CF Capital Plc v Willoughby

This appeal by C.F. Capital Plc (‘CFC’) is against an order of the Employment Appeal Tribunal (‘the EAT’) made on 13 July 2010. The EAT thereby allowed an appeal by the respondent, Catherine Willoughby, against a judgment of the Newcastle-upon-Tyne Employment Tribunal (‘the ET’) that was sent (with reasons) to the parties on 7 September 2009. Ms Willoughby had brought a claim for unfair dismissal against CFC which the ET held to be unfounded on the basis that she had not been dismissed but had resigned. The EAT, on appeal, held that she had been dismissed and ordered a remission of the proceedings to a differently constituted tribunal for the determination of her consequential claims. The ET panel comprised Employment Judge Morris, Mrs M. Kelly and Mr J.B. Wright. The EAT panel comprised His Honour Judge Richardson, Mr M. Clancy and Mr T. Motture.

By its appeal, brought with the permission of the President of the Family Division, CFC challenges the EAT’s order and seeks the restoration of the ET’s judgment. James Boyd (who appeared in both tribunals below) represented CFC. Fred Banning (who appeared in neither) represented Ms Willoughby. To explain the issue, I must summarise the facts found by the ET.

CFC is a medium sized business that, at the material time, had about 55 employees. It acts as an intermediary between seekers and lenders of finance for the purchase of capital equipment. Ms Willoughby started employment with it on 17 March 1990. She had various roles, her latest being that of account manager in the sales team. Her line manager was Mr Keeley, a CFC director. They had a good relationship.

The banking crisis of 2008 created difficulties for CFC. It recognised the need for costs savings and considered reducing its staff. On 20 November 2008 it dismissed six employees on the grounds of redundancy. It formed a proposal to dismiss a further 18 employees in various departments. It also assessed the sales team as under-performing, although not in identifying potential customers so much as in securing finance for them. It identified a need to reduce the sales team’s overheads. Whilst it foresaw that in time there might be redundancies, it recognised that it would continue to need people to sell its products. It decided to hold meetings with the members of its sales team to see if any of them would move from being an employee to becoming self-employed. The meeting with each individual was to be conducted by the director with particular management responsibility for him or her. Mr Keeley was, therefore, to conduct the meeting with Ms Willoughby.

The two of them met on 1 December 2008. Mr Keeley explained the problems and the need to save costs. He told Ms Willoughby that one option being considered was to make redundancies within the sales team but that no firm decision had been made. He told her that 11 employees in other teams were to be made redundant, as was to be announced that day. He explained that a possible alternative to redundancies amongst the sales team was for sales staff to become self-employed. CFC would pay a retainer of about £1,000 to £2,500 a month and commission of 50% of gross profit.

Ms Willoughby was interested and asked about the tax implications and other terms of such a change. Mr Keeley advised her to speak to Mr Hazel about tax and said that he would provide her in writing with the detailed terms of a move to self-employment. Ms Willoughby indicated to Mr Keeley that she would be prepared to become self-employed but only on terms acceptable to her; and that she would consider this option upon receipt of the detailed terms. The ET found that the only option considered with her was the possibility of her becoming self-employed: CFC had made no decision regarding the possibility of dismissing any of its sales team on redundancy grounds.

Whereas the ET found that Ms Willoughby had indicated no more than a willingness to consider the self-employed option upon receipt of the detailed terms, it found in paragraph 11.19 that Mr Keeley perceived the discussions as having gone further: it there found that ‘[h]e thought that an agreement had been reached whereby [her] employment would end and she would be re-engaged on a self-employed basis.’ The ET found, therefore, in paragraph 11.20, that there was a significant misunderstanding between Mr Keeley and Ms Willoughby as to what had and had not been agreed, although it also found that each was genuine in his/her understanding of the outcome of the meeting. The ET noted that the existence of such misunderstanding would have been identified if Mr Keeley had provided Ms Willoughby with a note of their meeting. He did not, however, do that. What he did do was to ask Mr Wilding (CFC’s HR and IT manager) to produce the paperwork necessary to change Ms Willoughby’s status from employed to self-employed.

Following the meeting, Ms Willoughby pressed for the provision of the details of the terms that Mr Keeley had promised. She rang him on 5 December to be told that Mr Wilding was dealing with it. She rang Mr Wilding on 12 December to be told that he was on holiday and that he would be back on 15 December. She rang Mr Wilding on 17 December to be told that the paperwork would be sent to her soon.

On 22 December Mr Keeley wrote Ms Willoughby the critical letter upon which all turns. She received it the following day. Equivalent letters were sent on the same day to three other sales employees. The letter read:

On its face, therefore, that letter terminated Ms Willoughby’s employment on 31 December. I set out what the ET said about it in paragraph 11.26:

I make two comments. First, I interpret the second sentence as reflecting the ET’s finding as to Mr Keeley’s understanding at the conclusion of the meeting of 1 December, although it is manifestly at odds with its findings in paragraph 11.19 referred to in paragraph [7] above. Taking the paragraph 11.26 finding as the relevant one (as Mr Boyd, for CFC, was content to do), it is not apparent to me that there was any significant misunderstanding between Ms Willoughby and Mr Keeley at the end of the meeting of 1 December. Her position was that she wanted to consider the self-employment proposal further; and that was his understanding of her position. Second, it follows that, in writing the letter of 22 December, Mr Keeley might, on one view, be regarded as having made an egregious mistake: because, until Ms Willoughby had been given the details of the proposed self-employment arrangement and had gone firm with CFC that that was the road down which she wished to travel, the letter was premature.

Following the receipt of the letter, Ms Willoughby sought legal advice. The result was that on the morning of 5 January 2009 she rang Mr Wilding to inform him that she would not be accepting the Agency Agreement, that the letter of 22 December had terminated her employment and that she had been advised to pack up all CFC’s property that she had and do no further work for it. Mr Wilding asked Mr Keeley to ring her back, which he did shortly afterwards. Mr Keeley expressed surprise at what he saw as a change of heart on her part but assured her that, if there had been a misunderstanding and she did not wish to become self-employed, her situation would continue as before. He told her that he would consider the position further and call her again.

He rang her later that day and they had an inconsequential conversation. He also rang her on the following day, 6 January, to be told that she had been advised that he should speak to her solicitors. He rang them, explained that there had been a misunderstanding, that Ms Willoughby was held in high regard at CFC, that there was never any intention simply to terminate her employment and that she should return to work. The solicitors replied that they believed she had been dismissed. Mr Keeley wrote to Ms Willoughby on 9 January in terms that the ET found to be pleasant, conciliatory and genuine. He explained CFC’s position, apologised for the misunderstanding and expressed the hope that she would continue in employment. Ms Willoughby did not reply to his letter. He telephoned her on 13 January, when he expressed a wish to meet her to try to resolve matters, a conversation he confirmed in a letter of the same day. Ms Willoughby did not reply to that letter either.

Correspondence followed between solicitors. CFC’s stance, as expressed in its solicitors’ letter of 23 January was that it remained keen for Ms Willoughby to resume her duties as soon as possible and that ‘[s]ince the letter of 22 December 2008 has no effect, employment with [CFC] continues on its existing terms.’ There was no response to that and shortly afterwards CFC accepted that Ms Willoughby’s employment was at an end, although not as a result of her dismissal. Its stance was that she had resigned.

The ET held that ‘without more’ Mr Keeley’s letter of 22 December would amount to a dismissal. That, it said, is how:

The ET referred to (but did not cite from) various authorities and said that they required an objective view to be taken of the letter’s words of termination. The question, it said, was ‘how would a reasonable recipient of the letter … have construed the words in that letter in all the circumstances of the case’. It was satisfied that there were ‘special circumstances’ that had to be taken into account. The first was that at the close of the meeting of 1 December Ms Willoughby’s understanding was that both she and Mr Keeley understood that she was interested in a move to self-employment, but that was all:

The second ‘special circumstance’ was that, once Ms Willoughby had on 5 January 2009 alerted CFC to its mistake, Mr Keeley promptly withdrew the dismissal. The ET’s conclusion was that, in those circumstances:

The EAT, in a judgment delivered by Judge Richardson, reviewed the authorities and concluded that the ET’s judgment and reasoning were in error. The EAT agreed with the ET that the letter of 22 December amounted to a dismissal of Ms Willoughby and that it could not be read in any other way. The ordinary principle is that an employer who uses unambiguous words of dismissal, so understood by the employee, will thereby dismiss an employee, just as an employee who uses unambiguous words of resignation, so understood by the employer, will thereby resign. Whilst there are exceptions to those principles, they are limited and tribunals should not be astute to find exceptions. The fundamental question for a tribunal will be whether, in the special circumstances, the person to whom the words were addressed was entitled to assume that the decision which they expressed was a conscious rational decision; or whether there were circumstances that ought to indicate to their addressee that they were not meant, or should not be taken, at face value. In recognising the existence of such exceptions, said the EAT:

Applying that approach to the appeal, the EAT concluded that the ET had not applied the correct test. Having correctly recognised that the letter of 22 December included unambiguous words of dismissal, the ET failed to ask itself whether Ms Willoughby was entitled to regard the dismissal decision expressed in the letter as a conscious, rational decision. It was not enough that, as the ET found, Ms Willoughby would have concluded from the letter that something was seriously wrong and that CFC had made a mistake. If the perception that the dismissing employer or the resigning employee was or might in some way have been mistaken in issuing a letter of dismissal or resignation were of itself a special circumstance, the exception would, in the EAT’s view have overtaken the rule. Employees must often think that an employer is making a mistake in dismissing them, but they are still generally entitled to take a letter or words of dismissal at face value. Ms Willoughby and her lawyers were entitled to do so in this case. No doubt a reasonable person, knowing what had happened on 1 December, would upon receiving the letter of 22 December have recognised that something was seriously wrong. But there was no reason why he would necessarily consider that the reference to termination was an error. He might equally think that the employer was bent on riding roughshod over the employee’s rights and her reasonable requests for information about the proposed change to self-employment. In fact, the reference to termination in the letter was not an error. In any event the ET ought not to have held that CFC’s change of heart on and after 5 January 2009 was timeous: there was no retraction until after Ms Willoughby had taken a decision based on legal advice.

The first ground of appeal was that, whilst the EAT identified the correct legal test, it misapplied it. Unlike the ET, it erroneously focussed its attention not upon whether, in the circumstances, Ms Willoughby ought to have been aware that the words of termination should have been taken at face value, but instead upon the intention of CFC. The second ground was that the EAT took too narrow a view of the ‘special circumstances’ doctrine and wrongly concluded that the concept of mistake, apparently in any circumstances, had no role to play in what could be construed as ‘special circumstances’. The third ground was that the EAT was wrongly influenced by Buckland in arriving at the conclusion it did. In his oral argument, however, Mr Boyd advanced submissions in development only of the first two grounds.

Mr Boyd accepted that the relevant finding by the ET as to Mr Keeley’s understanding at the end of the meeting of 1 December was as it explained in paragraph 11.26 of its reasons. He accepted, therefore, that there was no relevant misunderstanding by Mr Keeley as to Ms Willoughby’s intentions. It was common ground between them that she was interested in a possible switch to self-employment status but had not yet agreed to such a switch; she wanted first to see and consider the details, which Mr Keeley had promised to provide but never did. All that he did do was to write to her on 22 December giving her what was in practice a week’s notice terminating her employment. (As she was no doubt entitled to longer notice than that, the letter probably also, on its face, constituted a repudiatory breach of her employment contract, which she accepted on 5 January 2009, although that was not a feature to which any argument was addressed).

Against this background, Mr Boyd’s starting point was an express acceptance that, when CFC sent Ms Willoughby the letter of 22 December, it intended to dismiss her. That concession might perhaps be thought to mark the end of CFC’s appeal since it is not immediately obvious why an unambiguous notice of dismissal, intended by the employer to take effect as such, does not do precisely the work that the employer intended of it. Mr Boyd’s submission, however, was that it is not as easy as that. The validity of the dismissal notice did not just turn upon what CFC intended. It was also essentially dependent upon whether it was reasonable for the recipient to take it at face value. The further submission was that Ms Willoughby (or, perhaps more accurately, the reasonable recipient of the notice) could not take it at face value because it would be apparent to such recipient that the notice was fatally vitiated by a mistake. The mistake was that a dismissal notice could and should only properly have been given when and if CFC and Ms Willoughby had first reached agreement that she wished to switch to self-employment. As they had not done so, the giving of the dismissal notice was premature and was a mistake. Once the mistake was understood, as CFC claims it was by 5 January, it was entitled to withdraw the notice, with the consequence that the parties would be treated as continuing to be employer and employee as if the dismissal notice had never been written.

That submission is not one that I find it easy to follow or accept. CFC intended to dismiss Ms Willoughby by its letter of 22 December. It also intended that she should recognise its letter as one of dismissal, as indeed she did: on 5 January she acknowledged the termination of her employment. She has not sought to say that the dismissal was vitiated by mistake. On the contrary, she has accepted the letter as terminating her employment. CFC’s stance is, however, that it is entitled to be relieved from the consequences of its own intended act on the basis that it would have been open to her to assert that the notice was of no effect. It is saying that its own prior mistake, to which Ms Willoughby could, had she chosen, have pointed, was sufficient to vitiate its notice.

Mr Boyd’s course to that conclusion as a matter of law was via the invocation of the so-called ‘special circumstances’ exception that is referred to or applied in several authorities in the field of employment law. To decide whether Mr Boyd’s course is a navigable one, I turn to the applicable principles of law.

First, the giving by an employer to his employee of a notice of dismissal cannot be unilaterally retracted, but may only be withdrawn by consent. See Riordan v. The War Office [1959] 3 All ER 552, at 557I to 558D; Harris & Russell Ltd v. P.S.G. Slingsby [1973] IRLR 221, at paragraphs [3] and [4].

Second, employment law is, at least in large part, a branch of contract law. The principles of contract law ordinarily require that a person’s intentions are ascertained not by reference to his subjective intentions but objectively, by reference to how a reasonable man would interpret them. His intentions will therefore be ascertained by reference to a consideration of the words used, whether written or oral, in the context in which he used them. In the present case, the reasonable recipient of CFC’s letter of 22 December would have no doubt as to what it meant or what its legal effect was. He might, given his assumed understanding that Ms Willoughby had not agreed to a switch to self-employment and that CFC knew that she had not, be surprised by the writing of such a letter to her. But such surprise would not require him to interpret it in other than its ordinary way.

Third, the ‘special circumstances’ exception to which I have referred is one that finds its expression and application in several reported authorities. They are cases in which either the employee has given an oral notice of resignation or (less commonly) in which the employer has given an oral notice of dismissal. The words of the notice so given may, on the face of it, be clear and unambiguous and may take effect according to their apparent terms. Indeed, the general rule is that they will do so. The authorities recognise, however, an exception to that general rule: namely, that the circumstances in which the notice is purportedly given are sufficiently special that it will or may not take such effect. For example, the words of notice may be the outcome of an acrimonious exchange between employer and employee and may be uttered in the heat of the moment such that there may be a real question as to whether they were really intended to mean what they appeared to say. In such circumstances it will or may be appropriate for the recipient of such a notice to take time before accepting it in order to ascertain whether the notice was in fact intended to terminate the employment. If he does not do so and, for example, simply (and wrongly) accepts an employee’s purported resignation at face value and treats the employment as at an end, he may find himself on the receipt of a claim for unfair or wrongful dismissal. The general rule and the ‘special circumstances’ exception to it have been recognised in several authorities of both the EAT and this court.

In Sothern v. Franks Charlesly & Co [1981] IRLR 278, Mrs Sothern, the office manager of a firm of solicitors, announced at a partners’ meeting that ‘I am resigning’, following which the partners thanked her for her services. She returned to work the following day and claimed that if the firm wanted her to leave, it would have to dismiss her. She was told she had resigned and that her resignation had been accepted. She claimed, however, that she had been unfairly dismissed. The ET held that, in the circumstances in which she uttered the words she did, her words were too ambiguous for a reasonable employer to interpret them as in fact amounting to a resignation. The EAT found that the ET had made no error of law. The Court of Appeal, however, allowed the employer’s appeal, holding that Mrs Sothern had used words of resignation that were unambiguous and were so understood by the employer. The appeal was therefore disposed of on the basis that the case was governed by the general rule. But Fox LJ also alluded in paragraph [21] of his judgment to the ‘special circumstances’ exception to it, where he noted that:

Martin v. Yeomen Aggregates Ltd [1983] IRLR 49 was a case in which an employer was said to have given an effective oral dismissal. During an argument between a director of the employer and an employee, the director purportedly dismissed the employee but then, within five minutes (having realised that the dismissal was in breach of an agreed disciplinary procedure and that he was not authorised to do what he had purportedly done), withdrew the dismissal and told the employee that he was suspended for two days, as was then confirmed by letter. The EAT upheld the ET’s decision that there had been no dismissal, on the grounds that the words were used in the heat of the moment and withdrawn almost immediately. Kilner Brown J, in delivering judgment of the EAT, said:

The ‘special circumstances’ exception was again considered by the EAT in Barclay v. City of Glasgow District Council [1983] IRLR 313. The employee, who suffered from various disabilities, including what Lord McDonald described as ‘high grade mental deficiency’, followed an altercation with his employer by making a request for ‘his books’ the next day, a Friday and pay day. He also, reluctantly, signed a blank form that was used by his employers when an employment terminated. He returned to work on Monday and was sent home. Had he resigned? The ET held that he had but the EAT reversed its decision. Lord McDonald explained the right approach as follows:

Sovereign House Security Services Ltd v. Savage [1989] IRLR 115 similarly raised a question as to whether certain words uttered by an employee evinced an intention to resign. The ET had held that his words had been used in the heat of the moment and should not have been accepted at face value by the employer; and that the employee had not resigned, but had been subsequently dismissed. The decision was upheld by the EAT and also by the Court of Appeal, which accepted that there was evidence entitling the ET to arrive at the conclusion that it did. May LJ said, at paragraph [7]:

Greater Glasgow Health Board v. Mackay [1989] SLT 729 is another case in which the EAT had to consider the ‘special circumstances’ principle. The day after a disciplinary hearing, the employee had an altercation with her superior. She stated that she was leaving and then wrote out a letter of resignation, which she addressed and delivered to the department manager, which he accepted. She did not return to work. Three weeks after writing her letter of resignation, she wrote asking to withdraw her resignation, to which the employer declined to agree. She complained that she had been unfairly dismissed. The ET held that she had and the EAT upheld its decision. The Court of Session allowed the employer’s appeal.

Lord Ross referred to Sothern’s case and to Barclay’s case and said, at 732/733:

Lord Wylie, at 736, said this:

Lord Cowie, after referring to the exceptional circumstances referred to by both Fox LJ and Dame Elizabeth Lane in Sothern’s case, said at 737:

Finally, I shall refer to how Wood J explained the ‘special circumstances’ exception when delivering the judgment of the EAT in Kwik-Fit (GB) Ltd v. Lineham [1992] IRLR 156. After referring to the authorities, he said:

The ‘rule’ is that a notice of resignation or dismissal (whether given orally or in writing) has effect according to the ordinary interpretation of its terms. Moreover, once such a notice is given it cannot be withdrawn except by consent. The ‘special circumstances’ exception as explained and illustrated in the authorities is, I consider, not strictly a true exception to the rule. It is rather in the nature of a cautionary reminder to the recipient of the notice that, before accepting or otherwise acting upon it, the circumstances in which it is given may require him first to satisfy himself that the giver of the notice did in fact really intend what he had apparently said by it. In other words, he must be satisfied that the giver really did intend to give a notice of resignation or dismissal, as the case may be. The need for such a so-called exception to the rule is well summarised by Wood J in paragraph 31 of Kwik-Fit’s case and, as the cases show, such need will almost invariably arise in cases in which the purported notice has been given orally in the heat of the moment by words that may quickly be regretted.

The essence of the ‘special circumstances’ exception is therefore that, in appropriate cases, the recipient of the notice will be well advised to allow the giver what is in effect a ‘cooling off’ period before acting upon it. Kilner Brown J, in paragraph [15] of his judgment in Martin’s case understandably referred to such a period as an opportunity for the giver of the notice to recant, or to withdraw his words; and this is in practice what is likely to happen. I would, however, be reluctant to characterise the exception as an opportunity for a unilateral retraction or withdrawal of a notice of resignation or dismissal since that would be to allow the exception to operate inconsistently with the principle that such a notice cannot be unilaterally retracted or withdrawn. In my judgment, the true nature of the exception is rather that it is one in which the giver of the notice is afforded the opportunity to satisfy the recipient that he never intended to give it in the first place – that, in effect, his mind was not in tune with his words.

That being the nature of the rule and of the ‘special circumstances’ exception to it, I can see no basis for the application of the latter in the present case. CFC’s problem is that, as Mr Boyd conceded, it intended by its letter of 22 December to dismiss Ms Willoughby. Its giving of such a notice may perhaps have been a mistake. But it was not one based on a misunderstanding by Mr Keeley that she had agreed to be dismissed on 31 December, because he knew that she had not. As Mr Banning submitted, the only rational explanation for his letter was a mistaken expectation on his part that she would accept the proposed self-employment terms, whereas she did not. All that she did was to accept the notice terminating her employment. The notice was clear and unambiguous and it terminated her employment just as CFC had intended. In my judgment it took effect according to its terms and, once given, CFC could not unilaterally withdraw it. The ‘special circumstances’ exception provides CFC with no escape from that conclusion.

I would dismiss the appeal.

I agree.

I also agree.