The Hira Company Ltd v Daly

In a constructive dismissal claim, the implied term of mutual trust and confidence is breached only where the employer’s conduct, without reasonable and proper cause, is objectively likely to destroy or seriously damage the relationship. The focus is on the effect of the conduct, not the employer’s intention or motive. Commercial justification does not by itself answer the contractual question. The [1997] ICR 606 test must be applied without importing the statutory range-of-reasonable-responses test. Reasonableness is principally relevant when assessing whether a constructive dismissal was fair under the statutory scheme. An appellate tribunal should not interfere where the employment tribunal reached a conclusion reasonably open to it on the evidence.

Mr Daly resigned from employment with The Hira Company Ltd and claimed constructive unfair dismissal. He relied on a series of matters, including faulty goods, late or diverted deliveries, reduced commission, interference with customers, and the removal of the Sainsbury’s account.

The Employment Tribunal’s lay majority found that the cumulative effect of the conduct amounted to a fundamental breach of the implied term of trust and confidence. The Employment Judge dissented, considering that the employer had reasonable commercial reasons and had not acted maliciously or capriciously.

The employer appealed, alleging misdirection and perversity. Mr Daly cross-appealed concerning alleged failures to keep him informed about products and clients. The central issue was whether the majority had applied the correct contractual test.

1. Appeal and cross-appeal dismissed. The majority of the Employment Tribunal had not erred in law. There was ample evidence on which it could conclude that the cumulative effect of faulty goods, late deliveries, delivery diversion and removal of the Sainsbury’s account fundamentally damaged the employment relationship.
2. The starting point was Malik and Mahmud v Bank of Credit and Commerce International SA [1997] ICR 606. The employer must not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence. The question is objective and concerns the effect of the conduct on the employee. The employer’s intention or motive is not determinative.
3. The Employment Appeal Tribunal treated the reasoning in Malik as a unitary formulation. The words likely and calculated did not create materially different tests. The focus remained on the objective impact of the conduct.
4. Bournemouth University v Buckland [2009] ICR 1042; [2010] ICR 211 required the unvarnished Malik test to be applied. The court should identify the conduct, determine whether there was reasonable and proper cause, and then ask whether the conduct was likely or calculated to destroy or seriously damage trust and confidence. The range-of-reasonable-responses test does not govern the contractual question. It arises when the employer establishes a potentially fair reason and the tribunal assesses statutory fairness.
5. The minority’s concentration on the employer’s contractual entitlement, commercial reasons and absence of malice failed adequately to address the objective effect on the employee. Those matters could be relevant, but did not themselves establish reasonable and proper cause or exclude a fundamental breach.
6. The appellate tribunal could not substitute its own view on the evaluative conclusion. Following Woods v WM Car Services (Peterborough) Ltd [1982] ICR 693, where the conclusion was reasonably open on the evidence, it could not be reversed as an error of law.

• Employment Appeal Tribunal: dismissed the employer’s appeal and, so far as necessary, the employee’s cross-appeal.
• Employment Tribunal: by majority, found that Mr Daly had been constructively and unfairly dismissed. The judgment and written reasons were sent to the parties on 17 November 2009.