Appeal No. UKEAT/0501/06/LA
EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
At the Tribunal
On 15 March 2007
Judgment handed down on 19 April 2007
HIS HONOUR JUDGE BIRTLES
THE LAUREL PUB COMPANY LTD APPELLANT
1) MRS C JONES RESPONDENTS
2) MS K O’CONNOR
3) MS M DOUGLAS
Transcript of Proceedings
? Copyright 2007
For the Appellant MS S McKIE
Eversheds LLP Solicitors
CB1 2JY For the First Respondent MISS C JONES
(The Respondent in Person)
For the Second Respondent Mr P Thake
For the Third Respondent MS M DOUGLAS
(The Respondent in Person)
SUMMARY Contract of Employment – Incorporation into Contract
Employment Tribunal found that the three employees had a contractual term which required the employer to pay any shortfall in post-termination car insurance not paid out by the insurance company. Employment Tribunal in error in analysis as it failed to find either (a) an express term or (b) an implied term.
EAT substituted its decision for there was no such term in the contract of employment. Cross appeal on a claim for repayment of part of notice money rejected on the facts, as the employee had worked for part of the notice period and been overpaid by mistake.
HIS HONOUR JUDGE BIRTLES
1. This is an appeal and cross-appeal from the reserved Judgment and Reasons of an
Employment Tribunal sitting at London South on 9 June 2006. The Tribunal consisted of Miss
R A Lester, sitting alone. The reserved Judgment and Reasons were sent to the parties and
entered in the Register on 3 July 2006. At the hearing the Claimants were in person and the
Respondents were represented by Ms A Ahmed of Counsel.
2. I heard the appeal and cross-appeal on Thursday 15 March 2007. Before me the
Appellant was represented by Ms Suzanne McKie, and the first and third Respondents appeared
in person. The second Respondent was represented by Mr P Thake. I am grateful to all of them
for their skeleton arguments and oral submissions.
The Employment Tribunal Judgment: Issues
3. The issues are conveniently set out in paragraphs 1-2 of the reserved Judgment and
‗1. By claim form presented on 15 March 2006 the Claimants complained that, having been
made redundant by the Respondent at the end of September 2005, they each incurred
financial loss by reason of the Respondent‘s breach of contract in respect of the car scheme
that applied to the car each Claimant had during and in respect of her employment with the
Respondent. The Respondent denied any breach of contract in respect of any of the Claimants
and counterclaimed against each Claimant for sums alleged to have been overpaid arising
from or in respect of the notice periods of each Claimant. By letter dated 19 April 2006, a
Chairman ordered that the cases be heard together and by letter dated 21 April 2006 it was further ordered that the claims and counterclaims be heard together.
2. At the outset of the hearing it was established that the correct name of the Respondent is
The Laurel Pub Company Limited. The essential issue is whether the Respondent is liable to
the Claimants. The insurers are, it appears, resisting liability; the Respondent‘s argument is
that it was not a party to that insurance contract and is not liable for any losses sustained by
the Claimants. However, the Respondent is assisting the Claimants to pursue the insurers,
through Opticar, the relevant management company. For the Claimants, Mrs Jones stated
that it was only very recently that there had been discussion about Opticar funding any
proposed litigation against the insurers. The Claimants argue that there was a tripartite agreement.‖ UKEAT/0501/06/LA
The Employment Tribunal Judgment: The Facts
4. The facts found by the Chairman are set out in the Judgment and Reasons at paragraphs
5-20. The factual matrix in this case is complicated, and I therefore set out the Chairman’s
findings of fact in full:
―5. Mrs Claire Jones, Ms Karen O‘Connor and Ms Marianne Douglas were all employed by
the SFI Group plc (‗SFI‘) in jobs which involved them in driving many thousands of miles
each year. In June 2005, by reason of a transfer within the Transfer of Undertakings
(Protection of Employment) Regulations 1981 (SI 1981/1794), the employment of each
Claimant transferred to the Respondent: each Claimant‘s contract of employment fell within
regulation 5 of those Regulations, so as to have effect as if originally made with the transferee
(the Respondent). Each Claimant was later made redundant by the Respondent, the
employment of each terminating on 30 September 2005.
6. By letter from SFI dated 27 November 2003, Ms Scott, (director of human resources)
offered Mrs Jones the position of training and development manager, to be effective from 12
January 2004; Mrs Jones accepted this position ‗on the terms and conditions set out or
referred to above‘ (ie in the letter). The terms and conditions included (paragraph 7) those
relating to car arrangements: Mrs Jones was entitled to join SFI‘s ‗flexible car scheme known
as the ECO plan‘ or could instead receive ‗a cash alternative or a fully expensed company car‘.
Paragraph 7 stated that details of the ECO [Employee Car Ownership] Scheme were attached to the letter; it also provided:
‗It is the condition of the provision of the company car policy regardless of
the option you chose that in the event of termination of your employment for
whatever reason you shall immediately deliver the car back to the company.
If under the ECO scheme your employment is terminated for gross
misconduct the car will immediately be returned to the proprietor, the finance company‘.
7. Paragraph 8 related to ‗the Company‘s private health insurance scheme‘ and, in contrast to the previous paragraph, provided:
‗If a third party scheme provider refuses for any reason to provide the
relevant benefits to you under the scheme, the Company will not be liable to provide or to compensate for the loss of such benefits‘.
8. Paragraph 11 (‗termination of employment‘) of the terms provided for notice periods of
one month on each side during the first three months of service, increasing to ‗three months written notice by either party to the other‘ after three months‘ service.
9. By letter from SFI dated 4 May 2004, Ms Scott offered Ms Douglas the position of Group
Training and Development Manager: the letter contained paragraphs 7 and 8 identical to
paragraphs 7 and 8 in the letter to Mrs Jones. Although I was not shown a similar letter to Ms
O‘Connor, it was not disputed, and I accepted, that there was a letter offering employment by
the Respondent to her containing identical paragraphs; and it was similarly accepted that
each Claimant accepted the job offer, with those terms and conditions. Further, I accepted
that each Claimant had a written contract of employment providing for the employee to have the use of a company car.
10. Each Claimant accepted the terms and conditions referred to above, and each chose the
ECO Scheme. The written policy of SFI for that Scheme (copy at page 45 of R1) states:
‗Employees are provided with a monthly car allowance instead of a company car‘. (Such
arrangements had tax advantages compared with ‗ordinary‘ company car schemes.) The
policy provided that a qualifying employee received a monthly car allowance, paid with
monthly salary, provided that the employee completed the monthly online mileage log. The policy also stated that:
10.1 SFI Group had a ‗partnering relationship‘ with Opticar whereby
employees electing to go on to ECO would be ‗eligible to lease a car through
Opticar, who will provide employees with a ‗One Stop Shop‘ complete personal motoring package.‘
10.2 Employees would be provided with a ‗Full Maintenance and Service Contract‘ and Early Termination (ETI) and GAP insurance.
10.3 Employees could select a vehicle ‗from the SFI Group benchmark
vehicle list‘; the vehicle had to be approved by the SFI Group and sourced by Opticar. SFI reserved the right to refuse any vehicle choice.
10.4 The car selected by the employee would belong to that employee
‗subject to full and complete settlement of the finance contract‘. The
employee, it was stated, would be the legal owner of the vehicle and ‗It is
NOT a company car‘. Under the ECO Scheme, the employee had no option
but to purchase the car through Opticar.
11. The policy contains further provisions about ownership of the car. When an employee
purchased a car through Opticar, the employee would enter into a contract for a period of two
to four years. The contract would include guaranteed final settlement, and ‗To take full title
and ownership of the vehicle, employees will have a choice of making the final payment or
returning the vehicle to Opticar with no further obligations (subject to terms and conditions)‘. That of course referred to the position at the end of the contract for the car, not to the end of the contract of employment. Further:
‗At the end of the contract you will have the following options:
(a) Return your car to Opticar (and walk away) - subject to being
within the contracted mileage and with reasonably acceptable levels of
wear and tear;
(b) Sell the car privately and pay the guaranteed final settlement from
these funds and keep any profit. This is not a taxable item.
(c) Keep the car and rearrange any outstanding loan over a further
period and elect to receive a full cash supplement.‘
The policy contained further detailed provisions, about the cash alternative to the ECO scheme. The ordinary ‗company car scheme‘ was later withdrawn.
12. Each Claimant took up the ECO option. For example, Mrs Jones took up the ECO option,
chose a car and ordered it from Opticar (page 138 of the bundle, R1). She entered into a credit
agreement in respect of the car with GE Capital Bank Limited (pages 139 and 140) and took
all the required steps. There was no suggestion that any of the Claimants did not have the opportunity to read the terms and conditions of any of the relevant agreements.
13. The business of Twomey Opticar Limited (‗Opticar‘), a fleet management company, is to
provide a ‗one stop shop‘ for its corporate clients, implementing and managing ECO schemes
on their behalf. Opticar deals with the purchasing of employees‘ individual cars, and manages
the scheme on the corporate client‘s behalf. The employee chooses his or her car and package
and Opticar then procures a credit sale agreement on behalf of the employee: in the case of the
SFI Group and the Respondent, Opticar used GE Capital Bank. The legal ownership of the car is vested in the employee who has bought it.
14. Opticar also provides a driver with a maintenance package (regular maintenance for the
car) and arranges an insurance package between the employee and the insurance company.
The insurance covers ‗GAP insurance‘, which pays out if the car is written off leaving a
difference between the outstanding credit amount and the sum that the insurance provider
will pay out for the value of the car, and also early termination insurance. The latter is to
cover any shortfall when the employee leaves the employment and the employer‘s monthly
contributions cease. The employee could, instead, continue to pay under the finance
agreement or sell the car and clear the outstanding finance with the sale proceeds. The
employee, being obliged under the ECO Scheme to purchase the car through Opticar, had no
option but to accept that there would be ETI and that that would be arranged through Opticar, that, is, with the insurers chosen by Opticar.
15. In the case of SFI/the Respondent and the Claimants, the early termination insurance was
provided by Insure Online, which purchased the insurance from Market Balance Limited; the
insurance was underwritten by Haven Insurance. As found above, in this scheme early
termination insurance was compulsory for the employees, which is not uncommon. The
Opticar Policy Book (copy starting at page 62 of bundle RI) deals among other things with
GAP insurance and Early Return (or Early Termination) insurance. The Policy Book sets out
‗terms and conditions‘ for Early Return insurance, which states, under ‗Benefits‘ (at page 70 of R1):
‗We will pay to the Leasing Company the difference between the Early
Settlement Figure of Your Agreement and the Sales Value where the Sales
Value is the lesser amount, in the event that the Agreement is terminated early as a result [of] Your Unemployment through:
(b) Unemployment. You become Unemployed during the Period of Cover
and as a direct result the Insured Vehicle has to be sold by You or on Your behalf.
(The copy document at page 70A has the same terms, save that ‗Resignation‘ is also covered - not relevant in this case.)
‗Agreement‘ is defined as ‗the credit or hire agreement with a Leasing Company‘ and ‗Sales
Value‘ as ‗The gross amount received upon sale of the Insured Vehicle...‘. ‗Early Termination
Benefit‘ is defined as the difference between the early settlement figure and the sales value (if
lower). ‗You‘ is the person who has applied for the insurance and ‗We‘ is the named insurance company.
16. The Scheme Rules and Scheme Guide of SFI (copy beginning at page 72)start by stating
that the scheme is offered to employees ‗as an enhanced car benefit in lieu of the traditional
company car and is managed by Opticar Ltd‘. They are detailed documents, dealing among other matters with finance. Under the heading ‗Early Termination‘ (page 98), employees are told:
‗Should you leave the employment of SFI Group and wish to terminate the
agreement, you will be able to reduce the outstanding finance balance by
utilising the Early Termination insurance... If for any reason, the Early
Termination insurance is insufficient to pay off the finance balance, Opticar
will work with you to eradicate or minimise any shortfall. This may include retailing the vehicle or helping you sell it privately.‘
However, this scheme also states that employees entering into it could not arrange their own
finance; all cars were to be financed by way of a loan agreement (personal contract purchase) between the driver and the finance company.
17. Mrs Jones, Ms O‘Connor and Ms Douglas each joined the ECO scheme and their point of contact with Opticar was Mr Hire of Opticar. Each Claimant also undertook the early
termination insurance, which was provided by Insure Online. As found above, the Scheme did
not allow employees any choice of insurer. SFI Group‘s Scheme Rules (referred to above)
stated the maximum cover for GAP Insurance, and also the maximum for early termination (?5,000), which cover included becoming ‗involuntarily unemployed‘ (page 72).
18. Each Claimant was made redundant on 30 September 2005. There had ‗been‘ meetings about the situation: Ms Roddick, the Respondent‘s HR director, chaired the first employee
forum on 9 August 2005, after which written questions and answers were produced (pages 164
to 175); in this document, the Respondent stated that the ECO car scheme would be looked at.
Following questions about notice and pay in lieu of notice, Ms Roddick discussed that with Ms
Scott. Ms Scott held individual meetings with each of the Claimants: with Mrs Jones and Ms
Douglas on 17 August and with Ms O‘Connor on 15 August. At each of these meetings, Ms
Scott confirmed the three car options: each Claimant could return the car to Opticar and
walk away and the insurances would pay out with no personal financial loss; each could keep
her car and continue to pay the monthly repayments (of course, the Respondent‘s
contributions would cease); or each could try to negotiate alternative arrangements with
Opticar. Redundancy payments and other related matters were discussed at a further
employee forum meeting held by Ms Roddick on 23 August 2005; the Respondent‘s
redundancy payments to employees were in fact enhanced. As to notice pay and related
matters, following the meeting on 9 August Ms Roddick discussed with Ms Scott the matter of
payment of salary in lieu of notice and possible payment in lieu of salary and benefits; it appeared that some employees had contracts entitling them to the latter.
19. The Claimants received letters in early September about redundancy and were made
redundant at the end of the month. By letter to Ms Roddick dated 8 December 2005, Ms
O‘Connor on behalf of all three Claimants complained that they had been given to understand
that during their notice periods they would not suffer any financial disadvantages; they had in
fact done so, particularly in relation to car insurance, and would also incur ‗substantial costs‘
in disposing of the cars they had had under the ECO scheme. The letter stated that the
Claimants would be looking to the Respondent to make good any financial losses resulting
from such matters. In her reply dated 9 December, Ms Roddick stated her view that neither
SFI nor the Respondent had any liability in respect of an employee disposing of his or her car
prior to the end of the contract, and that the early termination insurance policy was between
Ms O‘Connor and the insurance company. By letter dated 12 December to Ms Roddick, Ms
O‘Connor said she have believed that the Respondent was ‗under a contractual obligation to
take back the vehicles‘, which the Respondent had now breached. She referred to the other
two Claimants in that letter. There were further communications between the Claimants and
Ms Roddick, who invited them to a grievance hearing on 10 February 2006. By letter to Ms
O‘Connor dated 15 March (page 226 of RI), Ms Roddick referred to that hearing and stated
that legal advice to the Respondent was that while the insurance company could not
unilaterally change the terms and conditions of the Claimants policy, the liability rested with
the insurers, not with the Respondent - the Respondent was not responsible for compensating the Claimants should the terms of the policy be breached by the insurers.
20. The Claimants appealed against the Respondent‘s decision and there was a hearing on 7 April 2006; this was adjourned for further investigation and was reconvened on 15 May;
however, as preferred by the Claimants the outcome of the grievance hearing was given in
writing, by letter dated 15 May 2006 from Ms C Underwood, the Respondent‘s sales and
marketing director. That letter stated that Ms Underwood‘s understanding was that the
maximum payout on the insurance policy would be ?5000 for early termination, but that the
insurers were now not prepared to pay out for finance or other additional costs incurred. Ms
Underwood stated in the letter that she rejected the grievance, as she did not accept that the,
Respondent could be held liable for compensating the Claimants as the insurance company
had breached the terms of their policy. The Claimants incurred trouble and expense in
dealing with their cars after they had been made redundant, and continued to raise their concerns about the matter.‖
The Employment Tribunal Judgment: Conclusions
These are set out at paragraphs 22-26. For the purposes of this Judgment, the relevant
paragraphs are 23-26. I set them out in full:
―23. It was not disputed, and I accepted, that each Claimant had a contract of employment with the Respondent in identical terms, consisting of a written document headed ‗Contract of
Employment‘ (Ms O‘Connor‘s is at pages 109 to 127 of R1) and of the terms set out in the
letter of offer each received (Mrs Jones‘ is at pages 128 to 132). The letter sets out what it
refers to as ‗terms and conditions‘ in great detail and most precisely: I consider that it must
have been intended by both parties to have formed part of the contract of employment, and did so on acceptance of the job offer by each Claimant.
24. The letter contains fuller car arrangements than the written Contract, which deals merely
with company cars. It gives the employee entitlement to join the employer‘s ECO car scheme,
and states that details are given to the employee (it also states that on termination of
employment, the car should immediately be delivered back to the employer). The details
appear in lengthy Opticar documents, which make it clear that at the end of the contract
between the employee and Opticar (that is, at the end of the contract of between two and four
years - page 98 of R1), one option for the employee was to return the car to Opticar and ‗walk away‘ — having of course paid off everything owing in respect of the car. To cover any outstanding finance balance in the event of termination of employment prior to the ending of
the car contract, there were in place ‗early termination‘ arrangements for insurance to cover
the shortfall. It was that to which Ms Scott was referring when reassuring the Claimants: both
she and the Claimants assumed, understandably, that there would be no financial ‗loss to the
Claimants on giving up their cars when made redundant, because any shortfall (that is,
potential loss) would be covered and made up by the insurers. None of them had in mind that
there might be difficulties with the insurers. Although the Opticar documents mentioned the
possibility of the Early Termination insurance being insufficient in a minority of cases (page
98), those ‗rare‘ circumstances were identified (page ‗96)‘ and appear not to apply in this case. The insurance terms and conditions (pages 70, 71 - ‗Benefits) clearly cover unemployment.
25. The ECO car scheme was in my view clearly a seamless arrangement, and intended to be
so. Once an employee chose the ECO scheme, he or she was obliged to enter into specified
arrangements for choosing the car, arranging finance and entering into the insurance
arrangements. The employee could not pick and chose: failure to make all the arrangements
and to enter into the specified contracts with Opticar and with the insurers would nullify the
whole scheme for that employee. My conclusion is that the package formed part of the
contractual arrangements between employer and employee: the employee had an entitlement
to take up the employer‘s offer of entry to the ECO Scheme, and on taking it up was obliged to
enter into set contractual arrangements with Opticar and with the insurers, that is, to contract
with third parties. The contract between employer and employee contemplated such
arrangements, and no doubt contemplated that they would, run smoothly: default not by the
employee but in the operation of the ‗package constitutes in my opinion a breach of contract
by the employer (which may, of course, be able to pursue its own contractual remedies against
others). The breach in the case of each Claimant leads to the right to payment of damages in
the amount required to restore her financially to the position in which she would have been had the obligations arising under the contract of employment been performed.
26. The question of a possible breach by the Respondent of the mutual duty of trust and
confidence implicit in every contract of employment was not raised in this case and I have not considered it further.‖
The Notice of Appeal 5. The Notice of Appeal is succinct and supported by written submissions: Appeal Bundle
pages 13-18. In the appeal hearing itself Ms McKie has argued both grounds of appeal together.
As the grounds of appeal are short, I will set them out in full:
―The employment tribunal erred in concluding as it did, in paragraph 25 of the Decision, that the Appellant had acted in breach of the contracts of employment of the Respondents.
The employment tribunal erred in the following ways:
It did not apply the law relating to contract correctly. It appears to have concluded that there
is an express term in the contracts of employment relating to an insurance scheme which did
not exist. In the alternative, it appears to have allowed the implication of a term into the
contracts of employment of the Respondents relating to the running of an insurance scheme
provided by a third party. Such a term could not or should not have been implied as a matter of law.
The employment tribunal has failed to provide adequate reasons for its conclusion in
paragraph 25. The tribunal does not adequately explain what the contractual term is which
the Appellant is said to have breached, the grounds upon which it concludes that such a term
exists; how it is said that the Appellant breached that term and when it is said to have breached that term.‖
6. In support of that Notice of Appeal, Ms McKie referred me to a number of passages in
the contractual documents set out in the Appeal Bundle. I will refer to them later in this
Judgment. The Respondents separately argued that the reasoning in paragraph 25 of the
Chairman’s Judgment was sufficient and it was not necessary for her to use the terms “express”
or “implied” in order for her to reach her conclusion.