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
(HHJ SEROTA QC)
UKEAT/05/17/04/ILB

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 July 2005

Lord Justice Mummery :

This is the judgment of the court.

The issues

1. What effect does an intervention in a solicitor's practice by the Law Society have on the employment of staff in the firm? Are the firm's employees entitled to redundancy payments under the Employment Rights Act 1996 (the 1996 Act)? Are they entitled to employment protection on a transfer of the firm's practice to another firm of solicitors? These questions are of practical concern to solicitors, to their employees and to the Law Society as the body responsible for the regulation of the solicitors' profession.
2. The answers depend on the interpretation of section 35 and Schedule 1 to the Solicitors Act 1974, as amended, (the 1974 Act); on their application to the relevant employment and partnership relationships; and on the determination of the scope of employment protection conferred on employees of the firm by the 1996 Act and by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE).
3. The precise issue on this appeal is whether there is an error of law in the decision of the employment tribunal (in their extended reasons registered on 14 April 2004) that Mrs Joanne Rose, the appellant, was not dismissed from her employment as a conveyancing secretary in consequence of the Law Society's intervention in the firm of Dodd & Reynolds. Mr Ian Dodd, the respondent, was the sole principal in the firm. Mrs Rose was employed by him.
4. Although this case is about an employee of a sole practitioner, our judgment will also deal with the position of staff employed by a partnership, in which there has been an intervention. The issues are different. In the case of a sole practitioner, such as Mr Dodd, the issue is whether the intervention terminated contracts of employment with the sole practitioner. In the case of a partnership the issue is whether the dissolution of a partnership brought about by the intervention terminates contracts of employment with the partnership.

The appeal

5. The tribunal dismissed Mrs Rose's claim against Mr Dodd for redundancy payments, notice pay and unpaid wages. Similar claims against Mr Dodd by four other employees were also dismissed. Only Mrs Rose appealed.
6. Mrs Rose's appeal to the Employment Appeal Tribunal (HHJ Serota QC presiding) was dismissed on 30 November 2004 on the ground that there was no error of law in the decision of the employment tribunal.
7. Mrs Rose appeals to this court with the permission granted by Maurice Kay LJ on 18 January 2005.
8. At the invitation of the court the Law Society supplied to the court written submissions and a bundle of legal materials relating to the general question whether an intervention under the 1974 Act automatically terminates contracts of employment of staff working for the firm in question. Counsel also made oral submissions on its behalf. Mr Peebles appeared for the Law Society, Mr Darton for Mrs Rose and Mr Thornton for Mr Dodd.

The facts

9. Mrs Rose was employed by Mr Dodd, practising as Reynolds & Dodd. She had been employed in a predecessor firm, in which there had been a Law Society intervention following which the practice was transferred to Reynolds & Dodd. The practice was mainly conveyancing and non-contentious work. The firm had offices in Hove and Shoreham.
10. On 9 December 2002 the Law Society, acting through the Adjudication Panel of the Compliance Board and without any warning, intervened on the ground of suspected dishonesty. Messrs Russell-Cooke were appointed as the Law Society's agents to effect the intervention. The operation of Mr Dodd's practising certificate was automatically suspended: section 15A of the 1974 Act. Messrs Russell-Cooke told Mrs Rose and the other staff on 9 December that they were redundant. Messrs Russell-Cooke took possession of practice files and held them in the office of the intervened practice. Files urgently required by clients were released in accordance with clients' instructions and authorities.
11. The practice was not taken over by the Law Society nor was it closed down for good. As will be seen, within a few weeks of the intervention the practice was transferred as a going concern to another firm of solicitors formed by two solicitors previously employed by Mr Dodd.
12. Mr Dodd immediately challenged the intervention in the High Court under paragraph 6(4) of Schedule 1 to the 1974 Act. He sought, as a matter of urgency, to reverse the consequences of the intervention by having it set aside, so that he could have his practising certificate reinstated, obtain the return of client monies and files and resume practice as a solicitor. The firm's employees, including Mrs Rose, were aware of the challenge and of the interest of two solicitors employed in the firm (Mr Theaker and Mr Loadsman) in acquiring the practice. Mr Dodd's employees were willing to await developments, at least for a short period. They all had experience of the earlier intervention. Mrs Rose in fact continued to work in the firm's office in Hove between 9 December and 24 December 2002, for which she was paid £400 by Mr Dodd.
13. The proceedings brought by Mr Dodd to challenge the intervention were compromised with the Law Society on 20 December 2002. Mr Dodd entered into a written agreement to sell the practice and goodwill for £1 to Mr Theaker and Mr Loadsman. Three days later Messrs Theaker & Loadsman notified Mrs Rose and other staff employed in the practice of Reynolds & Dodd that they had been made redundant on 9 December 2002 and that any claim should be made against Mr Dodd, who was trying to arrange funds to pay their salaries for December, which he in fact did.

The proceedings

14. In March 2003 Mrs Rose presented an Originating Application to the employment tribunal claiming redundancy payments and pay in lieu of notice against Mr Dodd. She stated that her employment ended on 9 December 2002. She also claimed that she had been underpaid and that further sums were payable to her by Mr Dodd.
15. The employment tribunal held that Mrs Rose's employment by Mr Dodd had not been terminated by operation of law or otherwise before the transfer of the practice to the new firm of Messrs Theaker, Loadsman & Reynolds. There was a TUPE transfer. Her employment and that of other employees was transferred to the new firm, which began practising on 6 January 2003.
16. In fact, unlike the other applicants, Mrs Rose chose not to work for the new firm. She left of her own volition. She found another job in Brighton with a different firm, for whom she began to work on 10 February 2003. In those circumstances she made no claims against the new firm.
17. There was no dispute in the employment tribunal that (1) the practice of Reynolds & Dodd was an "undertaking" within TUPE, being an identifiable economic entity, or that (2) there was a "transfer" of the undertaking of Reynolds & Dodd to the new firm. The issue was whether Mrs Rose was transferred with the undertaking. That depended on whether she was employed in the undertaking of Reynolds & Dodd "immediately before" the transfer: paragraph 5(3) TUPE. If, as she contended, she was automatically dismissed by the act of intervention on 9 December 2002 and was not re-employed in the undertaking by Mr Dodd, her redundancy claim was against Mr Dodd. If, however, as Mr Dodd contended and as the employment tribunal held, she was not automatically dismissed by the intervention and had not ceased to be an employee of the firm at the time of the transfer to the new firm, she has no claim against Mr Dodd for redundancy pay and other payments, his liabilities in connection with her contract of employment having been transferred to the new firm by virtue of TUPE: paragraph 5(2) TUPE.

Termination of contract of employment

18. The case thus turns on whether Mrs Rose's employment by Mr Dodd was terminated. Mrs Rose's case is that her contract of employment terminated on 9 December 2002. She did not allege that she was given notice of dismissal by Mr Dodd, or that he summarily dismissed her, or that she was constructively dismissed. On the contrary, the employment tribunal held that-

"12. It is clear Mrs Rose regarded herself as employed by the Respondent after the 9^th December as she accepted payment from Mr Dodd for work performed both before and after that date and by the fact that she brings a claim asserting an underpayment of wages for this period. Her originating application includes a claim for "salary due" which implies an employment relationship."

19. The only way that the contract of employment with Mr Dodd could have terminated prior to the transfer was either by the Law Society's intervention itself or by an act of its agents in the intervention.
20. In our judgment, the core question is whether, as a matter of law, the intervention itself was an event which operated to terminate her contract of employment, so as to be taken as dismissal by Mr Dodd. Section 136(5) of the 1996 Act provides, in relation to rights on dismissal by reason of redundancy, that

" (5) Where in accordance with any enactment or rule of law-

(a) an act on the part of an employer, or

(b) an event affecting an employer (including in the case of an individual, his death),

operates to terminate a contract under which an employee is employed by him, the act or event shall be taken for the purposes of this Part to be a termination of the contract by the employer."

Types of termination

21. As already indicated, a contract of employment may be terminated by the parties in a number of ways, none of which apply here: notice, payment in lieu of notice, agreement, expiry of a fixed period, summary dismissal or acceptance of repudiation.
22. Section 136(5) recognises that an event affecting an employer may operate "in accordance with any enactment or rule of law" to terminate a contract of employment by an employer. Subject to the application of TUPE and to other continuity provisions, the events typically liable to terminate a contract of employment are death (in the case of an individual employer); the sale of the employer's business ( Re Foster Clark Indenture Trusts [1966] 1 All ER 43 at 49); the dissolution of a partnership employer (which will be discussed in more detail below); the appointment of a receiver over the affairs of the employer (though not the appointment of a receiver and manager out of court to act as agent of the employer company: Re Mack Trucks [1967] 1 All ER 977 at 982); and the compulsory winding up of a corporate employer.
23. Mrs Rose's case that intervention under the 1974 Act is a comparable terminating event makes it necessary to consider the legal and practical effects of an intervention on a solicitor's practice.

Intervention under the 1974 Act

24. It is agreed that the object of intervention under the 1974 Act is to safeguard the interests of the public. Intervention does not, however, empower the Law Society to take the practice over, to continue to carry it on by providing legal services to clients of the firm or to close it down. The ownership of the assets and goodwill of the practice are unaffected by the intervention and could be disposed of notwithstanding the intervention. Client files and client money are a different matter, however, as the conduct of the practice is affected by the intervention. The most drastic consequence is the suspension of the practising certificate of the solicitor where, as here, there was a suspicion of dishonesty on the part of the solicitor. If his practising certificate is suspended, a solicitor cannot offer his services to existing clients, whose retainers are terminated, or to new clients.
25. During the intervention a solicitor and employees in the firm may do other things than carry on the practice of a solicitor in contravention of the suspension. If there is a legal challenge to the intervention, a solicitor and his employees can do work which is relevant to the challenge, but does not affect the clients or their affairs. Similarly, a solicitor or his employees can do work in relation to the intervention itself, in winding up the affairs of the practice or in negotiating and preparing for the transfer of the undertaking to another firm.
26. In those circumstances automatic termination of employment contracts on an intervention or on the suspension of a solicitor's practising certificate would cause practical inconvenience in the conduct of the intervention itself, but would not confer any corresponding protection or benefit on the existing or potential clients of the firm or on the public generally. The absence of any express provisions in the 1974 Act to the effect that intervention immediately terminates contracts of employment or contracts of any other kind is not altogether surprising.
27. We note, again without surprise, the absence from the relevant part of the 1974 Act (Part II of Schedule 1) of any express powers entitling the Law Society itself or its agents to dismiss or engage employees in the practice intervened upon. The focus of the legislation is on precautionary and preventive powers, such as taking control of practice funds and mail, stopping the operation of the practice's client account, taking possession of practice papers, and removing clients' papers and files, rather than running the practice, hiring and firing staff and accepting instructions from clients.
28. Mr Darton, appearing for Mrs Rose, submitted that there was in fact an express statutory power for the Law Society to dismiss employees of the firm. It was to be found in the power of the Law Society or its agents on an intervention "to do all things which are reasonably necessary for the purpose of facilitating the exercise of its powers under [Schedule 1]": see paragraph 16 of Part II of Schedule 1.
29. In our judgment, although the Law Society certainly has wide powers on an intervention, paragraph 16 does not give it the power, whether acting directly or through its agents, to dismiss staff employed by the firm. It would require clear words to enable the Law Society to terminate a contract of employment or any other kind of contract, to which it was not a party. Paragraph 16 is only an ancillary power. Its use is confined to facilitating the exercise of the express powers conferred by the schedule, which do not include an express power to dismiss staff.
30. We add that, in our judgment, Messrs Russell-Cooke did not purport to dismiss Mrs Rose or other staff in the firm when they informed them on 9 December 2002 that they were redundant. They were expressing their view about a state of affairs created by the intervention and which could constitute a potentially fair reason for dismissal.
31. No doubt the Law Society could take reasonably necessary steps to protect the public, such as preventing particular members of the staff from attending the office during the period of the intervention if they were suspected of dishonesty or obstruction. But, in the absence of an express statutory power and of an agency relationship with the firm, the Law Society would not be entitled to terminate an employment contract, to which it was not a party.
32. The only persons entitled, in the circumstances of the intervention, to terminate Mrs Rose's contract of employment were the parties to it, Mr Dodd and Mrs Rose. As explained earlier, Mr Dodd did not terminate it. On the contrary, he allowed Mrs Rose to continue working and paid her for doing so. Mrs Rose did not terminate it by treating the intervention as a repudiation of the contract by Mr Dodd so as to give her the right to treat the contract as at an end. On the contrary, she continued working for Mr Dodd, accepting payment from him and bringing proceedings against him, in which she claimed further payments for work done for the firm.
33. We now turn to consider the only way in which Mrs Rose's contract of employment could have been terminated prior to the transfer, namely by operation of law.

Discussion and conclusions

34. Mr Darton's principal point is that the employment tribunal erroneously failed to recognise that the suspension of Mr Dodd's practising certificate on the intervention automatically terminated the contracts of employment. While Mr Dodd's practising certificate was suspended, it was not in force. He was not therefore qualified to practise or act as a solicitor in any cause or matter (sections 1(c), 15(2) and 20 of the 1974 Act). Further, he was unable to comply with the requirement of the provisions of Rule 13 of the Solicitors Practice Rules 1990 that in every practice there must be at least one principal who is a solicitor "qualified to supervise" and effectively manage the practice generally. The management of the firm was, Mr Darton submitted, taken out of the hands of Mr Dodd, so that he was no longer able to employ staff in the practice. (The point was raised in argument as to whether, on the true construction of Rule 13 of the Practice Rules, Mr Dodd ceased to be "qualified to supervise" on the suspension of his practising certificate. We do not consider it necessary to decide that question on this appeal.)
35. In our judgment, neither Mr Dodd's inability to practise as a solicitor nor the possibility of his ceasing to be a person "qualified to supervise" during the period of his suspension mean that contracts of employment with him automatically terminated. Mr Dodd could employ staff to do other work for him as long as it did not involve the conduct of the practice of a solicitor. Engaging in work other than providing or offering the services of a solicitor or holding him out as a solicitor would not undermine the public protection purpose, for which the power of intervention was conferred and exercised, or contravene the suspension.
36. If the parties to the relevant contracts of employment were content, as the tribunal held that these parties were, for the employment relationship to continue in relation to other work pending the outcome of the challenge to the intervention or of negotiations for the transfer of the practice, we see nothing in the 1974 Act, in the 1996 Act or in legal principle preventing the court from giving legal effect to the parties' lawful contractual intentions. In principle the contracts of employment are not frustrated by a temporary interruption in the supply of services by the employee or by a temporary restriction on the nature of the services that can be supplied. See Tarnesby v. Kensington & Chelsea Area Health Authority [1981] ICR 615 at 622E-F where Lord Bridge said that the suspension of an employee from the medical register, so that he was unable to perform his contractual duties for 12 months, was not sufficient to frustrate the contract at common law.
37. Both in this court and below counsel for Mr Dodd cited the decision of the Employment Appeal Tribunal in Barnes & Ors v. Leavesley [2001] ICR 38 as authority for the proposition that intervention by the Law Society does not automatically terminate contracts of employment for the purposes of section 136(5) of the 1996 Act where the firm did not cease trading and the practice was disposed of as a going concern without dismissing the staff. Although we have reached that conclusion in the circumstances of this case, we do not think that Barnes is relevant to the case of a sole practitioner. Barnes was a case of two solicitors in partnership, who had their practising certificates suspended when there was an intervention by the Law Society. They were precluded from taking any further part in the administration of the practice, which was sold within two weeks of the intervention. The issues were whether the intervention caused a dissolution of the partnership and whether the dissolution of a partnership terminated the contracts of employment of staff employed by the partnership. On allowing an appeal against the decision of the employment tribunal that the contracts of employment with the firm were terminated by the intervention, the Employment Appeal Tribunal remitted the case for rehearing in order to make the necessary findings of fact as to the basis on which the dismissal were effected. We shall refer to Barnes in more detail below when we specifically consider the effects of the dissolution of a partnership on contracts of employment. It does not bear on the case of a sole practitioner.
38. The issue before the employment tribunal in this case was quite simply whether the act of intervention itself was an event which automatically terminated Mrs Rose's contract of employment. In our judgment, there was no error of law in the decision of the employment tribunal. It was entitled to conclude on the facts and on a proper self-direction on the law that Mrs Rose was not dismissed on 9 December 2002 and that she has no claim against Mr Dodd for redundancy pay. No act of the parties terminated her contract of employment. The intervention by the Law Society was not, on the facts of this case, an event affecting Mr Dodd, which terminated the contracts of employment by operation of law and is not to be taken to be a dismissal of Mrs Rose by him within section 136(5) of the 1996 Act.

Dissolution of partnership and contracts of employment

The problem

39. Although this appeal is only about an employee of a sole practitioner, there was some argument at the hearing on the position of employees where two or more solicitors are partners in the firm, in which the Law Society has intervened. What is the impact of an intervention on the employees of a solicitors' partnership?
40. The case of a sole practitioner, such as Mr Dodd, and the case of a partnership employer are different. The general rule is that (a) intervention is an event which is liable to dissolve a partnership, and (b) dissolution of a partnership is an event which is liable to terminate contracts of employment with the partnership.
41. As for dissolution, section 34 of the Partnership Act 1890 provides that:-

" A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership."

42. If, for example, there is an intervention in a firm and the practising certificate of one partner is suspended, it is unlawful for the business of the firm to be carried on by a firm, which includes that partner. The existing partnership with that partner is automatically dissolved by operation of law: Hudgell Yeates & Co v. Watson [1978] 1 QB 451 at 466-467 and 469. A new partnership carrying on the practice may come into existence by express or implied agreement between the other partners, but the practice cannot be carried on lawfully by a firm which includes the partner who has become an unqualified person.
43. Neither section 34 nor Hudgell Yeates were cited to the Employment Appeal Tribunal in Barnes. The Employment Appeal Tribunal in Barnes held that, in a case where the Law Society intervened in a firm carried on by two solicitors in partnership and their practising certificates were suspended, the intervention did not necessarily operate to terminate the contracts of employment of the staff. The judgment delivered by HHJ Peter Clark referred to the authorities which held that the dissolution of a partnership brings to an end the contracts of employment of the firm (see paragraph 28). Acting, however, on the analogy that a resolution for the voluntary winding up of a company may not bring the contracts of employment to an end where the purpose is not to discontinue the business, but to reconstitute it under new management (see paragraphs 30 and 35), the Appeal Tribunal went on to hold that the employment tribunal erred in law in holding that the intervention automatically terminated the contracts of employment. No reference was made to section 34 or to the fact that it would be unlawful for a partnership, which included a solicitor whose practising certificate was suspended, to continue the practice.
44. Dissolution of a partnership is sometimes cited in the authorities and by text writers as an example of automatic termination of a contract of employment without any action on the part of the employer or the employee. There are authorities laying down a general rule that the dissolution of the employing partnership brings a contract of employment to an end: see Brace v. Calder [1895] 2 QB 253 at 263 ("a contract to serve four employers cannot, without express language, be construed as being a contract to serve two of them… the dissolution of the partnership operated as the dismissal of the plaintiff not authorised by law" per Rigby LJ); Tunstall v. Condon [1980] ICR 786,in which the Employment Appeal Tribunal held that contracts of employment were terminated on the dissolution of a solicitors' partnership and the employees were entitled to redundancy payments; and Briggs v. Oates [1990] ICR 473 at 482G-H ("clear words must be found before a construction is justified that would permit the employed solicitor to become, without his consent, the employee of different persons than those with whom he has contracted" per Scott J, holding that the termination of the partnership during the currency of a five year term of employment represented a breach of that agreement).
45. The general rule is stated in strong terms in Halsbury's Laws (4^th edition reissue) Vol 35 paragraph 185, citing Tunstall-

" Dissolution of the partnership necessitates the termination of its employees' contracts of employment, which may amount to wrongful dismissal."

46. That statement is, however, qualified by the cross reference to paragraph 14 note 7 of the same volume of Halsbury, which notes the need to examine the precise terms of the contract of employment in question. The view is expressed that where, upon a dissolution, a full scale winding up and sale of the partnership assets takes effect, the termination of the contracts of employment will not occur in practice until the winding up has been completed. It is also stated that, if the dissolution is merely a technical one caused, for example, by a change in the identity of the partners without a consequent winding up, it is unlikely that such a dissolution would entitle the employees to sue for wrongful dismissal.
47. If it is correct that (a) the Law Society intervention brings about a dissolution and (b) the dissolution terminates the contracts of employment, it is clear that TUPE would not apply to a subsequent transfer of the practice as a going concern: the employees' contracts would not have "terminated by the transfer" for the purposes of regulation 5(1) TUPE. They would have been terminated automatically by the prior dissolution of the partnership on intervention.

Discussion and conclusion

48. In our view, the general rule of dismissal of employees on the dissolution of the partnership is qualified in a number of ways. Section 38 of the Partnership Act 1890 is relevant. It provides that

" After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners continue notwithstanding the dissolution as far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of dissolution, but not otherwise."

49. Lindley & Banks on Partnership (18^th edition-2002) contains a helpful discussion of the general rule in the light of the continuation partnership provisions in section 38:

"25-02 It has been decided that a general dissolution will terminate the contracts of employment of all the firm's employees, thus inevitably leading to claims for unfair dismissal or redundancy payments. This result is surprising: if the partnership continues for the purposes of the winding up, it is difficult to see why those contracts should not continue until the winding up is complete and the continuation partnership finally comes to an end. On the other hand, a technical dissolution brought about by the death, retirement or expulsion of a partner is unlikely to have the same effect, provided that the partnership continues in existence."

50. In Halsbury's Laws Vol 16 (1B) (4^th edition reissue) the impact of the dissolution of a partnership on employees is stated in qualified terms.

"600. Dissolution of a partnership Whether a change in the composition of the partnership employing the employee affects the contract of employment depends on the express or implied intention of that contract. The death of one of the partners terminates the contract if that contract is sufficiently related to the personal conduct of the deceased partner, but not if the actual composition of the partnership is not of such importance. A change of partners may or may not operate as a wrongful dismissal, depending on the circumstances and the intent of the contract, but a major change entailing a dissolution of the partnership normally so operates. If, however, the employee continues to work for the newly constituted firm, that may constitute a waiver of his common law rights, and, in such a case, the employee's continuity of service is expressly preserved by statute."

51. Chitty on Contracts (29^th edition) Vol II states that

"39-172 Dissolution of partnership. A dissolution of partnership of employers may operate as a wrongful dismissal."

(A footnote adds that it may not do so where there is no fundamental disruption to the work of the partnership, such as where one partner among a number retires or dies.)

52. In our view, where there is a dissolution of a solicitors' partnership resulting from an intervention, it is necessary to consider the particular facts of each case before deciding whether the contracts of employment with the partnership have terminated. Relevant factors include the circumstances of the dissolution, the terms of the particular employment contract and the acts of the parties. In principle there is no reason why all contracts of employment with the partnership should necessarily become unlawful and terminate automatically as a result of the carrying on of the practice of the partnership becoming unlawful, or why they should be frustrated on the occurrence of an event, which may only temporarily interrupt the performance of an obligation to work. See Tarnesby (paragraph 36 above).
53. A contract of employment is not necessarily terminated by the dissolution of a partnership on the happening of an event, such as intervention and the suspension of a practising certificate, which makes the carrying on of the business of the partnership unlawful. General contractual principles need to be applied to the circumstances of the particular case. Thus, if, on the dissolution of a partnership, it becomes impossible or unlawful for the employee to do any of the work which he is employed to do, the contract of employment may come to an end either by frustration or by a repudiatory breach of contract entitling the employee to treat the contract as at an end.
54. If, however, the facts are that, notwithstanding the dissolution of the partnership, the parties intend to keep the contract alive and to continue it while steps are being taken to challenge the intervention or to transfer the practice to another firm as a going concern, there is no reason for the contract of employment to terminate automatically. Even if the partnership is dissolved, contracts of employment may continue after the date of dissolution, if the parties so wish, for the limited winding up purpose of the continuation partnership.
55. As for continuity of employment, we note that section 218(5) of the 1996 Act provides that changes in the partnership do not break the continuity of the contract of employment.
56. As for TUPE, regulation 5(1) provides that, in the case of a person employed in an undertaking immediately before the transfer,-

"…..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."

57. Lindley & Banks on Partnership observes that

"25-03 The received view is that, where the business of a dissolved firm is sold to one or more of the former partners (or to a third party), the Transfer of Undertakings (Protection of Employment) Regulations 1981 will apply, so that the employees will automatically become the employees of the purchaser. However, the current editor doubts the correctness of this proposition: if it is right that the employees' contracts have already been determined by the dissolution, it cannot properly be said that they would "otherwise have been terminated by the transfer" for the purposes of regulation 5(1), whether or not that transfer was in contemplation at the time when the firm was dissolved."

58. In our view, the application of TUPE in a particular case turns on the event which would terminate, or which terminates, the contract of employment. TUPE applies if, but for TUPE, the transfer would be the reason for the termination of the contract of employment. If, however, the terminating event is the dissolution of the partnership prior to the transfer of the undertaking, TUPE will not apply. The application of TUPE to cases of intervention in partnerships thus depends on whether, in the particular case, the contract of employment survived the dissolution and remained in existence at the date of the transfer. If it did, TUPE will apply and the employee of the transferor firm in question will become an employee of the transferee firm by operation of law.

Result

59. For the reasons given in the earlier part of this judgment there is no error of law in the decision of the employment tribunal. This appeal is dismissed.