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 AN EMPLOYMENT APPEAL TRIBUNAL
(His Honour Judge A Wilkie QC)

		Royal Courts of Justice Strand London WC2
		10th May 2002

1. LORD JUSTICE PETER GIBSON: These two appeals raise the question whether an employee who is to be employed on different terms on the transfer of an undertaking to a new employer can claim to have been constructively dismissed by reason of a substantial change in his working conditions to his detriment even if the employer's actions complained of do not constitute a breach of contract. In Rossiter v Pendragon Plc ("the Rossiter case") that is the main point in the appeal. In Crosby-Clarke v Air Foyle Ltd ("the Crosby-Clarke case") other questions turning on the particular circumstances of the case are also raised.

2. In the Rossiter case Norman Rossiter had been employed in Maidenhead as a car salesman from March 1992, first by Target Ford, and, when that company was taken over by Lex Service, later by Lex Ford. In January 1997 Mr Rossiter was promoted to New Car Sales Team Leader. His annual salary in April 1997 was £17,500 and he benefited from a commission scheme which his employer introduced that year, but the employer reserved the right to amend or withdraw the scheme at any time without notice. On 1st October 1997 Lex Ford was acquired by Pendragon Plc ("Pendragon") and it is not in dispute that the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE") applied to the acquisition.

3. After the transfer Mr Rossiter's title became New Car Sales Executive, but there was no material change in his role or responsibilities or his basic pay. In March 1998 Pendragon revised the commission scheme. The revised scheme was substantially less beneficial to employees like Mr Rossiter. Mr Rossiter refused to sign a new agreement incorporating revised terms of employment which it issued in March 1998 but, nevertheless, Pendragon implemented the terms of that agreement. Mr Rossiter complained that there were a number of changes in his working conditions of which the most significant was the loss of commission amounting to about £3,000 a year. After correspondence between his solicitors and Pendragon in January 1999 and a meeting between Mr Rossiter and a senior manager, on 15th February 1999 Mr Rossiter handed the senior manager a letter, saying that his position had become untenable and he was tendering his resignation.

4. Mr Rossiter applied to an Employment Tribunal ("ET") on 7th May 1999 complaining of unfair dismissal. In his originating application he alleged a fundamental breach of contract by Pendragon which repudiation he accepted. He said that the dismissal was connected with the transfer of Target Ford's undertaking and therefore automatically unfair. Pendragon opposed the application, saying that Mr Rossiter had resigned voluntarily.

5. The ET sitting at Reading, by a decision sent to the parties on 10th February 1999, agreed with Pendragon. They held that Mr Rossiter was not constructively dismissed under the Employment Rights Act 1996 ("the Act") or under TUPE but had resigned voluntarily. They held that the right to claim constructive dismissal could only arise if there had been a dismissal following upon breaches of contract and expressed the view that if there had been no breaches of contract, no cause of action could arise in respect of constructive dismissal under the Act, nor could there be an automatically unfair dismissal under Regulation 8(1) of TUPE. They said that in respect of unfair dismissal under the Act and dismissal under TUPE it must be a condition precedent that there should be a dismissal. They pointed out that 16 months had elapsed since the transfer and before the cessation of employment. They found that Pendragon had not committed any breach of contract and that nothing was done by Pendragon that could not have been done quite properly by Lex Ford. They also found that the changes made did not amount to substantial changes in Mr Rossiter's working conditions to his detriment. They further found that Mr Rossiter clearly affirmed the contract by continuing to work after 1st March 1998. They also considered whether Pendragon's actions cumulatively amounted to a breach of its implied obligation of trust and confidence, but they held that they did not. They concluded that there was no repudiation by Pendragon of the contract and no constructive dismissal.

6. Mr Rossiter appealed to the Employment Appeal Tribunal ("the EAT"). The EAT (His Honour Judge Wilkie QC presiding) in a judgment now reported at [2001] IRLR 256 disagreed with the ET on one point of law, holding that under TUPE in the context of a transfer of an undertaking there is no requirement that there be a breach of contract in order to give rise to an entitlement to resign and claim constructive dismissal. The EAT said that in the case of a transfer of an undertaking, an employee who suffers a substantial change in his working conditions to his detriment has a right to claim constructive dismissal, even if the employer's actions, the subject of complaint, do not constitute a breach of contract. But they dismissed Mr Rossiter's appeal against the findings of the ET that there had been no breaches of contract. The EAT remitted the case to a differently constituted ET to consider the matter on the test which they had indicated was the correct basis under TUPE. In so doing the EAT did not address the fact that the ET had expressly found that the changes did not amount to substantial changes in Mr Rossiter's working conditions to his detriment. Nor did they address the finding that Mr Rossiter had clearly affirmed the contract.

7. The EAT refused permission to appeal to this court, but Sir Philip Otton, considering the application on paper, granted permission. After skeleton arguments had been filed by both sides, Mr Rossiter indicated through his solicitors that he had reluctantly decided to abandon his defence of Pendragon's appeal, and so he has taken no part at the hearing of the appeal. We gave Mr Ian Wright, appearing for Pendragon, permission to amend his grounds of appeal to raise the points not addressed by the EAT to which I have already referred.

8. In the Crosby-Clarke case, David Crosby-Clarke was employed by Air Foyle Ltd ("Air Foyle") as an airline pilot on 21st November 1988 until his resignation on 30th April 2000. Air Foyle carried on business as an air operator and air cargo charter broker, operating first from Luton Airport and later from Stansted Airport. The vast majority of its business involved flying freight for TNT Express Worldwide (UK) Ltd ("TNT UK"), which in 1998 decided to move the hub of its European operations from Germany to Liege in Belgium and to set up a Belgian company, TNT Airways SA ("TNT SA"), which would operate from Liege and take over the operation run by Air Foyle. This involved TNT obtaining an air operator's certificate in Belgium and taking over the planes and those pilots who flew the planes and who wished their employment to be transferred.

9. Mr Crosby-Clarke was born on 5th June 1941. By the end of his employment he had been promoted to Captain and was earning approximately £69,000 per annum. He had a written contract of employment into which he entered on 5th November 1988 and which contained detailed provisions, governing, amongst other things, mobility, hours of duty and flight time limitations ("FTLs").

10. At the end of 1998 Air Foyle knew that TNT UK would not be renewing its contract expiring on 3rd May 2000 with Air Foyle. All pilots were sent a memorandum stating that there would be a transfer on 1st May 2000 of the TNT UK operation under TUPE. Thereafter, considerable information was passed to the pilots concerning the proposed transfer. There was also correspondence between Mr Crosby-Clarke and Air Foyle over a number of concerns of his. TNT SA intended to put transferring pilots under new contracts, and the final version of the draft contract was sent to Mr Crosby-Clarke on 22nd March 2000. This differed from Mr Crosby-Clarke's existing contract in a number of respects including the FTLs which accorded with the requirements of Belgian law. In particular, whereas under the FTLs applicable to Air Foyle, with its principal base of business in the UK, not more than three consecutive flight duties could be imposed by the employer of the employees, nor more than four such duties in any seven consecutive days, under the Belgian FTLs the maximum period of time without a day off was 11 days.

11. On 7th April 2000 Mr Crosby-Clarke wrote to Air Foyle stating that the proposed changes to his contract were substantially to his detriment, and that he was entitled to treat the compulsory transfer of his contract on 1st May 2000 as constructive dismissal. After correspondence and a meeting, Mr Crosby-Clarke on 29th April 2000 wrote to Air Foyle stating that it was totally out of the question that he would be prepared to operate the Belgian FTLs. He would treat his contract as at an end from 30th April 2000, and he confirmed his intentions to claim for constructive dismissal. On 2nd May 2000 Air Foyle wrote to Mr Crosby-Clarke accepting his resignation.

12. Mr Crosby-Clarke applied to an ET on 19th June 2000, complaining of "unfair dismissal/breach of contract" (i.e. complaining in the alternative of wrongful dismissal) and claiming compensation for unfair constructive dismissal and/or damages for breach of contract. Air Foyle resisted the application, asserting that any changes in the terms of Mr Crosby-Clarke's employment by the proposed new contract of TNT SA were permitted by his existing contract and were not a substantial change in his working conditions to his detriment and that he was not dismissed, whether constructively or otherwise.

13. An ET, sitting at Stratford, by a decision sent to the parties on 7th March 2001 held that Mr Crosby-Clarke was wrongfully and unfairly dismissed. They rejected Mr Crosby-Clarke's complaints that some changes were detrimental changes to his working conditions, but in relation to FTLs they agreed that there was a substantial change in his working conditions to his detriment, and they held that this entitled him to resign in circumstances where he could be required to fly on more than three times as many consecutive nights as before. They further concluded that this change amounted to a significant breach, going to the root of the contract.

14. On appeal by Air Foyle to the EAT, the EAT (Her Honour Judge Anne Wakefield presiding) on 3rd October 2001 at a preliminary hearing dismissed the appeal without, we are told, giving a judgment, though granting permission to appeal to this court. The reason for this unusual way of dealing with an appeal would appear from the written reason given by the judge for the EAT's decision to grant permission:

"This appeal would have been allowed to proceed to a full hearing but for the decision in Rossiter v Pendragon [EAT] currently listed for hearing in the [Court of Appeal]".

15. I feel bound to comment that it would have been more helpful to have had a clearer indication of the views of the EAT, when it was not necessarily bound to follow the decision of the earlier EAT and when the point decided by the earlier EAT was not the only point in the appeal.

16. I turn now to the applicable law.

17. In Part X of the Act, section 94 gives an employee the right not to be unfairly dismissed by his employer.

18. In section 95(1) the only three methods of dismissal of an employee by his employer which apply for the purposes of Part X of the Act include:

"(c) the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct."

19. It is well established that an employee is entitled to terminate his contract of employment without notice by reason of the employer's conduct if:

(1) the employer has acted in repudiatory breach of the contract;

(2)the employee accepts the repudiation; and

(3)the employee has not elected to affirm the contract by continuing for any length of time without leaving his employment (see Western Excavating (ECC) Ltd v Sharp [1978] ICR 221).

20. Council Directive 77/187 ("the Directive") was promulgated for the purpose indicated in one of its preambles:

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

21. In Section II, headed "Safeguarding of Employees' Rights", Articles 3 and 4 are to be found. Article 3 provides:

"1.The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee."

22. Article 4 provides, so far as material:

"1.The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee. ...

2.If the contract of employment or the employment relationship is terminated because the transfer involves a substantial change in working conditions to the detriment of the employee, the employer shall be regarded as having been responsible for termination of the contract of employment or of the employment relationship."

23. By TUPE the United Kingdom implemented the Directive. A transfer from one person to another of an undertaking situated immediately before the transfer in the UK falls within the scope of TUPE. Regulation 5 prescribed the effect of a relevant transfer on contracts of employment:

"(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.

(2)Without prejudice to paragraph (1) above, but subject to paragraph 4A below, 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.

...

(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.

(4B) Where an employee so objects the transfer of the undertaking or part in which he is employed shall operate so as to terminate his contract of employment with the transferor but he shall not be treated, for any purpose, as having been dismissed by the transferor.

(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 his working conditions to his detriment; but no such right 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."

24. Regulation 8(1) provides that:

"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 what is Part X of the Act ... as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal."

25. The first point that falls for consideration in the Rossiter case is the point on which the EAT allowed the appeal from the ET, that is to say whether in cases involving a transfer of an undertaking an employee can establish a constructive dismissal by reason of a substantial change in his working conditions to his detriment, even in the absence of a repudiatory or other breach of contract. That point is also relevant to the Crosby-Clarke case, because it is contended by Mr Clayton QC for Mr Crosby-Clarke that if the Tribunal erred in finding that there was constructive dismissal, he was entitled to resign on the basis of a substantial change in his working conditions, even if Air Foyle had not acted in repudiatory breach of contract.

26. Mr Wright for Pendragon and Mr Paul Nicholls for Air Foyle submit that the EAT in the Rossiter case erred. They say that on the true construction of Regulation 5(5) no new right to claim constructive dismissal was created and there is no reason why the test for constructive dismissal should vary depending on whether or not the transfer of an undertaking is involved.

27. It is not in dispute that, where a Directive imposes an obligation on Member States to implement its provisions, the implementing measures must be construed, so far as possible purposively, to give effect to the Directive. The proper starting point for construing Regulation 5(5) is the Directive. In construing the Directive the guidance given by the European Court of Justice in Rask v ISS Kantineservice [1993] IRLR 133, is relevant. The European Court of Justice said at page 136, paragraph 27:

"... the Directive is intended to achieve only partial harmonisation, essentially 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 concerned 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."

28. So too in Collino v Telecom Italia SpA [2002] ICR 38. Advocate General Alber said at page 61, paragraph 93:

"... according to the court's case law the terms of employment may be altered, even to the disadvantage of an employee, if that would have been possible for the transferor too under national law, irrespective of the transfer of the undertaking. Directive 77/187 is intended to protect the employee in his legal relationship with the transferee only to the extent to which he was protected vis-a-vis the transferor under the rules of the member state. It follows that an alteration of the employee's rights by the new employer is permissible to the extent that such an alteration by the transferor would have been possible: Rask ... paras 27 et seq. For if it was possible for the transferor to alter the employee's rights, that possibility cannot be excluded for the future solely by reason of the transfer of the undertaking. The Directive is merely seeking to prevent the transfer as such from being treated as a pretext to worsen the employee's existing position, by reducing or ceasing to grant entitlements already acquired."

29. That guidance strongly suggests that it is unlikely that Article 4(2) is the source of a new right for employees. The structure of Article 4(2) is that if the condition specified in the first part of the Article is satisfied, responsibility for the termination of the contract of employment, or the employment relationship, is allocated to the employer. The wording of the specified condition appears to recognise that a transfer involving a substantial change in working conditions to the detriment of the employee may or may not cause a termination of a contract of employment or employment relationship. That would depend on the domestic law of the Member State. But if it does, the responsibility is imposed on the employer. Mr Clayton submits that Article 4(2) went further. But he in effect rewrites the condition in the Article to provide that a contract of employment or employment relationship is terminable by the employer if the transfer involves a substantial change in working conditions to the detriment of the employee. That is not what the Article says, and if it did it would go beyond safeguarding the rights of employees by conferring a new right.

30. Mr Clayton relies, as did the EAT, on the European Court of Justice's decision in Merckx v Ford Motor Company (Belgium) SA [1997] ICR 352, and in particular the passage at page 370, paragraphs 38 and 39. In paragraph 39 the court said:

"... where the contract of employment or the employment relationship is terminated on account of a change in the level of remuneration awarded to the employee, article 4(2) of the Directive requires the member states to provide that the employer is to be regarded as having been responsible for the termination."

31. The EAT regarded Merckx as justifying reading section 95(1)(c) in a purposive way to comply with the Directive. The EAT said ([2001] IRLR at page 260, paragraph 27):

"The decision of the European Court of Justice in Merckx, in our judgment, is implicitly on the basis that Article 4(2) of the Directive is concerned to place responsibility for termination of a contract of employment or employment relationship on the employer if a transfer of undertakings involves a substantial change in working conditions to the detriment of the employee, and that this is so regardless of whether that change constitutes a breach of contract."

32. Thereby the EAT acknowledges that that was not expressed to be the basis of the decision in Merckx, being only implicit. In my judgment the EAT went too far. Merckx was a case where the whole complaint was of a breach of contract and the remarks of the court must be read in that context. The court said at page 370, paragraph 38, that a change in the level of remuneration awarded to an employee is a substantial change in working conditions within the meaning of Article 4(2), and the court appears to have assumed that such a change would have caused a termination of the contract of employment or employment relationship.

33. When one turns to the language of Regulation 5(5), in my judgment it is made quite clear that no new right was thereby intended to be created. The Regulation preserves rights which arise "apart from these Regulations". The only right to claim constructive dismissal which arises apart from TUPE is the right of the employee to resign when faced with a repudiatory breach of contract by the employer. If there were to be a right to claim constructive dismissal by reason only of a substantial change in working conditions to the employer's detriment, without there being a breach of contract, that would be a new right. That right would not arise apart from TUPE, but only by reason of TUPE. The language of Regulation 5(5) was plainly chosen so as to implement Article 4(2) of the Directive. It was also, in my judgment, intended to be consistent with section 95(1)(c) of the Act. Only conduct by the employer amounting to a repudiation of the contract would entitle the employee to terminate the contract "without notice".

34. The EAT referred to the decision of this court in Humphreys v University of Oxford [2001] ICR 405 as a decision by this court that, where a transfer of an undertaking would involve a substantial and detrimental change in an employee's terms and conditions of employment within the meaning of Regulation 5(5), the employee is entitled to treat his contract as terminated by the employer. With respect, that description of the decision fails to recognise that this court in Humphreys repeatedly said that Regulation 5(5) preserves the common law rights of an employee in respect of a constructive dismissal. There is no acceptance by this court that a new right, additional to the common law right which already existed, was created by TUPE or Article 4(2). On the contrary, as Potter LJ said at page 418, paragraph 31:

"Paragraph 5 [that is of Regulation 5] dealt with article 4 by preserving the rights of an employee arising from the regulation (i.e., all existing common law and statutory rights) to terminate his contract of employment without notice if a substantial change was made in his working conditions to his detriment (i.e., constructive dismissal)."

35. The EAT placed reliance on what was said by this court in Berriman v Delabole Slate Ltd [1985] ICR 546 at page 549, where Browne-Wilkinson LJ said:

"On the transfer of a business, the employees of the transferor become the employees of the transferee. An employee has the right to treat himself as constructively dismissed by any detrimental change in his working conditions (regulation 5(5))."

36. There the Lord Justice was giving by way of background a brief overview of TUPE and the statutory provisions governing constructive dismissal. But there was no issue before the court of constructive dismissal. What the Lord Justice said formed no part of the reasoning for the court's decision on the only point in issue, which was quite different from anything material to the present case.

37. Reliance was also placed by the EAT on remarks made in two unreported EAT cases. In Servicepoint Ltd v Clynes (14th March 1989), Wood J observed obiter, in relation to what Browne-Wilkinson LJ had said in Berriman, that it was interesting to note that reference had been made both to constructive dismissal and Regulation 5(5). Wood J continued:

"It was not necessary for either the decision in Berriman or the decision in this case to equate the wording in Regulation 5(5) with constructive dismissal. It may be that the Regulations should be read as a whole and that where the Regulations have clear wording, then they should be applied, without necessary reference to the principles of constructive dismissal."

38. That is on its face only a tentative expression of opinion. The case is noted in Harvey on Industrial Relations D1/2266, where the editors say of that case that the EAT thought that Regulation 5(5) widened the circumstances in which an employee could leave and claim constructive dismissal. The editors comment:

"It is not clear why that should be so."

39. The EAT, Pill J presiding, in Dabell v Nofotec Ltd (20th February 1992), referred to the obiter remarks of Wood J in the Servicepoint case to Regulation 5(5) and to the remarks of Browne-Wilkinson LJ in Berriman, and expressed themselves as following what they call "the guidance" given by the Lord Justice. The EAT said that the finding of the ET in that case that there was no fundamental breach by the employer entitling the employer to resign suggested that the ET misunderstood the test to be applied under TUPE. I respectfully doubt if Browne-Wilkinson LJ was laying down guidance on the test to be satisfied for Regulation 5(5) to apply, and on this point, in my judgment, Dabell was wrongly decided.

40. The cases therefore relied on by the EAT in the Rossiter case give insubstantial support for the view which they reached. I conclude, after consideration of the Directive and TUPE and section 95(1)(c), as well as the authorities, that the EAT did err in holding that section 95(1)(c) should be construed in a way that enables an employee to claim constructive dismissal where there has been no repudiatory conduct by the employer.

41. In my judgment the test in the Western Excavating case still continues to apply as much to a case involving the transfer of an undertaking as when it does not. In my judgment, therefore, the EAT were wrong to allow the appeal on the ground which they did.

42. I feel bound to add, in acceptance of Mr Wright's additional grounds of appeal, that on the facts found in the case, even if I were wrong about the point of law, it is hard to see how Mr Rossiter could succeed or what purpose was served by remitting the case for a further hearing. The ET's finding that there was no substantial detrimental change to Mr Rossiter's working conditions seems to me one to which in the particular circumstances the ET was entitled to come. Further, the ET was entitled to find on the particular facts that Mr Rossiter had affirmed the contract by remaining in Pendragon's employment 16 months after the transfer.

43. For these reasons, therefore, I for my part would allow Pendragon's appeal, set aside the order of the EAT and restore the decision of the ET.

44. I turn next to the Crosby-Clarke case.

45. Mr Nicholls submits that the ET erred in two respects in holding that Mr Crosby-Clarke had been constructively dismissed:

(1) The ET did not apply the test whether there had been a repudiatory breach of contract, but instead asked the question whether the change in the FTLs was a substantial change in Mr Crosby-Clarke's working conditions to his detriment: see paragraph 30 of the Extended Reasons.

(2) The ET misconstrued the contract.

46. I have already expressed my view of the right test. There is no doubt that the ET did concentrate on the question of a substantial detrimental change to Mr Crosby-Clarke's working conditions. But as I have also noted, the ET concluded in paragraph 31 that the change amounted to a significant breach, going to the root of the contract. True it is that there was no elaboration of that conclusion; but I find it difficult to say that, having considered the changes in working conditions by reference to the terms of the Air Foyle contract and the TNT SA contract, if the ET was right to say that there was a change from what the Air Foyle contract had provided, the ET could not properly conclude that the change amounted to a repudiatory breach.

47. The real question, as it seems to me, is whether the second error for which Mr Nicholls argues is correct. He says that if the ET had applied the right test and asked whether the new contract involved a repudiatory breach, it would have had to conclude that there was no such breach, as otherwise it would have misconstrued the contract. He submits that, just as the Air Foyle contract provides that hours of work are governed by Regulations contained in the Operations Manual and the legislation in force - and that manual sets out provisions derived from the rules laid down by the Civil Aviation Authority in this country - so in the TNT SA contract the hours of duty are governed by regulations contained in the Operations Manual and the legislation applicable to TNT SA; and that manual sets out the minimum legal requirements regarding flight periods and the effect of the governing Belgian rules. He points out that under both contracts the hours are governed by the legislation and the aviation authority rules applicable to the employer, those rules varying according to the principal place of business of the employer air operator. He submits that the relevant contractual terms are the same in both contracts and remain the same even if there are changes in the underlying rules which the contracts impose. Thus, he says, if the Civil Aviation Authority chose or was required by EU law to alter the FTLs to make them the same as the Belgian requirements, Mr Crosby-Clarke would not be able to complain.

48. Mr Nicholls sought to derive assistance from clause 4 of the Air Foyle contract. This was in this form:

"4.1Whilst you will normally be based at Luton International Airport [that was changed to Stansted Airport], the Company reserves the right at any time during the course of your employment to require you:

a.To work in any place overseas subject to negotiation.

b.To serve any holding associated or subsidiary company of the Company.

c.To serve any company, firm or person to which the Company is under contract.

...

4.3In the event of any of the matters referred to in Clause 4.1 applying you will nevertheless remain employed by the Company under the terms herein..."

49. Then some exceptions are provided.

50. The TNT SA contract was in similar form, save for substituting "Stansted" for "Luton" and omitting the words "subject to negotiation" in paragraph 4.1(a). Mr Nicholls pointed out that the "company" or "firm" or "person" referred to in clause 4.1(b) and (c) might be based in a country outside the UK and that the applicable FTLs might be different from those for Air Foyle, with its principal place of business in this country. But Mr Crosby-Clarke has not in fact been required to serve any such company, firm or person. It seems to me that this issue must be determined by reference to whether Air Foyle itself could, within its contract with Mr Crosby-Clarke, have required observance of the Belgian FTLs. It is not in dispute that if it could have so required, it cannot have been in breach of contract that Mr Crosby-Clarke should have been required to observe the Belgian FTLs under the TNT SA contract.

51. The point in question turns on the provisions of clause 6.1 of the Air Foyle contract:

"Your hours of duty are governed by:

a.The regulations contained in Part 1 - General of the Company's Operations Manual

b. The Government legislation in force."

52. This is to be compared with clause 6.1 of the TNT SA contract, which is in the same terms, that is to say that paragraph (b) is worded:

"Legislation applicable to TNT SA."

53. Mr Nicholls submits that "the Government legislation in force" means the governmental legislation which is from time to time in force, that being legislation applicable to Air Foyle, wherever it was based, and was not necessarily confined to UK governmental legislation. Thus he says that if Air Foyle chose to base itself in Belgium, in order to be able to operate it would have needed a Belgian air operator's licence and would have been obliged to comply with Belgian FTLs. The hours of duty compliant with the Belgian FTLs would, he submits, be covered by clause 6.1(b). He argues that it must be open to every company carrying on business to choose where it should carry on business and where it should be based, and that an employment contract is not one apt to contain a fetter on such business choice. He, of course, accepts that an employment contract is likely to cover such matters as whether an employee could be required to work abroad. It is not in dispute that Mr Crosby-Clarke could not have been required to serve overseas without prior negotiations (see clause 4.1(a)), which appears to imply that his consent would have been needed for such requirement to be implemented. But that is not a problem in the present case, the TNT SA contract providing, as I have noted, for Mr Crosby-Clarke to be based at Stansted.

54. Mr Clayton submits that in the context of a UK company operating from the UK, the reference to "the Government legislation in force" must be construed as a reference to UK legislation. Moreover, he says that it means the UK legislation in force at the time of the contract.

55. I prefer Mr Nicholls' submissions. I have no hesitation in rejecting Mr Clayton's submission that in clause 6.1(b) "the Government legislation in force" means that legislation in force at the time of the contract so that it is immutably set in stone. That would be absurd in a commercial contract against the background that the operations of an air operator based in a country are heavily regulated by that country so as to ensure compliance with safety standards which from time to time are seen to be appropriate. There could be no point in providing that, even if the relevant regulations had changed, the hours of duty were to be governed by the obsolete regulations.

56. Mr Clayton accepts that there is no obligation under the Air Foyle contract that Air Foyle would not move its base abroad. He concedes that it was open to Air Foyle to base itself wherever in the world it chose. In my judgment he was right so to concede. It must be open to every company to choose the place where it wishes to carry on business. In the case of a company like Air Foyle, carrying on an international freight business, that must have been obvious to pilots and Air Foyle alike. But that has the consequence that, if Air Foyle chose to move its principal place of business abroad, different legislation of the country to which it moves may well become applicable, with consequent changes in the FTLs which then become applicable. In these circumstances it seems to me improbable in the extreme that in this commercial contract Air Foyle should have promised to its employee that its employee would only serve hours which conform to the UK legislation and, in particular, the FTLs applicable to a UK operator.

57. In clause 3.5 the employee was required at all times during his employment to comply with all requirements of law and/or governmental or other competent authority. That must mean the requirements from time to time applicable during the employment, the requirements being the legal or regulatory requirements which pertain; and again it does not make sense to limit the requirements to UK requirements if the company is free to choose to move its base abroad so that the requirements of the foreign country become applicable. It is pertinent to note that the possibility of FTLs changing, whether in a way more or less onerously for the pilot, is always present under the Air Foyle contract, even while Air Foyle is based in the United Kingdom. Indeed, harmonisation of FTLs may well be occurring soon so as to eliminate any difference between English and Belgian FTLs.

58. In my judgment, because it is essential for an air operator to comply with the legislation applicable to it, clause 6.1(b) should not be read in the way Mr Clayton submits, as Air Foyle could at any time choose to move its principal place of business abroad, such as to Belgium, with the consequence that the Belgian legislation and FTLs would become applicable. Clause 6.1 does not permit Mr Crosby-Clarke in that event to refuse to accept that his duty hours would be those prescribed by the Belgian legislation in force, nor to object to the Belgian FTLs.

59. I conclude that the ET was wrong to find a breach of contract in Mr Crosby-Clarke being required to enter the TNT SA contract incorporating reference to Belgian requirements. I confess that I reach this conclusion with some regret, as I can well understand and sympathise with Mr Crosby-Clarke's reluctance at his age to commit himself to a contract under which, at least in theory, he could be required to work up to 11 consecutive duty days at a time. But for the reasons which I have given, there is no breach of contract in a contractual provision which permits of that possibility. Still less is there a repudiatory breach.

60. Accordingly, in my judgment there was no constructive dismissal by Air Foyle. I would, therefore, allow the appeal, set aside the EAT's and the ET's orders and dismiss Mr Crosby-Clarke's originating application.

61. LORD JUSTICE JONATHAN PARKER: I agree with the orders which my Lord has proposed in each of the two cases, for the reasons he has given.

62. SIR CHRISTOPHER SLADE: I also agree.

Order: (1) We allow Pendragon's appeal, set aside the order of the EAT and restore the decision of the ET. No order as to costs. Application for permission to appeal refused. (2) We allow Air Foyle's appeal, set aside the EAT's and the ET's order and dismiss Mr Crosby-Clarke's originating application with costs. (Order does not form part of approved judgment)