England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE EATRF 1998/0664/3

Royal Courts of Justice

Strand

London WC2

Friday, 23 April 1999

B e f o r e:

LORD JUSTICE BELDAM

LORD JUSTICE BUXTON

MR JUSTICE JONATHAN PARKER

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WHITEHOUSE

APPELLANT

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CHAS A BLATCHFORD & SONS LTD

RESPONDENTS

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(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR B LANGSTAFF QC with MR KIBLING (Instructed by Andrew Freer, GMB, National Legal Department, London SW19) appeared on behalf of the Appellant

MR T LINDEN (Instructed by Richard Linkskell, Legal Adviser, Engineering Employer's Federation, London SW1H) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Friday, 23 April 1999

J U D G M E N T

LORD JUSTICE BELDAM: Before the court is an appeal by Mr Ian Whitehouse from the decision of the Employment Appeal Tribunal dismissing his claim for unfair dismissal against his employers, the respondent company, Chas A Blatchford & Sons Ltd.

The appellant, Mr Whitehouse, is 40 years of age. In 1975 at the age of 17, he took an apprenticeship as an artificial limb maker with James Stubbs & Co Ltd ("Stubbs"). After completing his apprenticeship, Stubbs employed him as a technician.

In 1987 Stubbs obtained a contract to supply prosthetic appliances to the Disablement Service Centre of the Northern General Hospital in Sheffield. The hospital was managed by the Northern General Hospital Services Trust. The contract with Stubbs was initially for five years but it was renewed in 1992. The contract was the mainstay of Stubbs' business, and by 1996 it employed a workforce of 18, including 13 technicians in the workshop of whom the appellant was one. The contract was due for renewal on 1 April 1997. In June 1996, on behalf of the hospital, the Disablement Service Centre sought tenders for the contract to supply prosthetic and orthotic services at the Northern General Hospital for the next five years.

Stubbs quoted for the contract but was unsuccessful. The respondent employers, who also tendered, were successful.

The employers are a national company with a workforce of some 400 employees who provide similar services under a number of other Health Service contracts. On 14 January 1996 the employers were told that theirs was the favoured bid. They thought this equivalent to being awarded the contract. But as is clear from a letter from the Disablement Services manager, the award of the contract was conditional upon discussions about staffing costs. Three days later, after the discussions had taken place between the Disablement Services manger and Mr Lewis, the employer's director of Prosthetic and Orthotic Services, it was clear that the hospital required the employers to reduce the charges they had proposed by, among other measures, cutting the number of technicians to be employed at the Disablement Service Centre from 13 to 12.

On the same day the employers told Stubbs' employees that they would be taking over the contract, and that it would result in one redundancy among the technicians. A week later the technicians were officially notified that there was a risk of redundancy. On 1 April 1997 the employers assumed responsibility for the provision of prosthetic services at the Northern General Hospital at the commencement of the new contract. They took on all Stubbs' employees, and appointed Mr Howett (Stubbs' prosthetic director) to be their manager on site.

After unsuccessfully seeking a volunteer for redundancy, the employers appointed Mr Howett to carry out an assessment of the technicians to decide which of the 13 should be made redundant. It was an unenviable task for many of them were his friends. But after a procedure which the Industrial (now Employment) Tribunal described as "difficult but onerous but carried out as objectively and fairly as he reasonably could have done", Mr Howett decided that it was the appellant who should be made redundant. Accordingly, the appellant was given notice of redundancy and special leave on 24 April 1997. On 30 April his redundancy was confirmed. His employment was terminated on 5 May. He invoked the employer's appeal procedure, but was unsuccessful and his notice eventually expired on 21 July 1997. On 1 May he complained to the Employment Tribunal that he had been unfairly selected for redundancy and accordingly unfairly dismissed. Later he added the additional ground that his dismissal was in breach of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the Regulations") and that accordingly he should be deemed to have been unfairly dismissed.

In answer, the employers submitted that the reason for termination of the appellant's employment was redundancy and that his selection for redundancy was fair, and in answer to the claim that his contract of employment was terminated by reason of the transfer of the undertaking, the employers said that the applicant was dismissed for an economic, technical or organisational reason entailing changes in the workforce.

Regulation 5(1) provides that a transfer does not (ie by itself) operate to terminate the contract of employment but:

"... any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made ... [with] the transferee".

Regulation 5(2) provides that:

"Without prejudice to paragraph (1) above ... on the completion of a relevant transfer -

(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this Regulation to the transferee; and

(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee."

The principal provisions of the Regulations relevant to this case are contained in Regulation 8 which, under the rubric "Dismissal of employee because of relevant transfer" provides:

"(1) 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.

(2) Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee -

(a) paragraph (1) above shall not apply to his dismissal; but

(b) without prejudice to the application of section 57(3) of the 1978 Act or Article 22(1) of the 1976 Order (test of fair dismissal), the dismissal shall for the purposes of section 57(1)(b) of that Act and Article 22(1)(b) of that Order (substantial reason for dismissal) be regarded as having been for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held."

Regulation 8 has to be construed so that insofar as it is not impossible to do so, it enacts into English law the provisions of Council Directive of 14 February 1997 (77/187/EEC). Section II of the Directive safeguards the employee's rights. In particular, by Article 4 it provides:

"(1) 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 work force.

Member States may provide that the first subparagraph shall not apply to certain specific categories of employees who are not covered by the laws or practice of the Member States in respect of protection against dismissal."

The tribunal rejected the appellant's claim. It made an important finding in paragraphs 8 and 12 of its reasons for decision. In paragraph 8, after relating the nature of the business of the employers it said:

"Blatchfords quoted for the Northern General Hospital contract and were successful. However as part of the negotiation it was specified by the hospital that Blatchfords would have to reduce their charges by cutting the number of technicians employed at the Disablement Service Centre from 13 to 12."

In paragraph 12 it said:

"The first matter that we have to decide is whether or not the respondents have established that the dismissal of the applicant was for an economic, technical or organisational reason within the meaning of Regulation 8. We accept that it was a condition of the contract with the Northern General Hospital that the new contractor should reduce the contract price by reducing the numbers of technicians. We accept that if Blatchfords had not offered to do this they would not have obtained the contract. It seems to us that a redundancy in such circumstances was inevitable. We conclude that the reason for the applicant's dismissal was an economic or organisational reason which entailed a change in the workforce and that the respondents have established a defence under Regulation 8(2)."

After these findings, the tribunal considered whether the employers acted reasonably or unreasonably in treating the redundancy as a sufficient reason for the dismissal. They decided that it was, and in paragraphs 14 and 15 they summarised the position as follows:

"We think that this was one of those unfortunate occasions when somebody had to be made redundant. We think that the respondents operated a comprehensive and fair system of assessment which was properly and thoroughly carried out. We accept that it was only after completing the detailed assessments that Mr Howitt added up the total scores and realised that it was the applicant who was the unlucky one.

We have accordingly unanimously decided that the respondents did not act unreasonably in selecting the applicant for redundancy and we find that this dismissal was not unfair."

The appellant appealed against these findings to the Employment Appeal Tribunal which, by a majority, dismissed his appeal. Its judgment was given by His Honour Judge Butter QC, who after referring to the authorities to which the tribunal had been referred, said:

"At the hearing of the present appeal there is a division of view among the members. The majority (Judge Butter QC and Miss Whittingham) consider that the appeal should be dismissed for the following reasons. The Industrial Tribunal were entitled to conclude that although the question of contract price was involved, it was an express requirement of the hospital that Blatchford would cut the number of technicians employed at the Disablement Service Centre from 13 to 12. Blatchford appears to have had no option with the result that there was necessarily a change in the workforce. The position was therefore different from that which existed in Berriman where the reason for the employer's ultimatum was to produce standard rates of pay, not to reduce the number in the workforce. Similarly the position is different to that of Wheeler where the economic reason appears to have been no more than a desire to obtain an enhanced price or the desire to achieve a sale."

He then expressed the minority view of Mr Tuffin, which was that the appeal should be allowed:

"If the ... Tribunal is right, it would be easy for two employers at the time of the transfer to reach agreement that there should be a reduction of staff with the consequence that the object of the Regulations would be defeated. On the facts here, the real question was that of price. The case of Wheeler gives support for the proposition that the appeal should be allowed."

This minority view has been developed with considerable force and skill by Mr Brian Langstaff QC. Mr Langstaff for the appellants submits that the word "economic" has to be given a restricted meaning. He has referred the court to observations to this effect from decisions of the European Court of Justice and the opinion of its Advocates General and, in particular, have submitted that the criteria for deciding the context to be given to "economic" in this context, is that stated by the Vice-Chancellor, then Scott J, in the Employment Appeal Tribunal decision in Wheeler v. Patel [1987] 1 IRLR 211.

Before citing from his judgment, I would refer for assistance in interpreting the word "economic" in the context of the directive, to its preamble, which states:

"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..."

The provisions of the Directive were not cited in the case of Wheeler v. Patel (supra) but the Vice-Chancellor in giving the decision held that the scope of the word "economic" should be restricted. It was to be related to the conduct of the business and did not include broad economic reasons for dismissal, such as achieving an agreement for sale. The employee in that case was employed by the vendor of a shop in his business which he proposed to sell. Before transferring the shop to a prospective purchaser he dismissed her. The Employment Tribunal had found that the reason for the dismissal could have been to bring about a sale which would not otherwise have taken place and that this could amount to an economic reason within the meaning of Regulation 8(2) of the Regulations.

After reviewing an earlier decision of the Scottish Employment Appeal Tribunal, the Vice-Chancellor said:

"The references to 'technical' and to 'organisational' reasons seem to us to be references to reasons which relate to the conduct of the business. In our view, the adjective, 'economic', must be construed eiusdem generis with the adjectives 'technical' and 'organisational.' The 'economic' reasons apt to bring the case within paragraph [8](2) must, in our view, be reasons which relate to the conduct of the business. If the economic reason were no more than a desire to obtain an enhanced price, or no more than a desire to achieve a sale, it would not be a reason which related to the conduct of the business. It would not in our judgment, be an 'economic' reason for the purposes of paragraph (2). We think that an eiusdem generis approach to construction justifies giving a limited meaning to the adjective 'economic' in paragraph (2). We think the need to leave a sensible scope for paragraph (1) similarly requires a limited meaning to be given to the adjective 'economic' in paragraph (2)."

It is to be observed that the transferror in that case had no intention of continuing the business and consequently his reason for dismissing the employee could not have been related to his future conduct of the business. It seems to me that the words "economic technical or organisational reason entailing changes in the workforce ", clearly support the conclusion that the reason must be connected with the future conduct of the business as a going concern.

I do not find it surprising that the Vice-Chancellor's restriction on the scope of the word "economic" in the manner he suggested, has subsequently been followed in other similar cases. Nor do I think it necessary to refer to them for they are merely examples which do not, in my view, add to the relevant principles.

We were also referred to excerpts from the opinions of Advocates General and from decisions of the European Court of Justice. Whilst in the main they occur in the context of questions very different from the issue in the present case, I do derive assistance from them for the general purpose of the Directive. However, it does seem to me plain from some of these excerpts that the meaning of the word "economic" is not so constrained as Mr Langstaff submits. Mr Linden for the employers forcefully submitted that the purpose of the Directive was to ensure that the transfer of an undertaking does not deprive the employees of their rights, nor reduce the obligations of the employer. The object is not to secure their right to continue in indeterminable employment. So, for example, in the course of its judgment in Landsorganisationen i Danmark for Tjenerforbundet i Danmark v. Ny Mølle Kro Case 287/86, the court said in paragraphs 11 and 12 of its judgment that according to the preamble of the Directive, it was intended to provide for the protection of the employees in the event of a change of employer, in particular to ensure that their rights are safeguarded, and to ensure:

"protection for the employees concerned against dismissal by the transferror or the transferee solely by reason of the transfer..."

The Court continued:

"12. It follows from the preamble and from those provisions that the purpose of the directive is to ensure, so far as possible, that the rights of employees are safeguarded in the event of a change of employer by enabling them to remain in employment with the new employer on the terms and conditions agreed with the transferor."

Similarly in its judgment in Tellerup v. Daddy's Dance Hall A/S Case 324/86, the court said in paragraph 16:

"However, as the Court held in its judgment of 11 July 1985 in Case 105/84 ... Directive 77/187/EEC is intended to achieve only partial harmonisation, essentially by extending the protection guaranteed to workers independently by the laws of the individual Member States to cover the case where an undertaking is transferred. It is not intended to establish a uniform level of protection throughout the Community on the basis of common criteria. Thus the directive can be relied on only to ensure that the employee is protected in his relations with the transferee to the same extent as he was in his relations with the transferor under the legal rules of the Member State concerned."

To the same effect are the observations of the Advocate General in Foreningen af Arbejdsledere i Danmark v. A/S Danmols Inventar (Case 105/84) 1985 ECR 2639, where he said at page 2641:

"The effect of the Directive, in my opinion, is that an employee of the transferor at the time of transfer is entitled to insist, as against the transferee, on all the rights under his existing employment relationship. By virtue of Article 3, he can thus claim to continue to be employed by the transferee on the same terms as he was employed with the transferor, or if the transferee refuses or fails to observe those terms, he can bring a claim for breach of contract or the relationship, against the transferee.

...

The employer who dismisses an employee for one of the reasons specified in Article 4(1) can thus justify the dismissal. Otherwise if the dismissal or purported dismissal is based on the transfer of the undertaking or business, the employee can insist on his rights under Article 3."

I would approach the decision in the present case by accepting that, if an employee is dismissed solely by reason of a transfer, he must be taken to be unfairly dismissed. But if, in addition, there is an economic, technical or organisational reason, the tribunal of fact has to determine whether that is the principal reason within the meaning of Regulation 8(2). I do not think it is helpful to try to circumscribe precisely all the varied circumstances which can amount to economic or organisational reasons. Furthermore, citation of the circumstances of other decided cases may serve only to illustrate that in those instances, on the facts found by the tribunal, it was open to it to hold that the reason or the principal reason was an economic, technical or organisational reason.

In my view Mr Linden is correct in submitting that there was here evidence on which the tribunal could conclude that the reason for dismissal was an economic or organisational reason.

I do not understand Mr Langstaff to disagree. Rather he submits that the tribunal must have given too wide a meaning to the word "economic". On the proper construction of the evidence in this case, he submits the employers had originally quoted on the basis of providing services to the Disablement Service Centre by employing 13 technicians. They had reduced their price by sacrificing the services of one of the technicians. Their motive and thus the reason for the appellant's subsequent dismissal was simply to get the contract. That was no different from a dismissal to secure the sale of a business.

I would approach this case in the following way.

1. On the transfer of the undertaking represented by the contract which Stubbs had with the hospital, the appellant was not dismissed by Stubbs and his contract of employment continued with the employers with its attendant rights and with the obligations on the employer's part.

2. The appellant's right not to be unfairly dismissed was therefore preserved.

3. The position of the employers after they were awarded the contract to provide services to the hospital, previously provided by Stubbs, was that the demand for services under that contract was a demand for the services of 12 not 13 technicians.

4. The position would have been the same:

(a) If Stubbs had been awarded the contract;

(b) If the employers had been providing the services under the previous contract prior to renegotiating the terms of the contract for the next five years.

5. That in these circumstances the transfer of the undertaking from Stubbs to the employers was the occasion for the reduction in the hospital requirements for the services of the technicians to 12 rather than 13. The transfer was not the cause or the reason for that reduction.

6. The reduction was directly connected with the provision of the services and with the conduct of any business which provided them.

7. That the position is in no way analogous to the position of the vendor of the business who, for the purpose solely of achieving the best price for his business, dismisses employees.

8. It was open to the Industrial Tribunal to hold that the transfer was not the reason for the appellant's dismissal and that the tribunal could reasonably infer that the employers' decision to dismiss was a proper business decision dictated by economic or organisational considerations.

9. That in the circumstances, Regulation 8(1) did not apply. The appellant was not to be deemed to be dismissed unfairly, and in deciding that, the process of selection for redundancy was properly and fairly carried out, and his right under his contract of employment had been preserved.

Accordingly, I would dismiss this appeal.

LORD JUSTICE BUXTON: In dealing with a case arising under the Transfer of Undertakings Regulations, it is first necessary to identify what is the undertaking involved and what was the transfer. In this case, the undertaking is the performance of the contract for provision of prosthetic services to the Northern General Hospital. It might seem self-evident that in the events that occurred the transfer of that undertaking was a transfer from Stubbs to Blatchford.

In that connection, Mr Langstaff QC drew our attention, though not I think as part of his substantive argument, to the analysis of this court in a somewhat similar situation in the case of Dines & anr v. Initial Healthcare Services Ltd [1995] ICR 11, which suggests that in at least some circumstances the transfer or part of the transfer might have taken place between the hospital and Blatchford rather than directly between Stubbs and Blatchford. I do not think that this question affects our consideration of this case.

I think it must be clear that, if the transfer was said to be between the hospital alone and Blatchford, it would be impossible to apply the terms either of the Directive or the Regulations to this case, and Mr Linden did not suggest that that was so. In my view, the analysis in Dines was offered to meet a particular argumentative difficulty that was raised in that case, and I will adopt the analysis that Mr Linden suggested, that the transfer in Dines, as in this case, was a composite operation or took place in two stages, but the realistic question was of a transfer between Stubbs and Blatchford. In taking that view, I do not think that I am being unfair to the position of the appellant, because, as I have indicated, Mr Langstaff did not as far as I could see place any particular point on the extract from Dines.

We are therefore concerned with a change in the counterparty to the contract for prosthetic services offered by the Northern General Hospital. I turn to the legislation that we have to consider as applying to that.

The Regulations implement Council Directive 77/187/EEC. In particular Regulation 8(1) with which we are concerned is the counterparty to, or implementation of, Article 4 of that Directive. I go first to the Directive, because in a case of difficulty, or in a case where it is argued that the Regulations have not sufficiently transposed the Directive, it is to the Directive that one should turn in order to discover what the correct application is of the Regulations in our domestic law. That proposition, stated, I have to say, more elegantly than I have just stated it, is trite Community law set out, for instance, in Case 14/83 von Colson ; and in the context of this very Directive and this very Article, was emphasised in the judgments of this Court in Warner v. Adnet Ltd [1998] IRLR 394. I would particularly draw attention to the observations in that case of Henry LJ.

If we go to Article 4 of the Directive, it makes an extremely simple statement. It reads as follows:

"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 work force."

That simple formulation has the benefit that it is not burdened, as the Regulations inevitably are burdened, by the need to force the basic requirements of the Directive into the straightjacket that is provided by English jurisprudence and procedure. Looked at Article 4 it says no more than two things. First of all, a transfer cannot in itself justify a dismissal; second, in a situation involving a transfer, it is still open for dismissals to take place that would otherwise be justified according to the law of the country to which it applies. The words "dismissals ... for economic, technical or organisational reasons entailing changes in the work force" are, in my judgement, merely a very broad description of the whole range of circumstances that might, in the law of any one of the Member States, give rise to a justification for dismissal. And it goes no further than that.

Article 4 does no more, therefore, than reinforce the requirement under the general objectives of the Directive that, as it says in its title, on the transfer of the business an employee's rights shall be safeguarded.

That status and interpretation of the Directive and Article 4 is demonstrated by a number of cases in the Court of Justice. I will mention only one example, Case 324/86 Daddy's Dance Hall at paragraph 16 of the judgement of the court, a passage that has already been cited by my Lord. That the second part (or second limb of that part) of the Article has the effect that I have indicated is also demonstrated by a case that was shown to us in the Court of Justice, Case 362/89 d'Urso . There, the Court of Justice helpfully illuminatingly addressed an objection that was raised in the course of argument, suggesting that the Directive could have a chilling or dissuasive effect in a transfer case, by way of making it difficult to dismiss personnel who were surplus to the business. The court directly replied to that concern in paragraph 19 of the judgment by referring to the fact that Article 4(1) specifically says that this provision (that is to say the whole of Article 4(1)) is not to stand in the way of dismissals that may take place for economic, technical or organisational reasons. That reinforces, in my respectful view, the analysis of Article 4 that I have suggested.

Article 4 then has to be translated into the terms and concepts of domestic law. That is done in Regulation 8. Regulation 8(1) says, as we have seen, that where the reason for dismissal is only the transfer, such a dismissal shall be unfair. That provision, making such a dismissal automatically unfair and therefore the subject of compensation, does in fact go further than the requirements of Article 4. But of course, as Mr Linden rightly emphasised when this point was raised, that does not in any way undermine Regulation 8(1). That is because this extension, as it seems to me, of the basic protection that might be drawn from Article 4 itself, is well in line with the objectives and vires of the Directive. It is however, in my judgement, a separate provision of the rules of English domestic law not imposed directly by the Directive, but still binding of course on this court as a piece of domestic legislation.

Regulation 8 goes on to say by regulation 8(2) that in any other case, other than that addressed by 8(1), an employer can only assert his normal rights, of course against the background that the transfer does not interrupt the continuity of his employment. That that is so seems to me to be demonstrated by a passage at the end of the speech of Lord Templeman in Litster & ors. v. Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 547 at page 558, where having referred to protection of the Regulations Lord Templeman concluded by saying:

"It would, of course, still be open for a new owner to show that the employee had been dismissed for 'an economic, technical or organisational reason entailing changes in the workforce,' but no such reason could be advanced in the present case where there was no complaint against the workers, they were not redundant and there were no relevant reasons entailing changes in the workforce."

It is suggested in argument that that approach to the Regulations may reduce the rights that the employee otherwise was entitled to under the provisions of the Directive. But that is not so. The Directive does not create new rights for the employee but only ensures that a transfer of the undertaking employing him does not destroy his existing rights. That is made quite clear in the speech of Lord Slynn of Hadley in Wilson & Ors v. St Helens Borough Council [1998] 3 WLR 1070, in two passages at page 1087G, where Lord Slynn said, having referred to a number of authorities in the Court of Justice, including several that have been ventilated in this case:

"In my opinion, the overriding emphasis in the Court of Justice's judgments is that the existing rights of employees are to be safeguarded if there is a transfer. That means no more and no less than that the employee can look to the transferee to perform those obligations which the employee could have enforced against the transferor. The employer, be he transferor or transferee, cannot use the transfer as a justification for dismissal, but if he does dismiss it is a question for national law as to what those rights are."

Then reinforcing the position of the Directive at page 1088A, Lord Slynn said:

"The object and purpose of the Directive is to ensure in all member states that on a transfer an employee has against the transferee the rights and remedies which he would have had had against the original employer. To that extent he reduces the differences which may exist in the event of a change of employers as to the enforcement by employees of existing rights. They must all provide for enforcement against the transferee of rights existing against the transferor at the time of transfer. It seems to me that the court has clearly recognised that the precise rights to be transferred depend on national law. But neither the Regulations nor the Directive nor the jurisprudence of the court create a Community law right to continue employment which does not exist under national law."

We in this case therefore turn to the interpretation of Regulation 8(2). In transmitting the requirements of the Directive into national law, the draftsman of Regulation 8(2) took the course of repeating the wording to be found in the second limb of Article 4(1) of the Directive by its reference to "economic, technical or organisational reasons entailing changes in the workforce". Fully appreciating the difficulties of the task, I nonetheless respectfully think that that has caused a certain amount of difficulty in the cases. This case was put to us as a case which turned on the interpretation of the word "economic" in Regulation 8(2), and there has undoubtedly been a tendency in the cases to direct what I will call English style analysis of words such as "economic" as if they were simply a word in a piece of English domestic legislation, when in truth their origin is in the much broader concept set out in the Directive.

That difficulty is to be seen in one of the early cases of which a great deal was made in this case, Wheeler v. Patel [1987] ICR 631. As far as I can see, there was no reference at all in that case to the terms of, or even the existence of, the Directive. If such reference had been made, it would in my view have been a great deal easier for the court to reach the conclusion that it did that the reason for dismissal must be related to the conduct of the business and a dismissal that is simply related to the sale of the business does not so qualify. In reaching that analysis, the Employment Appeal Tribunal rejected the literalistic interpretation of the word "economic" which, if adopted, would very plainly have been inconsistent with the terms of Article 4 of the Directive.

Mr Linden said that he was content to adopt that formulation in Wheeler v. Patel as the basis on which the present appeal should proceed. I am equally content to do that, though I should not necessarily be thought as accepting that the formulation of Scott J in that case (helpful though it is) is to be treated as some sort of statutory mantra that solves all problems under the Regulations.

However, approaching the findings of the Industrial Tribunal in the light of that analysis, one turns to paragraph 8 of that ruling. The tribunal says:

"... as part of the negotiation [for the new contract] it was specified by the hospital that Blatchfords would have to reduce their charges by cutting the number of technicians employed at the Disablement Service Centre from 13 to 12."

That is to say, the conduct of the business would in future be require to be performed by 12 people not 13. It was the hospital that imposed that requirement. In the circumstances of this case, where as we have seen the undertaking is the performance of the counterparty to the hospital's contract, the limits of that undertaking and therefore its requirements had been defined for the future by the hospital. In effect, the undertaking had been, and the business had been, reconfigured. That plainly related to the conduct of the business. Applying the test in Wheeler v. Patel , that in my judgement is the end of this case.

Further, and as a quite separate point, there was no evidence before the tribunal and absolutely no reason to think that the hospital's requirement would apply only if it was Blatchford who was the new contractor. The tribunal said at paragraph 12:

"We accept that it was a condition of the contract with the Northern General Hospital that the new contractor should reduce the contract price by reducing the numbers of technicians. We accept that if Blatchfords had not offered to do this they would not have obtained the contract."

I interpose to say that since plainly the hospital needed to contract with someone, that obligation (reconfiguration of the business) would have applied if it had been Stubbs simply carrying on. Any contractor would have had to make the provision that Blatchford was required to make. There is, therefore, absolutely no reason at all to think that the reduction in the number of technicians was because of the transfer. The opportunity for the hospital to require the reduction in number of technicians no doubt arose because the previous contract had ended. But that would have been the case whoever continued to hold the contract in the future.

So even on a literal interpretation of Regulation 8(1), the transfer, whether it can be regarded as a transfer directly between Stubbs and Blatchford or as a transfer with the interposition of Northern General, was not the reason for Mr Whitehouse's dismissal. At the most it was the occasion of it.

It will therefore be seen from what I have said that I entirely agree with the analysis of this case set out in the numbered paragraphs at the end of the judgment that my Lord has just delivered. For the reasons that he gave, added to what I have attempted to say myself, I also would dismiss this appeal.

MR JUSTICE JONATHAN PARKER: As I read the findings of the Industrial Tribunal in this case, the reason for Mr Whitehouse's dismissal related, as Mr Linden submitted, to the future conduct of the business in the hands of Blatchfords, and in particular to the need to reduce the future running costs of the business in the face of reduced annual funding available from the health authority. The reason for the dismissal accordingly falls within the limited meaning given to the word "economic" in Regulation 8(2) by the Employment Appeal Tribunal in Wheeler v. Patel (supra).

In any event, the restrictive construction of Regulation 8(2) for which Mr Langstaff contends cannot, in my judgment, be justified by reference to the purposive approach described and applied by the House of Lords in Litster (supra). I accept Mr Linden's submission, based on the decisions of the European Court in the case of Ny Mølle Kro and Daddy's Dance Hall , and also in the case of Rask [1992] ECR I-5755, that the purpose of the Council Directive is to safeguard the rights of employees, vis-a-vis their employers, where an undertaking or business is transferred, but not to place employees in any better position vis-a-vis their employers by virtue of such a transfer.

As I understand Mr Langstaff's argument it would (if it were right) mean that by reason of the transfer Mr Whitehouse is placed in a better position vis-a-vis Blatchfords than he would have been in had no transfer taken place in that he would be in a position to challenge the reason for his redundancy, a course which is not open to him under domestic law: see the Employment Rights Act 1996, section 139(1) and (6). In my judgment, such a result would not accord with the purposes of the Directive, and hence of the domestic legislation which enacts it.

For those reasons, therefore, and those given by my Lords, I too would dismiss this appeal.

ORDER: Appeal dismissed with costs; leave to appeal to the House of Lords refused.