Appeal No. UKEAT/0492/07/DM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
                                                                                                    On 29 January 2008

Before
THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT)
MR D EVANS CBE
MR S YEBOAH

MR J WRIGHT	APPELLANT

WEED CONTROL LIMITED	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	Mr Nicholas Hart
(Solicitor)
Messrs Clarke Willmott
Solicitors
No 1 George Square
Bath Street
BRISTOL
BS1 6BA	
For the Respondent	Ms DEBBIE M GRENNAN
(of Counsel)
Instructed by:
Messrs Porter Dodson
Solicitors
Central House
Church Street
YEOVIL
Somerset 
BA20 1HH	

SUMMARY

Jurisdictional Points
Contract of Employment: Damages for breach of contract of employment 

The Tribunal awarded damages against an employee for what the employer alleged was a breach of the duty of trust and confidence.  The Tribunal has no jurisdiction to award compensation for breaches of the “obligation of confidence”.  The Claimant appealed alleging that this exclusion applied to claims for breach of the duty of trust and confidence, the two being synonymous.  The EAT disagreed; although the obligation of confidence could properly be considered an aspect of the portmanteau term of trust and confidence, the converse was not the case. Many breaches of the duty of trust and confidence, including the breach of duty which arose in this case, could not properly be said to amount to a breach of the obligation of confidence.  Accordingly, the Tribunal had jurisdiction and the appeal failed.  The Tribunal found that the employers had unlawfully deducted from wages in failing to pay the basic salary following a disciplinary suspension.  The EAT rejected the employer’s cross appeal to the effect that the Tribunal had misconstrued the terms of the contract.

THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT)

1.	The Claimant (as we will continue to call him, although he is the Appellant before us) alleged that his employers were liable for unfair and wrongful dismissal and unlawful deduction from wages.

2.	The employers counterclaimed for breach of contract. The basis of the counterclaim was that the Claimant was in breach of the duty of trust and confidence. 

3.	The claims for unfair and wrongful dismissal failed, but the Claimant succeeded in establishing there had been an unlawful deduction from wages. The Tribunal concluded that he had not been paid what his contract required while he was suspended by the company pending a disciplinary investigation.

4.	The counterclaim succeeded, the Tribunal concluding that the Claimant was liable in the sum of £18,159.79.

4.	The Claimant now appeals against the award of damages on the counterclaim on the grounds that the Tribunal had no jurisdiction to hear the claim as it related to an “obligation of confidence” within the meaning of Article 5 of the Employment Tribunal’s Extension of Jurisdiction (England & Wales) Order 1994 (SI94/1623). The appeal therefore raises the question of the proper construction of that Article.

5.	The cross-appeal is on the grounds that the Tribunal was wrong to find that there had been any unauthorised deduction of wages. This raises a question of the construction of the relevant contractual terms.
The facts
6.	The facts relevant to the issues on appeal can be briefly recounted. For a period of some two years the Claimant was managing director of the Respondent company. He was subsequently dismissed after an investigation into various acts of misconduct. These included the following.  He sought to pay VAT invoices by cheques which bounced, knowing that this might or would occur, and had failed to alert the board of directors to these risks.  This caused a fine of in excess of £18,000 (in fact the damages subsequently awarded).  A particular contract was run at a loss over an extended period of time, without any notification to the company. This was partly because the fee for the contract had been calculated on the basis that the employees would work 45 hours a week whereas in fact they only worked 40. The Claimant bullied certain senior members of staff by threatening to discipline them when they continued to draw attention to the difficulties caused by the fact that the staff were not working sufficient hours. He refused to co-operate in producing a tender for a potentially important piece of work, or to provide certain other information to the directors. Finally, he failed to notify the relevant health and safety authorities of two industrial accidents which ought to have been reported.

7.	The Tribunal considered that the company had carried out a proper investigation, reasonably concluded that he was guilty of each of these acts of misconduct, and were entitled to dismiss for gross misconduct.

8.	 However, the Tribunal found that the claim for unlawful deduction from wages was satisfied. In the course of the disciplinary process, the employer had suspended the Claimant for two weeks pending a disciplinary investigation. The relevant contractual term authorising this was found in the disciplinary procedure:
“In the event of a serious or gross misconduct, an employee may be suspended on full basic pay while a full investigation is carried out. Such suspension is a neutral act, which does not imply guilt or blame, and will be for as short a period as possible.”
9.	In the course of the investigation the company discovered that immediately after having been suspended, the Claimant had been signed off for two weeks by his doctor for sickness. Under the terms of his contract of employment it was provided that if sick, he was entitled only to statutory sick pay and that any payment over and above that would be made at the absolute discretion of the company. The company took the view that since he was sick, he should only receive his statutory sick pay, notwithstanding the earlier disciplinary suspension.

10.	The Tribunal concluded that the company should have paid the full amount. They said this (para 44):
“The respondent’s disciplinary procedure provided for full basic pay during suspension. Whilst we appreciate that had he been working he would have received statutory sick pay if ill, we can see no justification in any of the documentation for paying him other than full basic pay during his suspension in accordance with the disciplinary procedure and his letter of suspension. There is no evidence which would suggest that he was not properly signed off sick. We find and declare that there was an unauthorised deduction of wages, and that the claimant should be compensated for the 2 weeks’ pay, which was withheld.”

11.	The Tribunal then considered the question of the counterclaim. They felt that they did not have sufficient evidence of causation to uphold some of the claims for damages that had been advanced. However, they did consider that they could identify with precision the losses flowing from the failure to deal properly with VAT liability. The Tribunal expressed its conclusions as follows (paras 47-49):
“We have concluded that the implied term of trust and confidence is different from the obligation of confidence which is referred to as outwith our jurisdiction within Article 5 of the Order. We have concluded that we have jurisdiction to hear that claim.
We find that under that term the claimant was obligated by duty of good faith to his employers. Part of that duty was to ensure that he worked diligently and properly and that the contracts of the respondent were run as profitably as they might and that the workers worked in accordance with their contracts, but, more particularly, having seen the case work to which we referred earlier from the Employment Appeal Tribunal and from the Court of Appeal that any concerns about profitability were brought to the attention of his employing board of directors and that major issues such as bouncing VAT cheques were brought to the board’s attention and that chances were not taken with the respondent’s money save with their authority. All of this the claimant failed to do.
As a result the respondent suffered direct loss. After his first rash act with a VAT cheque, which the respondent should not have taken, he should have reported immediately to the board and it is more probable than not that Mrs Cordall would and could have ensured that there were funds available to pay VAT thus avoiding a fine either from non-payment or from a bouncing cheque. The claimant lost the respondent in this respect some £18,159.79 in respect of the latter three cheques.”

The appeal
12.	The point raised in the appeal is a short one. It is submitted that there was no jurisdiction for the Tribunal to award compensation for the alleged breach of trust and confidence relied upon by the employer. The relevant provisions identifying the jurisdiction are found in Articles 4 and 5 of the Regulations:
Article 4.
“Proceedings may be brought before an employment tribunal in respect of a claim of an employer for the recovery of damages or any other sum (other than a claim for damages, or for a sum due, in respect of personal injuries if –
(a)	the claim is one to which section 131(2) of the 1978 Act applies and which a court in England and Wales would under the law for the time being in force have jurisdiction to hear and determine;
(b)	the claim is not one to which article 5 applies;
(c)	the claim arises or is outstanding on the termination of the employment of the employee against whom it is made; and
(d)	proceedings in respect of a claim of that employee have been brought before an employment tribunal by virtue of this Order.”
Article 5.
“This article applies to a claim for breach of a contractual term of any of the following descriptions –
(a)	a term requiring the employer to provide living accommodation for the employee;
(b)	a term imposing an obligation on the employer or the employee in connection with the provision of living accommodation;
(c)	a term relating to intellectual property;
(d)	a term imposing an obligation of confidence;
(e)	a term which is a covenant in restraint of trade ……”

It should be noted that Article 3 enables an employee to claim damages for breach of contract provided precisely the same conditions are met as in the case of the employer, save that the employee can make the claim whether or not the employer has any claim before the Tribunal.

13.	The Claimant contends that the damages were awarded for what the employers alleged was a breach of the duty of trust and confidence and that there is no difference between that duty and the “obligation of confidence” identified in Article 5. Although the Tribunal stated that there was a difference, they did not identify wherein it lay, in breach of their duty to give proper reasons for their decisions. The concept of confidence is very broad and well able to encompass the duty of trust and confidence.   Moreover, it was submitted that it would on policy grounds be inappropriate to treat breaches of the kind for which damages were awarded here as falling within the jurisdiction of the Tribunal since it would deter employees from making claims for unfair or wrongful dismissal.

14.	The employers contend that there is a plain difference between the broad duty of trust and confidence relied upon here and the much more specific obligation of confidence identified in the Article.  The former focuses on the relationship between employer and employee; it is concerned with the mutual duty of trust and confidence which each party is entitled to expect from the other.  The latter focuses on information; it is concerned with the protection of information which is confidential and whose disclosure or use could damage the other party.

15.	In our judgment, the Tribunal were clearly correct, as the employers assert. We do not agree with the employer that the duty of trust and confidence is necessarily distinct from the more specific obligation of confidence referred to in Article 5.  It depends upon how broadly the former duty is defined.   It seems to us that it would not necessarily be inappropriate to treat the latter as falling within the scope of the former.  Even so, the converse is not true; there will be many - indeed the overwhelming majority - of breaches of the duty of trust and confidence which will not fall within the scope of what is generally understood to be the obligation of confidence at all.

16.	The duty of trust and confidence has developed as a very important implied term in the contract of employment over the last twenty five years. In the leading case of Malik v Bank of Credit and Commerce International SA [1997] ICR 606 at 610, Nicholls LJ referred to it as:
“the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages”. 

17.	The breach of this duty covers a multitude of sins. It overlaps with the employee’s duty to act in good faith and the mutual duty of co-operation.  For example, it has been held to include a duty to behave with civility and respect: Isle of White Tourist Board v Coombes [1976] IRLR 413; not to behave in an intolerable or wholly unacceptable way: British Aircraft Corporation v Austin [1978] IRLR 322; not to frustrate the performance of the contract: United Bank v Akhtar [1989] IRLR 507; and not to suspend for disciplinary purposes without reasonable and proper cause: Gogay v Hertfordshire County Council [2000] IRLR 703.

18.	By contrast, the concept of the obligation of confidence is a much more precise one and predates the development of the trust and confidence term. As we have said, it is classically used to describe a situation where the employee has access to confidential information and is under an obligation not to disclose that information to others, or use it for his own purposes. We were referred by the respondent to Chapter 28 of Clarke & Lindley on Torts (19th Edition), which is headed “Breach of Confidence” and deals with the circumstances where an action for breach of confidence may lie in English law. It is to be noted that it arises not only where a contract of employment exists, but may also arise under other contracts, for example, licensing agreements concerning industrial know-how, and even where there is no contract in existence at all. There is extensive case law analysing the circumstances in which that obligation may be infringed, see e.g. Faccanda Chicken v Fowler [1984] IRLR 61 and Lancashire Fires Ltd v SA Lyons & Co Ltd [1997] IRLR 113. In each of those cases the Court of Appeal sought to identify the nature of the information which would attract the obligation of confidence.  The obligation to respect confidence is linked to the equitable duty of good faith.

19.	The details of these cases are unimportant. The point is that the concept of the obligation of confidence has attained a very precise meaning within the context of the general law and it is far narrower than the portmanteau mutual duty of trust and confidence which is implied into the employment relationship. 

20.	Moreover, the Tribunal’s conclusion is supported by the context in which the exception is found.   It is to be noted that the exceptions in Article 5 also include, at subparagraph (e), covenants in restraint of trade. They are in practice often closely interlinked with the obligation of confidence. The clause which seeks to limit the right of an employee to work for a competitor after the termination of the employment is frequently designed to protect against the risk of misuse of the employer’s confidential information.  Moreover, an employer will frequently seek an injunction to prevent the unlawful disclosure or use of such information.

21.	It is plain in our view that the purpose of part at least of Article 5 is to exclude from the scope of the employment tribunal this rather specialised jurisprudence which was traditionally handled by the Court of Chancery (now the Chancery Division).  It is not an area where the tribunal members will typically have expertise.

22.	Furthermore, the submission of the claimant would have surprising consequences. As we have noted, the restrictions in Article 5 apply not only to claims brought by employers, but also by employees. Many cases of breach of contract rest upon the claim that there has been a breach of the duty of trust and confidence by the employer. On the Claimant’s analysis, whilst the breach of that duty could be relied upon in the context of unfair dismissal to establish constructive dismissal, it could not be relied upon in the context of a separate claim for damages.  Contrary to the submission of Mr. Hart, who represented the Claimant, that would in our view mean that a wrongful dismissal claim arising out of a constructive dismissal based on the breach of the duty of trust and confidence could not be pursued before the Tribunal.  We see no merit in that construction.

23.	Finally, we should add that it is a moot point whether the particular duty relied upon by the employers in this case is best characterised as a breach of the duty of trust and confidence rather than, as the Tribunal implicitly recognised by its reference to the lack of diligence, the obligation to take reasonable care in the performance of the employee’s duties.  In any event, the very fact that there is such uncertainty about how far the duty of trust and confidence extends is itself an argument against the submissions advanced by the Claimant.

24.	It follows that in our view the Tribunal was plainly right to reject the Claimant’s submission, and the appeal fails.

The cross-appeal
25.	We turn now to the cross-appeal. Again it is a short point. The Claimant submits that the rule is clear: he was suspended in accordance with the disciplinary rules and it is provided that he should receive basic pay. That he did not receive, as the Tribunal found. 

26.	The employer submits that the implicit assumption underlying the duty to pay basic pay is that the employee must continue to be ready and willing to work. Since he was not ready (even if willing) to work because he was sick, he should only receive what the contract would have provided in those circumstances and that was the right to statutory sick pay. The operative reason for the absence from work, it is submitted, is the sickness and not the suspension. 

27.	We reject that. The company had suspended the Claimant before he had submitted his sick note and even before he had been to see his doctor. It seems to us that under the contract the obligation to pay the basic salary is a necessary condition to a lawful disciplinary suspension. There is no provision expressly stating that an employee must remain ready and willing to work, nor that he should simply receive what he would have done had he not been suspended. We see no reason to qualify the clear language of the contractual term in that way.

28.	We are reinforced in that conclusion by the decision of this Tribunal (Silber J presiding) in Heatherwood & Wrexham Park Hospitals Trust v Beer UKEAT/0087/06. In that case there was correspondence between the employer and employee under which an employee was promised her wages during suspension. It was there argued, as here, that since she was sick for at least part of the suspension, she should receive only the sick pay she would have had if she had not been suspended. The court noted that the case for the employer involved reading the words “only while you are fit to work” into the agreed term and held that there was no justification for so doing. Ms Grennan, counsel for the Respondent, submitted that this case could be distinguished because the employee in the Beer case was never told that she would not be paid full pay because she was sick, but in our view that is not a material distinction.  

29.	Accordingly, we reject the cross-appeal also.

Disposal
30.	The decision of the Tribunal stands. Both the appeal and cross-appeal are dismissed.