The claimant was dismissed for gross misconduct after he was found to have over-claimed mileage expenses fraudulently. His claims for unfair dismissal and wrongful dismissal were dismissed by an Employment Tribunal and his appeal to the EAT was also dismissed.

The Court of Appeal dismissed the appeal, specifically rejecting the argument that, if an employee raises several lines of defence, the employer must investigate each of them, unless they are manifestly false or unarguable, in order to pass the reasonableness threshold. In this case the appellant had put forward a number of interrelated explanations for the higher mileage claimed: parking difficulties, road works, road closures and one-way streets. The Court concluded that the Employment Tribunal had directed itself correctly as to the legal test. In applying that test, it considered what the employer did by way of investigation and why the employer did not go further. It was fully entitled to reach the conclusion that a reasonable investigation had been carried out.

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Neutral Citation Number: [2015] EWCA Civ 94

Case No: A2/2013/3572

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

His Honour Judge Peter Clark

(UKEATPA/0759/13/SM)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 18/02/2015

Before :

LORD JUSTICE RICHARDS

**LORD JUSTICE PATTEN

**and

LORD JUSTICE VOS

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Between :

Shrestha (Appellant)

- and -

Genesis Housing Association Limited (Respondent)

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Daniel Barnett (instructed by Turbervilles Solicitors) for the Appellant

Patrick Halliday (instructed by DMH Stallard LLP) for the Respondent

Hearing date : 5 February 2015

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Judgment

Lord Justice Richards :

1. The appellant, Mr Shrestha, was employed by the respondent, Genesis Housing Association Limited, as a floating support worker. As part of this role he travelled by car to see clients at their home address. He was entitled to expenses for the mileage travelled. For that purpose he was required to complete an online claim form, giving the reading from his car's mileometer (rounded to the nearest mile) at the start and end of each journey, from which was calculated the mileage for each journey and the total for each month. An audit of his claims for a three-month period in 2011 led to a disciplinary procedure in which it was found that that he had been over-claiming mileage expenses fraudulently, as a result of which he was dismissed for gross misconduct.

1. His claims for unfair dismissal and wrongful dismissal were dismissed by an Employment Tribunal (Employment Judge McLaren) by a judgment dated 5 April 2013. His appeal to the Employment Appeal Tribunal was dismissed by His Honour Judge Peter Clark at a hearing under the rule 3(10) procedure on 18 October 2013. Permission to appeal to this court was granted by Rimer LJ at an oral renewal. Permission was subsequently granted by Elias LJ to amend the grounds of appeal so as to add three new grounds.

1. The appellant was represented on the appeal to this court by Mr Daniel Barnett, acting pro bono (as were his instructing solicitors); and the respondent was represented by Mr Patrick Halliday. Neither counsel appeared in the tribunals below. At the hearing of the appeal, on 5 February 2015, we announced our decision to dismiss the appeal for reasons to be given in writing at a later date. These are my reasons for that decision.

The facts

1. The judgment of the Employment Tribunal contains extensive findings of fact, at paragraphs 15-45. I will concentrate on the points relevant to the appeal.

1. In 2011 the appellant sought payment of an "essential car user allowance", worth £1,000 a year, which was paid on top of mileage expenses where an employee drove at least 2,500 business miles in a financial year. His claim aroused suspicion because he had not previously reached that limit. This prompted an audit, in August 2011, of his claims for May to July 2011. The audit compared the mileages claimed against AA route-finder information relating to journey distances. The journeys were all within the area of East London and were recorded as being between 2 and 8 miles. The mileages claimed were consistently much higher than the AA figures.

1. On 30 August 2011 the employer's Area Manager, Miss Duffy, held an initial investigation meeting with the appellant. Following the meeting the appellant submitted a statement in which he corrected Miss Duffy's mistake in thinking that the mileages shown on the claim form were for one-way trips whereas in fact they were for return journeys. With that correction, the mileages claimed were still almost twice the journey distances on the AA route-finder. For example, the total claim for July 2011 was for 197 miles, whereas the AA figures for the same journeys totalled 99 miles. The explanation given in the appellant's statement was that the higher mileages claimed were due to a number of factors: difficulty in parking, one-way road systems, and road works causing closures or diversions.

1. On 9 September 2011 the appellant attended a disciplinary hearing which was chaired by Mr East and at which the management's case was presented by Miss Duffy. In response to an issue raised by the appellant about a difference between the AA figures and those of the RAC, Miss Duffy confirmed that she had checked both sets of figures and that they were both lower than the mileage claimed by the appellant for the same journey. Other aspects of the hearing and the investigation carried out by Mr East are described as follows in the Employment Tribunal's judgment:

"34. Mr East accepted that he did not discuss every single trip with the Claimant but discussed only two individual ones. The Claimant again suggested parking issues or road works as reasons why he was over the recommended RAC or AA mileage. Mr East decided that he needed to investigate some of these issues and adjourned the hearing accordingly.

1. During the adjournment Mr East considered the difference between the RAC and AA mileage. His conclusion was that there was very little difference between the two and compared to either, the Claimant's return journey mileage exceeded the recommended mileage. Mr East also carried out an analysis of the claims submitted by the Claimant in June and July 2011 compared to the same journeys in November and December 2010 …. In all cases the later journeys claimed higher mileage than the earlier journeys and all journeys shown were greater than the AA figures. Mr East confirmed that no other investigation was carried out ….

…

1. In cross-examination Mr East was asked why he had not put each specific journey to the Claimant. His explanation was that as every single journey that the Claimant had made was above both the AA and/or RAC suggested mileage it was not plausible that there was a legitimate explanation for each and every journey. As to the Claimant's explanation about parking issues and road closures he was also asked in cross-examination why he had not sought to further investigate these, perhaps by carrying out some of the journeys in question. He explained that it was not possible to later recreate the same conditions so as to make the exercise a reasonable one. The circumstances on the day simply could not be replicated. He also stated he had personal experience of the accuracy of the AA figures.

1. Mr East's explanation was that one-way systems could not be a legitimate reason. The AA calculates their recommended mileage including one-way roads. As far as parking was concerned, given that the Claimant made the same journey several times he would over time get to know where to park and Mr East rejected the Claimant's explanation that parking could therefore account for increased mileage. His view was that nobody would park so far away from the client's house that it would be longer to walk from the parking place than to go directly from the Respondent's office premises. However, the journeys on which the Claimant was stating parking could have been an issue showed that he would in effect have been doing this. Mr East did accept that road closures could be an explanation in respect of some journeys, however, he did not consider it plausible for this to explain why every single journey was greater than the recommended mileage. He felt that the Claimant's explanation simply did not stack up …."

1. Mr East wrote to the appellant on 4 October 2011 to inform him of the finding that he had been over-claiming mileage in a fraudulent manner and was guilty of gross misconduct, for which he was dismissed with immediate effect.

1. The appellant appealed against that decision. The appeal hearing took place on 4 November 2011 and was chaired by Mr Macdonald. At the hearing Mr Macdonald went through the issues raised by the appellant in his points of appeal. They included:

"42. … Mileage claims were higher than the AA figures because of traffic congestion road closures and parking. Mileage is higher in June and July compared with late 2010 because of road works and in relation to one address it was because he had to drive part of the way on a dual carriageway to get to the client's house …. "

1. On 7 December 2011 Mr Macdonald wrote to inform the appellant of the appeal panel's decision to uphold the dismissal. The letter stated that the panel could find no viable explanation why every journey examined in the investigation was considerably higher than the AA and RAC estimated mileage. In cross-examination Mr Macdonald gave more details as to how he reached this conclusion. His reasons were very much the same as those previously given by Mr East.

The issues on the appeal to this court

1. The appeal to this court relates only to a sub-set of the issues dealt with by the Employment Tribunal.

1. Ground 1 relates to the application of the "reasonable investigation" test formulated in British Home Stores Ltd v Burchell [1980] ICR 303 ("Burchell") and approved in later cases, as considered below. It contends that the tribunal erred in that "it failed to consider whether the Respondent had undertaken a reasonable investigation into the appellant's response to the disciplinary allegations, in particular by failing to consider the reasonableness of what the employer failed to do as well as what the employer did do" (emphasis added).

1. Ground 2 is a challenge to the Burchell test itself. Mr Barnett conceded, however, that the argument was not open to him in this court and I need say no more about it.

1. Ground 3 takes issue with the tribunal's rejection of the claim for wrongful dismissal.

1. Ground 4 complains that the tribunal failed to deal with the appellant's claims for payment of the essential car user allowance and outstanding mileage payments for August to October 2011.

Ground 1: reasonable investigation

1. Section 98(4) of the Employment Rights Act 1996 ("the 1996 Act") provides that where the employer has fulfilled the requirements of subsection (1) as to the reason for dismissal, "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 … the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee …".

1. The correct approach towards assessing the fairness of dismissal for misconduct under the predecessor legislation was laid down as follows in Burchell, at [1980] ICR 304C-E:

"What the tribunal have to decide every time is, broadly expressed, whether the employer who discharged the employee on the ground of the misconduct in question (usually, though not necessarily, dishonest conduct) entertained a reasonable suspicion amounting to a belief in the guilt of the employee of that misconduct at that time. That is really stating shortly and compendiously what is in fact more than one element. First of all, there must be established by the employer the fact of that belief; that the employer did believe it. Secondly, that the employer had in his mind reasonable grounds upon which to sustain that belief. And thirdly, we think, that the employer, at the stage at which he formed that belief on those grounds, at any rate at the final stage at which he formed that belief on those grounds, had carried out as much investigation into the matter as was reasonable in all the circumstances of the case" (emphasis added).

1. In Foley v Post Office [2000] ICR 1283, at 1287H-1288C, this court affirmed that the tripartite approach laid down in Burchell remained good law under the 1996 Act.

1. In J Sainsbury plc v Hitt [2003] ICR 111, the court clarified a point in Foley that had apparently been misunderstood. Mummery LJ, with whom the other members of the court agreed, spelled out at paragraph 30 that:

"The range of reasonable responses test (or, to put it another way, the need to apply the objective standards of the reasonable employer) applies as much to the question whether the investigation into the suspected misconduct was reasonable in all the circumstances as it does to the reasonableness of the decision to dismiss for the conduct reason."

1. In the present case the Employment Tribunal judge directed herself by reference to Burchell, noting that for an employer to demonstrate that it had reasonable grounds for its belief, it will have to establish that it conducted an appropriate level of investigation; and that the degree of investigation required very much depends on the circumstances, including the strength of the prima facie case against the employee and the seriousness of the allegations.

1. In her conclusions, the judge found at paragraph 48 that a sufficient initial investigation had been carried out by Miss Duffy. She added that the matters identified in submissions on behalf of the appellant "were either at point irrelevant to this case, or were considered by the decision makers at both the disciplinary meeting and at appeal". With regard to those later stages in the disciplinary process, she found at paragraph 52 that Mr East and Mr Macdonald both had a genuine belief that the appellant had claimed for mileage he had not driven. She then turned to the arguments advanced by the appellant's representative, Mr Capek, concerning the investigation itself:

"53. Mr Capek's second challenge is whether this [belief] could be genuinely and reasonably held based on the investigation that was carried out. In particular he criticises the failure by Mr East to create the Claimant's journeys. I conclude that it was reasonable for the Respondent not to do so. I have accepted the explanation given by both Mr East and Mr MacDonald that it would not in any event have been possible to do so and I cannot find it outside the reasonable range of responses of an employer to have taken no further steps than it did to validate the appropriate journey time.

…

1. Again, it is submitted on behalf of the Claimant that Mr East and Mr MacDonald did not properly examine 5 points. I have already indicated that one of these points is not relevant to this Claimant's case. I found as a matter of fact that they did in fact … consider and reach a conclusion on all the other points. They therefore carried out a reasonable investigation and reached a genuine belief based on such a reasonable investigation.

1. I find that both Mr East and Mr MacDonald believed the Claimant had committed an act of dishonesty and it was reasonable for them to have reached this view on the investigation they carried out …."

1. Mr Barnett submitted to us that, whilst the judge's original self-direction on the law was "immaculate" so far as it went, it did not go far enough. He said that there is a difference between the reasonableness of the employer's investigation into the original allegations and the reasonableness of its investigation into the employee's response to those allegations. If an employee raises several lines of defence, the employer must investigate each of them, unless they are manifestly false or unarguable, in order to pass the reasonableness threshold. In this case the appellant put forward a number of interrelated explanations for the higher mileage claimed: parking difficulties, road works, road closures and one-way streets. The employer did not carry out an investigation into those defences, and the Employment Tribunal did not consider whether those failures to investigate took the investigation outside the range of investigations open to a reasonable employer. To put it another way, the tribunal appears to have considered the reasonableness of what the employer did do, without considering how the overall reasonableness was affected by what the employer did not do. This was the position both in relation to the dismissal stage and to the internal appeal stage.

1. I do not accept those submissions. To say that each line of defence must be investigated unless it is manifestly false or unarguable is to adopt too narrow an approach and to add an unwarranted gloss to the Burchell test. The investigation should be looked at as a whole when assessing the question of reasonableness. As part of the process of investigation, the employer must of course consider any defences advanced by the employee, but whether and to what extent it is necessary to carry out specific inquiry into them in order to meet the Burchell test will depend on the circumstances as a whole. Moreover, in a case such as the present it is misleading to talk in terms of distinct lines of defence. The issue here was whether the appellant had over-claimed mileage expenses. His explanations as to why the mileage claims were as high as they were had to be assessed as an integral part of the determination of that issue. What mattered was the reasonableness of the overall investigation into the issue.

1. The Employment Tribunal judge dealt relatively briefly with the question whether a reasonable investigation was carried out, but it seems to me that on a fair reading of her judgment as a whole she did consider all the points advanced before her and she did find that there had been a reasonable investigation; and in my view that finding was properly open to her.

1. It is important to bear in mind the extent of investigation actually carried out. First, a comparison was made between the claimed mileages and the AA and RAC figures: it was found that the claimed mileages were all higher than those figures (in fact, almost twice as high). Secondly, a comparison was made between the claimed mileages and the claims for the same journeys in November and December 2010: it was found that the claimed mileages were all higher than for the earlier journeys. Thirdly, the appellant was given a full opportunity to explain the apparent discrepancies, and consideration was given to all of the explanations put forward by him. The assessment made was that they did not provide a plausible reason why every single journey had a higher mileage. In my view that was a reasonable assessment in the circumstances and made it unnecessary to pursue any further inquiry into the explanations given. Nevertheless I consider below the arguments advanced on this appeal as to the specific further inquiries that should have been made.

1. The appellant's reliance on parking difficulties had two elements to it: first, that he sometimes had to park some way past the client's house because of increasing "residents only" parking restrictions and an increase of vehicles on the streets; secondly, that because the office had only a small car-park it was usually necessary to park on the street on his return, and the available spaces were some distance away. Mr Barnett acknowledged that parking could not account by itself for the difference in mileage figures but he submitted that none of the matters relied on was to be treated in isolation and that a multifactorial approach was required. His argument in relation to parking was that if the employer doubted the explanation given, it should have investigated it by telephoning the local authority to ascertain whether new residents' parking bays had been installed, and/or by asking the appellant where he had parked on individual journeys and going out to check the position for themselves; and he submitted that it would have been very easy to check the position as regards parking around the office.

1. The suggestion that the employer should have telephoned the local authority about residents' parking bays was not raised at the hearing before the Employment Tribunal and is not a legitimate ground of challenge to its decision. In any event, however, I do not accept that it was necessary in the circumstances to make such an inquiry for the purposes of a reasonable investigation. Nor do I think that it was reasonably necessary, or indeed realistic, to try to carry out some form of inquiry and verification exercise in relation to where the appellant claimed to have parked on individual journeys.

1. The other main point of explanation given by the appellant concerned road works: Mr Barnett treated the appellant's general references to diversions and one-way streets as falling under the same heading as road works. The only specific example given by the appellant, in explaining why mileages were higher in June/July 2011 than in late 2010, was that there were road works "around East Ham High St North". Mr Barnett appeared to accept that it would not have been possible to recreate the conditions of the journeys in question but he submitted that the employer could and should have asked the local highway authority whether there had been road works and what road closures there had been.

1. Again, the suggestion that the employer should have phoned the local authority was not raised at the hearing before the Employment Tribunal and is not a legitimate ground of challenge to its decision. The tribunal did consider whether it was realistic to try to recreate the journeys, accepting that it was reasonable for the employer not to have undertaken that exercise. That was a conclusion the tribunal was plainly entitled to reach.

1. In summary, I see no force in Mr Barnett's submission that by not going further than it did to examine the explanations given by the appellant for the mileages claimed, the employer failed to carry out as much investigation into the matter as was reasonable in all the circumstances of the case. The Employment Tribunal directed itself correctly as to the legal test. In applying that test, it considered what the employer did by way of investigation and why the employer did not go further. It was fully entitled to reach the conclusion that a reasonable investigation had been carried out.

1. It follows that the Employment Appeal Tribunal was correct to dismiss the appeal from the Employment Tribunal.

Ground 3: wrongful dismissal

1. The claim for wrongful dismissal was rejected by the Employment Tribunal judge in short order:

"57. The Claimant has also brought a claim for wrongful dismissal. I have found that he was properly dismissed for an offence of dishonesty which does amount to gross misconduct and therefore he is not entitled to any pay in lieu of notice."

Mr Barnett submitted that this was plainly wrong, because the finding that the appellant had been properly (i.e. fairly) dismissed did not mean that he was guilty of gross misconduct; a finding of gross misconduct would require in this context a finding of dishonesty, but no such finding was made.

1. There are two reasons why the argument must fail. First, the point was not taken before the Employment Appeal Tribunal and is not within the proper scope of an appeal against the decision of that tribunal.

1. Secondly and in any event, the Employment Tribunal did make a finding of dishonesty. The final paragraph of the judgment states:

"58. Mr Capek accepted that, if my findings were that the Claimant had been guilty of dishonesty then he would not be entitled either to the essential car user allowance or any monies for outstanding mileage for August, September or October. I have indeed made that finding and therefore make no award to the Claimant in respect of either."

Mr Barnett submitted that the statement "I have indeed made that finding" was wrong because no such finding had been made anywhere in the judgment. In my view, however, this was an express statement of what was already clearly implicit in the judgment; and if an express finding was needed, this was it, and it was amply supported by the previous findings.

Ground 4: other claims

1. The claim form sought payment of the essential car user allowance and of outstanding mileage for the period August to October 2011. It is submitted that the Employment Tribunal failed to deal with these items. The submission is without foundation. Paragraph 58 of the Employment Tribunal's judgment, quoted above, shows that the tribunal based itself on a concession by the appellant's representative in making no award in respect of those items. The tribunal was plainly entitled to take that approach.

Conclusion

1. The appeal fell to be dismissed for the reasons I have given.

Lord Justice Patten :

1. I agree.

Lord Justice Vos :

1. I also agree.