Handshake Ltd v Summers

An employer relying on some other substantial reason must establish its actual reason for dismissal. A dispute about contractual pay, bonus or share entitlement does not, without more, establish a breakdown of trust and confidence. A genuine and operationally damaging breakdown in relations may amount to such a reason, but the question is one of fact.

A profit-related contractual bonus paid to an employee who holds no shares may be “wages” under section 27(1) of the Employment Rights Act 1996. A claim remains within the deductions jurisdiction where the payment can be quantified, even if calculation is disputed or difficult.

The claimant, a senior employee, was dismissed after a prolonged dispute about his contractual terms, including bonus and an anticipated shareholding. He claimed unfair dismissal and an unpaid profit-related bonus. The Employment Tribunal held that the real reason for dismissal was a power struggle over terms, rather than a loss of trust and confidence. It found the dismissal unfair, made a 40% contribution reduction, made no Polkey reduction, and held that the bonus claim fell within the statutory deductions jurisdiction.

The employer appealed. It contended that the dispute had caused a relationship breakdown amounting to some other substantial reason, that a Polkey reduction was required, and that the claimed profit share was neither wages nor quantifiable.

1. Appeal dismissed. The Employment Tribunal was entitled to find that the employer had not proved its asserted reason for dismissal under section 98(1) of the Employment Rights Act 1996. The evidence supported its finding that the real reason was a power struggle over contractual terms, bonus and shares, rather than a loss of trust and confidence.

2. A breakdown of confidence between an employer and a senior employee can amount to some other substantial reason where the employee is responsible and the breakdown actually or potentially damages the employer’s operations or makes teamwork impossible. However, an employee does not breach the duty of trust and confidence merely by pursuing a dispute over a term of employment. The Tribunal was entitled to find that the parties continued to work together and that the asserted breakdown had not occurred.

3. The Tribunal’s unnecessary auxiliary observations on section 98(4) did not contain adequate reasons to determine ordinary unfairness. That did not affect the outcome because the failure to establish the reason for dismissal under section 98(1) was upheld.

4. No Polkey reduction was required. Once the asserted breakdown in trust and confidence had been rejected, the employer could not establish that there would inevitably have been a fair dismissal for that reason, or for the continuing pay dispute. The Tribunal’s reasons, though brief, were sufficient when read with the submissions and its principal finding.

5. The payment was a bonus referable to the claimant’s employment and therefore wages within section 27(1). The abandoned or unrealised shareholding proposal did not alter that conclusion. The prior payments and the employer’s own case supported the finding of a contractual entitlement to 30% of net profits, calculated as before unless another agreement had been made.

6. The claim was not outside the Tribunal’s jurisdiction merely because the sum required calculation. It concerned a payment capable of quantification, rather than an unquantifiable loss of a chance. Quantification was properly left to a remedy hearing if the parties could not agree.

• Employment Appeal Tribunal: dismissed the employer’s appeal and upheld the Employment Tribunal’s findings of unfair dismissal and entitlement to pursue the unpaid bonus claim.
• Employment Tribunal, Manchester: judgment sent with reasons on 5 January 2012. It upheld the unfair dismissal and deductions claims, reduced compensation for contributory conduct by 40%, and made no Polkey reduction.