Anglian Home Improvements Ltd v Kelly

LORD JUSTICE MUMMERY: This is an appeal by Anglian Home Improvements Limited, who carry on the business of the installation of windows. The appeal is against the decision of the Employment Appeal Tribunal on 30th December 2003 (His Honour Judge Prophet presiding) dismissing Anglian Home Improvements' appeal against a majority decision of the Employment Tribunal which, in extended reasons sent to the parties on 25th July 2003, found that the applicant, Mr Chris Kelly, had been unfairly dismissed from his position as a regional operations manager for Anglian Home Improvements' operations based in Truro. Mr Kelly had been an employee of Anglian Home Improvements for 22 years. He was dismissed on 12th November 2002 for gross misconduct. He then began proceedings in the Employment Tribunal for unfair dismissal.

The findings of fact are set out in the extended reasons as follows. Anglian Home Improvements are a substantial and well-known national manufacturer of windows. Mr Kelly worked at the Truro branch. He was in charge of staff of the order of 60 to 70 people. It was no doubt high pressure work and he found himself, like many managers, in a stressful situation. There were three complaints, which led to his dismissal. It was accepted by Anglian Home Improvements that two of them were less serious and would probably not have resulted in a dismissal. The first was a failure on Mr Kelly's part to observe an instruction to hold meetings. The second of the lesser complaints was of abuse of a number of staff as a result of Mr Kelly allegedly losing his temper.

In view of the decision of the Employment Tribunal, I do not think it is necessary to say any more about the two less serious matters. The Tribunal found that the most serious matter concerned banking records. It found that the company was concerned about the level of outstanding debts and that the system should work so that, when windows are fitted, money which is due on completion is then actually collected. The installer should collect the money, usually by way of a cheque, and return it to the office, where it is banked on the same day. It is recorded on the computer system, known as the JDE.

The Tribunal found that Mr Kelly had been in default of doing this, and that possibly other branches had also. He had received a clear instruction by letter dated 15th May 2001 emphasising that it was unacceptable not to bank each day and that banking must be undertaken prior to posting on the JDE. The instruction is in the form of a memo addressed to three people: to Mr Kelly, as regional operations manager, and to two less senior employees, Adrian Trewella, senior installation manager, and Helen Tucker, office supervisor. The memo comes from the divisional operations manager, Mr Neil Ward, and copies were sent to the operations director and to the auditor. It is headed "Re: Bankings" and reads as follows:

As the Employment Tribunal remarked, although that letter was not specifically followed up, it was entirely clear. The Tribunal went on to find that Mr Kelly was not doing the banking on time. This affected the level of debt outstanding in any week. In practical terms, what Mr Kelly was doing was this. He would borrow from the expected takings for the following week and record them as takings in the current week, thereby reducing the figure for debt. Obviously, that produced a running problem because, as the weeks went on, he had difficulty in catching up. The Tribunal emphasised that there was no fraudulent action on his part in the sense of any immediate resulting financial gain, except to the extent of hitting targets for the branch, which may at some point help qualify for a performance bonus. Anglian Home Improvements accepted from the outset that Mr Kelly's actions were not carried out with a bonus in mind:

The Tribunal then referred to a memo which Mr Thurtell, a director, had sent, indicating that at least one of the branches in Mr Thurtell's area was doing the same. Mr Thurtell put a note to Mr Ward, the divisional operations manager, that Mr Kelly had to confirm in writing that he would not do it again. That was never passed to Mr Kelly, because it was overtaken by events. Mr Ward decided that the problem was on a greater scale than he had at first appreciated. The result was that on 12th November 2002 there was a disciplinary hearing before the divisional operations manager. Mr Kelly was dismissed for the three offences which I have referred to. On 27th November he unsuccessfully appealed. There was an issue concerning Mr Ward's authority to dismiss, which it is not relevant to investigate on this appeal.

The Tribunal then, correctly, first addressed the question of what was the reason for dismissal. They answered that it was conduct. It was a potentially fair reason for a fair dismissal. They went on to say that they bore in mind that the complaint was not limited to the banking procedure but, having regard to the less serious nature of the other complaints, it was important to consider how serious the banking point was. They referred to a practice relating to installations on which Mr Kelly, who appears in person on this appeal, has made some observations to the court at the hearing. The Tribunal found that there was a practice relating to installations, which could be counted as completed.

I come to the important part of the decision, which has been subjected to serious criticisms by Mr Laddie, counsel for Anglian Home Improvements. There was disagreement between the members of the Tribunal. This was a majority decision in favour of Mr Kelly, the majority consisting of the two lay members, the dissenting member being the Chairman. The reasoning of the Tribunal, which led to the majority conclusion that this was an unfair dismissal for which Mr Kelly should receive an agreed sum of compensation of £22,000, was as follows:

There are several general points which I wish to make about the decision before coming to the criticisms made by Mr Laddie, and the submissions made by Mr Kelly with the assistance of a consultant, Mr Stiles, who represented Mr Kelly at the hearing before the Employment Tribunal. The first is, as stated by Mr Kelly in his skeleton argument, that this was not a reserved decision, even though there was a split between the members about the outcome of the complaint of unfair dismissal.

Mr Laddie has drawn our attention to passages in two authorities relating to split decisions. First, the case of Holden v Bradville Ltd [1985] IRLR 483, EAT, a decision of Employment Appeal Tribunal, at paragraph 22 where this was said:

Mr Laddie also cited a passage from Parkers Bakeries Limited v Palmer [1977] IRLR 215, EAT, another decision of the Employment Appeal Tribunal in which the judgment was given on behalf of the Tribunal by its first President, Phillips J. I quote paragraph 11 of the judgment:

I add this comment in relation to decisions in which the members of the Tribunal are not unanimous. It is the responsibility of the Chairman, as is noted above, to write up the decision. In my view, where the members are unable to agree, at the conclusion of the hearing, on what the result of the complaint should be, it is preferable, in general, for the Chairman to reserve the decision so that he can write it up and circulate it to the other members of the Tribunal. If, as happened in this case, it is the two lay members who are in the majority and are disagreeing with the Chairman, it is preferable to give the two lay members not only an opportunity to see that their views are correctly expressed in the decision document drafted by the Chairman, but also an opportunity to reflect on the grounds on which they are disagreeing with the Chairman about the outcome of the hearing.

In my judgment, it is undesirable, on the whole, for Tribunals to reach split decisions. It will, of course, be inevitable in some cases, but it is preferable, if it is possible to do so, for all efforts to be made to reach an unanimous decision. Unanimity is more likely if time is given after an initial disagreement for everybody to consider the position. Such time is given by reserving a decision rather than giving it extempore. The result of giving an extempore decision in this case is, in my judgment, an inadequate set of reasons for finding that Mr Kelly was unfairly dismissed. In my judgment, Mr Laddie is correct in his criticisms of this decision.

The first criticism is that the Employment Tribunal did not correctly direct themselves in law to the appropriate range of reasonable responses test. The test has been well established since the early days of unfair dismissal claims. It is still impossible to improve on the passage from the judgment of Lord Denning in British Leyland UK Ltd v Swift [1981] IRLR 91, cited by Mr Laddie. The test laid down there was this:

It is not a correct determination of an unfair dismissal claim for the members of the Tribunal, whether they be the lay members or the Chairman, to substitute their own personal decision for that of the employer. The members of the Tribunal are not the employers. Their personal views as to how they regard the conduct for which the employer has dismissed the employee are not the point. They must, in the process of deciding an unfair dismissal claim, take an objective position and ask themselves whether a reasonable employer would have dismissed the employee for the conduct in question. They must apply the test of the range or band of reasonable responses stated by Lord Denning.

That, in my view, was clearly not done in this case. There is a striking contrast between the expression of the views of the lay members and those of the Chairman about Mr Kelly's activities. In paragraphs 20 and 22 of the extended reasons a reference is made to the view of the lay members that the activities for which Mr Kelly was dismissed were simply those of massaging figures to meet targets, and that the practice was insufficiently serious to warrant dismissal in all the circumstances. There is a stark contrast between that and the one sentence which expresses the view of the Chairman on the fairness of the dismissal. That is the only part of the decision which refers to the band of reasonable responses test. He finds that, on applying that approach, the dismissal was fair.

The extended reasons are thin compared with documents usually provided by Employment Tribunals to justify their decision. There is in most decisions, quite properly, a section, which need not be lengthy, stating the relevant legal principles to be applied in the decision of the case. Sometimes that involves simply a reference to particular sections in the Employment Rights Act or other relevant legislation. In other cases, quite often in unfair dismissal cases, there will be a reference to well-known cases and a summary of the test that they have laid down. One is left with an uncomfortable feeling in this case that it might not have been made as clear as it should have been to the two lay members that it was not their personal view of the activities of Mr Kelly which determined whether this was a fair dismissal or not. The issue is the view that a reasonable employer would entertain when having to deal with activities of this kind by an employee.

I am not as sanguine as the Employment Appeal Tribunal were in their comments on this point. In the Employment Appeal Tribunal, Mr Laddie's criticism was dealt with in the judgment given by Judge Prophet in the following way. I quote from paragraphs 9 and 10 of the decision:

In my view, this is a serious error of law on the part of the Employment Tribunal. It will be necessary to consider, a little later, whether this results in a need to remit this matter to the Employment Tribunal for a rehearing or whether it will be one of those rare cases in which it will be permissible for this court to allow the appeal and to dismiss the claim.

Mr Laddie went on to make other points in criticism of the Tribunal's reasoning. He dealt with the failure of the Employment Tribunal to take into account material evidence. He submitted that the Tribunal had failed to take into account material evidence and material factors in relation to the disciplinary procedures of Anglian Home Improvements. He referred to the disciplinary procedure, providing for two categories of misconduct: misdemeanours and gross misconduct. Each category was explained by reference, for example to misconduct which could be categorised under one or other heading. There was a heading "any deliberate falsification of records" categorised as "gross misconduct". Employees were warned that a finding of gross misconduct would normally lead to summary dismissal. The misdemeanours category contained no examples of misconduct relating to the falsification of records.

Mr Laddie submitted, and I agree, that Mr Kelly's conduct fell squarely within the definition of gross misconduct in the employer's disciplinary procedures. Mr Laddie went on to point out that the importance of disciplinary rules could not be overstated. He referred to the requirement of written particulars of employment which need to specify any disciplinary rules applicable to any employee, or referring an employee to the provisions of a reasonably accessible document specifying such rules. Those requirements exist in relation to relevant disciplinary procedures, including appeals.

He also referred, as I think he was entitled to do, to the ACAS Code of Practice, disciplinary grievance procedures, which was issued for the purposes of promoting the improvement of industrial relations. Under the provisions of section 272 of the Trade Union Labour Relations Consolidation Act 1992, the ACAS Code of Practice is admissible in evidence in Employment Tribunal proceedings. It is provided that any provision of the Code, which appears to the Tribunal to be relevant to any question arising in the proceedings, shall be taken into account in determining that question. The Code of Practice emphasises the importance of disciplinary rules. Express reference is made in paragraph 7 of the Code to the propriety of including deliberate falsification of records in provisions relating to gross misconduct which may warrant summary dismissal.

Mr Laddie said that in this case the disciplinary procedures were particularly important. In the notice of application, the case of Mr Kelly was that the dismissal should be regarded as unfair because he had received insufficient warning of the likely consequences of his misconduct. So one of the issues before the Tribunal was whether he should have been warned. Mr Laddie's submission was that the disciplinary procedure was of crucial significance in relation to that issue, as the extended reasons omit grounds for the disciplinary procedure and do not indicate whether it was taken into account in determining whether the employer had satisfied the provision of section 98(4) when it dismissed Mr Kelly. The extended reasons do not refer, either, to the ACAS Code of Practice.

Mr Laddie submitted that the circumstances of the case require that the disciplinary procedure should be accorded a central role. Development of the argument before the tribunal reflects the importance of the disciplinary procedure as a factor which the Tribunal ought to consider, and the Tribunal's failure to take into account that factor, and to take into account the ACAS Code of Practice, amounted to a serious flaw vitiating its decision.

On this point I would agree with Mr Laddie that it is not adequately dealt with by the Employment Appeal Tribunal in their reasoning. The ground of appeal which I have just summarised was mentioned in paragraph 11 of the judgment of the Employment Appeal Tribunal. But the Employment Appeal Tribunal said that the Employment Tribunal had carefully set out its findings of fact and had noted the efforts of the employer to tackle all supporting documents, and in paragraph 12 that, although the Employment Tribunal did not refer specifically in the reasons to the disciplinary procedure providing for falsification of records being capable of constituting gross misconduct, the Appeal Tribunal accepted from Mr Stiles, who had been present as Mr Kelly's representative at the Employment Tribunal hearing, that the disciplinary procedure was considered at length during the hearing. The Appeal Tribunal said they were satisfied that the Employment Tribunal must have had its contents properly in mind and added:

I think that the Appeal Tribunal have let the Employment Tribunal off too lightly in this respect. It is not enough, in my view, for the Appeal Tribunal to accept from Mr Stiles that the disciplinary procedure was considered at length during the hearing, when it does not appear from the extended reasons to have played the part that it should have done in the reasoning process that led to a decision adverse to Anglian Home Improvements. In my view, it is a legal flaw in the extended reasons. It may not have such serious consequences as the first ground of appeal which I have mentioned, but it is a point which Employment Tribunals should bear in mind in future cases.

The third ground of appeal was perversity. Mr Laddie relies upon this, while accepting it is a difficult hurdle to overcome, for the purposes of persuading this court that the proper course to take is not only to allow the appeal but also to dismiss Mr Kelly's claim for unfair dismissal. Mr Laddie referred to what was said by this court in Yeboah v Crofton [2002] IRLR 634, CA, as to the necessity of showing an overwhelming case for the purposes of accepting perversity as a ground for overthrowing a decision of an Employment Tribunal. Mr Laddie submitted that the majority's decision appears to have been reached on the basis that dismissal was too harsh a penalty for the misconduct, which had been admitted by Mr Kelly. The Tribunal did not criticise the procedural aspects of the dismissal and so the analysis put forward by the employer in this case is restricted to the question of the level of sanction.

On this point, Mr Laddie said the starting point for the analysis on level of sanction was Anglian Home Improvements' own disciplinary procedure, which I have already referred to, including an explanation in it of the nature and consequences of gross misconduct, specifically referring to the deliberate falsification of records. That is categorised in the procedure as gross misconduct and not in the section for misdemeanours. He submitted that in addition to the disciplinary rules, which were clear on this point, Mr Kelly was the recipient of the memo of 15th May 2001, which I had referred to for its strict terms. He submitted that, notwithstanding the clear and repeated warnings as to the prohibition of falsification of the JDE records, Mr Kelly had deliberately and knowingly broken the rules with the consequence that he had given a false picture of the branch debt to the central management of the company.

Mr Laddie then referred to matters which had been raised before the Employment Appeal Tribunal, and to a number of other detailed matters relating to the events leading up to the disciplinary hearing and to the holding of the minuted disciplinary hearing. I do not think it is necessary to go into any more detail about this in order to deal with the perversity ground.

The conclusion which I have reached in this case is first, as already mentioned, there was a very serious legal error in the approach of the two lay members to the question of unfair dismissal. The error was that of substitution. Instead of applying the objective test laid down by a long line of authorities, and applying a band of reasonable responses to the question of whether there was a fair dismissal or an unfair dismissal, it is clear that the two lay members had substituted their own personal views.

This was a case of gross misconduct. It was a case of conduct which was the subject of a memorandum of May 2001. I have taken into account a number of points made by Mr Kelly about how the consequences of dismissal were not spelt out to him, about the pressures that there were in relation to meeting targets, and about the occurrence of the practices to which he has admitted in other parts of the company. In my judgment, they do not begin to meet the point that he has brought an unfair dismissal case, in which he has admitted misconduct described in the disciplinary procedures which were part of his contract as "gross misconduct" which could lead to summary dismissal. It seems to me that, on the facts found by the Tribunal, the only conclusion that a reasonable Tribunal could have come to in this case, applying the band of reasonable responses test, was that it was open to a reasonable employer summarily to dismiss an employee in the responsible position held by Mr Kelly for misconduct of the kind he had committed.

Although it is extremely unusual for this court to have to say so, I have reached the conclusion that the decision of the majority was a perverse one in the sense referred to Yeboah v Crofton. An overwhelming case has been made out that the findings of fact made by this Tribunal lead to one conclusion and one conclusion only; that is that a reasonable employer could reasonably dismiss Mr Kelly for the misconduct committed by him.

I know that this decision will be a disappointment to Mr Kelly. He has succeeded in the Employment Tribunal by a majority. He has succeeded in upholding that decision in the Employment Appeal Tribunal. I have already given the reasons why I am not able to accept the reasoning which led the majority of the Employment Tribunal to allow the claim, and the reasons why I am unable to uphold their decision along the lines, which the Appeal Tribunal felt able to do so. For all those reasons, I would allow this appeal and I would dismiss Mr Kelly's claim for unfair dismissal.

LADY JUSTICE ARDEN: I agree, for all the reasons that my Lord, Mummery LJ, has given.

The principal issue on this appeal is whether the Tribunal can be said to have applied the reasonable band of responses test established by Leyland v Swift [1981] IRLR 91 and Post Office v Foley [2000] ICR 1283, both decisions of this court. As to this matter, I accept that in an appropriate case it might be possible to find that an Employment Tribunal has done so by necessary implication. However, in this case the Appeal Tribunal said:

In my judgment, that is clearly not enough. There must be a basis within the decision of the Employment Tribunal for reaching a conclusion that they properly directed themselves to the right test. Here, as my Lord has explained, the phraseology of the majority decision is against that conclusion. The like point can be made in respect of the Employment Tribunal's failure to mention the appellant's grievance procedures.

Accordingly, I, too, would allow the appeal and make the order my Lord proposes.

MR JUSTICE GAGE: I agree. I only add a few words of my own because we are in exceptional circumstances not only allowing the appeal but dismissing Mr Kelly's application for unfair dismissal.

Mr Kelly, with commendable frankness, accepts that the falsification of records was gross misconduct. In all the circumstances of this case, it seems to me impossible to say that his dismissal by his employers was outwith the range of reasonable responses to this conduct. In my judgment, the majority decision of the two lay members can be tested against this background. In looking at the reasons given for their decision, to my mind, it becomes quite clear that they must have misdirected themselves. They do not mention the test of range of reasonable responses. Therein lies the explanation for their finding.

It is clear from the words used that they were substituting their own views for those of the appellants and that is not permissible. If they had applied the correct test, to my mind, they could not have reached the decision which they did. For these reasons, and the reasons given by my Lord and my Lady, I too would allow this appeal and agree the order by my Lord.