England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF MR JUSTICE SCOTT BAKER

		Royal Courts of Justice Strand London WC2
		26th March 1997

LORD JUSTICE KENNEDY:

1. This is an appeal by KLM, the second defendants in the action, from a decision of Scott Baker J who on 28th July 1995 granted declarations to the plaintiffs but dismissed their application for an injunction.
2. Facts

The relevant facts are not contentious and are clearly set out in the judgment of the trial judge. For present purposes I can abridge his account.

At all material times the first defendants (Brintel) provided helicopter services to Shell (UK) Ltd transporting men and goods to and from oil rigs in the North Sea. There were three contracts between Brintel and Shell covering separate sectors of the North Sea, one for each of three Brintel mainland helicopter bases namely Aberdeen, Sumburgh and Beccles (Norfolk). All three contracts expired on 30th June 1995. This case is concerned only with Beccles where prior, to 30th June 1995, Brintel employed 66 people including all seven plaintiffs, 4 of them on administration and 3 as engineers. When the contracts were due to expire tenders were invited for the new contracts, and Brintel obtained the new contracts for Aberdeen and Sumburgh, but the southern sector contract went to the second defendants (KLM). KLM did not take over any staff or equipment from Brintel, and moved the Norfolk base from Beccles to Norwich Airport. Some thirteen Brintel staff were redeployed, but 38 (including all seven plaintiffs) were surplus to requirements. It seems clear that but for the threat of these or similar proceedings KLM might have taken on some Brintel staff, but with the proceedings hanging over them they considered it imprudent to do so.

Prior to 30th June 1995 Brintel had 25 helicopters servicing all three contracts. Five were normally at Beccles, but it was not always the same five. Routine maintenance could be done there, but larger jobs were done at Aberdeen. Fifty three of the 66 staff at Beccles were permanent and the rest, including some helicopter crews, were temporary, from other bases and elsewhere to meet the increased demands of the summer season. Beccles is a former RAF airfield, and except for occasional other jobs it was used solely to service the Shell contract.

When KLM began their operations they used different types of helicopter, and they operated from a sophisticated airport with fire service, security and other services, which at Beccles Brintel had had to provide for themselves.

3. The Declarations

It was the plaintiffs contention before the trial judge that when Brintel's Beccles contract came to an end and the KLM Norwich contract began there was a transfer of an undertaking for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 1981 SI 1981/1794, and in consequence they were each entitled to a declaration that as from 1st July 1995 by operation of law they became employees of KLM. KLM's contention here, as in the court below, is that the regulations do not apply to the facts of this case.

4. Legislation

The Regulations were made by the Secretary of State under section 2 of the European Communities Act 1972 to give effect to Council Directive 77/187/EEC "on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses". The Directive begins with a recital, part of which reads :-

"Whereas economic trends are bringing in their wake at both National and Community level, changes in the structure of undertakings, through transfers of undertakings, businesses or parts of businesses to other employers as a result of legal transfers or mergers;

Whereas it is necessary to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded ...."

So the overall purpose of the Directive is to safeguard the rights of employees. Section 1 deals with scope and definitions, and within that section article 1(1) reads :-

"This Directive shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger."

Section II headed "safeguards of employees' rights" begins with article 3(1) which reads :-

"The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of article 1(1) shall, by reason of such transfer, be transferred to the transferee. Member States may provide that, after the date of transfer within the meaning of article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship."

Article 4(1) begins :-

"The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce."

The only other article which I need set out is article 7 which reads :-

"This Directive shall not affect the right of Member States to apply or introduce laws, regulations or administrative provisions which are more favourable to employees."

Turning now to the 1981 Regulations I can begin with regulation 3 which, so far as relevant, reads :-

"(1) Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated.

(2) Subject as aforesaid, these Regulations so apply whether the transfer is effected by sale or by some other disposition or by operation of law. (4) It is hereby declared that a transfer of an undertaking or part of one -

(a) may be effected by a series of two or more transactions;

(b) may take place whether or not any property is transferred to the transferee by the transferor."

Regulation 2(1) states that undertaking includes any trade or business. Regulation 5 deals with "effect of relevant transfer on contracts of employment, etc." So far as relevant it reads:-

"(1) Except where objection is made under paragraph (4A) below, a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee. (4A) Paragraphs (1) and (2) above shall not operate to transfer his contract of employment and the rights, powers, duties and liabilities under or in connection with it if the employee informs the transferor or the transferee that he objects to becoming employed by the transferee.

(5) Paragraphs (1) and (4A) above are without prejudice to any right of an employee arising apart from these regulations to terminate his contract of employment without notice if a substantial change is made in the working conditions to his detriment; but no such rights shall arise by reason only that, under that paragraph, the identity of his employer changes unless the employee shows that, in all the circumstances, the change is a significant change and is to his detriment."

The only other regulation I need set out is regulation 8(1) which reads :-

"Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part V of the 1978 Act and articles 20 to 41 of the 1976 Order (Unfair Dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal. "

That does not apply "where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after the relevant transfer is the reason or principal reason for dismissing an employee." (Regulation 8(2))

Regulation 10, entitled "Duty to inform and consult trade union representatives" sets out in detail the steps which should be taken by employers, where practicable, to provide union representatives with all relevant information in advance of a proposed transfer. Regulation 11 enables a trade union or an employee to complain to an Industrial Tribunal if the duty imposed by regulation 10 is not fulfilled.

Section 2(2) of the European Communities Act 1972, which was the enabling provision for the 1981 Regulations, so far as relevant, reads :-

"Her Majesty may by Order in Council, and any designated Minister or department may by regulations, make provision -

(a) for the purpose of implementing any Community obligation of the United Kingdom, or enabling any such obligation to be implemented, .... or

(b) for the purpose of dealing with matters arising out of or related to any such obligation .......and in the exercise of any statutory power or duty including any power to give directions or to legislate by means of orders, rules, regulations or any other subordinate instrument, the person entrusted with the power or duty may have regard to the objects of the Communities and to any such obligation..."

5. General Effect of Legislation

As Mr Carr, Q.C., for the appellants said at the start at his submissions, the general effect of the 1981 regulations is that where company A sells its business to company B two things happen - first, A's employees by operation of law become B's employees on the same terms, and secondly, any dismissal of an employee will be deemed unfair if the transfer or a reason connected with it is the reason or principal reason for his dismissal. The employee can seek relief before an Industrial Tribunal. But of course Mr Carr's principal submission is that the situation with which we are concerned is not one to which the regulations applied. Here there was no sale of a business by Brintel to KLM, KLM acquired no assets which had previously belonged to Brintel unless - as Mr Goudie, Q.C. for the respondents contends - the right to land on Shell Oil rigs and to use their facilities can be regarded as an asset, and certainly KLM, as a matter of policy, did not employ anyone who had previously been employed by Brintel.

6. Non-Re-engagement by KLM

Mr Goudie invites us to look with a critical eye at KLM's decision not to employ anyone who had worked for Brintel. It was, he submits, a transparent device to reduce the risk of an adverse finding under the 1981 Regulations. In Litster v Forth Dry Dock (1980) 1 AC 546 the receiver of the transferor dismissed the employees of the transferor one hour before the transfer. Regulation 5(3) as it was worded at that time only gave protection to those employed "immediately before the transfer", but the House of Lords, recognising that the regulations were "designed to give effect to Council Directive 77/187 EEC" (per Lord Keith at 554C), adopted a construction of the relevant regulations "which accords with the decisions of the European Court upon the corresponding provisions of the Directive to which the regulation was intended by Parliament to give effect". By implication words were added to regulation 5(3) to indicate that an employee unfairly dismissed would be deemed still to be employed in the undertaking immediately before the transfer.

In my judgment the decision in Litster is of limited assistance to us in this case. It demonstrates the lengths to which English Courts at the highest level will go to ensure that regulations designed to give effect to a Directive (as interpreted by the European Court) attain their objective, but no one has submitted to us that the problems that arise in the present case can be resolved by reading words into a regulation.

7. The Issues

There are, as the trial judge recognised, two critical issues in this case, namely :-

1) Prior to 30th June 1995 was Brintel's Beccles operation an undertaking or part of an undertaking for the purposes of regulation 3(1) of the 1981 Regulations (as properly understood in the light of European jurisprudence)?

2) if so, was that undertaking transferred so that it retained its identity in the hands of KLM?

The trial judge answered the questions in the affirmative, and Mr Goudie submits that he was right to do so. Mr Carr contends that in the light of a number of decisions in this country and in the European Court of Justice, and particularly in the light of one very recent decision of the European Court it is now clear that the judge was wrong to decide as he did. Both sides claim that there are important decisions in their favour, so I must now turn to see what some of the cases say. The survey will not be exhaustive because later cases take account of earlier decisions but it is helpful to see how the law has developed.

8. Authorities

The first decision to which I must refer is the decision of the European Court in Spijkers (1986) ECR 1119 which concerned a Dutch slaughterhouse employee whose employment was terminated when the insolvent company for which he worked, and whose business activities ceased, was sold. The company took over the premises, engaged most of the old staff (but not Mr Spijkers) and, without the benefit of any goodwill, began to trade. The national court referred questions to the European Court which in effect sought a ruling on the scope and criteria for applying the expression "transfer of an undertaking, business or part of a business to another employer" in article 1(1) of the Directive. The Court accepted that "the term 'transfer' implies that the transferee actually carries on the activities of the transferor as part of the same business" (the last six words are worth noting), and the judgment then continues :-

"It is clear from the scheme of Directive No 77/187 and from the terms of article 1(1) thereof the Directive is intended to ensure the continuity of employment relationships existing within a business, irrespective of any change of ownership. It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the business in question retains its identity. Consequently, a transfer of an undertaking, business or part of a business does not occur merely because its assets are disposed of. Instead it is necessary to consider in a case such as the present, whether the business disposed of as a going concern, as would be indicated inter alia, by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities. In order to determine whether those conditions are met, it is necessary to consider all the facts characterising the transaction in question, including the type of undertaking or business, whether or not the business's tangible assets, such as buildings or movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities are suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and must therefore not be considered in isolation. It is for the national courts to make the necessary factual appraisal, in the light of the criteria for interpretation set out above, in order to establish whether or not there is a transfer in the sense indicated above."

I have quoted from that case at some length because as everyone agrees, it is the starting point of judicial jurisprudence in relation to this branch of the law.

In Kenny and another v South Manchester College (1993) ICR 934 an education officer and a lecturer were employed by a local education authority which from 1st April 1993 was to cease to provide educational services at a Young Offenders Institution, that obligation having been acquired by the defendant corporation following competitive tendering. The matter came before the court on agreed facts to determine, as a preliminary issue, whether on 1st April 1993 the plaintiffs would automatically become employed by the defendants pursuant to the 1981 Regulations and/or the Directive. Sir Michael Ogden, Q.C., sitting as a deputy judge, reviewed the authorities and concluded that he had to consider all the factual circumstances and assess whether they were characteristic of a transfer of an undertaking within the meaning of the Directive. He determined the issue in favour of the plaintiffs.

Mrs Schmidt (1994) IRLR 302 was a cleaner at a branch of a German bank who decided to contract out the cleaning of that branch to a firm which already cleaned most of its other premises. The national court posed two questions for the European Court, namely :-

"(1). May an undertaking's cleaning operations, if they are transferred by contract to a different firm, be treated as part of the business within the meaning of the Directive 77/187 EEC?

(2). If the answer to question (1) is in principle in the affirmative, does that also apply if prior to the transfer the cleaning operations were undertaken by a single employee?"

In giving judgment the court said at page 304 paragraph 17:-

"The decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the business in question retains its identity. According to case law, the retention of that identity is indicated inter alia by actual continuation or resumption by the new employer of the same or similar activities."

In paragraph 20 the court said that the Directive :-

"is to be interpreted as covering a situation .... in which an undertaking entrusts by contract to another undertaking the responsibility for carrying out cleaning operations which it previously performed itself, even though prior to the transfer such work was carried out by a single employee."

So, as Mr Goudie submitted, Kenny and Schmidt demonstrate that the 1981 Regulations can apply to what is sometimes called first generation contracting out.

In Dines v Initial Services (1985) ICR 11 the applicants were eleven members of the staff of a company (Initial) which undertook cleaning work at a hospital pursuant to a fixed term contract. As a result of competitive tendering when the contract expired the new contract went to a new provider (Pall Mall). Initial declared all 98 cleaners and day supervisors redundant, and terminated their employment. Nearly all of them were engaged by Pall Mall on less favourable conditions. The Industrial Tribunal and the Employment Appeal Tribunal held that there had been no relevant transfer of an undertaking within the meaning of the 1981 Regulations. But this court allowed the appeal. Neill L.J. said at page 23F :-

"the European Community cases demonstrate that the fact that another company takes over the provision of certain services as a result of competitive tendering does not mean that the first business or undertaking necessarily comes to an end."

At page 24C he continued :-

"I consider that, on the agreed facts, there was a transfer of an undertaking for the purposes of the Regulations of 1981. It took place in two phases - (a) the handing back by Initial to the authority on 30th April 1991 of the cleaning services at the hospitals: and (b) the grant or handing over by the authority to Pall Mall on 1st May 1991 of the cleaning services as from that date which were operated by essentially the same labour force."

That is a decision on which, for obvious reasons, Mr Goudie places considerable reliance. It is, as he points out, like the present case, an example of second generation contracting out, where one fixed term contract for services comes to an end, and another fixed term contract to provide essentially similar services is put in its place, but it is to be noted that although Pall Mall did not take over any plant or materials from Initial, they did operate with essentially the same labour force on the same premises for the same authority, and as Neill L.J. observed hospital cleaning is not an operation which lends itself to the employment of many different techniques.

The applicant in Kelman v Care Contract Services (1995) ICR 260 was a council employed school cleaner when a contract for the job of school cleaning was awarded to the respondent company. She refused the offer of employment with the company at a lower rate of pay, and was dismissed by the council as redundant. When dealing with her successful appeal to the Employment Appeal Tribunal Mummery J said at page 267B :-

"The Regulations of 1981 were made for the purpose of implementing Directive 77/187 EEC. Decisions of the Court of Justice and of the House of Lords established that the United Kingdom legislation made for the purposes of implementing Community legislation must be construed purposively to accord with the Community legislation, so as far as it is possible to do so without distorting the wording of the Regulations.

A Line of decisions of the Court of Justice on Directive 77/187/EEC culminating in Schmidt establishes that the decisive criterion for determining whether there has been a transfer of an undertaking is whether, after the alleged transfer, the undertaking has retained its identity, so that employment in the undertaking is continued or resumed in the different hands of the transferee. In order to determine whether there has been a retention of identity it is necessary for the Industrial Tribunal to examine all the facts relating both to the identity of the undertaking and the relevant transaction and assess their cumulative effect, looking at the substance, not at the from of the arrangements. The mode or method of transfer is immaterial. The emphasis is on a comparison between the actual activities of and actual employment situation in an undertaking before and after the alleged transfer. A change of employer responsible for the activities of an undertaking which continues to be identified will usually mean that there has been a relevant transfer. The cumulative effect of the decisions on the Directive is that a transfer of an undertaking may occur for the purposes of the Directive even though : (a) there has been no transfer of the ownership of assets, tangible or intangible. What matters is the transfer of responsibility for the operation of the undertaking in which the employees were employed."

At page 268A the judge continued :-

"The theme running through all the recent cases is the necessity of viewing the situation from an employment perspective, not from a perspective conditioned by principles of property, company or insolvency law. The crucial question is whether, taking a realistic view of the activities in which the employees are employed, there exists an economic entity which, despite changes, remains identifiable, though not necessarily identical, after the alleged transfer."

The European Court gave judgment in Rygaard (1996) IRLR 51 after Scott Baker J had given judgment in the present case. That is also the situation in the remaining three authorities to which I must refer. In Rygaard it was held that:-

"The taking over - with a view to completing, with the consent of the awarder of the main building contract, works started by another undertaking - of two apprentices and an employee together with materials assigned to those works, does not constitute a transfer of an undertaking, business or part of a business, within the meaning of article 1(1) of the Directive."

In BSG Property Services v Tuck (1996) ILIR 134 employees of a council who worked on housing maintenance were given notice terminating at the commencement of the council's contract with BSG for the work to be done by self-employed tradesmen in BSG's workforce. No council employees were engaged by BSG, but nevertheless the EAT concluded that there was an undertaking of the council which retained its identity in the hands of BSG.

The plaintiffs in Merckx v Ford Motor Company were employed as salesmen by the Ford-owned dealership in Brussels when that dealership was transferred by Ford to an independent company.

There was no transfer of tangible assets, but the transferor sent a letter of recommendation to its customers. The European Court at page 473 said :-

"It is settled case law that the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the entity in question retains its economic identity, as indicated inter alia by the fact that its operation is actually continued or resumed."

The court reviewed the factors in favour of and against a finding that the transfer of the dealership fell within the scope of the Directive. In favour of that conclusion was the continuity of the activity, evidenced by the sale of Ford motor cars in the same territory without interruption, with the transferee company (recommended to customers by letter) taking on part of the transferor's staff. As against that conclusion there were a number of factors - the lack of transfer of any assets, or of any organisation, the movement of the dealership to a different site, the fact that the Ford-owned dealership ceased to trade, the fact that the majority of the staff were dismissed, and the fact that there was no contractual link between transferor and transferee. Even cumulatively those adverse factors were held not to be decisive, and so, Mr Goudie submits, the emphasis must be on the activities of the transferor and the transferee. The force of that submission in the light of the line of authorities to which I have referred seems to me to be self-evident, but it may be that as time went on the width of the Spijkers test was being to some extent overlooked. If so, that was put right by the final decision in the European Court to which I must now refer, namely the recent case of Ayse Suzen in which judgment was delivered on 11th March 1997. Our attention was also invited to the opinion of the Advocate-General but for present purposes I can restrict myself to the judgment. Mrs Suzen was a school cleaner whose employers' school cleaning contract came to en end. Other contractors were appointed. She was dismissed, and sought a declaration that the notice of dismissal was ineffective. Two questions were referred to the European Court namely :-

"1. Is Directive 77/187 EEC applicable if an undertaking terminates a contract with an outside undertaking in order to transfer it to another outside undertaking?

2. Is there a legal transfer within the meaning of the Directive in the case of the operation described in question 1 even if no tangible or intangible business assets are transferred? "

The Court confirmed (in paragraph 8) that article 1(1) of the Directive applies to first generation contracting out, and that :-

"the aim of the Directive is to ensure continuity of employment relationships within a business, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of the Directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed."

In paragraph 11 the Court states that whilst the lack of any contractual link between alleged transferor and alleged transferee "may point to the absence of a transfer within the meaning of the Directive it is certainly not conclusive". In other words it is a relevant factor.

For the Directive to be applicable the transfer must relate to a stable economic entity whose activity is not limited to perform in one specific works contract (Rygaard). The term entity is defined as :-

"An organising grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective."

The Court reiterated the Spijkers test and continued :-

"The mere fact that the service provided by the old and the new awardees of a contract is similar does not therefore support a conclusion that an economic entity has been transferred. An entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it.

16. The mere loss of a sales contract to a competitor cannot therefore by itself indicate the existence of a transfer within the meaning of the Directive. In those circumstances the service undertaking previously entrusted with the contract does not, on losing a customer, thereby cease to exist, and a business or part of a business belonging to it cannot be considered to have been transferred to the new awardee of the contract."

That last paragraph is, Mr Carr submits, decisive of this appeal.

In paragraph 17 the judgment goes on to say that although transfer of assets is one of the criteria to be taken into account the absence of assets transfer is not decisive.

As to transfer of employees, the court pointed out that whether or not the majority of the transferor's employees are taken over by the new employer was identified in Spijkers as a relevant factor, and in paragraph 21 the judgment in Suzen continues :-

"Since in certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic activity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of employees specially assigned by his predecessor to that task. In those circumstances, as stated in paragraph 21 of Rygaard cited above, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis."

In paragraph 23 of the judgment the Court answered the questions posed by the national court thus:-

"The Directive is to be interpreted as meaning that the Directive does not apply to a situation in which a person who had entrusted the cleaning of his premises to a first undertaking terminates his contract with the latter and, for the performance of similar work, enters into a new contract with the second undertaking, if there is no concomitant transfer from one undertaking to the other, of significant tangible or intangible assets or taking over by the new employer of a major part of the work force, in terms of their numbers and skills, assigned by his predecessor to the performance of the contract."

9. Appellant's Submissions

In the light of those authorities, and in particular in the light of Suzen Mr Carr submits that the search for an economic entity (or an undertaking, to use the word used in the 1981 Regulations) cannot be reduced to a search for the activity entrusted to it. In most cases, and this is one, there will be land, buildings, plant, staff and order books all contributing to the undertaking. So in this case the judge was wrong to say at page 14B of the transcript :-

"The critical question in the present case is whether the same service or activity is being performed by KLM as was being preformed by BIH."

That question was relevant, but not critical.

Somewhat half heartedly Mr Carr submitted that there was probably no definable economic entity associated with Brintel's operation from Beccles because helicopters and staff changed in the way that I have described. That I reject, but the question remains of how the entity should be defined. In my judgment Mr Carr is right to say that it consisted of the helicopters and infra structure - the landing strip, premises and buildings at Beccles, and the staff. I would add to that the maintenance and support staff at Aberdeen, the contract between Shell and Brintel for the carrying of men and goods to oil rigs, and the right pursuant to that contract to land helicopters on oil rigs and use their facilities.

Turning to the second question, namely whether the undertaking or economic entity was transferred so that it retained its identity in the hands of KLM, Mr Carr submitted that the evidence to support such a transfer was minimal. No helicopters, infra structure or staff were taken over by KLM. They simply obtained a fresh contract for carrying men and goods to the same oil rigs from a different land base, using different helicopters with different crews, but inevitably landing on the same oil rigs and using the same oil rig facilities. Even if KLM had not deliberately decided not to recruit former Brintel employees there was no evidence to show that they would have engaged such employees in significant numbers. There was never any likelihood of the majority of Brintel's sixty six Beccles employees being taken over by the new employer, and even if there had been that would not have been decisive because of the nature of the Brintel's Beccles undertaking. Unlike school or hospital cleaning or other labour-intensive operations in which - as the court recognised in Suzen and some of the other cases - "a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity", the situation in this case was more complex. At risk of over-simplification, the labour force was not the only asset of the Brintel Beccles operation, and the vast majority of its assets Brintel retained, so the situation here was precisely that envisaged by the European Court in paragraphs 15, 16 and 23 of its judgment in the case of Suzen.

10. Respondent's submissions

Mr Goudie emphasized, rightly, that the purpose of the Directive and of the 1981 Regulations is to safeguard the rights of employees. Where the Directive and the Regulations apply the rights of the employees are preserved. He cannot be forced to accept less favourable terms of employment, and can only be dismissed for economic, technical or organisational reasons. Furthermore the 1981 Regulations cannot be circumvented by contractual exclusion of rights (see Regulation 12). Article 7 of the Directive expressly enables Member States to introduce regulations which are more favourable to employees than the Directive requires and, Mr Goudie submits, that may be what the United Kingdom has done. But there is nothing in the wording of the 1981 Regulations to indicate such an intention, and thus far it is not how the Regulations have been understood - see, for example, Lord Keith's assertion in Litster that the regulations were "laid as designed to give effect to Council Directive 77/187/EEC".

Mr Goudie then submitted that but for their self-imposed ban KLM would have engaged some of Brintel's employees, and that KLM should derive no benefit in these proceedings having imposed that ban. For the reasons I have set out above it seems to me that if the ban had not been imposed and a modest number of Brintel employees had gone to KLM that would not have led to a different conclusion in relation to the second issue in this case, namely as to whether the Brintel Beccles undertaking was transferred and that it retained its identity in the hands of KLM, so the ban is really of very little relevance.

Mr Goudie's basic submission was that prior to the decision of the European Court in Suzen it could be seen from the authorities to which I have already referred that in order to discover what constituted an economical entity or an undertaking it was necessary to look at what was done. If after the alleged transfer activities were substantially the same then it could be concluded that the undertaking had been transferred so that it retained its identity in the hands of the transferee. That, Mr Goudie submits, was well established by decisions which were cited in Suzen and not disapproved. It was an approach which was understood by employers and employees, it was predictable and enforceable, it enabled the consultation provisions of the 1981 Regulations to operate, and so far as possible Suzen should be read as not interfering with that approach. Mr Goudie submitted that where national legislation mirrors but does not go beyond the Directive there might as a result of the decision in Suzen, be a difference between cases of first generation contracting out (to which the approach for which he contends could still apply) and cases of second generation contracting out of which Suzen and the present case are examples; but, save that first generation contracting out involves a contractual relationship between transferor and transferee Mr Goudie could not advance any logical reason for such a distinction, and I do not accept that it can exist.

The real distinction, as it seems to me, is between (1) labour-intensive undertakings, of which Dines is an example, in which if the staff combine to engage in a particular activity which continues or is resumed with substantially the same staff after the alleged transfer the court may well conclude that the undertaking has been transferred so that it has retained its identity in the hands of the transferee, and (2) other types of undertaking in relation to which the application of the Spijkers test involves a more wide-ranging inquiry. Consequently I have no difficulty in accepting as appropriate to its facts the approach adopted by this court in Dines. In the circumstances of this case a different approach is called for, leading, as it seems to me, to a different conclusion.

Mr Goudie did not expressly concede that if Suzen applies it cannot be distinguished, although in reality that must be the case. But, as Mr Goudie points out, Suzen is a decision of the European Court in relation to the Directive. It is not a decision of an English court in relation to the 1981 Regulations which, Mr Goudie submits, may go beyond the Directive. I can find no basis upon which to conclude that they do. If I were not of that opinion then it would be necessary to consider Mr Carr's submission that in so far as the regulations exceed the requirements of the Directive they are ultra vires the enabling legislation, namely section 2 of the European Communities Act 1972. Mr Goudie submitted that the words "related to" in section 2(2)(b) of the 1972 Act give the Secretary of State a wide measure of discretion, as found by the Divisional Court in R v Secretary for Trade and Industry ex parte Unison (1996) IRLR 438, but he acknowledges that the decision in the Unison case was not followed by the Employment Appeal Tribunal in Scotland which, in Addison v Denholm Ship Management 24.1.97 unreported, expressed the view that if the 1981 Regulations went beyond the requirements of the Directive they would be ultra vires. In my judgment it is unnecessary in this case to resolve that conflict and I say no more about it.

Mr Goudie's alternative submission, is that if the Suzen approach must now be followed in English law then, on the facts, we should reach the same conclusion as the trial judge, because some assets which formed part of Brintel's undertaking were acquired by KLM - namely, the right to land on oil rigs and use oil rig facilities - and some Brintel employees might, and Mr Goudie submits that we should find would, have been engaged by KLM if KLM had not chosen to exclude them from consideration. Once the Brintel Beccles undertaking is defined in the way that I have defined it when dealing with the submissions made by Mr Carr it seems to me that, even if Mr Goudie's identification of transferred assets is accepted, a transfer of such a limited part of the undertaking could not lead to the conclusion that the Brintel Beccles undertaking itself was transferred so that it retained its identity in the hands of KLM.

11. Conclusion

I accept that the decision in Suzen does represent a shift of emphasis, or at least a clarification of the law, and that some of the reasoning of earlier decisions, if not the decisions themselves, may have to be reconsidered. With the benefit of the judgment in Suzen, which was not available to the trial judge, I am satisfied that the proper approach to this case is to consider first the nature of Brintel's Beccles operation. For the reasons I have given I accept that there was an undertaking or an economic entity. I turn then to the second question, namely whether that undertaking was transferred so that it retained its identity in the hands of KLM. In my judgment the answer to that question is now clear, namely that there was no such transfer. I would therefore allow this appeal.

In his skeleton argument Mr Carr set out examples of absurd results which, he contended, could result from an unfettered application of the law as contended for by Mr Goudie. That argument was not developed orally, so I do not dwell on it, but it looks persuasive on paper and could constitute a further reason for reaching the conclusion at which I have arrived. I add that by way of postscript to make it clear that the policy arguments have in fact played no part in my decision.

LORD JUSTICE AULD: I agree.

SIR ROGER PARKER: I also agree.