The claimant was employed by the respondent as its Financial Controller and it was his responsibility to monitor a German bank into which significant sums of money were deposited. The bank was victim of a fraud in which €1.7 was lost. The claimant was dismissed for gross misconduct, for failing to spot the irregular transactions over several months. The claimant produced his ET1 which claimed that his dismissal for gross misconduct was disproportionate and unreasonable. The respondent’s ET3 denied the claimant was unfairly dismissed, saying that the claimant was dismissed fairly on the grounds of capability. The Employment Tribunal dismissed the claimant’s claim of unfair dismissal, saying that the respondent’s decision to dismiss summarily for gross misconduct was, in all the circumstances, a reasonable one. The claimant appealed, primarily on the grounds that the respondent, in its response, stated that the reason for dismissal was capability. The ET therefore should not have found that the dismissal was a fair one, on the basis of the wholly different reason of misconduct. Since the respondent had failed to establish the reason that it expressly relied upon in its own pleadings, the claimant’s claim should have succeeded

The EAT rejected the appeal. At all relevant times, the decision to dismiss had been by reason of misconduct. Despite the respondent’s ET3 mentioning capability, the claimant knew he was being dismissed for misconduct. The hearing had plainly been conducted on the basis that the true reason for dismissal was misconduct and there was no error or misdirection on the part of the ET.

_______________________

Appeal No. UKEAT/0020/11/RN

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 26 May 2011

Before

MR RECORDER LUBA QC

MR C EDWARDS

MR T MOTTURE

MR K SCREENE (APPELLANT)

SEATWAVE LTD (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellant
MR JAMES MEDHURST (Representative)
Free Representation Unit
6th Floor
289-293 High Holborn
London
WC1V 7HZ

For the Respondent
MR PETER SAVILL (of Counsel)
Instructed by:
Messrs Field Fisher Waterhouse LLP
35 Vine Street
London
EC3N 2AA

UNFAIR DISMISSAL – Reason for dismissal including substantial other reason

Letter terminating employment refers to "misconduct". Employer's response to unfair dismissal claim refers to capability. Issue as to whether the change of label was of any significance on the facts.

1. This is a Claimant's appeal from the rejection by an Employment Tribunal of a complaint of unfair dismissal.

1. The decision was promulgated by the Employment Tribunal at London Central, chaired by Mr Russell, Tribunal Judge. It was notified to the parties in writing on 1 October 2009 and full Reasons were furnished by the Tribunal on 26 November 2009.

1. The Respondent company operates a business for the buying and selling of tickets to sporting and other entertainment events. In the months of June and July 2008, it was the victim of a fraud in which approximately €1.7m were lost from its German bank account. The fraudsters utilised unauthorised and false electronic bank transfer transactions to purchase tickets online.

1. The Claimant was employed by the Respondent as its Financial Controller and he had been so employed since 1 May 2007. It was his responsibility to monitor the German bank account but he did not detect or report the fraudulent transactions until August 2008, by which time significant sums had been lost.

1. His line manager was the Chief Financial Officer, Mr Van de Wal. Mr Van de Wal met with the Claimant on 14 August 2008 and on the same day the Claimant was notified by Mr Jones, the Human Resources Director, that a disciplinary meeting would be convened to be conducted by himself, that is to say, Mr Jones and Mr Van de Wal.

1. The letter containing the invitation to the disciplinary hearing referred to three issues, the third of which, later described by the Tribunal as the "central allegation" was in these terms:

"Failed to identify or address large amounts of cash leaving the German bank account totalling to roughly €1.7m within several weeks which were not instructed by Seatwave."

1. The disciplinary meeting itself was held on 2 September 2008. On 3 September 2008, Mr Jones wrote to the Claimant in these terms:

"Following your disciplinary hearing held at 15:00hrs on 2 September 2008, with Aksel Van de Wal, CFO and myself, I am writing to confirm the decision to summarily dismiss you on the grounds of Gross Misconduct."

1. The third paragraph of the letter continues:

"Following your disciplinary meeting yesterday we have concluded that you have been negligent in the completion of your duties as follows [...] an absolute failure to complete non-UK bank reconciliations leading to significant financial losses for the company."

1. In the fourth paragraph this was said:

"Your serious negligence in the performance of your duties as summarised above clearly justifies Summary Dismissal. This means you are dismissed from Seatwave Ltd, with immediate effect without payment in lieu of notice."

1. The letter notified a right of appeal but although the Claimant activated that appeal process, he did not further pursue it.

1. In his complaint to the Employment Tribunal Service, the Claimant set out his understanding of the terms and circumstances of his dismissal, in his form ET1. He wrote this at paragraph 3:

"Following a disciplinary hearing on 2 September 2008 I was summarily dismissed on the grounds of gross misconduct and this was confirmed in a letter to me dated 3 September 2008."

1. In the same document at paragraph 8, he wrote:

"Furthermore the assertion that my failure to pick these charge backs up amounts to gross misconduct is disproportionate and unreasonable."

1. In its response to the claim, the Respondent company gave written particulars which include the following at paragraph 17:

"Having considered the Claimant's response to the allegations, Aksel considered that the Claimant had been negligent in carrying out his duties. His failures were so fundamental and so serious that Aksel decided that they warranted summary dismissal."

1. The document continues at paragraph 19:

"It is denied that the Claimant was unfairly dismissed from his employment. The Respondent contends that the Claimant was dismissed fairly in accordance with section 98(2)(a) of the Employment Rights Act 1996 on the grounds of capability and that the Respondent acted reasonably in treating that reason as sufficient to dismiss."

1. The Employment Tribunal considered this case over three days, in September/October 2009. Both parties were represented by counsel and the Employment Tribunal had the benefit of counsel's closing submissions in writing. The Tribunal found at paragraph 18 of their written Reasons as follows:

"We find that the dismissal was due to both capability and conduct under section 98(2)(a) and (2)(b) Employment Rights Act 1996 but the primary reason for dismissal was conduct under section 98(2)(b) specifically the failure of the Claimant to adequately monitor the cash position on the company's German bank account which meant that the company was unaware that they were incurring significant losses perhaps as much as €1.7m over a period of a few months surrounding June 2008."

1. Later, in the same paragraph, the Tribunal state the following finding:

"Our finding that the Claimant had neglected one of the central parts of his job as Financial Controller."

1. Those conclusions on the part of the Tribunal must be seen, of course, in the context of their earlier findings of fact, which are fully set out in their written Reasons, starting at paragraph 7 and concluding at paragraph 17. It is not necessary to recite more than a handful of extracts from their findings, but both parties drew our attention to paragraph 15, in which the Tribunal record as follows:

"Ultimately we also feel that the company was entitled to come to the conclusion that the Claimant was guilty of serious or gross negligence in that the Claimant's omission was capable of falling within the non-exhaustive list of gross misconduct listed in the company's disciplinary procedure."

At the end of that paragraph, the Tribunal identified that particular misconduct as being "failing to monitor the German account and report the fraud". They continue that that is "clearly a matter which could potentially lead to summary dismissal".

1. In paragraph 16, the Tribunal record firstly, that the Claimant admitted that he did not monitor, or at least did not adequately monitor, the account. Three lines or so further into that paragraph, they find "it was his primary obligation to check the account". Later in the same paragraph, they find as a fact that "the Claimant's failure to do so was a key to the losses continuing," and that:

"He either did [check] or should have been checking the German bank account every day and the anomalies were, if he had done so, very obvious, and yet they were left unreported."

1. The Employment Tribunal went on to find that the procedures followed by the employer in the lead-up to the dismissal were not perfect but that they were fair, and that the decision to dismiss summarily for gross misconduct was, in all the circumstances, a reasonable one. The Employment Tribunal accordingly dismissed the claims for unfair dismissal and for failure to pay notice pay. From that decision, the Claimant appeals to this Employment Appeal Tribunal.

1. The primary ground of appeal is that the Respondent, having asserted in its answer to the claim, that the reason for dismissal was "capability", the Employment Tribunal could not have, and should not have, found that the dismissal was a fair one, on the basis of the wholly different reason of "misconduct". Since the Respondent had failed to establish the reason that it expressly relied upon in its own pleadings, the Claimant's claim should have succeeded. That is a short summary of the first ground of appeal in the pithy, amended Notice of Appeal, which goes on to identify two further grounds of appeal.

1. Ground 2 asserts that the stated reason for dismissal was capability, but that the procedures followed in the lead-up to dismissal were not apt for capability, but for conduct. Ground 3, which is in truth a variant of ground 1, was that the Employment Tribunal had substituted its own reason for dismissal of the Claimant (conduct) for that of the Respondent (capability).

1. We have had the benefit of skeleton arguments and oral argument for both parties: Mr Medhurst for the Claimant, and Mr Savill for the Respondent. To put their submissions into its central context, we remind ourselves of the relevant legal framework contained in the Employment Rights Act 1996. That provides a statutory right of an employee not to be unfairly dismissed (section 94). In determining whether a dismissal is fair or unfair, it is for the employer to show the "reason", or if more than one reason, the principal reason for the dismissal (section 98(1)(a)). The reason must be a statutorily specified reason, or some other substantial reason of a kind such as to justify the dismissal of a person, holding the position of a particular employee (section 98(1)(b)).

1. The specified reasons include a reason which relates to capability and a reason which relates to conduct (section 98(2)). Capability, in relation to an employee, is defined in section 98(3)(a) as meaning "his capability, assessed by reference to skill, aptitude, health or any other physical or mental quality".

1. For the Claimant, Mr Medhurst, who did not appear at the Employment Tribunal below, acknowledged in opening his oral submissions, that the point taken in the Notice of Appeal was, essentially, a pleading point. Pursuant to it, he submitted both orally and in writing, that the reason given by the Respondent in its ET3 form had been "capability". There had been no application to amend that by the Respondent. The Employment Tribunal had proceeded to hear the case as the case had been pleaded and consequently, in the absence of evidence about misconduct, it had made, in his submission, none of the material findings that would be associated with a case of misconduct, such as those going to the mental element of culpability, that one might expect to find in a misconduct case.

1. Mr Medhurst submitted that this was, in truth, a capability case, precisely as the employers had identified it in their ET3. He submitted that there was a clear distinction between cases of capability and misconduct, and no grey area between them. This case, he said, had been mislabelled by the Employment Tribunal itself, as a conduct case, and it had failed to direct itself to the relevant law in relation to capability.

1. He went on to submit that the Employment Tribunal had been quite clear that if the reason had been capability, then the employer's procedures leading up to the dismissal, had not been fair. It followed, submitted Mr Medhurst in his skeleton argument, that the necessary consequence of the Employment Tribunal, impermissibly substituting for the Respondent's asserted reason (capability), its own perceived reason (conduct), was an error of law. It did not direct itself correctly. Had it done so, it would have found that the reason for dismissal was capability. Since it had found that, in respect of a capability dismissal, the employer's procedures were wanting, it would necessarily mean that the finding should have been unfair dismissal.

1. Mr Medhurst urged in his skeleton argument that it was for this Employment Appeal Tribunal to reverse this error, and to hold for itself that, on the Tribunal's findings of fact, the real reason was capability, as the employer had asserted, and the dismissal was necessarily unfair.

1. For the Respondent, Mr Savill, who did appear for the employers below, submitted that this was simply a case about labels. The Claimant, he contended, had always known that he was being dismissed for failure in his duties of monitoring the German bank account. That had been given the label "misconduct" in the dismissal letter. It had perhaps been wrongly labelled in the Respondent's answer, but that was immaterial because, as he reminded us this morning, the Employment Tribunal had proceeded from the outset, on the basis that the primary assertive reason being developed before them was misconduct. There was no prejudice, he submitted, to the Claimant, deriving from the wrong label having been used in the ET3.

1. As Cairns LJ observed in Abernethy v Mott, Hay and Anderson [1974] ICR 323:

"A reason for the dismissal of an employee is a set of facts known to the employer or, as it may be, of beliefs held by him which cause him to dismiss the employee."

That passage has been approved, subsequently, in more than one judgment of the House of Lords. In the same case, Lord Denning said:

"The employer has [...] to show the reasons for the dismissal [...] it must be a reason in existence at the time when he is given notice. It must be the principal reason which operated on the employer's mind."

1. But both parties also reminded us of a passage from the judgment of Kilner Brown J, in the case of Sutton & Gates (Luton) Ltd v Boxall [1978] ICR 67. In that case, the following statement of general principle was made, at paragraph 11:

"We have had occasion to indicate more than once that it may not necessarily be that there is a wide range in the field of incapability, but that incapability ought to be treated much more narrowly and strictly than has been done in the past, and cases where a person has not come up to standard, through his own carelessness, negligence or maybe idleness, are much more appropriately dealt with as cases of conduct or misconduct, than of capability."

1. The authorities, that address the question of moving from one asserted reason for dismissal to another, were reviewed by this Tribunal, Waite J presiding, in the case of Hotson v Wisbech Conservative Club [1984] ICR 859. In that case, an employee had been dismissed against a background of a shortcoming in takings at a club. The asserted reason for the dismissal appeared to relate to her incompetence in managing the finances, but had transmogrified as a result of the development of the case by the Employment Tribunal Chairman, into one of suspected dishonesty.

1. Faced with that scenario and a consequent appeal, Waite J said as follows, in paragraph 50:

"The position according to authority appears to be as follows: on satisfying the Industrial Tribunal as to the reason for dismissal under Section 57 of the 1978 Act, the employer is not tied to the label he happens to put on the particular facts relied upon. Thus he may say "I made the employee redundant", but he will not be prevented from saying later, "no, I have changed my mind. It was really a case of incapability". Nor will he be prevented from running the two as alternatives, either redundancy or lack of capability. By the same token, the Industrial Tribunal may, it appears, of its own motion, declare that the reason relied upon by the employer was not a real reason, for the real reason may be something that he shrank from mentioning, either through ignorance of the technicalities involved, or perhaps through sheer kindness of heart or natural delicacy. In the same way, some other substantial reason [...] may be advanced by the employer, or found by the Tribunal to be the real reason for dismissal, differing from the sole or principal reason, such as redundancy and capability that may have been advanced by the employer himself."

1. The Employment Appeal Tribunal, in that case, go on to make the obvious point, that in any circumstances where there is a shift by the employer of the label placed upon the reason for the dismissal, then there must be the fullest opportunity allowed to the employee, to meet the circumstances that arise from that change. In short, fairness requires that he or she must not be prejudiced by an employer's change of tack.

1. As we have already indicated, Hotson was an extreme example of a shift, which in fairness, the employee required an opportunity to address. In contrast, there are cases like Hannan v TNT IPEC (UK) Ltd [1986] IRLR 165, in which even where an Employment Tribunal upholds a dismissal as fair, on a reason not pleaded or argued, there may be no error if, in reality, the matter is one of mere relabeling. Of course, if there is any prejudice to the employee that that can be demonstrated in such circumstances of changed tack, then an appeal may well succeed, but the Employment Appeal Tribunal in that case went on to give guidance as to how such an argument might be developed.

1. Against that background of the authorities, we return to what occurred in the instant case. We are satisfied that, at all relevant times, the decision to dismiss had been grounded in precisely the same set of facts, that is to say failure by the Claimant employee to monitor the German bank account, with the result that substantial fraud went undetected until significant loss had occurred. True it is that there has been some shifting in the label. But it was made clear to the Claimant, in his letter of dismissal, that it was misconduct that the employer relied upon. The Claimant, himself, appreciated that much, when he came to complete his own claim to the Employment Tribunal in which, as we have already indicated, he expressly acknowledged that he had been summarily dismissed by reason of gross misconduct.

1. Although it cannot be denied that there had been the "capability" label given in the Respondent's ET3, we accept from Mr Savill, and indeed from the terms in which the Tribunal have expressed their decision, that the hearing before them had plainly been conducted on the basis that the true reason was misconduct. Indeed, in the Claimant's own counsel's written submissions at the end of the hearing, the fact that the dismissal was being put on the basis of misconduct was evident. In paragraph 18 of those written submissions, counsel for the Claimant wrote as follows:

"It is submitted that the real reason for dismissal is related to the fraud and loss of €1.7m."

1. At paragraph 19, counsel, under the heading "Was the reason a reason which falls within Section 98(2) [...]" wrote as follows:

"19. Misconduct is, of course, potentially fair reason for dismissal. This was not a true misconduct case."

1. Now of course, the second sentence in that paragraph 19 might, implicitly, suggest that in fact the case had been tried on a capability basis. But we accept the explanation given at paragraph 10 of Mr Savill's skeleton argument before us, that that is to be read in the context of the Appellant's general submissions to the Employment Tribunal, which were either that he was being made a scapegoat for the finding of others, or that the Respondent did not hold a reasonable or genuine belief as to the Appellant's guilt. In short, the Claimant's own counsel was putting forward written submissions clearly framed on the basis that the hearing had proceeded on misconduct grounds.

1. Any suggestion that the Claimant might have been prejudiced by the matter proceeding in this way rather than under the label of capability in the ET3 is, in our Judgment, dispelled by paragraph 18 of the Tribunal's own Reasons, in which they say:

"The Claimant did know clearly of the case against him in respect of the main allegation and the possible consequences and accepted this in evidence."

1. That was a reference back to the start of the process that led to his dismissal. The reference there to the main allegation, is to what the Tribunal earlier called "the central allegation" which we have set out at the beginning of this Judgment.

1. Whilst we fully accept that the Notice of Appeal, as amended, contains arguable grounds of appeal, and that we have heard well-developed argument in support of them from Mr Medhurst, we, in the result, have no hesitation in dismissing this appeal. On the findings that they made, and for the reasons that they gave, the Employment Tribunal were, in our judgment, fully entitled to find that the principal reason for dismissal in this case was misconduct. Put very simply, if the Claimant were asked by a man in the street what it was that he had done or failed to do, that was considered so serious by his employer as to justify immediate dismissal, he would have answered that his employer had relied on his failure, as the Financial Controller, to monitor a bank account, and spot fraudulent activity that had remained undetected for months, and caused very significant loss. To our mind, that would aptly be described by the ordinary, reasonable man in the street, as a dismissal for misconduct. More importantly, the Employment Tribunal has so found. We can detect no error in its decision.

1. Since success on the first ground of appeal was a pre-condition to success on the second and third, we say nothing further about them beyond the short statement that we have detected no error or misdirection on the part of the Employment Tribunal. In our view, it made ample findings of fact, sufficient to sustain its decision. The appeal is accordingly dismissed.