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Lord Wedderburn of Charlton: I support the amendment moved by my noble friend Lord Lea of Crondall and I speak also to the two amendments standing in my name and in the names of my noble friends Lady Turner and Lord McCarthy. All three amendments aim to do not quite the same but very similar things. They aim to put in Clause 34(2) an explicit statement that whatever else the subsection provides the dismissal must remain fair if it is to pass muster.
This is a complex area of the law and I would hope that for the first time it receives full treatment from the Committee and from Ministers. When the Government published their response to consultation in 2001, on page 23 they stated the following about unfair dismissal legislation:
- "The consultation document also proposed that, provided the minimum procedural standards set out above are met, tribunals should disregard a procedural mistake by an employer making a dismissal, if this made no difference to the outcome. Responses were mixed on the merits of this proposal. Employers and their representatives, including the CBI, strongly supported it. They considered the emphasis should be on the merits of the case . . . Others including the TUC opposed the proposal, which they thought sent wrong messages about the correct use of procedures".
There were the opinions set out, and the Government have taken the side of the CBI proposals—except that they cited one other authority. They quoted the evidence sent to them by the Northumberland County Council. I have not been able to trace the litigation in which the Northumberland County Council has been involved and I did not know that it was a leading authority on this area of the law and of practice. However, the Government chose to quote its evidence as follows:
- "It would seem good sense to allow tribunals to disregard procedural mistakes if there would be no difference to the outcome of the case".
The Government were misled into using the same phrase,
- "if there would be no difference to the outcome of the case".
- "Subject to subsection (1)—
- "failure by an employer to follow a procedure in relation to the dismissal of an employee shall not be regarded for the purposes of section 98(4)(a) as by itself making the employer's action unreasonable if he shows that he would have decided to dismiss the employee if he had followed the procedure".
Lord Sainsbury of Turville: No, I was waiting to hear the quotation.
6 p.m.
Lord Wedderburn of Charlton: I am sorry, I misunderstood what was going on. What the section deals with is not an outcome but a decision by the employer. Discussion of abstracts where what is dealt with is concrete are always somewhat Hegelian and often rather misleading. The new section states that, where the decision of the employer would not have been different, albeit that he has not followed a procedure which he supposedly should have followed, that by itself will not make his action unreasonable. If it is not unreasonable under Section 98, it will not be an unfair dismissal.
As my noble friend Lord Lea pointed out, there has been considerable confusion about what the effect of this clause, now as redrafted in Committee and in another place, would be. My honourable friend the Minister, Mr Johnson, said at on 18th December (col. 210 of Commons Hansard) that where the statutory minimum procedures are concerned the Government are strengthening the position and the principle in Polkey. He went on to say that he would give examples. In my submission, looking carefully at the record, he never did.
He said more than once that the aim was to strengthen Polkey but later at col. 228, which my noble friend Lord Lea read and which was a very puzzling pronouncement, at least one thing is clear. The Minister used the words "if we did not reverse the no difference test". Also at col. 228 he makes clear the fact that the change to Polkey referred to disciplinary procedures above the minimum. So he is strengthening Polkey but he is changing it. We do not understand what he really had in mind at all.
One of the reasons for that was that he was fed with the argument that although page 39 of the Bill changed the law—there would not be much point in enacting it if it did not—it did not change the basic principle that a dismissal must be reasonable and fair in order to be justified by the employer. It does not change that rule totally but, if the Government mean that the employer's decision to dismiss what the employer would have decided if he had followed the procedure that he omitted to follow—if they mean that that decision to dismiss must be on the supposed facts fair or reasonable—they can take their pick among the three amendments and accept one or the other, or say they accept them in spirit and will put forward their own words.
One cannot read the transcript of the Committee stage in another place without realising that there is a terrible mess. How has this mess arisen and, more importantly, how has the lack of confidence among trades unions and commentators on a wide scale arisen as regards the effect of the Government's amendment to the law in Clause 34 under new Section 98A(2)?
In my submission, it has arisen from two factors. It has done so, first, by underrating the vital importance of procedure in employment relations, to which my noble friend Lord McCarthy has already spoken. I underline what he said. The second reason is that everyone discusses the case of Polkey v AE Dayton Services Ltd, reported in 1998 appeal cases, without ever bothering to see what the noble and learned Law Lords actually said in deciding that case. I intend to put on the record what they said in that case because it illuminates the manner in which this clause could well alter the law unless an amendment of the type that we have tabled is accepted.
It is often thought that, by talking of a failure by an employer to follow a procedure in respect of or in relation to dismissal, new subsection (2) refers to an extra contractual procedure or something which is specifically laid out at the place of work. Of course, it could refer to such a case. But Polkey was not such a case. In Polkey, in a reorganisation van drivers' duties were changed such that four van drivers were replaced by three other workers. However, only one of the four drivers was considered suitable for transfer to new duties. Accordingly, the other three were made redundant.
In Mr Polkey's case, the first that he knew about it was when he was called into the branch manager's office and told that he was being made redundant. This was a flagrant breach of the principle that one must consult the employee before redundancy and, indeed, warn him of the impending redundancy. That procedure was suggested in the industrial relations code of practice at the time and, as the industrial tribunal said, nothing excuses the failure of employers to consult. It was not a written procedure which they failed to operate; it was the basic procedure of warning and consultation.
What did your Lordships' Judicial Committee decide? The noble and learned Lord, Lord Mackay of Clashfern, the then Lord Chancellor, giving the leading judgment, said—I quote from the Industrial Relations Law Reports of 1987 at page 504; I do that because it is easier to bring a copy of the volume to your Lordships' Himalayan meeting rather than carry the full volume of the appeal cases:
- "the subject matter for the Tribunal's consideration is the employer's action in treating the reason as a sufficient reason for dismissing the employee. It is that action and that action only that the Tribunal is required to characterise as reasonable or unreasonable. That leaves no scope for the Tribunal considering whether, if the employer had acted differently, he might have dismissed the employee. It is what the employer did that is to be judged, not what he might have done. On the other hand, in judging whether what the employer did was reasonable it is right to consider what a reasonable employer would have had in mind at the time he decided to dismiss as a consequence of not consulting or not warning [a worker]".
- "With much of what he says"—
- "I would respectfully agree but I cannot accept it all. For example, in referring to a case of dismissal for misconduct where the evidence of misconduct could be capable of explanation and no
- explanation has been invited before dismissal, the examination of which the learned Lord Justice speaks is an examination of matters other than the [employee's] conduct which could not be known to the employers until after the decision to dismiss had been reached and therefore it was not available to the employer at the time he reached that decision. Perhaps the point is highlighted most plainly in the very last sentence which I have quoted. The consequences of the failure determine whether or not the employee suffered an injustice".
- "This is not to be confused with the question whether the employer acted reasonably".
Those are the first two matters that are addressed in the speeches in the Polkey case. The noble and learned Lord, Lord Bridge of Harwich, sets out the third, which is a similar strand of argument but which in fact is materially different. Perhaps I should say what we have covered already. What we have covered already shows that this whole matter is part of not allowing the employer to add extraneous and other reasons to those that were with him at the time. The question immediately arises whether, in upsetting the Polkey rule in new subsection (2), the effect of the Government's Bill would be to upset that rule. There are many who believe that it will.
The noble and learned Lord, Lord Bridge of Harwich, added the third strand of argument. He said at page 508 of the same report,
- "the application of the so-called British Labour Pump principle",
- "tends to distort the operation of the employment protection legislation in two important ways. First, . . . if the Industrial Tribunal, in considering whether the employer who has omitted to take the appropriate procedural steps acted reasonably or unreasonably in treating his reason as a sufficient reason for dismissal, poses for itself the hypothetical question whether the result would have been any different if the appropriate procedural steps had been taken, it can only answer that question on a balance of probabilities. Accordingly, applying the British Labour Pump principle,"
- "if the answer is that it probably would have made no difference, the employee's unfair dismissal claim fails. But if the likely effect of taking the appropriate procedural steps is only considered, as it should be, at the stage of assessing compensation, the position is quite different".
- "The second consideration is perhaps of particular importance in redundancy cases. An Industrial Tribunal may conclude, as in the instant case, that the appropriate procedural steps would not have avoided the employee's dismissal as redundant. But if, as your Lordships now hold, that conclusion does not defeat his claim of unfair dismissal, the Industrial Tribunal, apart from any question of compensation, will also have to consider whether to make any order under s.69 of the Act of 1978".
- "if it thinks fit, make an order for re-engagement under that section and in so doing exercise a very wide discretion as to the terms of the order. In a case where an Industrial Tribunal held that dismissal on the ground of redundancy would have been inevitable at the time when it took place, even if the appropriate procedural steps had been taken, I do not, as at present advised, think this
- would necessarily preclude a discretionary order for re-engagement on suitable terms, if the altered circumstances considered by the Tribunal . . . were thought to justify it".
From those passages I draw these points. First, the matter is of particular importance where appropriate procedural steps should have been taken and were not, and one cannot allow the failure to do so to justify the dismissal. That goes to the very root of the entire structure of the employment protection legislation, which the Government on their own ascertain are leaving unchanged in other parts of the employment protection legislation in the Employment Rights Act 1996. It leaves that legislation unchanged, they say, and claim that it will operate without any difference. Yet it changes the very rule which, in the words of the noble and learned Lord, Lord Bridge of Harwich, is fundamental to its operation, and then says it will make no difference. The matter is a logical absurdity. It is changing what the noble and learned Lord, Lord Bridge, said was the basis of his decision and thinking about what is now the Employment Rights Act, and then says that it will make no difference to the Employment Rights Act. That is Polkey. It is only in later cases that we have had it confirmed—most of the discussion is assumed—that it does apply. Its rationale, its reasoning and the three strands of its reasoning apply to other cases of unfair dismissal.
The latest case, I think, is that of Whitbread v Hall, in 2001, IRLR page 275. Mr Hall was a manager of a hotel. While he was away on holiday, irregularities took place in the stock control operations. On his return, the area manager suspended him, pending further investigation, but a disciplinary hearing was immediately held, chaired by the area manager herself. In the face of this, Mr Hall admitted the offences. The area manager decided to dismiss him for—the report says—"gross misconduct". He appealed against that decision, which was heard by the operations manager, but was still dismissed after it.
The tribunal was particularly concerned about the role of the managers, especially the area manager who had acted as prosecutor and judge. It was quite clear that, since he had admitted the misconduct, the employer would have dismissed anyway—in the words of the clause, "would have decided to dismiss". But, under the Polkey rule, the Court of Appeal had absolutely no difficulty in a short judgment in saying that the employer could not use that argument—that he would have dismissed anyway—to cure the fact that he had not even operated the elements of natural justice in the procedures that he should have operated.
Lady Justice Hale says that this view is supported by—and I quote from page 278:
- "authority at the highest level, albeit in the context of unfair dismissal for redundancy rather that misconduct".
- "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 employers faced with such misconduct".
- "that the offences 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".
The clause would include the case of an employer who went into the process with his mind made up. That is why there is this lack of confidence in the Government's curious argument that the arrangement will not affect tribunal decisions in respect of reasonableness and fairness.
If the Government have some answer why the facts in Whitbread v Hall would not be affected by this clause, they had better give it. The reason they had better give it is that, in Committee in another place, the Minister, my honourable friend Mr Alan Johnson, said on more than one occasion, in reply to the decisions of tribunals with which he was pressed in that case, that the Government had looked at all the cases since Polkey, and they thought that the great majority would not be changed by Clause 34.
I want to know which were the minority cases that would be changed by Clause 34. I say that Whitbread v. Hall might well—indeed probably would—be one of them. I want to know what survey the Government did of all these cases which Mr Johnson said on numerous occasions they had considered and the majority of which would not be changed by Clause 34. It is the opinion of eminent authority who have looked at the Bill that many such previous cases might well be changed by Clause 34 which inserts the new Section 98A(2). It would very likely include an employer who,
- "would have decided to dismiss the employee if he had followed the procedure".
Such an employer would be one whose mind was made up, who was adamant that this employee must go, who had said, "Get out and clear your desk", and who would not have changed his mind if he had operated either the ACAS code procedures or any other procedure that he should have consulted. It is quite absurd to say that it is impossible for a tribunal to see this clause as something which would affect that argument. Tribunals have great experience and the employment appeal tribunal in particular is likely to look very carefully at this clause.
Therefore, if we look at it carefully, the question for the Government is: why not say what you mean? The Government say they mean that this clause should be enacted but that it has to it a hidden extra; namely, that it will only operate to exculpate the employer where the dismissal is reasonable or fair in every respect. We say in these amendments that the decision should have been fair and reasonable and for a sufficient reason, or, if you like, in the amendment of the noble Lord,
Lord Lea, that the decision and the dismissal are in all respects fair. Alternatively, in our other amendment in the group we propose a formula on fairness.I cannot understand why the Government should insist on not saying what they mean. That is what it comes to but they have to address, not simply by a few words here or there, what they are doing in changing the law as expressed in the Polkey judgment of your Lordships' Judicial Committee. As the noble and learned Lord, Lord Bridge, made clear and the noble and learned Lord, Lord Mackay of Clashfern, with respect, agreed, that was an assessment of the basis of the entire employment protection legislation in regard to dismissal—not allowing the employer to rest upon some reason other than those known to him at the time and not allowing the employer to escape from procedures which he should have followed by saying that it would have made no difference to his decision to dismiss, including the case where his mind was so closed that nothing could affect his decision to dismiss.
The Government must not legislate things that appear to be absurd or uncertain or, indeed in this case, what may well turn out to be again unfair to workers who are unfairly dismissed. Please will the Government say what they mean? Please can they accept at least the spirit of one of this congeries of amendments?
6.15 p.m.
Lord Gladwin of Clee: Understandably, my noble friend Lord Wedderburn is concerned with details of the law and the effect of cases heard not only in the employment appeal tribunal but also in the Court of Appeal and in your Lordships' Judicial Committee. My concern is with the industrial relations impact of this. The clause refers to the failure by an employer to follow a procedure. That is not the statutory procedure but a procedure which, in my experience, is often fairly comprehensive and sophisticated.
New Section 98A(2) states that,
- "failure by an employer to follow a procedure in relation to the dismissal of an employee shall not be regarded . . . as by itself making the employer's action unreasonable if he shows that he would have decided to dismiss the employee [even]"—
- "if he had followed the procedure".
It just so happens that I have been in contact with a number of human resource directors. I hate the title; I used to call them personnel directors and that means something to me. It is offensive to use the term "human resources" in that connection. They are concerned—I refer to the Industrial Society's brief—about the impact that this measure will have on companies. Most of the major companies represented by the CBI have these procedures. They are not caught by the statutory procedure. We know who is caught by the statutory procedure—the 600,000 workplaces that have nothing at all.
Where an employer has fairly sophisticated procedures, human resource managers have told us that it will be even more difficult to persuade managers to follow a procedure if they think they can get away with it by arguing that the employee would have been dismissed anyway.
I cannot interpret subsection (2) to mean anything else. If the employer shows—to whom, to an employment tribunal?—that his decision to dismiss the employee would have been taken anyway, even if he had followed the procedure, my fear, which I know will be denied, is that the impact of the statutory procedure will encourage the sophisticated ACAS-type procedures to wither on the vine. Why should an employer, under pressure from his own line managers, maintain sophisticated procedures if he can get away with sacking people who, it may be considered, were going to be sacked anyway? I cannot interpret the clause to mean anything else. My concern is the impact of the measure on industrial relations.
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