1). However, in relation to Edwards, they do not accept that in law a disciplinary procedure must be viewed as part and parcel of the resulting dismissal and on the facts would have held that this claimant could divorce this procedural breach from the dismissal and so escape the exclusion.
The effects?
This is of necessity a short comment on a long and involved case. The following are suggested as its principal effects:
(i) Any moves to a wider form of liability at common law for procedural breach by treating it as separable from the resulting dismissal are stopped and such liability is now most unlikely.
(ii) For the dismissal itself, the appropriate action is wrongful dismissal and here there is no attack in this case on the old restrictive authority of Addis.
(iii) Both the majority and two of the dissenters in Edwards accept the correctness of Johnson and the explanation of its demarcation in Eastwood; there is a majority for the proposition that in law contractual disciplinary procedures do come within the exclusion zone, if one accepts Lord Dyson’s view of what Lord Phillips “really meant”.
(iv) There may, however, still be contractual liability with open ended damages if an employee complains that reputational damage was caused by being suspended in breach of a contractual procedure, with no supervening dismissal.
(v) An employee may be able to prevent a threatened dismissal in breach of contractual procedure by an injunction, even though no action for damages is now permitted if there is an actual dismissal (a position particularly criticised by the dissenters).
(vi) The position of the “Gunton extension” in a wrongful dismissal case is not regularised in the judgments. The majority were clear that it did not help the employees’ cases. As to its correctness, Lords Dyson and Mance said that it was not necessary to decide that on the facts. However, it may be significant that Lord Dyson did say that it is not inconsistent with the Johnson exclusion zone (though Lord Mance was more circumspect on that point) and Lord Phillips said that it was not called into question and indeed showed a similarly restrictive view of damages to that in Addis. For the moment, therefore it appears reasonably safe to assume that the extension should continue to apply in a wrongful dismissal case. At least it gives the employee something more than just wages for the notice period, the classic common law remedy which is in general reaffirmed by this case.
Statutory holidays & unusual working patterns
The Supreme Court have determined the final appeal in Russell v Transocean International Rescue Ltd [2011] UKSC 57, [2011] All ER (D) 53 (Dec), a test case for the application of the statutory holiday provisions to workers on offshore rigs, which also raised a point of principle in relation to the application of those provisions more widely. The facts were simply that these workers worked two weeks on the rigs (12 hours per day) and then had two weeks on-shore (“field breaks”) during most of which time they had no work to do for the employer (but during which their contracts remained in force). The employers required them to treat part of this 26 weeks pa onshore as annual holidays, but the workers countered that statutory holidays had to be taken at a time when they would otherwise have been working, so that they were entitled to (then) four weeks’ holidays during the 26 weeks when they would normally be offshore.
It was accepted that the field breaks were clearly long enough to cover any necessary compensatory rest for the lack of breaks in the time offshore and the annual leave entitlement, and so the issue was one of principle. The point going beyond the particular facts was that raised by the workers’ primary argument, namely whether there is any general principle that statutory holiday must be during “working time”, a point potentially of significance elsewhere, for example in other cases of extended shift working or (an example featuring largely in the arguments) in the case of teachers or university lecturers who are required to take holidays out of term time, for obvious reasons.
The progress of the case through the courts
The employment tribunal held for the workers but the Employment Appeal Tribunal (EAT) and Court of Session held for the employers. The Supreme Court have now rejected the workers’ further appeal and held that the employers were within their rights to require statutory leave to be taken during the field breaks. Giving the judgment, Lord Hope started by considering the Working Time Directive and effectively stood the workers’ argument on its head—the requirement is not that leave must be during “working time”, but that it must constitute a “rest period” of the requisite length. That was the case here on the facts (given the lack of work commitments during field breaks).
The judge said that a rest period merely means any period which is not working time and that that is so irrespective of where the worker is or what he is doing during it. Moreover, he disapproved another argument, namely that there was a “qualitative” requirement for annual leave, ie that “leave” had an inherent meaning more than just “rest”. Disapproving this, Lord Hope said: “I do not think that a qualitative requirement, as an additional test of whether a given period can be accounted as rest within the cycles of time that are identified, is to be found in the wording of the WTD. It is true that the safety and health of workers lies at the heart of the rules that it lays down. But there is no indication anywhere that it was concerned about the quality of the minimum periods of rest, other than to make it clear in the definition of ‘rest period’ that it means a period which is not working time. The periods that it has identified must be taken in themselves to meet the objects stated in the preamble. The plain indication of its wording is that the exercise that must be carried out is indeed simply one of counting up the relevant hours, days or seven-day periods and ensuring that the worker is not required to work during those periods.”
He went on to hold that the provisions of the domestic regulations are consistent with this and that on the facts there was no suggestion that the field breaks had not been genuine breaks or that there had been actual breaches of health and safety.
Two other implications
Finally, the judgment mentions two “problem cases” that had been in issue in the arguments:
(i) the “teacher” problem (above)—here it was pointed out that the court’s decision resolved this issue because it meant that the employers could continue to require holidays to be taken out of term time, even though that is not “working time”;
(ii) the “Saturday” problem, namely whether the result meant that an employer of employees working five days a week could allow Sunday off as weekly rest but also insist that the employees use the Saturdays as annual leave. This possibility, which arguably negates the whole idea of annual holidays, arose in Sumsion v BBC Scotland [2007] IRLR 678. Lord Hope thought that it was a case on unusual facts, especially given the short-term nature of the contract, but said that as it raised a totally different point from that in the case of the offshore workers, namely whether an employer could insist on leave being taken in individual days, the court did not have to decide it. However, he gave a strong indication that if he had had to do so he would probably have held that the scheme of the Directive is that periods of annual leave are to be measured in weeks, not days. The result of that would be that, while a worker could opt to take some or all leave in days, the employer could not require him to do so.
TUPE & administration
The first thing that is essential to note about the decision in Key2Law (Surrey) LLP v De’Antiquis [2011] EWCA Civ 1567, [2011] All ER (D) 194 (Dec) is that there has been a name change—this is, in fact, the appeal in what we know and love as OTG Ltd v Barke [2011] IRLR 272, [2011] All ER (D) 241 (Mar).
The litigation concerns the meaning of the exception in TUPE reg 8(7) which excludes the protection of TUPE where “the transferor is the subject of bankruptcy proceedings or any analogous proceedings which have been instituted with a view to the liquidation of the assets of the transferor”.
This has been explained as part of the previous government’s “rescue culture” for firms in difficulty, but controversy has been caused here when this has been used in the past to remove TUPE protection from employees involved in a “pre-pack” take-over of an ailing business (though the instant case was not in fact such a transaction).
The question of law has been whether administration proceedings under Sch B1 of the Insolvency Act 1986 constitute the sort of “analogous proceedings” which activate the exclusion. When this was first considered by the EAT in Oakwood v Wellswood (Yorkshire) Ltd [2009] IRLR 250, it was held that such an administration can qualify if the purpose of the administrator is the one specified in the sub-regulation; this was known as the “factual” approach.
Not surprisingly, it was cited and applied by the tribunal in the instant case. However, when the joined appeals were heard by the EAT under Underhill P a very different interpretation was adopted. This was that it is the nature of the Sch B1 administration that matters and that in law such an administration cannot qualify. That pro-employee decision (generally known as the “absolute” approach) has now been upheld by the Court of Appeal.
The principal judgment was given by Rimer LJ, no stranger to both employment and insolvency law. Like the president at EAT stage, he also considers the EU case law leading up to the current wording of the provision of the Acquired Rights Directive from which reg 8(7) is taken almost verbatim. In the light of all of this, he had no hesitation in holding that the president was right in his interpretation and that the decision on Oakwood was wrong. Part of the reasoning related to the potentially high level of uncertainty of a test based on the actual or presumed intention of the administration, which in any event can rapidly change.
To adopt and adapt a well known old saw—who knoweth the mind of man, let alone an administrator? Or as Pope put it: “Alas! In truth the man but changed his mind, Perhaps was sick, in love, or had not din’d.”
The absolute approach avoids having to speculate on an administrator’s state of digefstion or the even more difficult question of whether anyone could possibly love them. Further, the judge took the view that this interpretation was very much in line with the old EU case law, the protective intent of the Directive, and the desirability of a much higher level of certainty in this already difficult area.
Ian Smith, barrister, emeritus professor of employment law at the Norwich Law School, UEA & an editor of Harvey on Industrial Relations and Employment Law
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