Appeal No.	 EAT/377/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 21 November 1996
Judgment delivered on 4 February 1997

Before
HIS HONOUR JUDGE D PUGSLEY
MR A E R MANNERS
MR N D WILLIS

MR C BURNS	APPELLANT

TURBOFLEX LTD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR J SWIFT
(of Counsel)
Morgan Nelken McHale
Solicitors
273 Preston Road
Harrow
Middlesex
HA3 0PX
	
For the Respondents	MR N CHRONIAS
(Legal Adviser)
Engineering Employers Federation
Broadway House
Tothill Street
London
SW1H 9NQ	

	JUDGE PUGSLEY:   This is an appeal from a majority decision of an Industrial Tribunal sitting at Reading, that the applicant was fairly dismissed. 

	Mr Swift who appears for the appellant raises three grounds of appeal:

(i)	That the tribunal erred in law in concluding that the appellant had been fairly dismissed by reasons of matters relating to capability in the light of its finding of fact that the respondent had never told the appellant that his performance was below expectation, that he was required to make improvements, or the fact that a failure to make any improvements might lead to his dismissal;

(ii)	that the tribunal erred in law in that it failed to follow the principles set out by the House of Lords in Polkey v A E Dayton Services Ltd [1988] ICR 142 and the Employment Appeal Tribunal in McPhail v Gibson [1977] ICR 42.

(iii)	The Industrial Tribunal erred in law in applying an objective rather than a subjective test or whether or not the appellant realised his employment with the respondent was at risk.

	In a careful and comprehensive judgment the tribunal sketched the background to this case. The applicant had been managing director of Turboflex Ltd at the time of his dismissal. He had been an employee from 1st November 1974 and had held various posts culminating with his appointment as managing director from 14th March 1994. The respondents are an engineering company manufacturing and selling transmission systems and components. Turboflex had been owned by an American company IMO Inc. until July 1994 but in July 1994 the company was sold and became a subsidiary of Peter Brotherhood Ltd [“PBL”] which was itself a subsidiary of an American company, Thermo Electron Inc.

	Prior to its acquisition in July 1994, Turboflex had been subject to a “due diligence” exercise by PBL management. Following the acquisition PBL management prepared a plan for the development of Turboflex and advised the appellant that they required him to address three main issues as follows:

          (i)	The increase of the respondents’ market share by focusing the sales effort.
          (ii)	The rationalisation of manufacturing operations to increase efficiency.
          (iii)	To ensure that Turboflex became registered to ISO 9001 standard by February 1995.
The appellant was required to produce a business plan to achieve these objectives.

	The respondents became increasingly concerned that the appellant was failing to make sufficient attempt to implement the proposals. Whilst the appellant was away attending a trade exhibition in Spain, they decided to remove him from his post as managing director, and he was notified of this on 29th March 1995.

	For the record we say that it is clear from the tribunal decision that the appellant did not pursue his claim of wrongful dismissal and the issue for the Industrial Tribunal was solely the issue of unfair dismissal.

	In their decision the tribunal make certain findings of fact. In paragraph 6 the tribunal find as a fact that all witness were honest, but where there was an issue, on balance they preferred the evidence of the employer to that of the appellant. On that basis they found that there was a conversation between a Mr Salisbury and the appellant in January 1995 during which Mr Salisbury told the appellant that his future was becoming doubtful since it appeared he was unable to motivate either himself or his staff to progress the three objectives. It was common ground that earlier in December 1994 there had been a management meeting at which Mr Salisbury had explained that improvements in profitability were required and if they were not made certain people including perhaps Mr Salisbury himself would not be in their jobs in a years time. As against those findings there is also a finding by the tribunal in paragraph 6 that PBL management’s concerns were never expressed to the appellant in writing nor, on their own evidence, was he ever specifically told in clear terms that his performance was below their expectation, the respects in which it was below expectation, what he needed to do to improve and what the consequences might be if he failed or was unable to do so.

	Apart from those findings of fact in paragraph 6 the tribunal went on to make further findings of fact in paragraph 11 and 12. As this was a majority decision it would perhaps be helpful to set out those paragraphs in their entirety and also paragraph 13 in which the minority view is also set forward:

“11 In this case, we remind ourselves that the applicant was the most senior member of managerial staff having day to day responsibility for the respondents’ business. He reported to and was under the supervision of PBL Management. He was given a set of broad objectives which he was required to implement. We are satisfied that the respondents, through PBL Management, would have been prepared to accept the position as they found it, in which the respondents were making the loss, for a short period of time provided they were satisfied that effective steps were being taken to remedy the position. The evidence before us indicated that some progress had been made towards returning the respondents towards profitability in that the actual loss for the quarter preceding the applicant’s dismissal was less than had been forecast, and the applicant was addressing the question of ISO 9001 Registration. The respondents’ evidence, which we accept, was that there appeared to be no progress towards reorganisation and manufacturing. If these concerns had been made sufficiently known to the applicant, we think a Director of his seniority and overview of the respondents’ operations should have realised that as the “man in charge” the responsibility fell to him to achieve the objectives which had been laid down. Alternatively, if he was unable to do so, it was incumbent upon him to provide an adequate explanation to the respondents and, in the circumstances of this case, we are unanimous in the view that the dismissal would not be unfair, merely because the respondents had not warned the applicant that he faced dismissal.
12  Whilst the Tribunal are unanimous in the view that the applicant was aware of the respondents’ concerns, the views differ. The majority view is that, on balance, they are satisfied that the respondents had made their views known to the applicant to a sufficient extent whereby, in his senior position, he should have realised the peril that faced him. Whilst the applicant had made some progress with ISO 9001 Registration and the question of profitability, this had not been sufficient for the respondents and in the absence of clear signs of increased effort or a satisfactory explanation as to why no greater progress could be made, the majority view is that the dismissal is fair. We have considered the question that was raised by the applicant’s Counsel as to whether or not a warning in clear and unambiguous terms might have affected the outcome. The majority view is that no such warning would have been effective.
13  The minority view is that, whilst the applicant was aware of the concerns which PBL Management had, bearing in mind that he had made some progress on two of the objectives and bearing in mind his senior position, the respondents had failed to make their concerns sufficiently clear and had failed to make clear the potential consequences. The minority view is that for these reasons the dismissal was unfair. The minority member has considered whether a warning in clear and unambiguous terms would have effected the issue. His view is that if such a warning had been given, it would have been reasonable to allow the applicant a further period of three months in which to demonstrate improvement, but that, in the event, no such improvement would have been forthcoming.”

	Although, as we have already indicated, this decision was a carefully crafted decision,. there is a fundamental ambiguity in the passage we have just quoted at the foot of paragraph 11 and the start of paragraph 12. In paragraph 11 the tribunal say “If these concerns had been made sufficiently known to the applicant ...”. In paragraph 12 the tribunal have become unanimous in the view “that the applicant was aware of the respondents’ concerns” though their views differed. Further, these words have to be set in the context of the findings in paragraph 6 that the respondents had never expressed in writing nor ever specifically told in clear terms the appellant that his performance was below their expectation and the other further findings thereafter.

	In paragraph 7 the tribunal clearly identified the burden imposed on the employer of establishing for the reason of the dismissal, and of establishing that it was a type permitted by the Act as being potentially fair. In paragraph 8 the tribunal find that the respondents have discharged the burden placed upon them of establishing that the reason was one relating to capability. And in paragraph 10 the tribunal then go on to consider the issue of section 57(3).  Paragraph 10 reads as follows:

“10  A fair dismissal requires that the employer shall have a honest belief that the employee is incompetent or unsuitable for the job and that he should have reasonable grounds for that belief; Alidair Ltd -v- Taylor[1978] ICR 445. Further, an employer who dismisses an employee on the grounds of capability will normally risk a finding of unfair dismissal unless he can show that he has given the employee adequate warnings. Such warnings must be effective to identify the shortcomings of the employee, explain, where necessary, what steps are to be taken to remedy them, provide all necessary support, guidance, etc which may reasonably be required in order to achieve them, provide a reasonable time for improvement and give clear warning as to the possible consequences of failure to achieve the required standard. It is implicit in this process that the employee is given an opportunity to explain his shortcomings, the proper consideration be given to any such explanation and he be provided with all necessary support in the form of additional facilities, staff training, etc which the employee may reasonably need. It is important, however, that an employee should be aware of the dissatisfaction; Laycock -v- Jones Buckie Shipyard Ltd EAT 395/81. This principle is subject to the qualification that senior employees may not need such clear warnings that they are failing to achieve their performance as might be required of more junior staff; Jones -v- Waltham Holy Cross UDC [1973] 398. Although a contrary view was apparently expressed by the EAT in McPhail -v- Gibson [1977] ICR 42, the important issue was whether the employee was aware that his job was in jeopardy. In Laycock -v- Jones Buckie Shipyard Ltd it was indicated that “as a matter of common sense, the higher someone is in the managerial scale the more likely it is that he will be conscious of the satisfaction or lack of satisfaction that his performance is giving”. It is a matter for the Tribunal to consider according to the fact of each case individually.”

	This is clear and comprehensive summary of those criteria which the tribunal should consider when assessing the fairness of a decision based on capability. Before us it has been argued that there is a conflict between James v Waltham Holy Cross UDC and McPhail v Gibson. James v Waltham Holy Cross UDC was decided in 1973 when the employment protection legislation was still in its infancy. It was appropriate that the then President, Sir John Donaldson, should in the National Industrial Relations Court seek to set out for the guidance of practitioners  and by that term one includes not merely lawyers, but also personnel officers and trade union representatives, the principles that should be applicable. In his judgment, Sir John Donaldson deals with issues both as to conduct and capability in succeeding paragraphs on page 404. The first sentence of the relevant paragraph reads as follows “This duty of fairness both to the employees and to the business is the only general rule all else is but a particular application of that general rule.” In the next paragraph where the learned judge moves on to deal not with conduct but capability, he goes on to say at the start of that paragraph “In the field of capability similar problems frequently arise.”

	We decline the invitation to pick our way through the tortuous path of conflicting decisions or, more accurately, conflicting dicta in very different cases. Much of that which is dignified by the words as being a proposition of law, is, on its true analysis, no more than a comment of industrial good sense in the context of a particular case. The one matter that to us is paramount is the sentence of Sir John Donaldson’s judgment which reads “This duty of fairness both to the employee and to the business is the only general rule all else is but a particular application of that general rule.”

	The circumstances in which employees come to be dismissed is so infinitely variable that to attempt to rely on authority as providing the answer to the problem which section 57(3) (now section 98(4)) poses for industrial tribunals is to make a fundamental error as to the construction of that section. It is for the tribunal to consider the words of that section. Guideline authority can of course be helpful, but so often guidelines are wrenched from their particular factual context, and can become tripwires if applied to other situations. Determining the fairness of a decision to dismiss requires the exercise of judgment by an Industrial Tribunal, not merely the arid application of dicta of appellate courts.

	Although this is a decision which had been in many ways carefully crafted, there is a fundamental ambiguity to which we have already adverted as to what the tribunal’s finding of fact was as to the degree to which the appellant was informed and/or appreciated the situation in which he was. Moreover it seems to us that there is a fundamental flaw; not completely met square on in the appellant’s grounds of appeals, save by reference to the decision of Polkey between the need to give a warning and the need to conduct an enquiry before a dismissal.

	We do not consider that it is possible to lay down as a proposition of law any general rule that is dependent upon the status or the nature of the job. A van driver employed at a modest salary does not need to be warned that he should not drink before he drives; the personnel director of a large company does not need to be told that he should not make racist or sexist comments about or to members of his staff; a pilot does not need to be warned that he should not crash the plane. There can in our view be no absolute rule as to when warnings are or are not inappropriate. All must depend upon the facts of the case. We note that the appellant was the managing director but of a subsidiary company.

	There has been in our view in this decision a confusion between the need for a warning and the need to satisfy the requirement of natural justice. Before the decision to dismiss is made an employer is entitled to know the nature of the allegations made against him, and to have the opportunity to give his version of events. Of course, as the decision in Polkey recognised, there are occasions where any pre-dismissal interview would be merely an empty charade. If a company is faced with a sudden financial catastrophe, such as the going into liquidation of one of its principal creditors and customers, it may need to make the desperate decision forthwith to close one of its units of production at a particular plant in order to safeguard the viability of the rest of the company. That is a totally different position than if a company is taking a much longer term view as to its needs to shed labour.

	In our view, this decision is fundamentally flawed in that the tribunal does not distinguish between the need to provide warnings about which it makes findings, and the need to give an employee an opportunity to meet those criticisms which are made on the ground of his capability. On that issue the tribunal is largely silent. 

	The stark facts were that this appellant was given some indication, on the tribunal’s findings, in January of his shortcomings in a telephone conversation. It is admitted that in general terms in the preceding month, in December 1994, he had been told that everyone’s job would be at risk if improvements were not made. The decision to dismiss was taken whilst he was out of country. He was given no opportunity to know the nature of the allegations made against him and to deal with them. It may be that had these matters been explored the tribunal would have come to the view that in any event he would have been dismissed. We note that in paragraph 13 it is said that “The minority member has considered whether a warning in clear and unambiguous terms would have affected the issue. His view is that if such a warning had been given, it would have been reasonable to allow the applicant a further period of three months in which to demonstrate improvement, but that, in the event, no such improvement would have been forthcoming.”

	We consider there is force in Mr Swift’s suggestion that the tribunal did blur the difference between a finding of unfair dismissal, and the issue as to remedy. 

	Despite all that has been said, and well said, by Mr Chronias, who appears for the respondent, as to the limitation of this court’s powers to intervene, we have come to the very clear view that this decision fails to deal with the vital question that this appellant after 20 years service was dismissed without being given the opportunity of hearing what the employers felt about his performance and giving his side of the case.

	The appeal is allowed and this case must now be remitted to a differently constituted Industrial Tribunal for them to consider the question of whether this dismissal was fair or unfair having regard to the guidelines we have given.