Is a dismissal unfair if the employer acted reasonably in coming to its decision?

Case: Chubb Fire Security Limited v Harper (1983) WL 216016

Facts

Mr Harper was employed by Minimax as a sales representative in 1969. In 1973, Minimax amalgamated with two other companies to form, Chubb Fire Security Ltd. Under his initial contract of employment, Mr Harper worked on a commission-only basis, and was entitled to 25% on all of his sales, and 5% on all sales within his territory.

However, by 1980, UK sales were failing, and the company’s profits were suffering as a result. Chubb made the decision to re-structure the company, aiming to improve sales and profitability. It was decided that the more successful sales representatives, such as Mr Harper, would become area representatives. Mr Harper was subsequently offered the post as area representative of Guildford/Reigate as opposed to his previously smaller area of Eton, Windsor and Slough. Mr Harper was offered a choice of contract, either:

a) Commission-only basis of 20%, plus 2% on all sales within his territory, but without salary, expenses, sick or holiday pay; or

b) A £5,000 per annum salary, plus a car, expenses, sick pay, 4 weeks holiday, as well as commission at half the rate as above.

At first, Mr Harper, showed no dismay to the proposals. However, after later assessing the contract, he calculated that neither contract would be in his best interests. By excluding Slough from his territory, he would be losing a large industrial estate, and subsequently a large proportion of his income. Prior to the proposals, he was earning about £16,000 per annum, meaning that either contract would result in a considerable drop in his overall income. Mr Harper informed Chubb that he could not accept the proposed variation, for the reason outlined above. Chubb tried to encourage Mr Harper to stay, and offered to keep the offer open for 10 days, however Mr Harper stated that his decision had been made.

As a result of this refusal, Mr Harper’s employment was terminated on 1st April 1982. Mr Harper subsequently brought a claim for unfair dismissal in the Industrial Tribunal, presently known as the Employment Tribunal.

Decision of the Industrial Tribunal

The Tribunal’s findings at first instance were as follows:

a) The applicant’s earnings would have been unilaterally reduced and the respondents could not estimate the actual expected reduction.

b) The alteration to Mr Harper’s contract was made as a result of the respondents’ restructuring.

c) The applicant reasonably believed that the contract would substantially reduce his income.

d) The respondents were unwilling to discuss alteration to their proposed changes.

As a result of the above factors, the Tribunal found that the respondents had not acted in accordance with equity and fairness in treating Mr Harper’s refusal to accept one of the new contracts as a sufficient reason to dismiss him. The dismissal was therefore considered to be unfair. Chubb appealed this decision to the Employment Appeal Tribunal (EAT).

Judgment at the Employment Appeal Tribunal (EAT)

Holistically, the EAT considered the Tribunal’s approach to be incorrect. Firstly, it was found that the Tribunal did not have any evidence to enable them to find that Mr Harper’s income would be reduced by the proposed contracts, more than mere word of mouth from Mr Harper. The Tribunal also failed to consider whether or not the proposed restructuring, and the contracts arising from the restructuring, amounted to a reasonable decision for the Respondents to make in light of the circumstances it found itself in.

The EAT therefore concentrated its decision on the approach taken by the Tribunal. The Tribunal focused on the reasonableness of Mr Harper’s belief that the contract would not be advantageous to him, rather than focusing on the reasonableness of the employer’s conduct. Although a situation may be considered as unreasonable to an employee, this does not automatically result in the conduct of the employer being unreasonable if they choose to dismiss the employee, unlike the position alluded to by the Industrial Tribunal.

The EAT subsequently found that, although the new contracts appeared to be unreasonable to Mr Harper, as he would experience a reduced income, Chubb had not acted unreasonably in dismissing Mr Harper as a result of his refusal to enter into one of the two contracts. The decision of Chubb to restructure their business in order to improve sales and profitability was a reasonable one, as without this restructure, their profits may have continued to fall.

As a result, the correct approach to be followed in unfair dismissal cases of this nature is to assess the conduct of the employer when reaching their conclusion of dismissing an employee. This conduct should be assessed by way of reasonableness, as opposed to the possible impact on the employee. On the basis of this approach, the appeal was subsequently allowed, and the dismissal was considered fair in the circumstances.

Implications

This case clarifies the position that tribunals will take when it comes to claims relating to unfair dismissal. Despite the judgment in the Industrial Tribunal, it is clear that the fairness of an employee’s dismissal lies in the reasonableness of the employers’ conduct, which arguably favours employers rather than employees. As such, even though a dismissal may appear to be unfair, it will not actually be considered unfair if it is reasonable for the employer to proceed with that dismissal on the basis of protecting their business needs. This is a positive result for employers, who are subsequently able to reasonably act within their business’s best interests, even if it does create an injustice to the employee.