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 THE EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice Strand London, WC2 Wednesday, 6 November 2002

Introduction

1. LORD JUSTICE MUMMERY: This is an appeal against the decision of the Employment Appeal Tribunal on 23 January 2001. The appeal tribunal dismissed the appeal by Mr A J Matthews from the decision of the Employment Tribunal as set out and explained in the extended reasons sent to the parties on 1 December 1999. The Employment Tribunal held that Mr Matthews was liable to pay to three former employees in his business - and I shall refer to them collectively as "the applicants" - statutory redundancy payments totalling £7,870 and notice pay totalling £4,751, which was awarded as damages for wrongful dismissal in giving short notice of dismissal.
2. The appeal raises a novel point on the application of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE"). It is contended by Mr Matthews that there was a transfer of an undertaking by him to all three of his employees in his undertaking after he had given each of them notice of dismissal on the ground that the business, which was in financial difficulties, was to be discontinued. The result of the alleged transfer by Mr Matthews to the applicants was that there were no longer any employees left in the undertaking alleged to have been transferred. All the applicants became self-employed conducting their own business.

Outline of Facts

3. The facts in outline are that Mr Matthews employed each of the applicants in the car body shop business carried on by him in Bognor Regis. He traded as Anton Motors. Mr Smith and Mr Gustar, two of the applicants, were panel beaters and Mr Ide, the third applicant, was a paint sprayer. On 14 May 1999 Mr Matthews wrote to each of the applicants in the same terms. I shall take by way of example the letter which he wrote to Mr Gustar. He said:

"Dear Garry,

I regretfully have to inform you that as from the 28 May 1999, this business will be discontinued, and therefore I have to issue you with 2 weeks official notice as from 14 May 1999."

That was the letter of dismissal. It is agreed by the parties that it could not be unilaterally withdrawn by Mr Matthews. In the absence of any subsequent agreement or subsequent operative event, the applicants remained employees in the undertaking down to 28 May 1999. They would then be dismissed on the expiration of the period of notice.

4. On about 27 or 28 May 1999 an agreement was reached between the applicants and Mr Matthews to take over the premises of the business by way of rental. As from 2nd June 1999 the applicants commenced to carry on a similar business from those premises, paying to Mr Matthews the sum of £350 per week, which also covered the use of plant, fixtures and fittings and electrical equipment. It does not appear that any papers, books of account or client lists were made available by Mr Matthews to the applicants. The only document relating to the agreement made between Mr Matthews and the applicants is one dated 2 June 1999 which, on the cover sheet, is stated to be a licence to occupy relating to premises at Shripney Road, Bognor Regis. No copy of this document was available to the Employment Tribunal, but one has since been found. Despite what is said on the cover sheet, the document begins:

"This tenancy agreement is made the 2 June [1999] between ..... "

and the parties are Mr Matthews and the three applicants.

5. It is then clear from clause 1.5 that the use permitted by the agreement was for a motor vehicle repair workshop at the Shripney Road premises in Bognor Regis. The rent is stated to be the amount already mentioned. Clause 2 provides that Mr Matthews lets the premises to the three applicants, described collectively as the tenant, on a tenancy at will beginning on the date of the agreement. Clause 3.3 provides that -

"Neither the payment of any rent nor any demand for payment of it nor the fact that the amount of the rent is calculated by reference to a period is to create or cause the tenancy to become a periodic tenancy."

6. On 28 May 1999 Mr Matthews had paid to each of the applicants his wages to date and also sums for holiday pay. Each of them was issued with the tax form P45. The Employment Tribunal decision records that Mr Matthews told them he did not have the funds to make redundancy payments.

The Proceedings

7. It was in those circumstances that each of the applicants started proceedings in the Employment Tribunal. I need only refer to the originating application of Mr Gustar to see how the claims were put. He claimed redundancy pay, holiday pay and notice pay. He gave as the dates of his employment 1 July 1977 to 28 May 1999. He stated his job for Mr Matthews, who he named as his employer, as being that of a panel beater. He gave details of his earnings. He stated in the details of his complaint, in box 11 of the IT1 form:

"After working in the same job for 22 years I was only given two weeks notice no redundancy pay. I have made a claim for redundancy pay from the DTI. Stonham & Co have stalled our efforts to make this claim. They are in receipt of our claim forms which were sent by DTI Redundancy Payments Office."

The claims of the other two were, apart from the details of the remuneration and periods of pay, in substantially the same form.

8. Mr Matthews entered a notice of appearance to each originating application in very much the same terms. I take his response to Mr Gustar's application. In the particulars of the grounds on which he stated he intended to resist the application, Mr Matthews first stated the case that he was intending to make on holiday pay. There is no need to refer to that, as the claims for holiday pay were withdrawn. He said in paragraph 2 - and this appears to be a document he completed without legal advice, though he did have a lay representative who appeared as a McKenzie Friend at the subsequent hearing - of the IT3 form:

"In respect of redundancy payments the applicant in association with two other employees were offered the alternative of either (a) accepting dismissal and finding employment elsewhere or (b) taking over the business including current client list but not any outstanding debts and paying a licence fee for the use of equipment and buildings. The applicant after discussion opted to take on the business. No payment was made in respect of goodwill, or purchase of client lists."

Decision of Employment Tribunal

9. At the hearing in the Employment Tribunal the applicants were represented by counsel. Mr Matthews appeared in person, with his McKenzie Friend to assist him. Mr Matthews gave evidence. So did the three applicants. The Employment Tribunal concluded that the applicants had been dismissed, saying that that was clear from the letter of 14 May 1999. I quote from paragraph 12 of the extended reasons:

"In this case there is no doubt that each of the applicants was dismissed. This is clearly the case from the letters of dismissal giving the applicants two weeks notice. The further question then is whether these dismissals were at the time of an alleged transfer of undertaking of the respondent's business to the applicants. The applicants' case was that their dismissals occurred before the commencement of negotiations for the alleged transfer. Were that to be the case it would be seriously doubtful whether the dismissals had anything to do with an impending transfer particularly in the light of the content of the dismissal letters."

They then said in paragraph 13 that they had to resolve a conflict of evidence as to whether or not negotiations which gave rise to the licence agreement took place before the letters of dismissal. The tribunal found that prior to the dismissal letters being sent, that is 14 May 1999, there were discussions as to whether the applicants might be interested to take over the business, and they said they were not, as the business was run down and in financial difficulties. But, the tribunal held, there were no negotiations prior to the date of the dismissal letter; Mr Matthews' evidence that there were was not accepted by the tribunal. The tribunal had referred earlier in the extended reasons to the presumption that the dismissals were due to redundancy. In paragraph 9 of the extended reasons they said:

"By virtue of Section 163 (2) of the Employment Rights Act 1996 where any question arises as to the right of an employee to a redundancy payment, the employee who has been dismissed by his employer shall, unless the contrary is proved, be presumed to have been so dismissed by reason of redundancy.

It is for the employer to rebut such a presumption. If the employer wishes to establish that there was no redundancy situation, that presumption must be rebutted either by proving that there is no redundancy, or by showing that the dismissal was not wholly or mainly by reason of it."

10. The tribunal then stated their conclusion in relation to the reason for the dismissal in paragraph 14 of the extended reasons:

"We find that the respondent has not succeeded in rebutting the presumption that the dismissals of the applicants were due to redundancy. As is conceded by both representatives, it is unnecessary for us to decide whether there was or was not a transfer of undertaking because our conclusion is that even if there had been, this was subsequent to and divorced from the dismissals for redundancy. Neither the alleged transfer nor any reason connected with it constituted a reason for the dismissals."

11. It is clear from the extended reasons that the Employment Tribunal reached the conclusion that there was a dismissal of the applicants for redundancy by focusing on two matters only. First, the question whether the applicants had been dismissed and, secondly, if they were, what was the reason for the dismissal. That is clear from paragraph 8 of the extended reasons where the tribunal said this:

"Accordingly, in relation to the applicants' redundancy claims it was necessary for the tribunal to ascertain whether the applicants had been dismissed and, if they were, what were the reasons for their dismissals. Did the dismissals come about because of the redundancy, or was it a case of a transfer of an undertaking being the reason or the principal reason for the dismissals with the result that the applicants, as transferees of the business, would have become in effect responsible for their own redundancy payments?"

As noted from paragraph 14 of the extended reasons, the Employment Tribunal had expressly stated - they recorded by way of concession of the representatives - that it was unnecessary to decide whether or not there was a transfer of an undertaking.

12. The consequence of that approach was that there were no express findings of fact or conclusions reached by the Employment Tribunal as to whether or not there was a transfer of an undertaking and, if there was, how and when it was effected and on what terms. There were simply no findings by the tribunal as to what had happened between the parties in the crucial period between the giving of the notice of the dismissal on 14 May and the commencement of the business by the applicants on 2 June, save, as already mentioned, a transaction had been agreed on or about 27 or 28 May between the applicants and respondents that the applicants would take over the premises "where they had worked by way of rental" (I quote there from paragraph 7 of the extended reasons).

The Employment Appeal Tribunal

13. Having lost in the Employment Tribunal on that basis, Mr Matthews appealed to the Employment Appeal Tribunal. On that appeal he was represented by a solicitor, Mr Malone. I need only refer to two passages in the judgment of the Employment Appeal Tribunal, given by Mr Recorder Underhill QC, relevant to the grounds on which they dismissed Mr Matthews' appeal. First, in paragraph 6 the appeal tribunal set out their approach to the issue raised by the case. The relevant part I refer to is in paragraph 6 (4) where they state their conclusion:

"We therefore reach the conclusion, first, that these were dismissals for redundancy within the meaning of the 1996 Act; and, secondly, that the liability for those dismissals remained with Mr Matthews, as the employer who had carried out the dismissals, and did not transfer to the employees under the Regulations."

In paragraph 8, having referred to certain submissions made by Mr Malone on Mr Matthews' behalf, the appeal tribunal said:

"It also follows that the tribunal was entirely justified in deciding that it did not need to proceed to consider whether the arrangements between Mr Matthews and the employees amounted to the transfer of an undertaking (see paragraph 14 of the reasons)."

TUPE Regulations

14. Before I refer to the submissions made on this appeal I should refer to the relevant parts of the TUPE Regulations 1981, which feature in the submissions to this court. As is well known, the Regulations were made in order to implement a European Community Directive relating to business transfers and the protection of employees on such transfers. Regulation 3 relates to relevant transfers and states:

"(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."

The most crucial provisions in the Regulations for the present case are contained in Regulation 5 which concern the effect of a relevant transfer on contracts of employment. Regulation 5 (1) reads:

"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.

(2) 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 ..... shall be deemed to have been done by or in relation to the transferee.

(3) Any reference in paragraph (10 or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions."

The Submissions

15. On this appeal it was common ground that the issue for this court is whether a question of law arises from the decision of the Employment Tribunal. Both Miss Eady, who appeared for Mr Matthews, and Miss O'Rourke, who appeared for the applicants, have argued on this appeal on a pro bono basis. In so doing they have upheld the finest traditions of advocacy. They have greatly assisted the court by excellent skeleton arguments and by their helpful responses to questions from the court arising out of the rather unusual circumstances of this case. Both of them concur with the Employment Appeal Tribunal in regarding the reasoning and legal analysis in the extended reasons of the Employment Tribunal as unfortunately worded. They could certainly have been more clearly articulated in certain respects. I agree with that criticism, but bearing in mind that the Employment Tribunal did not have the advantage that this court has had of experienced and specialist advocates on each side presenting the case.

The Applicant's Submission

16. On behalf of the applicants Miss O'Rourke contended that there as no error of law in the extended reasons of the Employment Tribunal. On a fair reading of their decision as a whole, it was clear, she submitted, that the Employment Tribunal had rejected Mr Matthews' main case as advanced in his IT3 that the applicants were offered the alternative of either accepting dismissal and finding employment elsewhere, or taking over the business. In the view of the tribunal, the applicants had opted for the benefits of the latter, but had not relinquished the benefits of dismissal and the redundancy and notice payments. She submitted that the Employment Tribunal had clearly found that the applicants had been dismissed on 28 May 1999 on expiration of the 14 days' notice given in the letter of 14 May and that the reason for their dismissal was redundancy.
17. As for the transfer point, that is the taking over the business as an alternative to accepting dismissals, the Employment Tribunal had rejected that in their finding that there had been an effective dismissal on 28 May, and in their conclusion that Mr Matthews had not succeeded in rebutting the presumption that the dismissals were due to redundancy. The Employment Tribunal had rejected the transfer of the business as the reason for the dismissals. They had accepted the evidence of the applicants that there were no negotiations prior to the dismissal letters. They had not accepted the evidence of Mr Matthews that the negotiations for the transfer of the business had taken place with the applicants four to five weeks prior to the termination of their respective contracts of employment.
18. As to the take over of the business, the Employment Tribunal found that the applicants were dismissed on 28 May, but they had not commenced the business at the premises until 2 June, that being the date of the written licence agreement. There was a five-day gap. If the applicants were dismissed effectively on 28 May, and did not commence business on their own account until 2 June, it could not be said they had been employed in the undertaking immediately before the transfer.
19. Miss O'Rourke also made points on the allegation of transfer by Mr Matthews, pointing out that there had been no transfer of employees, client lists, papers, books of account and so on. It was simply a case of carrying on in the same premises. So, she submitted, the contention of a transfer of an undertaking had been dealt with by the tribunal. There was no question of Regulation 5 of TUPE having application.
20. The difficulty I have with these submissions, though they have been forcefully and persuasively advanced, is that the tribunal expressly stated in paragraph 14 of their reasons that it was not necessary for them to decide whether or not there was a transfer of an undertaking for the reasons they stated and by reference to a supposed concession by the legal representatives.

Conclusion

21. In my judgment, the tribunal were in error of law in stating it was unnecessary for them to decide the transfer question. The express statement made by the tribunal is impossible to reconcile with Miss O'Rourke's submissions that the Employment Tribunal had addressed the relevant issues arising from the way in which Mr Matthews had put his case in his IT3 and from the contention that the provisions of Regulation 5 of TUPE applied.
22. To repeat, Mr Matthews' case in brief was that the applicants were offered a choice of going, or staying on a different basis, and that they accepted the alternative of staying and on the terms which he said had been agreed.
23. In order to reject Mr Matthews' case the tribunal had to examine whether there was a transfer of an undertaking and, if so, whether the transfer was effected under TUPE and at what date and on what terms. On one possible view of the case raised by Mr Matthews there were no dismissals at all: an agreement was reached on the alternative to stay and not accept the dismissals, and to go. On another possible view the applicants were dismissed, but the dismissals were preceded by a transfer to which Regulation 5 applied, and so that the applicants were, immediately before the transfer, still in employment in the undertaking. The Employment Tribunal simply did not address - because they expressly said it was unnecessary for them to do so - the question whether a transfer took place and, if so, when and how it was effected and what effect, if any, the application of Regulation 5 would have.
24. I would point out that on the findings made by the tribunal a transfer of an undertaking before the dismissal could take effect by reason of the statement in paragraph 7 of the extended reasons, that a transaction was agreed between the applicants and Mr Matthews on or about 27 or 28 May. This opens up the possibility - which the Employment Tribunal expressly did not consider - of the application of Regulation 5 (3), which refers to a transfer being directly effected by a series of two or more transactions, in which case protection of the Regulations applies to a person employed in the undertaking immediately before any of those transactions.

The Result

25. In brief, as the Employment Tribunal stated that it was unnecessary to decide the transfer of undertaking point, it failed to address issues of fact and law which ought to have been addressed. That was an error of law, because the result was that the determination of the case advanced by Mr Matthews in his defence was incomplete. As findings of fact on relevant issues have not been made, it is impossible for this court to reach a final determination of the applicants' claims.
26. It follows that the appeal must be allowed. The whole matter, on both liability and quantum, must be remitted for re-hearing by a differently constituted tribunal. This is very regrettable. Three years have now passed since the relevant events and the facts surrounding them have still not been established. So the claims remain unresolved. As there has to be a re-hearing in the Employment Tribunal, it would be unwise in this court to express any view on the merits or say any more about the likely outcome of the claims.

The Remitted Hearing

27. It may assist the tribunal and the parties' representatives if I were to indicate in outline what appear to be the main points on which the Employment Tribunal will need to hear evidence and submissions. The essential inquiry by the Employment Tribunal will be into what actually happened between the applicants and Mr Matthews in the period following the letter of 14 May 1999 and the commencement of the business by the applicants at the premises on 2 June 1999.
28. I deal first with the offer alleged in Mr Matthews' IT3. The question will be: did Mr Matthews offer to each of the applicants the alternative of either accepting dismissal and finding employment elsewhere or taking over the business on the terms stated by him. If he did in fact make such an offer, the tribunal will then have to consider whether each of the applicants accepted it by making a choice of one or other of the alternatives. So, for example, if the applicants accepted the second alternative there will, Mr Matthews contends, be no dismissal and so no liability can arise on his part for redundancy payments or damages for wrongful dismissal by giving short notice.
29. I turn next to the transfer point. Even if the Employment Tribunal were to find that no such offer had been made by Mr Matthews, or found that an offer was made but not accepted as contended by him, the question will remain for decision by the tribunal whether there was a transfer of the undertaking of Anton Motors, or part of that undertaking, to the applicants. If there was a transfer then, as Mr Matthews contends, he may not be liable to make the redundancy payments or to pay damages for wrongful dismissal, because the liabilities for those sums will have been transferred over to the applicants by virtue of the application of Regulation 5 (2) of TUPE. The liabilities of Mr Matthews would be transferred to the applicants and would thereby be discharged, as they were no longer employees in their own business. In order to decide the transfer of undertaking point, it will be necessary for the Employment Tribunal to examine in detail the events in the period between 14 May and 2 June. In deciding whether there has been a transfer the Employment Tribunal will have to decide how and when the alleged transfer was effected and on what terms. If the dismissals occurred on 28 May pursuant to the terms of the letter, and they were not withdrawn as the result of the relevant acceptance of the offer allegedly made by Mr Matthews, the timing of the alleged transfer will be crucial, bearing in mind Regulation 5 (3). For example, if a transfer was effected by two or more transactions, it will be necessary to identify what they are and, crucially, when they took place, for the purposes of determining the issue whether the applicants were employed in the undertaking immediately before the transfer.
30. Finally, I add that at the hearing of the appeal the parties cited authorities relevant to Regulation 5. It would not be appropriate to discuss the possible relevance of these authorities in this judgment in advance of knowing what the facts found by the Employment Tribunal will be.
31. There was also a debate at this hearing reflecting the argument set out in the skeleton arguments about the possible application of Regulation 8 (1) and (2) of TUPE. There was reference to a decision of the House of Lords in Litster v Forth Dry Dock Engineering Company Ltd [1990] 1 AC 546. At the end of the debate there was no serious disagreement between Miss Eady and Miss O'Rourke about the correct analysis of the positions relating to those Regulations. All I would say at this stage is that, as at presently advised, it appears unlikely that that arguments on Regulation 8 (1) and (2) will have any relevance to the issues the Employment Tribunal will decide at the remitted hearing.
32. For all these reasons I would allow this appeal and remit the matter for re-hearing before a differently constituted employment tribunal. In the light of submissions that we have already heard on costs, I would direct that there be no order as to costs.
33. LORD JUSTICE RIX: I agree.
34. LORD JUSTICE JUDGE: I also agree. The Employment Tribunal failed adequately to grasp the fact that although notice given to the present respondents was given on 14 May, it did not expire until 28 May, so their employments with the appellant were not due to terminate until that later day. The agreement which led the respondents to take over the appellant's place of business was reached on 27 or 28 May, and on 2 June they took physical possession of the premises. Accordingly, it was necessary for the Employment Tribunal closely to examine whether, within the context of Regulation 5 (3) of TUPE the business was transferred to the respondents while their employment was still continuing. This issue was not sufficiently addressed.
35. I agree with the judgment of Lord Justice Mummery and the orders that he has proposed.
36. I also expressly associate myself with his observations about the indebtedness of the court and the litigants in this case to counsel on each side.
Order: Appeal allowed with no costs.