Appeal No. EAT/402/90

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 9 June 1992
	Judgment delivered on 10 December 1992

	Before

	HIS HONOUR JUDGE N HAGUE QC

	MR J R CROSBY

	Ms B DEAN

MR W RUSHTON	APPELLANT

HARCROS TIMBER & BUILDING SUPPLIES LTD	RESPONDENTS

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellant	IN PERSON

For the Respondents	Mr P Hughes
(of Counsel)
Messrs Clough & Willis
2 Manchester Road
Bury
Lancashire
BL9 0DT

		HIS HONOUR JUDGE HAGUE QC:     This is an appeal brought by Mr Rushton against part of the decision of an Industrial Tribunal sitting at Colwyn Bay sent to the parties on 7th June 1990.  By their Decision, the Tribunal found that Mr Rushton had been unfairly dismissed by the respondent employers ("Harcros").  But the Tribunal made no award of compensation, and it is that part of the Decision with which this appeal is concerned.

	The material facts are as follows.  Mr Rushton began employment with Harcros' predecessors in their business in 1956.  At the time of his dismissal, he was an area sales representative based at Llandudno.  His gross basic annual salary was then £13,400, but he also had the use of a company car and other benefits.  For reasons which were considered in detail before the Industrial Tribunal but which it is unnecessary for us to go into, Mr Rushton was dismissed on the grounds of redundancy with effect from 31st December 1989.  That decision was communicated by a letter dated 14th December 1989 handed to him on that day by Mr Leathert, his superior, the material parts of which read as follows:
	"Llandudno Depot can no longer support a fulltime representative.  Your employment with this Company will, unfortunately, have to be terminated on the grounds of redundancy as from the 31st December 1989.

	 Under the terms of your Contract of Employment you are entitled to three months notice.  You will not be expected to work your notice and the equivalent amount, £3,350 will be paid to you in lieu of notice on or before 31st December 1989.

	 You are also entitled to redundancy pay equivalent to 271/2 weeks pay (subject to a maximum of £172 per week).  However, in view of your length of service this figure will be enhanced and, including the money in lieu of notice, you will be paid a total sum of £13,400 (Thirteen thousand four hundred pounds).  This amount will be free of income tax.

	 ..."  
The letter also indicated that Mr Rushton could retain his company car until 31st December 1989, with Mr Rushton paying only the fuel costs.

	After making allowance for the sum of £3,350 for pay in lieu of notice and the redundancy pay (271/2 weeks x £172 per week = £4,730) mentioned in the letter, the sum of £13,400 represented an additional payment of £5,320.  There was no evidence before the Tribunal as to how that figure was calculated.  It appears that Harcros simply rounded Mr Rushton's pay in lieu of notice and redundancy entitlements up to the equivalent of his gross basic annual salary.

	Mr Rushton found alternative employment with effect from 30th April 1990.  Initially it was for one month only (and the Tribunal hearing took place in that month), but Mr Rushton told us that it in fact lasted about 2 years, until he was again made redundant.

	The Industrial Tribunal found that the reason for Mr Rushton's dismissal was redundancy and that he had not been unfairly selected for redundancy.  But the Tribunal went on to find that he had not been given sufficient prior warning in accordance with accepted industrial practice and that his dismissal was unfair for that reason.  On the question of compensation, the Tribunal said this (in paragraph 6 of its Reasons) -
	"As to compensation, we note firstly that in settling financially with the applicant the respondents have been more than generous.  Not only have they given him three months' tax free pay in lieu of notice, which would take him up to 31 March 1990, but they have also given him an ex gratia payment of £5,320.  In fact the applicant has found alternative employment.  That employment beginning in April 1990 and with approximately the same financial terms as previously.  There is some suggestion that that employment might not be permanent, none the less it is there and the applicant is in that employment.  Notwithstanding our finding of unfair dismissal, in our view, there is no compensation that we can properly award to the applicant.  In the form of his redundancy payment he has already had his basic award and any compensatory award that we could make would/could not exceed the additional payments that he had already received from the respondents.  So although there is an unfair dismissal, no compensation is payable."

	It is convenient at this point to summarise the relevant provisions of the Employment Protection (Consolidation) Act 1978 as to compensation.  Under S.72, the compensation consists of a basic award calculated in accordance with S.73 and a compensatory award calculated in accordance with S.74.  In relation to a basic award, however, S.73(9) provides as follows:
	"(9)  The amount of the basic award shall be reduced or, as the case may be, be further reduced, by the amount of any redundancy payment awarded by the tribunal under Part VI in respect of the same dismissal or of any payment made by the employer to the employee on the ground that the dismissal was by reason of redundancy, whether in pursuance of Part VI or otherwise."
That subsection applied directly in the present case, and the redundancy payment included in the total payment made by Harcros reduced the basic award to nil.

	As regards a compensatory award, the basic rule laid down by S.74(1) is that:
	  "... the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer."
In the case of a dismissal for redundancy (as in the present case) this is qualified by S.74(7) which reads:
	"If the amount of any payment made by the employer to the employee on the ground that the dismissal was by reason of redundancy, whether in pursuance of Part VI or otherwise, exceeds the amount of the basic award which would be payable but for S.73(9), that excess award shall go to reduce the amount of the compensatory award."
It is necessary to stress that under S.74(1) the compensation is for the loss sustained as a result of the actions of the employer which render the dismissal unfair.  In the case of a dismissal found to be unfair by reason of lack of personal consultation which would not have avoided the dismissal, the compensation is thus generally linked to wages lost for any extra period of employment which, if there had been consultation, would have elapsed before the dismissal took effect: see eg Mining Supplies (Longwall) Ltd v. Baker [1988] ICR 676.  We mention this because some of Mr Rushton's submissions to us appeared to assume that he was entitled to compensation for all the loss resulting from his dismissal, as opposed to the failure of Harcros to give prior warning.

	Mr Rushton's first point was that he had lost some pension rights, and he produced figures to show -
	(1)what the employer's contributions would have been in the 21/2 years from the date of his dismissal until the date of the hearing, and from then until his normal retirement age, and
	(2)his estimated final pension had he remained in the employ of Harcros until normal retirement age as compared to his accrued pension entitlement at that age.
This was not a point raised before the Industrial Tribunal, and so strictly speaking could not be raised before the Appeal Tribunal: see Kumchyk v. Derby City Council [1978] ICR 1116.  But in any event Mr Rushton's point was based on the assumption that he was entitled to compensation for the loss flowing from his dismissal, which (as we have indicated) is erroneous.  We doubt if any loss of pension rights was suffered as a result of the absence of a prior warning, but even if it was, it was amply covered by the ex gratia payment discussed below.

	Mr Rushton's second point concerned what he considered to be an incorrect statement by the Tribunal (in paragraph 6 of the Reasons set out above) of the financial terms of his new employment which began in April 1990.  This was a matter of fact for the Tribunal, but in any event did not affect the quantum of his compensation.

	Mr Rushton's third point, and the one which has caused us most difficulty, was that he should have been compensated for loss of pay during the period of prior warning which the Tribunal said he should have had, and that this should not have been offset by the £5,200 ex gratia additional payment he received.  On this, he referred us to Roadchef Ltd v. Hastings [1988] IRLR 142.  It appears that two weeks would normally be considered an appropriate prior warning period (see Mining Supplies (Longwall) Ltd v. Baker supra), but as this period would have extended over the Christmas and New Year holiday periods in this case, it would be well arguable that in the circumstances a period of (say) 3 to 4 weeks or even longer would have been appropriate.  Even so, the loss of pay would plainly have fallen well short of the figure of £5,200.

	The reported decisions on the question whether an employer is to be given credit for an ex gratia payment are difficult and confusing.  We can conveniently start with the Scottish case of Finnie v. Top Hat Frozen Foods [1985] ICR 433, where the question was whether a payment in lieu of notice should be deducted from the compensatory award.  It was held that it should not, but Lord McDonald distinguished such a payment from ex gratia payments saying:
	"We emphasise, however, that where an employer makes any kind of ex gratia payment on account of claims for wages and other benefits we consider he should be credited with this in calculating any compensatory award for which he is found liable."

	As regards a payment in lieu of notice, that decision was followed by the Appeal Tribunal in Addison v. Babcock F.A.T.A. Ltd [1987] ICR 45, where the employee had been unfairly dismissed for redundancy in June 1984.  The Tribunal also held that an ex gratia redundancy payment under the employer's redundancy scheme, which the employee would have received anyway some 14 months later in September 1985 when the employer's factory where he had been employed closed, should not be deducted from the compensatory award.  Section 74(7), set out above, was held not to be applicable because the payment "had not been made on the ground that the dismissal was by reason of redundancy": see p.51E.  We find this reasoning difficult to follow.

	The employers in the Addison case appealed to the Court of Appeal as regards the payment in lieu of notice, but not as regards the redundancy payment.  The appeal was successful, and the decision in the Finnie case was disapproved.  There was no argument as regards the redundancy payment, but Ralph Gibson LJ in his judgment expressed the view that the employers had been right not to pursue the point.  His reasoning however appears to be different from that of the Appeal Tribunal.  He said that the redundancy payment was a "benefit which [the employee] might reasonably be expected to have had but for" his unfair dismissal, and that he would have received at least that sum later in September 1985 under the same redundancy scheme: see p.810F.  This reasoning is based on the wording of S.74(1) 
and S.74(2)(b), but with respect it appears to overlook S.74(7) which is not referred to.

	In Horizon Holidays Ltd v. Grassi [1987] ICR 851 it was held by this Appeal Tribunal that an ex gratia payment should be deducted from a compensatory award.  The employers had made the dismissal ostensibly on the ground of redundancy, but the Industrial Tribunal had held that this was merely an excuse for getting rid of the employee for other reasons.  Section 74(7) appears therefore not to be relevant, although it was briefly referred to in the judgment of the Appeal Tribunal given by French J.  He distinguished the Addison case on the ground that it was dependent on the finding that the employee would have received the redundancy payment anyway, which was a special factor not present in the case before the Appeal Tribunal.

	In Roadchef Ltd v. Hastings supra, the Industrial Tribunal had held that the employee's dismissal for redundancy had been unfair because he had been given no prior warning.  They awarded him compensation of 4 weeks' net pay, and declined to deduct from that sum any ex gratia payment.  The Scottish Appeal Tribunal upheld that decision, on the ground that "there is nothing to indicate that the employer would not have paid [the employee] the same monies after a period of prior warning as the Industrial Tribunal held".

	In the present case, there was no evidence before the Industrial Tribunal that Mr Rushton would have received the same ex gratia payment if he had been given proper prior warning of his dismissal for redundancy.  The Tribunal made no finding on that point, but found that financially Harcros had been "more than generous".  It would therefore be open to us simply to dismiss Mr Rushton's appeal on this point on that ground, following Horizon Holidays Ltd v. Grassi and distinguishing the Addison case for the same reasons as in that case.  However, we consider that this is unsatisfactory, and that matters of this kind should not depend on such a narrow and artificial distinction.  Moreover, in many cases it would be very difficult to tell what payment would have been made in different circumstances, and the question could only be answered by guesswork.

	We return to consider S.74(7).  We consider that the meaning and intent of the subsection is reasonably plain, i.e. that in the calculation of a compensatory award an employer should receive credit for any redundancy payment he makes.  The manifest purpose of the subsection was to encourage employers who find it necessary to dismiss for redundancy to be generous in making ex gratia payments.  It would be unfortunate if an employer in deciding whether to make an ex gratia payment, and if so deciding the amount, has to take into account the possibility of an Industrial Tribunal award over and above the ex gratia payment, however generous that may have been.  That would have the overall effect of reducing both the frequency and levels of ex gratia payments and would be detrimental to the interests of employees generally.  It is much better that the financial arrangements arising from dismissal for redundancy should be made without the parties having to look over their shoulders at a possible tribunal hearing.  We entirely agree with and would adopt the remarks of French J to the same effect in Horizon Holidays Ltd v. Grassi, supra at p.855B.

	In our judgment, S.74(7) applies directly to the facts of the present case, and the Industrial Tribunal was therefore correct in giving credit to Harcros for the ex gratia payment in assessing the compensatory award.  We decline to follow the dicta in the Addison case referred to above and the decision in Roadchef Ltd v. Hastings, supra.

	Accordingly, we dismiss the appeal.