Handshake Ltd v Summers UKEAT/0216/12/KN

Appeal against a finding that the claimant was unfairly dismissed and against a wages claim. Both appeals were dismissed.

There was a lack of understanding between the claimant and the respondent as to the claimant's entitlement to a share (by the issuing of shares) in the share capital of the respondent. In 2006 the claimant received an increased salary and a 'share of the profits'. The respondent maintained that the ET clearly found that the payment emanated from the promise to issue shares to the claimant. The claimant questioned the correct assessment of net profit but both parties were unable to settle the dispute. The claimant's solicitors then wrote to the respondent, saying that the claimant was losing all trust and confidence in respect of his employment with the respondent and made reference to a potential constructive dismissal claim against them. The letter induced 'complete shock' in the respondent's managing director, and the claimant was eventually dismissed. The ET found that the reason for the dismissal was the power struggle, not a loss of trust and confidence. It found that the dismissal was unfair because the respondent had not satisfied them as to the true reason for the dismissal based on the evidence it had put forward. As to the unlawful deductions, the ET rejected the argument that a share of profits was something distinct from a bonus and that a pure share of profit would not come within the definition of wages as set out in s27 ERA 1996. The ET ruled that for an employee who did not hold any share in a company, it was an artificial rather than a real distinction and the claimant had received a bonus calculated according to the net profit in that year. The compensation was reduced by 40% for contributory fault (the letter from the solicitors) but not reduced for Polkey. The respondent appealed.

The EAT dismissed the appeal. The Employment Tribunal was entitled on the facts to find that a disagreement about salary and bonus did not result in a breakdown of trust and confidence and so become some other substantial reason for dismissal. It was entitled to hold there should be no reduction for Polkey. The dispute over bonus was within the meaning of s 27 of the Act.

Appeal No. UKEAT/0216/12/KN



At the Tribunal

On 22 October 2012





Transcript of Proceedings



For the Appellant
MR SIMON GORTON (One of Her Majesty's Counsel)

Instructed by:
Cottrill Stone Lawless
82-86 Deansgate
M3 2ER

For the Respondent
MR DAVID FLOOD (of Counsel)

Instructed by:
Weightmans LLP
100 Old Hall Street
L3 9QJ


UNFAIR DISMISSAL – Reason for dismissal including substantial other reason


The Employment Tribunal was entitled on the facts to find that a disagreement about salary and bonus did not result in a breakdown of trust and confidence and so become some other substantial reason for dismissal. It was entitled to hold there should be no reduction for Polkey. The dispute over bonus was within the meaning of s 27 of the Act.

  1. This case is about unfair dismissal and a claim for unauthorised deductions. This is the judgment of the court to which all members appointed by statute for their diverse specialist experience have contributed, as it appears did the three-person Employment Tribunal below, particularly by reference to what the three of them describe as "reality" and "artificiality" in one of the points. We will refer to the parties as the Claimant and the Respondent.
  1. It is an appeal by the Respondent in those proceedings against the judgment of an Employment Tribunal chaired by EJ Sherratt sitting in Manchester over seven days, sent with reasons on 5 January 2012. The judgment was reserved but it was pronounced and some reasons were given at the time. The parties were represented respectively by Mr David Flood and Mr Simon Gorton QC. It has been a tribute to their advocacy that this case has been completed with a very substantial degree of recognition by each of them of weaknesses in his own case. It has made our task easier and we are very grateful to both of them for the succinct way in which they have put the points for their clients to us.
  1. The Claimant contended that he was unfairly dismissed and he was underpaid a bonus which was due to him. He made other claims which were either withdrawn or dismissed without appeal and so what remains is what might generally be described as an ordinary unfair dismissal claim and a wages claim, under Part II of the Employment Rights Act 1996. The Respondent contended it dismissed him fairly without any unfair procedure. Had it unfairly dismissed him the compensation should be reduced to zero, either by the operation of Polkey principles, see Polkey v A E Dayton Services Ltd [1988] 1AC 344 HL, or by way of the Claimant's contribution to his dismissal.
  1. The Respondent also contended that the wages claim could not be quantified and there was no jurisdiction since it did not fall within the meaning of any of the forms of emolument under the statute, therefore, there is no jurisdiction. The Tribunal upheld the Claimant's claim for unfair dismissal, reduced his forthcoming compensation by 40 per cent to reflect contributory conduct, declined to make any reduction in respect of Polkey and upheld the wages claim, leaving quantification of that matter to a remedy hearing if the parties could not agree.
  1. The Respondent appeals against the two principal parts of the judgment, although each part of the appeal has several facets. Directions sending this appeal to a full hearing were given in chambers by HHJ David Richardson who was troubled by the arcane corner of the law which he described as being occupied by "some other substantial reason" ("SOSR").
**The legislation**
  1. The relevant provisions of the legislation are first to do with unfair dismissal. Section 98 of the Employment Rights Act 1996 provides as follows:

"98 General

(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 n employee holding the position which the employee held.


(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 on 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 employer, and

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

  1. Remedies are dealt with in section 123 which provides:

"123 Compensatory Award

(1) ... 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.

(6) Where the tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant, it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding."

  1. Claims for unauthorised deductions are regulated by section 13:

"13 Right not to suffer unauthorised deductions

(1) An employer shall not make a deduction from wages of a worker employed by him unless -

(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or**

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.

(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion."

  1. A definition of wages is provided:

"27 Meaning of "wages" etc

(1) In this Part "wages", in relation to a worker, means any sums payable to the worker in connection with his employment, including --

(a) any fee, bonus, commission, holiday pay or any other emolument referable to his employment, whether payable under his contract or otherwise ...."

**The facts**
  1. Mr Gorton QC has summarised, without any objection, the principal findings of fact in this judgment. It has to be said the judgment, which extends for 48 pages, is in an unusual form for it contains extracts verbatim and in précis of the evidence of key actors in this drama, and very substantial quotation of the relevant documents and of the detailed submissions made to it by each counsel. We accept Mr Gorton's helpful summary:

"9 The reason for dismissal:

9.1 C was employed in a small company and an even smaller senior management team (of 3). There emerged a lack of understanding between the parties as to C's entitlement to a share (by the issuing of shares) in the share capital of R based on the original offer letter made by R to C dated 29/9/03 i.e. 30% of the issued share capital of R on a staged basis; (para 6)

9.2 In 2006 C received an increased salary and a "share of the profits" (p 97). Payments, described as a share of profits, in accordance with a staged % identified for the shares were made (20% and 30%) (para 16). C then was paid a figure at the rate of 30% of the assessed net profit and signed the accounts for 2007 and 2008 (paras 17-18). The ET regarded these payments as consistent with a payment in lieu of C's shares i.e. giving them up, or, payment in the meantime in respect of his 30% shareholding which had not been lost (para 20). Either way, R makes the point here that the ET clearly found that the payment emanated from the promise to issue shares to R prior to his employment by letter of 29/9/02 - whether that entitlement had ceased or was continuing;

9.3 R thought matters had been resolved by this. C had a different view and requested that R declare that the summary accounts (from which the 30% payment from net profits was derived) was a "true and accurate account of all business transactions" (para 25). This has a direct connection to the ongoing dispute between the parties as to the correct assessment of net profits. C then suggested in 2008 that payments made and signed for by C as being in full and final settlement of C's entitlement, were not in fact in full and final settlement (para 32). This also led to a meeting on 16/3/09 between R and C where R made it clear to C that his questioning of the profit and loss accounts was having a detrimental effect on C's working relationship; (para 51)

9.4 R then sought, with C's agreement, to formalise C's entitlement into a service agreement. That commenced in May 2006 and by the time of the events giving rise to C's dismissal, some 5 formal service agreements had been issued and 2 further offers of terms made by R which were rejected and/or not accepted by C, as follows:

9.4.1 Version 1 May 2006 - paragraphs 21-29

9.4.2 Version 2 15/9/08 - paragraphs 30-35

9.4.3 Version 3 30/9/08 - paragraphs 36-44

9.4.4 Version 4 28/11/08 - paragraph 45-49

9.4.5 Version 5 30/3/09 – paragraphs 50 (This was in fact a version of an agreement amended by C and his lawyers – para 50)

9.5 In addition to the above 2 additional offers of terms of employment were made by R:

9.5.1 R further offered C terms by letter of 26/3/09; (para 54)

9.5.2 And by email dated 8/6/09 from R's solicitors. (para 61)

9.6 The issue/dispute of share ownership/entitlement endured in 2008 with C insisting he was entitled to the same and R insisting it had been relinquished due to tax reasons; (paras 39-44 and 48. The letter in the EAT's bundle p117 is incorrect: the letter drafted by Weightmans is dated 20/2/09 but in fact was 2009)

9.7 Matters reached a near critical point in March 2009 when it was recorded that a parting of the ways was a distinct possibility based on the failure to agree terms (para 51-54). That did not bring about agreement but rather led to C writing to R on 6/4/09 in forceful terms (paras 55-60). This reached a near resolution in April when C agreed to consider as a compromise R's offer made on 26/3/09 above;

9.8 Matters were not resolved which led to the letter from C's solicitors (Weightmans) of 26/6/09 (p 127 EAT bundle). That letter is produced in full in the ET Reasons and asserts that "our client is losing all trust and confidence in respect of his employment with the Company" and made reference to a potential constructive dismissal claim against R whilst also referring to being made an offer to effect a "clean break" and goes on to conclude "our client has lost all trust and confidence in his employer (p 19 of decision).

9.9 The letter induced "complete shock" in R's Managing Director (para 32).

9.10 R attempted to engage C in a discussion about the letter and its contents/effects, but C insisted on leaving any dialogue to the legal advisers (para 68). Fruitless efforts were made to settle the differences between the parties, all premised on C's employment being terminated; (see para 70-71)

9.11 R then issued C with a letter dated 30/7/09 inviting C to a meeting at which R stated that it believed that the working relationship had been soured and had "completely broken down" and become unworkable (paras 73-75).

9.12 C was then dismissed on notice by letter of 4/8/09 due to these matters including the point that the breakdown in the relationship was also reflected in R's view that Chad not been committed to the business as he had before (para 76).

10 The ET was invited by R to find that even if the dismissal was unfair, as the core disagreement was a failure to agree terms, and as there would never have been such an agreement, the outcome of dismissal would have been the same and in the process C contributed to that dismissal by the stance he took. The ET did not regard the exercise as Polkey one, but rather the ET approached it on the basis that the Weightmans' letter had stung R into action that led to C's dismissal that meant C should be criticised for contributing to his own dismissal by 40% (para 158. There was also a small additional reduction of 5% for unreasonably following the ACAS Code).

11 In relation to the deduction from wages claim:

11.1 The parties at the outset of the hearing did not invite the ET to adjudicate on C's monetary claim for the year 2008/2009 but rather to make findings on issues of principle i.e. was C entitled as a matter of law to a bonus or profit share, and was that a claim that could be brought within the ET's jurisdiction; (C valued the claim in excess of £300,000 and therefore was not brought within the IT's breach of contract jurisdiction)

11.2 R argued that the true nature of the claim for the alleged bonus was (a) in reality a share of the profits of the business in lieu of C receiving an allocation and not a matter related to C's remuneration or any deduction from wages and thus not falling within the definition of wages under s27(1) ERA (b) the assessment of net profits in any event depended on R's exercise of judgment/discretion as to its calculation/assessment i.e. what matters were treated as expenses before profit is declared and that exercise rendered the claim inapt as a deduction from wages;

11.3 The ET made the following findings:

11.3.1 C received a share of profits in 2006/2007 and signed the accounts dealing with his entitlement to the "share of profits" for the relevant years. C subsequently requested that R declare that the summary accounts (from which the 30% payment from net profits was derived) was a "true and accurate account of all business transactions" (para 25).

11.3.2 The payment in respect of bonus of 30% net profits was equally consistent with C giving up his share claim as it was with C receiving the same in lieu of a 30% shareholding;

11.3.3 C then suggested in 2008 that payments made and signed for by C as being in full and final settlement of C's entitlement, were not in fact in full and final settlement (para 32). The reason for this was that C was disputing that the calculation of the figure for net profit was not correct - see for example Weightmans' letter of 26/6/09 asserting that C's provisional entitlement was in the region of £240,000.

11.5 The ET decided that the claim whist at present was un-quantified, that did not mean it was un-quantifiable and the ET regarded itself as having jurisdiction to hear the claim; (para 138)

11.6 The ET made a finding that C received 30% of the net profits in the preceding 3 years; (para 140)

11.7 The ET then went on to describe the previously made payments as a "contractual payment" (para 140)."

  1. The summary is a fair reflection of the very lengthy account given by the Tribunal. The Tribunal noted that part of the reasoning for the Claimant's dismissal, in Mr Littlewood's mind, was his attitude, behaviour and mistrust, see paragraph 81.23, but that he remained pleasant and sunny at work. The Tribunal was entitled to regard as confrontational the Claimant's solicitor's letters sent on 6 April and 26 June 2009, the latter being cited in full, but they are both to the same effect.
  1. The Tribunal came to the first question which it had to decide which was the reason for dismissal and reached this conclusion:

"136. So all of these matters lead us to the conclusion that the real reason for the dismissal in the mind of Mr Littlewood was not a loss of trust and confidence but a power struggle over the terms of the contract, the bonus' and the shares - put simply: his terms or mine. This issue is, in our judgment, different from trust and confidence because the evidence from Mr Littlewood is that if the claimant had signed up to terms then he would most likely have stayed. Mr Littlewood did not, pursuing that line of approach, give the claimant an ultimatum - sign the agreement on my terms or go - he did not give the claimant the stark reality that may well have been before him, but had he done so who knows what would have happened. We find that this was the reason for the dismissal - the power struggle - not that it was a loss of trust and confidence."

  1. Quite properly it did not, therefore, need to move on to section 98(4) but it did give a hint, at one stage described as a finding, which is this:

"137. Therefore, the respondent has not satisfied us as to the true reason for the dismissal based on the evidence it has put forward in the case and so we find on that basis that dismissal itself was unfair. We note that other matters were raised in the disciplinary, the smaller issues that were not matters the claimant had a chance to deal with in advance. They do not seem to us necessarily to be trust and confidence related but had we had to go on to consider fairness we would have found the dismissal unfair because these matters were raised at the disciplinary hearing for the first time when they could and should have been included in the letter inviting the claimant to the meeting which turned out to lead to his dismissal."

  1. The Tribunal then looked at the unlawful deduction claim. It noted that the submission from the Respondent was that the claim was unquantifiable, but held that the claim was within the jurisdiction of the Employment Tribunal. It dealt with Mr Gorton's submission in the following way:

"139. It is suggested by Mr Gorton that a share of the profits is something distinct from a bonus and that a pure share of profit would not become within the definition of wages set out in section 27. Is this a real or an artificial distinction? In our judgment, for an employee who does not hold any share in a company, it is an artificial rather than a real distinction. We find the claimant received for each of the three preceding years a bonus calculated as a 30% share of net profit."

  1. On the substance the Tribunal's finding was this:

"140. We heard Mr Littlewood say that if the claimant had continued to work he would have paid him a bonus subject to profit, possibly calculated in the same manner. On this basis we find that it was something that Mr Summers could reasonably have expected to have carried on receiving had he continued in employment, subject of course to any subsequent agreement. The contractual arrangement we find is an entitlement to a bonus of 30% of net profit for the year ended 31 March 2009 calculated in the same manner as previously because no alternative had been agreed. The amount in question will be determined at a remedy hearing in the absence of agreement between the parties. Whether that will be a complex calculation or a simple approach like Mr Ramadhin's calculations will be for the Tribunal to consider at the remedy hearing."

  1. Turning then to Polkey after the annunciation of its findings on liability, the Tribunal recorded the submissions and decided that it would deal both with Polkey and contribution under the same head and said this:

"157. The Tribunal has considered these submissions and takes the view that the matters alleged against the claimant with regard to Polkev and/or contribution are more properly dealt with by way of contribution under section 123(6) which provides that where the Tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant, it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding.

158. We take the view that the main contributing factor to the changing of the attitude of Mr Littlewood was the letter from Weightmans dated 26 June 2009 and thereafter the further letter dated 23 July. It was accepted that letters from the claimant's solicitors were properly to be regarded as the conduct of the claimant. Had they not been sent then we do not think that Mr Littlewood would have been affected in the way that he was and would not have taken the action against the claimant that he did. It is not, however, wholly the claimant that is to blame because Mr Littlewood could have let his solicitors deal with Weightmans on a solicitor-to-solicitor basis waiting for them to resolve matters between themselves.

159. Taking into account these matters, Mr Flood's concession of 20 - 30% and our general findings with regard to this case we think it just and equitable to reduce the amount of any compensatory award by 40% to take into account the actions of the claimant."

  1. It decided that the matter could be assessed at a hearing, if not agreed between them.
**The submissions and our conclusions**
  1. As a result of the very helpful presentation of the arguments to us we can take an analytic approach to them and give our conclusions at the end of our description of the argument.

(1) The reason for dismissal

  1. Essentially the Tribunal decided that trust and confidence had not broken down and that there was a distinction between a power struggle, a phrase enlisted by Mr Flood to describe the tension between the parties over the salary payable to him in his package, and the reason for dismissal. This was not a breakdown of trust and confidence, but merely the parties could not agree on the money. Mr Gorton's proposition is that the Tribunal did not apply the statutory test to finding the answer to the question. Mr Flood contends that is a question of fact for the Tribunal. It was entitled, as a matter of fact, to look into the mind of Mr Littlewood. It did so having considered his evidence about what the relationship was.
  1. The letter from the Claimant's solicitors was highly confrontational and caused great damage, and shock to Mr Littlewood. Mr Flood conceded that this was potentially repudiation of the contract by the Claimant. But even after it, Mr Littlewood did not act as though the relationship had broken down. That is not the way in which it was perceived by Mr Littlewood. He did not act upon it, he did not accept the repudiation which Mr Flood accepts there was. They could live with each other. It could not, therefore, be said that the Mr Littlewood dismissed the Claimant because of a breach of trust and confidence i.e. the relationship having broken down.
  1. We accept Mr Flood's engaging imagery. It cannot be right that an employee, even a senior one, who opens up a debate leading to a dispute over a term of his employment, here pay, is by that alone acting in breach of the duty to maintain trust and confidence. True it is, as he again very fairly accepts, that if the way in which this war is waged amounts to a breach of trust and confidence that will suffice. But here there is no finding by the Tribunal that there was anything repudiatory in the way in which the debate was conducted between the two men to indicate trust and confidence had evaporated. So the Tribunal, faced with the central question in any unfair dismissal case as to what was the reason, was entitled to come to the conclusion that it was not, as advanced, a breakdown in trust and confidence. The Tribunal had in mind the legal principles set out in Devis v Atkins [1977] IRLR 314 at 317 where Viscount Dilhorne adopts this from a judgment of Cairns LJ.

"A reason for the dismissal of an employee is a set of facts known to the employer, or it may be of beliefs held by him, which cause him to dismiss the employee. If at the time of his dismissal the employer gives a reason for it, that is no doubt evidence, at any rate as against him, as to the real reason, but it does not necessarily constitute the real reason. He may knowingly give a reason different from the real reason out of kindness..."

  1. We accept from Mr Gorton that the threshold for establishing SOSR is relatively low: Kent County Council v Gilham [1985] IRLR 18 CA. The reason must not be trivial or unworthy and there must be something which could justify the dismissal, in which case it will pass the test. It is also clear to us that a breakdown in relations can amount to other substantial reasons, see Perkins v St Georges Healthcare NHS Trust [2005] IRLR 935 at paragraph 60, per Wall LJ:

"I did not understand Mr Langstaff to argue that in a given case a breakdown in confidence between an employer and one of its senior executives; (a) for which the latter was responsible; and (b) which actually or potentially damaged the operations of the employer's organisation (or which rendered it impossible for the senior executives to work together as a team) was out with section 98 as SOSR and therefore could not result in an employer fairly dismissing the employee whom the employer deemed responsible for that state of affairs. Indeed, I think Mr Langstaff was minded to accept that the facts found by the Tribunal could have amounted to SOSR. In my judgment, that concession was both correct, and realistic. Standing outside the case for a moment, it seems to me that it must be possible for an employer fairly to dismiss an employee in the circumstances set out in the earlier part of this paragraph, provided always the terms of section 98(4) are satisfied."

  1. Invocation of SOSR is limited to genuine cases and must not be used to sidestep dealing with conduct issues, however difficult they may be. See the complimentary treatment given to the judgment of Underhill P by the Court of Appeal in [Leach v OFCOM]() [2012] EWCA Civ 959. The relationship was said to be souring but on the evidence before this Employment Tribunal, life was going on as before between Mr Littlewood and the Claimant. Each was able to do his job. They were just rowing about the money the Claimant thought he was entitled to. We accept the submission of Mr Flood that this is a question of fact for the Employment Tribunal, having heard very substantial evidence. It follows that the claim failed under section 98(1) and, therefore, it was not necessary for it to go on and decide ordinary unfairness under section 98(4) to which we now turn.
  1. The Tribunal cannot be criticised for dealing with this matter in such summary terms but, again, Mr Flood is right in conceding that this would not be enough. It would not pass the test of Meek v City of Birmingham District Council [1987] IRLR 250 CA. One has sympathy for it, of course, because it was not required at that stage to make a decision, although it will always be helpful on appeal if a tribunal has considered fairness, albeit as an auxiliary finding and not necessary to its judgment. If we were wrong in upholding the Tribunal's judgment on the first question it is inevitable that this matter would have to be remitted to the Employment Tribunal for it to give its reasons on unfairness. Although we heard no detailed arguments it could go back to the same Employment Tribunal, it having invested so much time in this case. If we were ourselves making the decision under section 98(1), as Mr Gorton invited us to had we been in his favour, we would simply say the employer had passed the test and produced a substantial reason and, therefore, the Employment Tribunal must consider whether it was fair under 98(4). However, that is not necessary given our finding on the principal point.

(2) Contribution

  1. It is an open question as to whether contribution applies where there has been no satisfaction of section 98(1) and (2). But the finding of a contribution and its quantum is not in dispute in this case, so we need say nothing about it.

(3) Polkey

  1. The third issue relates to Polkey. Our provisional view about this, having read the papers before the case, was that we would prefer to hear from Mr Flood on it because it seemed to us that two experienced counsel, having put submissions to the Tribunal separately on Polkey and contribution, deserved a judgment in respect of both. They are separate legal processes. Polkey arises once there has been a finding of unfair dismissal and it relates to what is fair to award under section 123, bearing in mind the classic case where there has been some procedural shortcoming which would fall under section 98(4), fairness. But it also deals with the multitude of other circumstances where the relationship would or might have come to an end fairly at some stage in the future, see the examples I gave in Gover v Property Care upheld by the Court of Appeal [2006] EWCA Civ 286.
  1. The finding on Polkey looks as though the Tribunal has treated both contribution and Polkey together and so Mr Flood made submissions about why that was correct. We consider Mr Flood is right when he says, as the Tribunal have summarised Mr Gorton's arguments at paragraph 145 to 157, that Polkey stands and falls with the principal decision. Once it is found that there was not a breakdown in trust or confidence then it cannot be said that there would inevitably have been a fair dismissal for the reason which the Tribunal found, that is the pay dispute, or a breakdown in trust, at some stage in the future. Although it deserved an extra sentence for the Tribunal to make a specific finding in relation to that, its reasons are exigible from the submissions which it was faced with.
  1. It must be borne in mind that although there were makeweight matters put into the disciplinary proceeding which the Tribunal found to be unfair, see our citation from paragraph 137, and would, therefore, open the door to Polkey, those matters were not relied upon. The substantive matters such as record were not relied upon for the Polkey claim, solely what we have described as the principal basis namely the Claimant's approach to the dispute.

(4) Unauthorised deductions

  1. Mr Gorton QC's arguments are rehearsed by the Employment Tribunal and we hope we do no disservice to him when the Tribunal summarised that there is a distinction between a bonus and a pure share of the profits. Mr Flood took us to the "pleadings", particularly the grounds of resistance. He invoked the defence being put in Mr Littlewood's pleading, i.e. that there was a bonus to be payable to the Claimant as a matter of contract, and it had been paid over three years but it was not paid in respect of the final year. All of the iterations from Mr Littlewood confirm the nature of what was being paid.
  1. Confusion has entered into this because the Claimant says he was offered 30 per cent shareholding in the business, but it appears to us that this was regarded in due course as a dead duck and instead of that he was offered a discretionary bonus payment, provided the company was making a profit. It must be borne in mind, that at one stage it was also related to his contribution, that is, how much he contributed by his work to the company. In our judgment there is no distinction here between the two forms. At one stage it was envisaged there would be shareholding but because of tax implications that was not forthcoming, and so the Claimant was incentivised, as it was put, by the bonus payment. That does not mean that this was not wages within the generous meaning given to it in section 27 of the Act.
  1. We started with how the parties describe it. It is a bonus, so one has to understand why it does not fit within the meaning of "any bonus … referable to his employment" within section 27(1). It is certainly in connection with his employment - it was to incentivise him. It was also to do with his contribution - provided he makes a satisfactory contribution and the company makes a profit he will get 30 per cent of it, subject to how it is assessed. We accept the definition provided in Delaney v Staples [1992] 1 AC 687 HL that it has to be in consideration for work done or under the contract of the employment. It need not necessarily be under a contract because it may be referable to some other obligation. See the judgment of Beldam LJ in New Century Cleaning Company Limited v Church [2000] IRLR 27 CA paragraph 62.
  1. We note that Mr Gorton in his estimable skeleton argument relies on the minority judgment of Sedley LJ in that case for the following proposition.

"…Parliament has not limited wages to what can be contractually ascertained. Defining them so as to embrace all that is 'properly payable' aims, by looking beyond the lawyer's contract to the industry reality, to avoid some of the niceties of legal analysis which would otherwise arise."

  1. We agree with that passage, with respect. In our judgment this was a bonus falling within section 27(1).
  1. The next question is whether it suffers from being equivalent to the loss of a chance. Mr Gorton in his opening to us accepted the correctness of the judgment of HHJ Burke QC in Lucy & Ors v British Airways [2009] UKEAT/0033/08 which of course Mr Flood relied upon. We accept Mr Flood's analysis of both that case and of Coors Brewers Limited v Adcock [2007] IRLR 440 which is to draw a distinction between an unquantifiable loss of a chance and loss of a payment which can be quantified, albeit with some difficulty. We accept Mr Flood's account as correct, as substantially agreed by Mr Gorton in his opening. So this claim does not fail for lack of quantification, indeed, in the experience of at least one member of this Appeal Tribunal, it should not be difficult to find out in the company's annual accounts what the profit was and to strip out those matters that might be disputed and to find out what 30 per cent of it was. In our judgment there is no substance in the criticism that the claim was for a payment which was unquantifiable and outside our jurisdiction.
  1. We uphold the judgment of the Employment Tribunal and dismiss the appeal. Permission to appeal on the Polkey point refused [for reasons not transcribed].

Published: 06/03/2013 15:42

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