Western Excavating (ECC) Ltd v Sharp

The Court of Appeal held that the meaning of "dismissal" in Schedule 1 paragraph 5(2)(c) of the Trade Union and Labour Relations Act 1974 is governed by ordinary contract law. An employee terminates the contract by reason of the employer's conduct only when the employer has committed a repudiatory or similarly serious breach that entitles the employee, as a matter of law, to terminate without notice. The statutory test of "unreasonableness" or broad fairness is not the correct legal criterion for constructive dismissal under paragraph 5(2)(c).

The appellant employer challenged an Industrial Tribunal award of compensation for unfair dismissal to an employee who collected accrued holiday pay and left after a disciplinary penalty reduced his pay. The Industrial Tribunal (majority) found constructive dismissal and awarded compensation. The Employment Appeal Tribunal upheld the Industrial Tribunal's decision as not so unreasonable as to be overturned. The employer appealed to the Court of Appeal. The central issue was the proper legal test for constructive dismissal under paragraph 5(2)(c) of Schedule 1 to the Trade Union and Labour Relations Act 1974: whether it is governed by ordinary contract law (repudiatory breach/entitlement to terminate without notice) or by a broader "unreasonableness"/fairness standard.

1. Disposition: The appeal is allowed. The Industrial Tribunal's award of compensation is set aside. Costs follow the event. Leave to appeal to the House of Lords was refused.
2. The Court held that paragraph 5(2)(c) must be read against the background of contract law. The words "entitled to terminate it without notice by reason of the employer's conduct" import a legal right to terminate. This right arises where the employer's conduct amounts to a repudiatory or similarly serious breach going to the root of the contract.
3. The Court rejected the alternative "unreasonableness" or broad fairness test. That approach collapses the distinction between the statutory concepts of "dismissal" and "unfairness" in paragraph 6 and fails to give effect to the statutory words "with or without notice".
4. The Master of the Rolls emphasised practical clarity. Lay tribunal members should be directed to the kind of conduct which, as a matter of ordinary common-law sense, would justify termination without notice. Borderline cases may require legal analysis, but the core test is contractual entitlement to terminate immediately.
5. The Court applied these principles to the facts. The tribunal's majority findings did not establish that the employer had committed a contractual breach entitling the employee to terminate. The employee left of his own accord to obtain holiday pay after an appeal reduced a dismissal to a suspension without pay. The tribunal's majority decision was therefore wrongful and, in the view of the Court, perverse.
6. In doing so the Court considered and followed the reasoning expressed in the Employment Appeal Tribunal decision in Wetherall v Lynn, and reviewed other authorities (including Marriott v Oxford) to show that the contractual test is the correct approach. The Court criticised contrary lines of decision as producing uncertain or whimsical results.

• Industrial Tribunal (St Austell): Found constructive dismissal; awarded compensation to the employee (majority 2–1).
• Employment Appeal Tribunal: Employer's appeal dismissed; EAT held the Industrial Tribunal's conclusion could not be said to be one which no reasonable tribunal could reach.
• Court of Appeal: Allowed the employer's appeal; set aside the award and ordered costs. Leave to appeal to the House of Lords refused.