Factual and Procedural Background
The Appellant was employed by the Respondents for 21 years, most recently as Sport and Recreation Manager (North), overseeing multiple locations and approximately 500 staff. On 27 July 2006, the Appellant resigned and subsequently lodged a claim for unfair dismissal, alleging constructive dismissal under section 95(1)(c) of the Employment Rights Act 1996 due to the Respondents' conduct.
Prior to resignation, the Appellant was suspended following complaints about his conduct, including breaches of confidentiality and defamatory remarks about a female colleague. A prolonged disciplinary investigation ensued, during which the Appellant raised concerns about the investigation's conduct. The Employment Tribunal found the Respondents had breached the implied duty of mutual trust and confidence in the investigation, constituting constructive dismissal and unfair dismissal, awarding compensation reduced by 50% due to contributory conduct by the Appellant.
The Employment Appeal Tribunal overturned this decision, holding that the Appellant's own gross misconduct constituted a material breach disabling him from relying on the Respondents' breach for constructive dismissal. The Employment Appeal Tribunal also held that the investigation did not breach the contract.
The Court of Session granted leave to appeal. The Appellant accepted his gross misconduct but contended that the doctrine of mutuality should not prevent him from claiming constructive dismissal and that the Employment Appeal Tribunal erred in overturning the Employment Tribunal's findings on the investigation.
Legal Issues Presented
- Whether the doctrine of mutuality of contractual obligations prevents an employee guilty of gross misconduct from relying on the employer's breach of the implied term of mutual trust and confidence as a basis for constructive dismissal under section 95(1)(c) of the Employment Rights Act 1996.
- Whether the Employment Appeal Tribunal was justified in overturning the Employment Tribunal's factual findings that the Respondents' investigation constituted a breach of the implied term of mutual trust and confidence.
Arguments of the Parties
Appellant's Arguments
- The doctrine of mutuality should not apply to section 95(1)(c) of the Employment Rights Act 1996, as it would exclude legitimate claims of constructive dismissal by employees guilty of prior misconduct.
- The test for constructive dismissal under section 95(1)(c) should be governed by the proper law of the contract, which in this case is Scots law, and thus the Scottish doctrine of mutuality applies.
- The Employment Appeal Tribunal erred in overturning the Employment Tribunal's detailed factual findings that the Respondents' investigation was conducted in breach of trust and confidence.
- Policy considerations support uniformity in employment law across the UK but should not override the application of Scots law principles where appropriate.
Respondents' Arguments
- The applicable legal system is that of the proper law of the contract, Scots or English law as relevant, meaning the doctrine of mutuality applies.
- The Appellant's gross misconduct constituted a material breach disabling him from relying on the Respondents' breach of trust and confidence.
- The Employment Appeal Tribunal was correct to interfere with the Employment Tribunal's findings on the investigation, holding that the Respondents were not in breach of the implied term of mutual trust and confidence.
- Equitable considerations, including the employee's lack of "clean hands," should prevent the Appellant from relying on the breach of trust and confidence.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Western Excavating (E.C.C.) Ltd v Sharp [1978] QB 761 |
Sets out the contractual test for constructive dismissal under section 95(1)(c) of the Employment Rights Act 1996, emphasizing that entitlement to terminate without notice depends on a significant breach going to the root of the contract. |
The Court held that the proper law of the contract governs the application of section 95(1)(c), applying the contractual test rather than an unreasonableness test. |
| Malik v BCCI [1998] AC 20 |
Defines the implied term of mutual trust and confidence in employment contracts. |
The Court accepted that the Respondents breached this implied term, entitling the Appellant to terminate the contract. |
| Heyman v Darwins Ltd [1942] AC 356 |
Clarifies that repudiation or total breach does not abrogate the contract but relieves the injured party from future performance of substantive obligations. |
Used to explain that the contract remains in existence after rescission, relevant to the doctrine of mutuality and retention. |
| Inveresk PLC v Tullis Russell Papermakers Ltd 2010 SC (UKSC) 106 |
Defines the right of retention as withholding performance of substantive obligations pending performance by the other party. |
The Court applied the principle that retention permits withholding of performance but does not extinguish the contract or all obligations. |
| Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 |
Endorses the distinction between primary obligations (which may cease on rescission) and secondary obligations (such as damages). |
Supports the view that rescission suspends substantive obligations but leaves the contract in existence for accrued rights. |
| Gogay v Hertfordshire County Council [2000] IRLR 703 |
Held that suspension can amount to a breach of the implied term of trust and confidence. |
The Court found that the Respondents' suspension of the Appellant could constitute such a breach. |
| Melon v Hector Powe Ltd 1980 SC 188 |
Sets out the standard for appellate review of Employment Tribunal factual findings. |
The Court held the Employment Appeal Tribunal had exceeded its jurisdiction by overturning factual findings without proper legal basis. |
| Geys v Société Générale [2013] 1 AC 523 |
Clarifies that termination of future obligations under contract is elective, not automatic. |
Referenced to demonstrate the evolving nature of contract law relevant to section 95(1)(c). |
| Gisda Cyf v Barrett [2010] ICR 1475 |
Supports a purposive interpretation of employment rights favoring employees. |
Used to support the view that justification for employer conduct is irrelevant to whether dismissal under section 95(1)(c) has occurred. |
Court's Reasoning and Analysis
The Court emphasized that section 95(1)(c) of the Employment Rights Act 1996 must be interpreted according to the proper law of the contract of employment, which in this case is Scots law. This requires application of the Scottish doctrine of mutuality of contractual obligations, a fundamental principle whereby reciprocal obligations are counterparts and failure by one party to perform material obligations excuses the other from performance.
The Court rejected the Appellant's initial submission that the doctrine of mutuality was irrelevant to section 95(1)(c). However, it accepted the alternative argument that the doctrine did not preclude the Appellant from relying on the Respondents' breach in this case. The Court explained that while mutuality allows a party to withhold performance of substantive obligations (retention), it does not extinguish all contractual obligations or prevent a party from rescinding the contract for repudiatory breach by the other party.
The Court carefully analyzed the remedies of rescission and retention under Scots law, concluding that rescission suspends future performance obligations but leaves the contract intact for accrued rights, and retention permits withholding performance only as security for future performance. The Appellant's prior gross misconduct did not justify the Respondents' conduct that breached the implied term of mutual trust and confidence during the investigation.
Regarding the investigation, the Court reviewed the Employment Tribunal's detailed findings that the Respondents' investigation was flawed, including extending allegations beyond original complaints, lack of reasonable cause, procedural unfairness, unequal treatment, and breaches of confidentiality. The Employment Appeal Tribunal's overturning of these findings was held to be an impermissible re-evaluation of facts beyond its legal jurisdiction.
The Court found that the Employment Tribunal's decision was within the range of reasonable conclusions and that the criticisms by the Employment Appeal Tribunal were unjustified. The Court also rejected the notion that the Appellant's prior misconduct barred him from relying on the Respondents' breach, especially given equitable considerations and the timing and nature of the breaches by both parties.
In the opinion of Lord McGhie, while agreeing with the majority, he suggested that section 95(1)(c) covers situations where the employer's conduct justifies the employee treating his obligations as at an end regardless of whether the employer's conduct constitutes a breach of contract. He noted that mutuality would rarely be relevant under such an interpretation.
Holding and Implications
ALLOWING THE APPEAL
The Court allowed the appeal, restoring the decision of the Employment Tribunal that the Appellant was constructively and unfairly dismissed. The Employment Appeal Tribunal's decision was held to be in error of law, both in its application of the doctrine of mutuality and in its interference with the Employment Tribunal's factual findings.
The direct effect is that the Appellant's claim for constructive dismissal and unfair dismissal stands, with the associated remedies reinstated. No new precedent was established beyond clarifying the application of the doctrine of mutuality in Scots law to section 95(1)(c) and affirming the limits of appellate review of Employment Tribunal factual findings.