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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Whitbread Plc (t/a Whitbread Medway Inns) v Hall [2001] EWCA Civ 268 (27 February 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/268.html Cite as: [2001] IRLR 275, [2001] Emp LR 394, [2001] EWCA Civ 268, [2001] ICR 699

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice Strand, London, WC2A 2LL Tuesday 27 February 2001

LADY JUSTICE HALE:

1. This is an employers' appeal against the decision of the Employment Appeal Tribunal dated 19 August 1999, dismissing their appeal from the decision of an Employment Tribunal dated 7 August 1998, finding that the employee had been unfairly dismissed.
2. The issue is whether, in a case where misconduct is admitted by the employee, the requirement of reasonableness in section 98(4) of the Employment Rights Act 1996 relates only to the outcome in terms of the penalty imposed by the employer, or whether it relates also to the process by which the employer arrived at that decision. Put another way, should the Employment Tribunal simply ask whether the outcome fell within the 'band of reasonable responses' test, laid down in Iceland Frozen Foods Ltd v Jones [1983] ICR 17 and recently reaffirmed by this Court in Foley v Post Office; HSBC Bank plc v Madden [2000] ICR 1283, or should it also apply that test to the procedure used in reaching that decision?

The Facts

3. The applicant, Mr Hall had been employed since 1985 as manager of the George Hotel in Southwark, a famous old Inn with a turnover of £1 million a year, and a flagship enterprise for the employers. He had been very successful. He had received many congratulatory letters and other internal awards from his employers. He had won the Evening Standard Pub of the Year Award in 1995. But there had also been stock control problems. He had received warnings, two oral and one written, which had expired some time ago. But after a disciplinary meeting on 21 May 1997 he was given a final written warning dated 27 May 1997 by his then Area Manager, Laura Sewell. At around this time, Ms Sewell's role was taken over by Miss Debbie Hayes. The Employment Tribunal found that Mr Hall and Miss Hayes did not see eye to eye.
4. Mr Hall's wife was suffering from terminal cancer and died on 13 June 1997. He took two weeks' compassionate leave. Despite this he was still doing well at the pub, which was profitable and successful, but he found Miss Hayes' attitude 'very negative and demotivating'. In October 1997 he asked for a transfer which she supported but nothing came of it.
5. The 1997 Christmas period was busy. Mr Hall went on his usual holiday to Scotland from 27 December 1997 to 19 January 1998. Miss Hayes received the profit and loss account for December in early January. The food margin was lower than she would have expected. She went to check and was told by the assistant manager that Mr Hall had estimated the food stock figures while he was away. She therefore arranged an audit which brought to light other matters which concerned her. She asked Mr Hall for an explanation on 19 January 1998. He admitted estimating the food stock count while he was away and was suspended. A disciplinary meeting was held on 28 January 1998, chaired by Miss Hayes. Mr Rumble who had carried out the audit and a note taker were also present.
6. Miss Hayes decided to dismiss Mr Hall for gross misconduct. Indeed, she accepted in evidence to the Employment Tribunal that she did not consider any other course. Her letter dated 29 January 1998 explained:

'The decision I came to was to dismiss you on the grounds of Gross Misconduct for falsification of Company documents:-

1. The W.R.B.D. [weekly return of business done] you admitted putting room hire money through as food to inflate wage allowance and food GP [gross profit].

2. You admitted filling out the end of month food summary from Scotland which meant the GP and closing stock figures were false and inaccurate.

There was also an issue over your honesty and integrity regarding the bounced cheque whereby your explanation did not fit with dates and events.

3. The disregard of a management instruction to cease allowing forced tipping via service charging at 10%, could have caused serious problems for the Company and even affected its trading position.'

7. Mr Hall exercised his right of appeal, which was heard by Mr Jan Sowa, Operations Manager, on 25 February 1998. Mr Sowa's letter dated 27 February upheld the decision, although not for exactly the same reasons:

' . . . I have established the following points:

1. Following a detailed action plan agreed with Laura Sewell regarding stock management, you were issued with a Final Written Warning on 27th May 1997 for lack of control which led to a stock deficit. Despite this warning, you confirmed that you did not carry out keyline variances during December 1997 because you were "too busy", though that in hindsight you agreed you should have. The audit carried out on the 9th December 1997 showed a stock deficit of £585.

2. You estimated that on four or five occasions you disclosed Room Hire as Food Sales Income in order to falsely improve your wage percentage and food margin, which are two key measurements on your Profit & Loss account.

3. Your December 1997 month end food summary was completed while you were in Scotland and instead of determining your food margin via an accurate stock count and therefore closing stock, you guessed the food margin and worked backwards.'

All three of these were admitted by Mr Hall, although he had offered mitigating factors in relation to each. None of them involved personal gain on his part. Mr Sowa accepted Mr Hall's explanation for the cheque which had been returned unpaid. He continued:

'I have taken into consideration your 13 years of experience as a House Manager, the death of your wife in 1997 and your misgivings about your relationship with your Area Manager, Debbie Hayes.

Nonetheless, your failure to monitor your liquor stock following a Final Written Warning and the guesstimate of your food margin in a house with very substantial food sales, amount to negligence. Furthermore, your false documentation of room hire income as food sales was done to falsely improve your wage performance.'

The Tribunal decisions

8. The Employment Tribunal Chairman gave the decision orally on 15 July 1998. According to her later comments for the Employment Appeal Tribunal, she said then that the majority thought that dismissal was within the range of responses which was open to a reasonable employer, but that the Tribunal unanimously considered that the disciplinary process was so flawed as to render the dismissal unfair.
9. In their written decision dated 7 August 1998, the Tribunal stated the law thus at paragraphs 19 and 20, having set out the relevant terms of section 98(1), (2) and (4) of the Employment Rights Act 1996 (see below):

'19. . . . In cases of dismissal for misconduct, the tests in the Burchell case are a useful guide, but where there is no real conflict on the facts, Burchell may not be appropriate; the Tribunal must ask itself whether dismissal fell within the range of reasonable responses (Boys and Girls Welfare Society v McDonald [1996] IRLR). The Tribunal must not substitute its own judgment for that of the employer, but must decide whether the employer's response fell within the range of responses [open] to a reasonable employer in the circumstances: Iceland Frozen Foods Ltd v Jones [1982] IRLR.

20. Where appropriate, the Tribunal should consider the effect on the dismissal of procedural failure, which may render it unfair (because unreasonable within s 98(4) of the Act). Consideration of what might have happened had the procedure been fair is relevant to assessment of any compensation for the Applicant but not, except in really extraordinary cases, to consideration of the fairness of the dismissal itself (Polkey v A.E. Dayton Services Ltd [1988] ICR).'

Mr Gorton, for the employer appellants in this case, does not quarrel with paragraph 19 but contends that paragraph 20 does not apply to admitted misconduct where dismissal is within the band of responses open to a reasonable employer.

10. The Tribunal concluded, at paragraph 21, that the employer's reason for dismissing the applicant related to his conduct, that Miss Hayes had reasonable grounds for her genuine belief in these matters, which had been admitted by the applicant throughout, and that the respondent therefore had a potentially fair reason for the dismissal. It did not repeat the observation about the range of responses open to a reasonable employer, but went on in paragraph 22 as follows:

'However, the Tribunal finds that the disciplinary inquiries were fatally flawed. The inquiries were not a sham, but in view of the fact that Miss Hayes was not only the Applicant's immediate senior officer but also the person who had initiated the investigation in respect of him - that is the person who had complained - it was not fair that she should also conduct the disciplinary inquiry. A complainant should not also be judge and jury. The Respondent company is large enough to be able to provide fairer disciplinary procedures. There was no real conflict of evidence on the facts of what had occurred, so that did not create any particular difficulties for Miss Hayes, but the Tribunal finds that Miss Hayes did not consider any options other than those of dismissal . . . In particular she did not consider moving the Applicant, although she was aware that he had requested a transfer at an earlier date. The disciplinary procedure to which the Applicant was subject provided that a failure to improve or a repetition of misconduct following a final written warning "will normally lead to dismissal". This must mean that there is a discretion in the inquirer to consider other penalties in unusual circumstances; and a corresponding duty to consider whether the case is exceptional or not. The Tribunal considers that in the applicant's case there were sufficiently unusual circumstances to oblige an inquirer to direct his or her mind to these circumstances. . . . The appeal, although held by a person outside the Applicant's line of management, similarly did not look at factors peculiar to the Applicant and at penalties less than dismissal. It did not do enough to correct the defects in the original hearing.'

11. The Employment Appeal Tribunal, in a reserved judgment dated 19 August 1999, dismissed the employer's appeal: given the poor relationship between Mr Hall and Miss Hayes,

'. . . when Miss Hayes discovered shortcomings in the conduct of Mr Hall and suspended him pending investigation, it offended the principle that justice should not only be done but be seen to be done for her to conduct the subsequent disciplinary proceedings and dismiss Mr Hall. She frankly said that she considered no other penalty.'

This was not cured by the appeal procedure:

' . . we note that the time occupied by the whole process was 65 minutes and Mr Sowa spent 26 of those minutes discussing matters with Miss Hayes. Furthermore, when he confirmed the dismissal he made no reference to any of the other factors or any of the other options which might have been open.'

The appeal

12. Section 98(1), (2) and (4) of the Employment Rights Act 1996 provide as follows:

'(1) In determining for the purposes of this Part whether the dismissal of an employee is fair or unfair, it is for the employer to show -

(a) the reason (or, if more than one, the principal reason) for the dismissal, and

(b) that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.

(2) A reason falls within this subsection if it - . . . (b) relates to the conduct of the employee, . . .

(4) Where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) -

(a) depends upon whether in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee [emphasis supplied], and

(b) shall be determined in accordance with equity and the substantial merits of the case.'

13. In British Home Stores v Burchell [1980] ICR 303, at p 304, the Employment Appeal Tribunal laid down the proper approach of tribunals to employers' decisions on grounds of suspected misconduct:

'What the tribunal have to decide every time is, broadly expressed, whether the employer who discharged the employee entertained a reasonable suspicion amounting to a belief in the guilt of the employee of that misconduct at that time. That is really stating shortly and compendiously what is in fact more than one element. First of all, there must be established by the employer the fact of that belief; that the employer did believe it. Secondly, that the employer had in his mind reasonable grounds upon which to sustain that belief. And thirdly, we think, that the employer, at the stage at which he formed that belief on those grounds, at any rate at the final stage at which he formed that belief on those grounds, had carried out as much investigation into the matter as was reasonable in all the circumstances of the case.'

That test relates to the processes to be followed by an employer when he suspects that an employee is guilty of misconduct. It has recently been upheld by this court in Foley v Post Office; HSBC Bank plc v Madden [2000] ICR 1283, both cases in which the issue was whether the employer had carried out reasonable inquiries in order to establish reasonable grounds for his belief in the employee's misconduct.

14. In this case, however, as the conduct complained of by the employer was admitted by the employee, Mr Gorton argues that the only question for the tribunal was whether dismissal fell within the band of reasonable responses to it. If it did, it was not for the tribunal to substitute its own decision for that of the employer. The tribunal should not have been concerned with the reasonableness of the process by which the employer arrived at that decision.
15. Mr Gorton relies on two other EAT decisions: Royal Society for the Protection of Birds v Croucher [1984] ICR 604, and Boys and Girls Welfare Society v Macdonald [1997] ICR 693. In both of these, the misconduct in question had been admitted, but the tribunal had held that the employer had not conducted sufficient inquiries into it. In both cases, the EAT allowed the appeal (in one case remitting the case for rehearing by a different tribunal) because the tribunal had placed too much emphasis upon the need for investigation, rather than asking itself whether the employers' response fell within the band of reasonable responses. In Croucher, for example, the tribunal had not considered 'what form such an inquiry should have taken or what new facts it would have brought to light'. It had been misled by Burchell, but in Croucher there was

'very little scope . . for the kind of investigation to which this appeal tribunal was referring in Burchell's case; investigation, that is to say, designed to confirm suspicion or clear up doubt as to whether or not a particular act of misconduct has occurred. . . The Burchell case remains, in circumstances akin to those that were there under consideration a most useful and helpful guideline; but it can never replace the soundness of an appraisal of all the circumstances of each particular case viewed in the round in the way that section [98(4)] requires them to be viewed.'

16. For my part, I find it impossible to read into these cases the proposition that the employer is free from any requirement to act in a reasonable fashion once the alleged misconduct is admitted. Section 98(4) requires the tribunal to determine whether the employer 'acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee' and further to determine this in accordance with 'equity and the substantial merits of the case'. This suggests that there are both substantive and procedural elements to the decision to both of which the 'band of reasonable responses' test should be applied.
17. Furthermore, that view is supported by authority at the highest level, albeit in the context of unfair dismissal for redundancy rather than misconduct. In Polkey v A.E. Dayton Services Ltd [1988] ICR 143, the complaint was that the employee had been unfairly dismissed because he had been made redundant without any consultation. The tribunal held that although the employer had been in breach of the code of practice, consultation would have made no difference to the decision. The House of Lords allowed the employee's appeal. Lord Mackay of Clashfern, with whom the other members of their Lordships' House agreed, adopted the analysis, quoted at p 156, of Browne Wilkinson J (as he then was) in Sillifant v Powell Duffryn Timber Ltd [1983] IRLR 91, at p 97:

'The only test of the fairness of a dismissal is the reasonableness of the employer's decision to dismiss judged at the time at which the dismissal takes effect. An industrial tribunal is not bound to hold that any procedural failure by the employer renders the dismissal unfair: it is one of the factors to be weighed by the industrial tribunal in deciding whether or not the dismissal was reasonable within section [98(4)]. The weight to be attached to such procedural failure should depend upon the circumstances known to the employer at the time of dismissal, not on the actual consequence of such failure. Thus in the case of a failure to give an opportunity to explain, except in the rare case where a reasonable employer could properly take the view on the facts known to him at the time of dismissal that no explanation or mitigation could alter his decision to dismiss, an industrial tribunal would be likely to hold that the lack of "equity" inherent in the failure would render the decision unfair. But there may be cases where the offence is so heinous and the facts so manifestly clear that a reasonable employer could, on the facts known to him at the time of dismissal, take the view that whatever explanation the employee advanced it would make no difference: . . . '

Lord Mackay himself went on to say, at p 161:

'Further, in my opinion, the statutory test shows that at least some aspects of the manner of dismissal fall to be considered in considering whether a dismissal is unfair since the action of the employer in treating the reason as sufficient for dismissal of the employee will include at least part of the manner of the dismissal. Accordingly, it is not correct to draw a distinction between the reason for the dismissal and the manner of dismissal as if these were mutually exclusive, with the industrial tribunal limited to considering only the reason for dismissal.'

Lord Bridge of Harwich made the same point at p 162:

'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 that reason as a sufficient reason for dismissal unless and until he had 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. . . . ; in the case of misconduct, the employer will normally not act reasonably unless he investigates the complaint of misconduct fully and fairly and hears whatever the employee wishes to say in his defence or in explanation or mitigation; . . . 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 [98(4)] is the hypothetical question whether it would have made any difference to the outcome if the appropriate procedural steps had been taken.'

18. These expressions of principle undoubtedly apply to dismissals for misconduct as much as they apply to dismissals for redundancy. They are binding upon us. They clearly indicate a procedural as well as a substantive element in the band of reasonable responses open to employer faced with such misconduct. They find an echo in the words of Parker LJ in Slater v Leicestershire Health Authority [1989] IRLR 16, at p 19:

'[Counsel] for the appellant relies principally on the general principle that a person who holds an inquiry must be seen to be impartial, that justice must not only be done but be seen to be done, and that if an observer with full knowledge of the facts would conclude that the hearing might not be impartial that is enough. . .

I accept both the general rule and the exceptions [the example given was a one man firm]. The rules of natural justice in this field do not in my view form an independent ground upon which a decision may be attacked, although a breach will clearly be an important matter when the [ET] consider the question raised in s [98(4)] of the Act.'

19. In this case, the tribunal found as a fact that the process had not been fair. As the evidence was not in dispute, it did not create particular difficulties for Miss Hayes that she had raised the complaints herself. But it is difficult to say that they were so heinous as to admit of only one answer. Dismissal had been decided by the employee's immediate superior who had a bad relationship with him and had gone into the process with her mind made up. In the circumstances that method of responding was not among those open to an employer of the size and resources of this employer. The appeal had not been a proper rehearing sufficient to cure the defect.
20. In my view the tribunal correctly stated the law and reached a decision on the facts which was entirely open to it to reach. It heard from Miss Hayes and formed a view of her attitude based on her own frank admissions to the tribunal. Mr Sowa did not give evidence and although he does refer to the employee's record, there is nothing in his witness statement to suggest that he had considered other options. The tribunal were entitled to conclude that he had not conducted a full rehearing such as would cure the defects in the original decision-making process.
21. It is, of course, important not to place too heavy a procedural burden upon employers. The Employment Tribunal is required to take into account the size and administrative resources of the employer's undertaking in deciding what falls within the band of reasonable procedural responses in each case. There are some cases of misconduct so heinous that even a large employer well versed in the best employment practices would be justified in taking the view that no explanation or mitigation would make any difference. But this was not such a case, and, as the House of Lords made clear in Polkey, the one thing which the tribunal cannot do is to ask itself whether the outcome of a fair procedure would have been the same.
22. I would dismiss this appeal.

LORD JUSTICE MANTELL

23. I agree.

THE PRESIDENT:

24. I also agree.
ORDER: Appeal dismissed with costs (Order does not form part of approved Judgment)