England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
HIS HONOUR JUDGE McMULLEN QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		7 October 2004

Lord Justice Pill:

1. This is an appeal against a decision of the Employment Appeal Tribunal ("EAT"), His Honour Judge McMullen QC, sitting alone, sent to the parties on 29 December 2003. The judge allowed an appeal from a decision of an Employment Tribunal held at London Central, the Regional Chairman of the Nottingham region sitting there alone, in extended reasons dated 2 August 2002. I agree with counsel for the parties, including for the Secretary of State who has been permitted to intervene, that the appeal turns on a narrow point of statutory construction but it is appropriate to make some reference to the background.
2. What has been described as the Preston litigation arises from thousands of equal pay claims brought by part-time workers, mainly women, in relation to denial of access to occupational pension schemes. A number of issues arose. It was held on one of them, following reference to the European Court of Justice, that the limitation period of six months for bringing proceedings under section 2(4) of the Equal Pay Act 1970 ("the 1970 Act) was not incompatible with Community law in that it did not make the exercise of the applicants rights under article 119 of the EC Treaty impossible or excessively difficult and did not breach the Community law principle of equivalence (Preston v Wolverhampton Healthcare NHS Trust (No.2) [2001] ICR 217(HL)). Other general issues have been determined in test cases before the EAT. The present appeal is in relation to a single issue upon pension claims, namely:

"Does time begin to run in a claim against a TUPE transferor from the date of the transfer, or does time not run until the end of an employee's employment with the transferee ?

The reference to TUPE is to the Transfer of Undertaking (Protection of Employment) Regulations 1981 (SI 1981/1794). Mrs Preston is not a party to the present appeal.

3. The relevant facts are:

(a) the applicants were employed within the nationalised electricity industry.

(b) they were denied access to their occupational pension scheme because they only worked part-time.

(c) the scheme rules were changed to permit all part-timers to join with effect from 1 April 1988.

(d) following the privatisation of the electricity industry a TUPE transfer (in fact two successive transfers) took place in 1992 and the claimants' employment was transferred to a new employer.

(e) the claims relate entirely to periods of employment with the transferor.

(f) prior to the transfer, the applicants had accrued pension benefits.

(g) it is accepted that their claim, if any, is against the transferor.

(h) claims were presented more than six months after the TUPE transfer took place.

(i) when the claims were presented, the applicants were still employed by the transferee employer.

4. The 1981 Regulations follow and, for present purposes, are accepted to be consistent with Council Directive No. 77/187 (14 February 1977) "on the approximation of the laws of member states relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses". Regulation 5(1) provides, insofar as is material:

"… 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."

5. Regulation 5(2) provides:

"on completion of a relevant transfer, 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."

6. Regulation 7 provides, insofar as is material:

"(1) Regulation 5 … shall not apply

(a) to so much of a contract of employment … as relates to an occupational pension scheme …; or

(b) to any rights, powers, duties or liabilities under or in connection with any such contract … and relating to such a scheme or otherwise arising in connection with that person's employment and relating to such a scheme."

7. It is common ground that, while at common law a change in the identity of an employer automatically terminates a contract of employment (Nokes v Doncaster Amalgamated Collieries [1940] AC 1014), the effect of Regulation 5(1) is that a relevant transfer does not terminate the contract of employment but, as put by Mr Paines QC for the Secretary of State, creates the statutory fiction that the contracts of employment have always existed between the employees and the transferee, who is both required to observe the conditions of the contracts of employment in the future and is liable, subject to the effect of Regulation 7, for breaches of contract by the transferor. It is common ground that, by virtue of Regulation 7, the employee has no rights against the transferee with respect to pension rights existing at the time of transfer.
8. The 1970 Act is, according to its short title, "an Act to prevent discrimination, as regards terms and conditions of employment between men and women." Contracts of employment are deemed to include an equality clause and the present applicants seek equal access to occupational pension schemes. Section 2(4) of the 1970 Act, as amended, provided, at the material time:

"No claim in respect of the operation of an equality clause relating to a women's employment shall be referred to an Employment Tribunal … if she has not been employed in the employment within the six months preceding the date of the reference."

9. The Employment Tribunal held (paragraph 86) that time began to run for claims against the TUPE transferors on the date of the TUPE transfer. The Tribunal accepted the submission of Mr Jeans QC (paragraph 72) that the effect of Regulation 7 was twofold:

"First, the relevant transfer does not have the effect of substituting the transferee for the transferor in the original contract in so far as the contract relates to a pension scheme. Second, the transfer is not prevented by the statutory novation from bringing that part of the contract to an end. That being so, section 2(4) requires proceedings to be brought against the transferor within six months of the transfer."

10. The EAT held that there was jurisdiction provided the claim was brought within six months of the termination of the contract with the transferee. It was stated at paragraph 144:

"Since the "employment" means no more than the contract of employment, and the contract is, by TUPE Regulation 5, deemed not to have terminated by reasons of the transfer, the Applicant is still in the employment in the course of which she suffered, on this footing, a breach of the equality clause at a time when her relationship was with the transferor."

11. At paragraph 146, the EAT stated:

"…TUPE provides for the contract of employment to continue under the new employer. Such continuity is not affected by the exclusion by the Directive and by TUPE of pension rights. Since 1981, in every transfer of an undertaking where the employees enjoyed pension rights, their contracts of employment have transferred notwithstanding their being denuded of pension rights by that transfer. As a matter of construction of the limitation provision in Section 2(4) of the Equal Pay Act and Regulation 12, the contract of employment continues, albeit shorn of pension rights, so that a claim against the transferor may be maintained for as long as the employee remains within the transferee's employment, plus six months. In my view, the fiction which is created by TUPE Regulation 5 so as to deem employment with the transferor to have been always with the transferee, extends the limitation period against the transferor more or less indefinitely. "Employment" means employment under the contract which is deemed to continue. The equality clause in relation to pensions, said to have been breached, remains actionable throughout the period of employment (with the transferee) plus six months."

12. The need for legal certainty in this part of the law was argued, in relation to the point of construction, both before the EAT and in this court. I will return to it. The EAT stated its order of 19 December 2003:

"Where there has been a TUPE transfer, time runs against the transferor under section 2(4) of the Equal Pay Act 1970 from the termination of the employee's employment with the transferee, or, if more than one TUPE transfer, from the termination of the employee's employment with the last transferee."

13. The EAT found of assistance, and the applicants rely on, the decision of this court in National Power plc v Young [2001] ICR 328. Mrs Young commenced proceedings in 1997 relating to a claim of unequal pay prior to 1994. She had worked for her employers in Department A until 1994 and in Department B until l996 when she left. It was held that the application had to be lodged within six months of the termination of the employment. That referred to the contract of employment and not to the actual job the employee was doing. There is jurisdiction provided the claim is brought within six months of the termination of the contract of employment (per Smith J at paragraph 18). The EAT, at paragraph 144, found the decision of assistance in that the court "took a broad view of the expression 'employed in the employment' " in Section 2(4) of the 1970 Act.
14. The EAT also found of assistance the finding of the EAT, His Honour Judge Peter Clark presiding, that time does not begin to run against a person who is under notice but required not to work. (HQ Services Children's Education (MOD) v Davitt [1999] ICR 978).
15. Submissions have rightly concentrated upon the expression "employed in the employment" in Section 2(4) of the 1970 Act. For the claimants, Mr Cavanagh QC submits that, by virtue of Regulation 5, the contract of employment does not end with the transfer. The employee has the self-same contract of employment with the transferee. It is irrelevant that a particular term in relation to pension is not transferred. The focus on pension rights is misleading, it is submitted. Emphasis is placed on the equality clause which is fundamental to the operation of the 1970 Act. It is present both before and after the transfer and holds the contract together, it is submitted. Time begins to run only when the equality clause comes to an end with the end of employment with the transferee. Regulation 7 does not terminate the relevant employment upon a TUPE transfer. The contract of employment continues, albeit shorn of pension rights. While Regulation 7 imposes a statutory deletion of the terms of the contract relating to pension, it does not follow, it is submitted, that the contract of employment referred to in Section 2(4) of the 1970 Act is terminated.
16. Mr Cavanagh submits that Section 2(4) of the 1970 Act must be construed on the basis that TUPE was not in mind when it was drafted. Moreover, in terms of limitation, the time limit in Section 2(4) is an unusual one in that it is related not to the breach of a contract but to its termination. TUPE also has what in conventional terms are surprising consequences in that the transferee is made responsible (though not as to pension) for the wrongs of the transferor. Against that background, it is not surprising, it is submitted, that while by virtue of Regulation 7 the transferee is not liable, a transferor may be held liable many years after the transfer.
17. Counsel for all parties seek to rely on the statement of Lord Slynn of Hadley when making the leading speech in the House of Lords in Preston v Wolverhampton (No.1) [1998] ICR 228 where an applicant had had a succession of contracts of employment with the same employer. Lord Slynn stated, at page 237, that the equality clause referred to in Section 2(4) "is a clause in a contract of employment which as I see it can only be the specific contract in respect of which the claim is made".
18. Mr Jeans QC, for the appellants, and Mr Paines QC, for the Secretary of State, submit that the present claims relate to that part of the contract of employment kept behind by Regulation 7. That employment does not continue for the relevant purpose, that is for the purpose of these claims. The claimants seek to rely on Regulation 7 to preserve the claim against the transferor while at the same time ignoring it when considering the time limit. It is submitted that the specific contract of employment on which the claimants rely is the contract between them and the transferor but that contract only subsists until the transfer. Upon transfer, and by virtue of regulation 5, it is replaced by a contract between the employee and the transferee, the contract being deemed always to have subsisted between the employee and the transferee. All parts of the contract between the employee and the transferor are either transferred or terminate so that there can be no employment relationship for the purposes of Section 2(4) between the transferor and the employee after the transfer.
19. Regulation 7 excludes the application of Regulation 5 in so far as the contract relates to an occupational pension scheme but that does not have the effect, as regards pension claims, it is submitted, of deeming the employees still to be employed by the transferor and the EAT did not find otherwise. The EAT are in error, it is submitted, in holding, in paragraph 146, that because there is a contract of employment with the transferee, shorn of pension rights, a claim against the transferor may be maintained for so long as the employee remains within the transferee's employment, plus six months.
20. Reliance is also placed by the appellants on the conferring in Section 2 of the 1970 Act of rights of action on the employer and on the Secretary of State, as well as the employee. It is submitted that there would be no point in such powers with respect to pension rights surviving the transfer. That suggests a cut-off, as to pension rights, at the date of transfer. As to that, I see force in Mr Cavanagh's point that the 1970 Act was not drafted with the complexities of TUPE in mind and I do not consider the argument to be a decisive one.
21. Detailed submissions have been made on behalf of the appellants and the applicants as to the effect of the different constructions on the principle that parties should know where they stand. The appellants rely strongly on the open-ended commitment upon transferors if they remain liable during employment with transferees. I have referred to Mr Cavanagh's submission that such a commitment is not surprising in the particular context. Having mentioned ways in which the transferor may be able to guard against a potential long term liability, the EAT held that the construction it preferred was not "repugnant to the doctrine of legal certainty".
22. In my view, the issue is essentially one of statutory construction. It can be resolved without recourse to the concerns expressed on behalf of the appellants about the uncertainties with which they would be faced if the decision of the EAT is upheld.
23. I do not consider the decisions in Young and Davitt to be helpful to the applicants on this point. They were single employer cases in which the issue was a factual issue as to the terms of the contracts of employment in question. On their facts, the decisions are, with respect, unsurprising.
24. I accept the appellants' submissions as summarised in paragraph 18 of this judgment as the correct analysis. Regulation 5 does not deem the contract of employment with the transferor never to have happened; it deems that what happened was between the employee and transferee. By virtue of Regulation 7, the pension terms fall out of the contract of employment with the transferee and no further pension rights can be acquired against the transferor though, at the time of transfer, there is a cause of action against the transferor with respect to pension rights.
25. The continuing contract of employment is deemed always to have been with the transferee but it must be acknowledged that the pension rights have been removed from it and it cannot be treated as if they have not. It cannot be regarded as the specific contract of employment, giving rise to the claim for pension rights, which existed between the transferor and the employee before the transfer took place. The employment under a contract of employment about which complaint is made is the contract between transferor and employee, with its equality clause providing pension rights, and the post-transfer contract of employment, shorn as it is by statute of existing pension rights, is not the specific contract of employment for the purposes of Section 2(4). The claim is based on the previous contract and, in so far as its terms have not been transferred, it terminated upon the transfer and time began to run. The existence, in each of the contracts, of an equality clause does not mean that they can be treated as the same contract.
26. I would allow this appeal.

Lord Justice Jonathan Parker:

27. I agree.

Mr Justice Laddie:

28. I also agree.