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 EMPLOYMENT APPEAL TRIBUNAL
(THE HONOURABLE MR JUSTICE LANGSTAFF)

		Royal Courts of Justice Strand London, WC2
		20th July 2006

1. LORD JUSTICE BUXTON: Appeals lie to this court from the Employment Appeal Tribunal only on questions of law; just as appeals to the Employment Appeal Tribunal itself from the Employment Tribunal lie only on questions of law. That is not a promising beginning to an appeal that concerns the application by an Employment Tribunal of the Transfer of Undertakings (Protection of Employment) Regulations 1991 ("TUPE"). That is because the application of TUPE depends on two straightforward questions, which can be identified for ease of reference from the judgment of Sir John Lindsey P in Cheesman v Brewer [2001] IRLR 144. First, before the transfer that is relied on, was there an identifiable stable economic entity capable of being transferred? Second, as the European Court of Justice put it in Case 24/85 [1986] ECR 1119 Spikers at paragraph 11, on the alleged transfer did the business so identified retain its identity? And as the Court of Justice continued at paragraphs 13 to 14 of Spikers, all the facts characterising the transaction in question must be looked at, but it is for the national court to make the necessary factual appraisal in order to determine whether there has been a transfer. In terms of the United Kingdom legal order, it is the Employment Tribunal that is charged with that task of fact-finding.
2. How, then, does a case such as the present, which essentially complains of the Employment Tribunal's assessment of the facts, come before the appellate courts? The employer complained to the Employment Appeal Tribunal that the Employment Tribunal had misunderstood various aspects of the facts, given undue weight to others, reached conclusions that the underlying fact did not justify, and failed properly to explain some of its conclusions. In particular, in the latter respect Mr Jeans QC urged that the Employment Tribunal had simply not dealt with various important arguments that had been put to it by the employer. Such failings, if sufficiently extreme, can no doubt be characterised as errors of law, and not just as mistakes about the facts. In respect of the transfer with which this appeal is concerned, the Employment Appeal Tribunal rejected all of those complaints.
3. How then does the matter proceed to this court? The appellants in their grounds of appeal to this court in the main adopt the formula that the Employment Tribunal erred in law in the respects in which they complained to the Employment Appeal Tribunal, and the Employment Appeal Tribunal erred in law in not holding that the Employment Tribunal had so erred. The result is that we are asked to repeat, effectively in identical terms, the exercise already gone through by the Employment Appeal Tribunal. I am doubtful whether that is a proper use of this court's resources. If the points of law were indeed straight points of law, and not issues that lurk uncomfortably on the borderline between law and fact, then it would be easy to see that we should not ignore the Employment Appeal Tribunal, but assess its judgment rather than that of the inferior court. In this case, which is not as simple and straightforward as that, I am not minded to be deflected by an argument that the complaints are principally ones of reasoning rather than of substance from recalling the jurisdiction of this court, which by section 37 of The Employment Tribunals Act 1996 is to hear appeals from the Employment Appeal Tribunal and not from the Employment Tribunal. While it will be necessary, because of the form of the submissions before us, and to some extent because of the existing jurisprudence of this court, to revert at some length to what the Employment Tribunal said and did, I do not lose sight of the real question, which is whether the Employment Appeal Tribunal erred in law in the judgment under appeal. Those general reflections are over and above the consideration that the issues are plainly ones of assessment and judgment in an industrial context, with which and in which the Employment Tribunal, but also the Employment Appeal Tribunal, are much more familiar and expert than this court.
4. As Sedley LJ said when considering the application for permission to appeal in this case:

"This is not the class of case in which the [Court of Appeal] is in an equivalent position to the EAT, making the sole focus the ETl's decision. This was an appraisal of industrial realities within an uncontentious framework of law. Here both the ET and the EAT possess knowledge and experience which the [Court of Appeal] lacks".

5. There is a great mass of underlying fact, but the essential issues can be stated quite shortly, largely in the terms used by the Employment Appeal Tribunal in paragraphs 1 to 4 of its Determination. It pointed out that the case went back as far as 2001/2002. Before 1 January 2002, a company which I will call Hyder had contracted with Western Power Distribution, an electricity authority, for a number of services that were provided under three contracts. As the Employment Appeal Tribunal said, in Hyder's eyes this was their street lighting division. The three contracts were a cable contract, sometimes known as 'dig and lay', which does not further arise in these proceedings; a jointing contract, which involves services to join two electrical cables one to another; and a third contract known by the acronym RASP, which is the matter with which this case is principally concerned. Evidence accepted by the Employment Tribunal said that each contract was operated by Hyder as a separate entity, with a contract supervisor and foreman, separate administration, and dedicated employees. Each was self sufficient.
6. Those contracts came to an end at the end of 2001. Hyder had been unsuccessful in bidding for their renewal. The jointing contract was awarded to Balfour Beatty Power Networks ("Balfour Beatty"). The RASP contract was awarded to the second respondent before the Tribunal, and the appellant before us, Interserve Industrial Services Ltd ("Interserve"). The issue before the Tribunal was whether the employees who had been assigned to work in the separate entities designed to each contract, had their employment continued with Balfour Beatty in the case of jointing work, or Interserve in the case of RASP work, by virtue of the TUPE regulations.
7. The Employment Tribunal correctly set out the two questions referred to above and, in the case of the RASP contract, answered them both in the affirmative, that is in favour of the employees. The Employment Appeal Tribunal held that the Employment Tribunal had not erred in law in so doing. It is against that conclusion that this appeal is brought. By contrast, the Employment Appeal Tribunal concluded that the Employment Tribunal had given insufficient reasons for their similar conclusion in relation to the Balfour Beatty jointing contract, and that matter was remitted to another Employment Tribunal. That ruling is not before us, but something will have to be said about it in passing.
8. The Determination of the Employment Tribunal is in a somewhat unorthodox form, which is criticised in this appeal. The parties agreed between them two documents. The first was a statement of the relevant law, drawn up by the claimants, which was not the subject of challenge. The Employment Tribunal, reasonably in my view, saw no point in setting all that out again but appended the statement to their Determination. The second document was somewhat more controversial. After the evidence had been given and after it had been cross-examined (it is important to note those qualifications), the parties drew up a schedule of agreed facts extending to some 88 items in respect of both contracts, with indications, somewhat like a Scott Schedule, of where there was disagreement. The Employment Appeal Tribunal again appended this to its Determination rather than setting it all out in its own words. But it did not simply rely on the schedule. It gave an account of the evidence and the findings that it made on it. In one instance, which I have to discuss more fully later in this judgment, the Employment Tribunal gave reasons for making the findings on a different basis from those that were in the agreed statement. In setting out the facts relevant to this, the RASP appeal, I will rely on the agreed statement for the background and then go to what the Employment Appeal Tribunal found as to matters more directly related to the issues.
9. The background facts are as follows. At the start of 2001 Hyder held the contracts awarded by Western Power Distribution, already mentioned ("WPD"), including the RASP contract for the South Wales area. They had in fact carried out that work under successive contracts for the previous ten years. The contract required the maintenance of overhead lines and replacing poles. The contract was run from Hyder's Bridgend depot. Each of the three contracts already referred to had a different cost code, was run as a different cost centre, and had employees assigned to that specific contract. The RASP contract was split into two teams. One did the groundwork and the other the overhead line work. They had different supervisors. The teams comprised ten or twelve men, including operators of a HIAB vehicle (that is, a vehicle with a crane arm which could lift poles) and a HGV. The men worked in pairs. They would be given work in advance, or report to the Bridgend depot or be sent to another WPD depot to be given work by a WPD engineer. The work of the groundwork team required labourers, because of the need to dig holes and trenches. The HIAB vehicle was essential in doing the pole removal and planting. The overhead section of the RASP contract was supervised by a different supervisor. Again linesmen worked in pairs. All linesmen had to have special training in order to receive authorisation from WPD in order to do the work.
10. The applicant linesmen in this case were working mainly on low voltage work, connecting low voltage cables to new buildings. They had authorisation to work on cables that had a voltage of up to 415 volts. There were two pairs of linesmen authorised for high voltage work, one of whom is an applicant. The vehicles and more specialised equipment for the groundwork, including the HIAB, were leased by Hyder. JCBs would be hired on an as and when basis. Consumable materials were provided by Hyder. As would be expected, the linesmen carried small tools with them and vehicles were provided to get them from place to place.
11. As to the events that led to the change in the holder of the contract, at the end of August 2001 an invitation to tender was sent out by WPD for the 2002 RASP contract. The tender documents described the work in relation to 11KV, that is to say high voltage overhead lines, changing of poles and inspection of overhead lines by ground patrols. It was made clear that the purpose of the contract was to supplement WPD's own workforce. The contract for both South Wales and the South West of England was awarded to Interserve. On 31 December 2001, the claimants in this case, the workers under the TUPE claim, ceased to work for Hyder. A Mr Bowen, who was Hyder's contract engineer, was recruited by Interserve as project engineer. He in his turn, in January 2002, recruited several former Hyder employees to work for Interserve.
12. Because is it of some importance on a issue arose later in the appeal, it is necessary to say something more about the agreed facts and findings with regard to that recruitment process. Between Christmas and New Year 2001, that is to say before the commencement of the Interserve contract, Mr Bowen contacted a number of the linesmen who had been employed with him by Hyder and asked them if they wanted to work for Interserve. He told them that they could start as soon as Interserve had sorted out the vehicle position. A number of Hyder workers started to work for Interserve in January 2002. A schedule to the agreed facts, which I need not repeat, sets out the precise dates and the individuals who were recruited. All of those people recruited by Mr Bowen had the skills and training necessary for the task. They included the HIAB and HGV operator. All the linesmen including the two pairs of high voltage approved linesmen, were also recruited.
13. Quite apart from those statements which are taken from the Statement of Agreed Facts, the Employment Tribunal made further findings of its own with regard to the circumstances in which the claimants started to work for Interserve. They set that out in pages 8 to 9 of their determination, which it is necessary to read. The names of the persons referred to by the Employment Tribunal were all people who were claimants in the case and most, if not all of them, had given evidence before the Tribunal. The Tribunal said this:

"We accept the evidence of Mr Seymour that a couple of weeks after being dismissed at the end of December 2001 by Hyder, that he was approached by Mr Bowen, who told him that he had been head-hunted by Interserve and that he was trying to get the former Hyder employees on the RASP contract to come and work for Interserve. Mr Seymour started to work for Interserve in January 2002 on similar pay and he continued to work in exactly the same way as he had done for Hyder. He was still mostly sent to the … depot of WPD and dealt with exactly the same WPD engineers as he had done for years. They told him where to go and what work was required as they had always done when he worked for Hyder. Mr Seymour considered the only change was that whereas he had worked at Hyder's Bridgend office, he now worked out of a Swansea office. … The same equipment was provided by Interserve as had been by Hyder".

14. The Tribunal then referred to the agreed list of former Hyder employees, which I have already mentioned, and then said this:

"It can be seen that most of the individuals were linesmen. We accept the evidence of Mr Lewis who joined Interserve, that he was performing exactly the same duties that he had performed for Hyder but for different employers and that all of the people were also performing exactly the same duties for Interserve. Mr Lewis gave Mr Bowen, Mr Handley and Mr Middleton's name in January. He also gave Mr Bowen all the other names of the ex- employees of Hyder. But Mr Lewis said that Mr Bowen did not want to take on the others because it could affect whether TUPE applied. Mr Lewis gave Mr Handley and Mr Middleton's names with the others and Mr Lewis confirmed in cross-examination that Mr Bowen did mention TUPE on that day. We find that Mr Lewis was correct in his recollection of the conversation with Mr Bowen".

15. The Employment Tribunal found as a fact, at its page 10, that:

"the work was carried out exactly as before by those Claimants who went to work for Interserve".

16. It will be seen that that conclusion was based on the evidence that the Tribunal had heard and accepted. The Tribunal rejected an argument about a difference between high and low voltage work, to which we will have to return.
17. The Employment Tribunal then reached conclusions as to whether in relation to the RASP contract, there was an economic entity, capable of being transferred and whether it retained its identity after transfer. They deal with those questions in pages 13 to 14 of their determination:

"The RASP contract application. Was there an 'economic entity' capable of being transferred?

The work under this contract was related to a specific area and supported the electricity supplier in that region. The Claimants had been part of the contract for several years. The work would be fairly constant over a period of time and the contract was managed as a separate entity by the contracts supervisor. Certain additional works were billed as day works. Directions would be given to the men by a supervisor and the men would go to WPD depots to be given more direct instructions by WPD's engineers. Apart from the two supervisors there was no other management structure in place. The skills of the workforce wre necessary as this was required by the WPD authority for the work that they performed. Although from time to time the Claimants would be sent to assist other contracts, this was the exception and does not alter the cohesion of this particular group and the work it was engaged to perform. We find that there was a clear economic entity applying the Cheesman test of a multi-factorial approach.

Did that economic entity retain its identity after the transfer in question?

We find that the same work was being carried out from January 2002 onwards by almost the same people with the same objectives. The majority of the work assigned to the contract did become employed by Interserve Industrial Services. Mr Bowen, contract engineer, commenced work from 17 December 2001. It was then that he started recruiting a number of the first Respondents employees. Mr Bowen did not give any evidence to the tribunal but the Respondents submit that his position is not as a contract engineer or senior authorised engineer with Interserve but a more general and wide ranging role described as project manager. We do not accept that that was a limited role by Mr Bowen and the evidence suggests he carried on more or less the same sort of role as with the first respondents. He is a key senior employee. We find that the skilled workers, which were mainly linesmen taken on, was because of the required levels of authority to keep the undertaking continuing as before to ensure there was no break in activity. We find that the reason why labourers did not transfer was connected with the attempt to avoid the TUPE regulations applying. This is a factor to be considered amongst all the other factors in the case. We consider this to be a case in which ECM considerations apply as defined in the Astle case.

As to tangible assets transferring, again the leased items did not transfer and this is a relatively minor aspect compared to the value of the contract in this case. It is suggested that in the Respondents case there would have been book debt belonging to Hyder, being payment for work being carried out by Hyder but not yet paid for by WPD which did not pass across to Interserve at the end of Hyder's contract. There is no evidence to support this and we reject such a submission. Taking into account our finding that the reason or principle reason why the workforce were not taken on initially or at staggered times or not at all in the case of labourers was an attempt to avoid the TUPE regulations, and applying the Cheesman factors, we find that the economic entity did retain its identity after the transfer in question".

18. Those findings, if they stand, are plainly conclusive. The criticisms made of them are set out in the Grounds, which have four heads, but deal with a series of different matters within some of those heads. They are supported by a skeleton argument extending to 28 pages. The detail to which the appeal is advanced, and the degree of overlap between the various arguments, may be seen from the fact that the skeleton in three separate places criticises the Employment Tribunal's finding that the majority of the workers assigned to the contract did become employed by Interserve on the basis that not the majority, but only 13 out of 26 of those workers, transferred to Interserve.
19. Before addressing the particular complaints it is necessary to address what the appellants in their skeleton describe as a primary ground of appeal, and which Mr Jeans in this court said had been undervalued in the Employment Appeal Tribunal's judgment. That was what the appellants called the chronic failure of reasoning of the Employment Tribunal.
20. The Employment Tribunal said this about the fact-finding role of the Employment Tribunal and the proper approach to it of appellate tribunals. That is at paragraph 12 to 14 of the Employment Tribunal's determination, where the Employment Appeal Tribunal refers to the specific points of challenge to the Employment Tribunal's judgment, says that it will deal with them in greater detail when it turns to them each in turn, but then says this:

"12. … first, we must remind ourselves of the approach that we, as an Appeal Tribunal, have to take.

13. We may not substitute our own view of the facts, however convinced we may be of their righteousness, for those of the Tribunal if the factual finding below fell within the remit of that Tribunal; and we have to remind ourselves that whether or not there was an undertaking, is essentially a finding of fact as the European Court of Justice has emphasised in case after case. We also have to remind ourselves that whether there has been a transfer of such an undertaking, again involves a factual assessment. This is not the occasion for a rehearing of fact. We may only interfere if there is an error of law. We recognise that an Employment Tribunal does not have to deal with every argument which is presented to it. It is common experience that tribunals sometimes appear to fear, that if they do not deal with every argument, however small, and every disagreement, however immaterial, which is put before them, they may be subject to criticism. The criticism which we would make, however, is that approach itself tends to a complete lack of clarity.

14. Some arguments may even appear central before a Tribunal but on a logical approach, applying appropriate principles, are of no real relevance. Although we hope and expect Employment Tribunals to deal with an argument which had appeared to the parties before it to be central, we do not consider it to be an error of law if the Tribunal does not do so. The Tribunal's decision is not required to be one which is the product of elaborate draftsmanship. It needs simply and preferably, as briefly as the circumstances properly permit, to deal with the issues before it and its conclusions".

21. I would respectfully agree. I do not understand that approach to be in any way challenged.
22. The Employment Appeal Tribunal in its next paragraph supported its approach by reference to the respected analysis of Sedley LJ, in Allonby v Rossendale College [2002] IRLR 1189 at paragraph 23. The appellants in their skeleton argument adopted that analysis, together with the subsequent observations of the same judge in Tran v Greenwich Village Community Project [2002] ICR 1101 at paragraph 17. I will have that guidance in mind, as did the Employment Appeal Tribunal, when considering the specific complaints about the Employment Tribunal's reasoning. No doubt one should put out of one's mind the fact that the author of that jurisprudence, when considering the application for permission to appeal in this case, said:

"6. The real critique is not that the decision fails the Allonby/Tran test which despite its faults I do not consider it does, but that it has not followed Interserve into the mass of detail upon which its case depends. In my view that misapprehends what the Employment Tribunal was required to do, which was to give a sensible industrial and commercial answer to a straightforward legal question".

23. The appellants' approach to this, central, issue of fault of reasoning, at least as developed before us by Mr Jeans, was two-fold. First, two general complaints were put forward. Second, in relation to specific issues Mr Jeans argued not only that the Employment Tribunal had got the substantive law wrong, but also that even if that were not so their analysis of the evidence and, in particular, failure to address specific arguments made their Determination defective in any event, to the extent that it should be remitted to another tribunal. I will deal first with the general complaints. It will then be convenient to address the specific instances relied on in the course of dealing with the detailed issues in the appeal.
24. The appellants adduced two particular complaints about the Employment Tribunal's reasoning. First, that the decision did not comply with the comparatively recently introduced rule 30(5) of the 2004 Employment Tribunals (Constitution and Rules of Procedure) Regulations. That rule obliges an Employment Tribunal to include in its written reasons:

"the following information–

a. the issues which the Tribunal has identified as being relevant to the claim;

b. if some identified issues are not determined, what those issues were and why they were not determined;

c. findings of fact relevant to the issues which had been determined

d. a concise statement of the equivocal law

e. how relevant finding of fact and applicable law have been applied in order to determine the issues".

25. I do not doubt that in future Employment Tribunals would be well advised to recite the terms of rule 30(5) and to indicate serially how their Determination fulfils its requirements, if only to avoid unmeritorious appeals. But the rule is surely intended to be a guide and not a straitjacket. Provided it can be reasonably spelled out from the determination of the Employment Tribunal that what rule 30(5) requires has been provided by that tribunal, then no error of law will have been committed.
26. In our case, looking at the requirements, (a) the issues were identified in terms of the Cheesman v Brewer questions. I do not accept the further submission of Mr Jeans, that rule 30(6)(a) required in itself consideration of the further and more detailed issues, that he sought to put before the court. (b) No issues were left undetermined. (d) There was a concise statement of the applicable law, which was contained in the agreed statement. Requirements (c) and (e) are certainly fulfilled in form, but the complaint is that the findings were unjustified or incomplete and that there was no sufficient demonstration of how such facts has had been found fulfilled the legal requirements of the TUPE regulations. That is a matter which I will have to address shortly.
27. That latter complaint also leads to the second specific criticism of the fact-finding process, that the Employment Tribunal had relied on the agreed statement of facts without specifically analysing how those facts related to the two issues that were before it. For that criticism the appellants relied on observations expressing concern about reliance simply on an agreed statement of facts that were made by the Employment Tribunal in ISG v Mattinson in 2003. It should be noted, however, that those observations by that constitution of the Employment Appeal Tribunal were immediately followed by reference to the requirement stated by this court in Meek v City of Birmingham District Council [1987] IRLR 250, in less detailed and mandatory terms, that the Employment Tribunal's decision must be sufficient to enable the parties to know why they had won or lost. I have that criterion in mind when turning to the various issues identified in the grounds of appeal. I should also add that in considering the Employment Tribunal's judgment it will have to be borne in mind that much of it is worked out in the context of the Balfour Beatty jointing contract, which was seen by the Tribunal as raising much the same issues as did the Interserve RASP contract.
28. I turn to the grounds of appeal, grounds 1 and 2 of which address the issues of reasoning which I have already addressed in part. One then comes to specific complaints about various aspects of the Employment Tribunal's determination. In order to understand the complaint it is necessary to set out how it is put in the grounds of appeal:

"Undertaking/Economic Entity

3. The ET erred in law in concluding there was an 'undertaking' or 'economic entity' in the hands of the putative transferor and in the hands of the putative transferee and the EAT erred in failing to hold that the ET had so erred. In particular

3.1 the ET erred in law in failing to identify the 'undertaking' or 'economic entity' which in found or supposed to exist

3.2 further and alternatively to 3.1 above the ET erred (in the final unnumbered paragraph on page 13 of the Reasons) in equating 'work under this contract' (being the 'RASP' contract between WPD and Interserve) with an economic entity. In accordance with the authoritative guidance of the European Court in the line of cases beginning with Süzen v Zehnacker [1997] ICR 662 (paragraph 15) an economi entity 'cannot be reduced to the activity entrusted to it'.

3.3 further, there could be or was no 'stable' economic entity since

(a) under the terms of Interserve's contract with WPD

(i) the work was not given exclusively to Interserve;

(ii) continuity of work could not be guaranteed;

(iii) the volume of work was indicated for guidance purposes only;

(b) accordingly the role of Interserve was to supplement, as required the needs of WPD (as appears from paragraph 58 of the Agreed Facts) so that Interserve was not providing a discrete service to Interserve;

(c) as appears from paragraph 88 of the Agreed Facts WPD in fact ceased to issue work to Interserve less than a year after it had begun to do so.

3.4 further and alternatively the ET erred in law in failing to address the contentions advanced by Interserve that there was or could be no stable or discrete entity in the hands of Interserve having regard to the matters set out in ground 3.3 above and each of them

3.5 further the ET failed properly to resolve, alternatively resolved (at pages 9 to 11) without any clear or adequate reasons, the disputes which were relevant to the existence, definition and scope of any undertaking and which were indicated

(i) at paragraph 44 of the Agreed Facts, as to whether Hyder's work with WPD was predominantly low voltage

(ii) at paragraph 84 of the Agreed Facts, as to whether low voltage work was required under the contract between Interserve and WPD only where low voltage was connected to the high voltage network".

29. That ground contains a number of sub-complaints. Ground 3.1 complains of a failure to identity the undertaking. Of that the Employment Tribunal said at page 13 (which has already been set out but bears repetition):

"Although from time to time the Claimants would be sent to assist other contracts, this was the exception and does not alter the cohesion of this particular group and the work it was engaged to perform. We find that there was a clear economic entity applying the Cheesman test of a multi-factorial approach".

30. Of that and of the general issue, the Employment Appeal Tribunal said this, in paragraph 46:

"We note that the Tribunal had plainly in mind the appropriate test not least by reason of their reference at the bottom of page 13 [the passage that I have just read] to the cohesion of this particular group, as they described it, and the work it was engaged to perform. We think that they were entitled to conclude that there was here an organised body of resources which, in particular, relied as a significant element upon the skills of the workforce as being necessary. In particular, on this contract, it would clearly be necessary that the employees have qualifications which were recognised – giving them authority to deal with electricity – and had to be trained to that end. Thus it might be difficult, if not impossible, to find similar workers on the open labour market and therefore one would expect that an incoming contractor would be inclined, perhaps, to use the services of those who had been used before. It is not for us to decide, merely to recognise that it was within the powers of the Employment Tribunal to come to that factual assessment if it chose to do so".

31. I respectfully agree.
32. It may be added that the very important factor of the employees' qualifications was stressed in specific finding by the Employment Tribunal at its page 14, which has already been cited, but again bears repetition:

"We find that the skilled workers, which were mainly linesmen taken on, was because of the required levels of authority to keep the undertaking continuing as before to ensure there was no break in activity".

33. The Employment Tribunal no doubt had well in mind agreed facts already set out, but worth repeating: Agreed Fact 24, that all men working on power lines had to have appropriate training, and Agreed Fact 67, that all the staff recruited by Mr Bowen under the process already described had such skills and training.
34. Ground 3.2 says that there has been an error of law in equating work under a contract with an economic entity and refers, as we have seen, to the case of Süzen; but Süzen says no more than that the loss of a service contract to a competitor cannot in itself amount to the transfer of an undertaking. The Court of Justice said this in paragraph 13 of its judgment:

"13. For Directive (77/187/E.E.C.) to be applicable, however, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract: see [Rygaard]. The term entity thus refers to an organised grouping of persons or assets facilitating the exercise of an economic activity which pursues a specific objective".

35. It went on to say at paragraphs 15 and 16 of that judgment:

"15. … An entity cannot be reduced to an activity entrusted to it. Its identity also emerges from other factors, such as its workforce; its management staff; the way in which its work is organised; its operating methods, or indeed, where appropriate, the operational resources available to it.

16. The mere loss of a service contract to a competitor cannot therefore by itself indicate the existence of a transfer within the meaning of Directive (77/187/E.E.C.)".

36. What has to be shown is that an economic entity, such as was required in Rygaard's case, was transferred. That is what the Employment Tribunal in this case found as a fact, after applying the multi-factorial approach that Cheesman and Süzen required. It is also the case that Süzen certainly does not depart from the necessity to apply that fundamental principle, as the Court of Justice emphasised in paragraph 14 of its judgment in that case.
37. Ground 3.3 complains that the economic entity involved was not a stable economic entity. There was no guarantee that the contract would continue, and it was in fact lost shortly after the transfer. Also, the work was done to supplement work done by the employees of WPD. This argument was not addressed at length by the Employment Tribunal, but in my judgment, as a matter both of law and of industrial reality it did not need to be. I tend to think that the complaint made in this respect is an illustration of the error of thinking that a tribunal goes wrong just because it does not address every argument put to it, even if those putting the arguments think that they are important. The Employment Appeal Tribunal at its paragraphs 32 to 33 describe this argument as put to it in relation both to the jointing and the RASP contracts, and repeated before us that the contractor did not have exclusive rights; continuity of work was not guaranteed; and the contract gave no rights in any sensible economic form.
38. The Employment Appeal Tribunal did not accept the submission that those factors were conclusive to the issues before it. It said this in its paragraph 34:

"It seems to us that what matters in determining whether there is an undertaking is whether the test in the Directive can be said to be met or not. That is essentially a question of practicality. It is not to be defined by legal constructs other than those implicit in the Directive itself. The Directive is directed towards safeguarding employees' rights in the event of a change of employer. If it were right that those working for Balfour Beatty [this argument was principally deployed in the Balfour Beatty context] under a contract such as this, no matter how long they had worked for Balfour Beatty, nor how carefully they were organised and structured, nor how long they might expect, even if they could not demand, to be employed further, did not constitute collectively an undertaking, then any change of employer to which those employers were subject, would not itself be subject to the transfer of undertaking regulations. If X Co succeeded over a weekend to the business of Balfour Beatty, there would be no transfer of an undertaking upon this analysis because the core underlying contract did not provide the necessary stability. We think that the factual circumstances are so far removed from those which operated in the Rygaard case that not only would that defeat the purpose of the regulations as we understand them to be, but it makes no practical sense. Moreover, as the lay members would have wished to point out, it would have significant consequences for the avoidance of the transfer regulations because such an approach would encourage would-be employers who wished to avoid any TUPE consequences to ensure that contracts were 'defeasible' even if the expectation of the parties was that they would be honoured in a practical way".

39. I would respectfully agree with that analysis. The enterprise may be stable as a matter of practical and industrial reality, even though its long-term future is not assured. I would also say, in respect of the complaint that the Employment Tribunal did not deal with this matter in detail, that the appellants know full well, why they lost on this point. I do not accept that it was nonetheless necessary for the Employment Appeal Tribunal to remit the matter to another Employment Tribunal so that the latter could spell out what the Employment Appeal Tribunal has already said.
40. I am also, and in particular, influenced by the practical concerns entertained by the lay members of the Employment Appeal Tribunal as to the wider industrial implications of the appellants' argument, were it to be accepted. That is exactly the sort of issue in which they are expert and this court is not.
41. Ground 3.5 concerns what I will call the "low voltage" issue. This is a purely reasons and definitional argument.
42. The argument relied on by the appellants can be conveniently taken from paragraphs 12 to 15 of their skeleton argument, as expanded on before us by Mr Jeans. Its essence is this. The contract for overhead line maintenance and pole replacement involved low voltage work in those cases where low voltage was connected to the high voltage network. It was Interserve's case before the Tribunal that the contract did not otherwise provide for any low voltage work; and it was alleged to be common ground, in terms to which I will revert, that Interserve did not envisage any other low voltage work. Interserve's case was that it expected to be able to provide the necessary assistance to WPD from its existing staff; but after the contract between WPD and Interserve had taken effect, on 1 January 2002, WPD began to request assistance with low voltage work in other areas. That was charged on a daily works basis, so not being envisaged by the contract of itself. As a consequence of that development, and only because of it, Interserve recruited a number of former Hyder employees; that is to say the applicants in this case. That is, it was said, was how the applicants came to find themselves working for Interserve. The ex-Hyder employees were only needed when, unexpectedly, WPD requested low voltage work. So the low voltage element in the Hyder operation was not part of the economic entity that was transferred. The latter was at best only concerned with high voltage.
43. This argument, and the allegation that the Employment Tribunal did not deal with properly, is largely dependant on Agreed Fact 84, that:

"Interserve did not envisage any low voltage work at all".

44. That was based on the evidence of a Mr McLean, the Divisional Director of Interserve's Power Division. The Employment Tribunal set out his evidence broadly in the terms that I have already explained, and then said this:

"We do not accept that as being accurate evidence by Mr McLean since he had no particular knowledge of that fact. Indeed, we prefer the evidence of the Claimants, that they were doing the same work before as after, which would suggest that this was an on-going work required by WPD.

We find that the work was carried out exactly as before by those Claimants who went to work for Interserve. We do not accept the evidence of Mr McLean that this was unforeseen additional work. He had held negotiations with WPD; there is the close timing of the additional work to the start date of the contract, a matter of days; and Mr Bowen was actively recruiting individuals in ways to minimise the effect of TUPE as it was perceived. We conclude that this was a clear attempt to avoid the regulations. We find that Mr McLean must have known what the work was going to involve and his evidence about the fact that they would not require linesman or labourers to undertake the work under this contract, is not credible evidence".

45. Put shortly, the Employment Tribunal did not accept Mr McClean's evidence, but preferred that of the employees. The Employment Tribunal gave cogent reasons, just set out, for not accepting that evidence, whatever the agreed fact might have said. They were particularly impressed by the timing of Mr Bowen's recruitment activities so close to the day of transfer. They will have had in mind what they found at their page 8 about what Mr Bowen was expected to do in December 2001:

"Mr Bowen, an engineer, was recruited as a product manager by Interserve in December 2001. He had formerly worked in the RASP contract of Hyder. He was a senior person/engineer. On page 89 of the bundle there was a memo from Mr Kitto from to Mr Collier of the AEEU dated 14 December 2001 in which Mr Kitto states 'The jungle drums are telling me that Interserve are actively seeking recruits and hence it is likely that our engineer, Mike Bowen, who starts with Interserve on Monday is likely to start approaching his former colleagues … At least this may mean that they are not out of work while matters proceed'. This was prophetic because indeed Mr Bowen did start approaching his former colleagues".

46. There was no evidence from Mr Bowen to contradict the strong impression gained by the Employment Tribunal that matters had been arranged in that way simply to avoid TUPE. Nor did any of this take the employers in any way by surprise at the Tribunal, since as my Lord, Lord Justice Maurice Kay pointed out in the course of argument, the contention that Mr McLean's evidence could not be relied on was very prominent in the employees' submissions to the Employment Tribunal.
47. All of this was well within the judgment and jurisdiction of the Employment Tribunal, and the Employment Appeal Tribunal so held in its paragraph 49, despite it having originally feared that there might here have been a fatal flaw in the Employment Tribunal reasoning. In particular, the Employment Appeal Tribunal considered that the inconsistency, if any, was caused by lack of detail in the statement of agreed facts as to the date at which low voltage work was not envisaged. The appellants complained that that was not what the Employment Tribunal thought. But that resolution was clearly inherent in the Employment Tribunal's refusal to accept the general claim as set out in the agreed facts.
48. The Employment Appeal Tribunal also held that the issue was otiose in view of the Employment Tribunal's finding about what had been transferred. They set that out at their paragraph 50. I agree. The only way in which that view can be undermined is by saying that the Employment Tribunal was wrong as to the nature of the undertaking. For that latter reason also, I cannot agree with Mr Jean's criticism of this part of the Employment Tribunal's determination, in which he said that the only reason given for the finding that the work was the same, done by the same people, before and after the alleged transfer, was disbelief of Mr McLean. But that is not how the Employment Tribunal approached the matter. They had conflicting evidence on that issue. They accepted the evidence of the employees and did not accept that of Mr McLean. That was a process of fact finding sufficiently explained, the challenge to which cannot be got on its feet by saying the fault is one of reasoning.
49. That the Employment Tribunal was wrong about the nature of the undertaking is the complaint made in Ground 4, where it is wrapped together with complaints about whether a transfer had taken place. Again, the case can only be fairly described by setting out the major part of Ground 4, omitting that part that reverts to the 'low voltage' dispute, which I have just dealt with, no doubt at excessive length.

"The nature of any undertaking and its 'transfer'

4. The ET erred in law in holding that any undertaking had been transferred and the EAT erred in law in failing to hold that the ET had so erred. In particular

4.1 The ET erred in law in treating any economic entity as 'labour intensive' that is to say an activity based essentially on manpower. The service at issue involved, on the Agreed Facts, substantial equipment so that it did not qualify on the test laid down by the European Court of Justice in Abler v Sodexho [2004] IRLR 168 as labour intensive or 'an activity based essentially on manpower'.

4.2 accordingly the fact that assets were not transferred from Hyder to Interserve ought to have been treated as fatal the existence of a transfer

4.3 the ET misdirected itself in law on page 9 of the Reasons in stating 'the same equipment was provided by Interserve as had been by Hyder'. In particular

(a) if this is a finding that the equipment was transferred from Hyder to Interserve it is contrary to paragraph 76 of the Agreed Facts.

(b) Alternatively if it is intended to be a determination that that same of kind of equipment was used by Interserve as had been used by Huder and that the operation was to that extent similar, the ET erred in failing to take account of and address the significance of the Agreed Facts that no vehicles, tools or equipment were transferred

4.4 further the ET misdirected itself in law

(a) in discounting the significance of the equipment because it had been leased by Hyder and

(b) in holding that it was a 'relatively minor aspect' compared to the value of the contract (paragraph 17 of the Reasons).

In particular

(i) it was irrelevant whether the equipment was leased or owned outright by Hyder

(ii) there was no basis, for the conclusion that the equipment and in particular the vehicles, was minor in value

(iii) in any event, the relevant matter, which the ET failed to consider, was that the equipment (including the vehicles) was an essential and determining feature of any undertaking, if any undertaking was capable of existing. The Agreed Fact that no equipment or vehicles transferred was crucial when considering whether an operation which was 'equipment intensive' (or not labour intensive) had transferred".

50. This ground, is, I have to say, what I regard as a largely sterile dispute about reasoning, which conceals the fact that the Employment Tribunal, using its industrial experience, found against the appellants on the particular issue in dispute. That was the same in relation to both the jointing and the RASP contracts. However, before us Mr Jeans opened up a somewhat wider point that the European Court of Justice had held as a matter of law that it was necessary to distinguish between 'labour intensive' and 'asset dependent' operations, and when the latter are in issue failure to transfer the assets will mean that there is no transfer in TUPE terms. He relied on a number of passages, but in particular on paragraph 42 of the judgment of the Court of Justice in Case C-172/99 Oy Liikenne [2001] ILR 171. That was a case about a bus undertaking, and the Court of Justice said this:

"Therefore, in a sector such as scheduled pubic transport by bus, where the tangible assets contribute significantly to the performance of the activity, the absence of a transfer to a significant extent from the old to the new contractor of such assets, which are necessary for the proper functioning of the entity, must lead to the conclusion that the entity does not retain its identity".

51. It was alleged that in the present case assets such as transport, the HIAB vehicle and tools were important to the performance of the contract. They had not been transferred. Apart from a bald statement that the operation was "labour intensive" no findings had been made about the significance of those assets, so on this point the decision was at best inadequately reasoned.
52. I have considerable doubts whether the European Court of Justice intended to lay down a rule as stark as that for which Mr Jeans contended. I am respectfully impressed by the view of the Court of Session in the Scottish Coal case [2005] SC 105 at paragraph 35. The Court of Justice said this:

"We doubt whether the recent decisions of the Court of Justice in Oy Liikenne and Abler represent the shift away from previous authorities for which counsel for the appellants contended. In both cases, the Court reaffirmed the guidance previously given in Spijkers and other cases to the effect that all relevant facts and circumstances must be identified, and weighed in the balance, to determine whether an undertaking has or has not been transferred. Oy Liikenne and Abler were decided on the facts found in them. We do not read either case as laying down an invariable requirement that, in the context of a claimed TUPE transfer, a given business must necessarily be characterised as either "asset-reliant" or "labour-intensive", as if those were mutually exclusive categories that defined exhaustively the range of possibilities that could arise. The range of intermediate possibilities appears, a priori, to be unlimited. The cases illustrate the position at one end of the spectrum when a transfer must include the production assets of the entity. In intermediate cases, it must always be an issue for the fact-finding tribunal whether, on an appreciation of all relevant facts and circumstances, the undertaking in question can be said to have been transferred for the purposes of the 1981 regulations."

53. However, this case presents an issue not addressed in the Court of Justice authorities, where the assets used by the former business were leased. They can therefore be better characterised as tools and equipment, rather than assets in the technical sense, and it is difficult to see them as an integral part of the former business. Even, therefore, if there were a rule as absolute as that for which Mr Jeans contended for on the basis of Oy Liikenne, it is in this case difficult to see how exactly "transfer" of the leased assets would operate, or how the existence of those assets can override the general obligation to approach the case on a multifactorial basis.
54. The Employment Tribunal were fully aware of the appellant's argument based on the existence of the assets and the contrary consideration of whether the important factor in this activity was the workers and their skills. It said this at paragraph 11, when dealing with the submissions made by the parties:

"11. Both parties made written submissions and responses to the other's written submissions. On behalf of the Claimants it is submitted that considering the type of undertaking, which requires skilled employees combining with labourers or mates, the relevance and weight to be attached to the factors relied on by the Claimants is far greater than the importance attached by the Respondents to the lack of transfer of valuable assets. The Tribunal must look at the reality of the situation and give a purposeful approach to the regulations by deciding that there was an economic entity represented by each contract which retained its identity."

55. The Employment Tribunal is criticised for using the term "labour intensive" to describe the operations but whether or not that partakes of an element of vagueness, it is in my view perfectly clear what the Employment Tribunal meant and what it was finding. That is to say that, in applying the contrasting considerations that it had listed in its paragraph 11 as just set out, the workers were indeed a very important factor in this contract, as it set out in its reasons in relation to the RASP contract that I have already quoted.
56. Mr Jeans was particularly critical of what he said was the only sentence referring to the assets, where at the start of its paragraph 17, the Employment Tribunal said:

"17. As to tangible assets transferring, again the leased items did not transfer and this is a relatively minor aspect compared to the value of the contract in this case".

57. That could certainly have been expressed with more clarity and in more detail, but in view in the way in which the Employment Tribunal had already set out the nature of this dispute it is quite clear in my view what it was finding, that the assets were not of the essence of this contract.
58. The Employment Appeal Tribunal dealt with the arguments about whether the contract was "labour intensive" and the significance of non-transfer of the equipment in its paragraphs 37 and 39. It said this in paragraph 37:

"We consider that the appellation 'labour intensive' is not necessarily a mis-description and is one which the Tribunal is entitled to come to on its assessments of the facts. We recognise, however, that it would have been desirable for the Tribunal to have said something more about the importance of labour within the contract. We do not think that their failure to do so goes so far as to represent a defect, particularly when it is plain that they were considering a submission by the Respondents that the part played by vehicles, plant, equipment and specialist tools was vital to the operation. (see their citation in the middle of paragraph 16). Their rejection of that shows that they had well in mind the need to balance the significance within the contract of the nature of the labour and the nature of the equipment which it was using."

59. And in paragraph 39, they said this:

"It was also an agreed fact, turning for a moment to the RASP contract, although we shall look at that separately, that Hyder had leased vehicles. The submission was that if the identity of an undertaking is to be defined in part by the fact that it utilises plant and machinery as part of the resources, then a failure to transfer such plant and machinery indicates that there is to be no transfer of the undertaking. There was no basis, argued Mr Jeans for regulating the significance of the non-transfer of equipment, but that, he noted, was what the Employment Tribunal had done at page 13. We reject this submission. We consider again regard needs to be had in making a factual assessment in this context to the practicalities. There may be cases in which the failure to transfer equipment – for instance buses, in the bus undertaking (see Oy Liikenne) may demonstrate that there can have been no transfer of the bus undertaking. It is not difficult to think of other examples. Where, however, purported transfer does not own equipment, but as a matter of commercial prudence chooses to lease that equipment, it does not seem to us to be a matter of such critical importance that the equipment or those leases are not transferred over to the would-be transferee if the transferee himself, or itself, similarly leases identical equipment. Each is choosing to ensure that the operation continues with equipment owned in each case by a third party and not the proprietor of the undertaking. Instead of the equipment being a capital asset, it is something that is paid for out of revenue.

60. All of those conclusions were open to the Employment Appeal Tribunal, as part of its industrial judgment. Contrary to what I understood to be Mr Jeans' submission, that did not involve the Employment Appeal Tribunal substituting its own view of the facts for that of the Employment Tribunal, but rather the Employment Tribunal holding (i) as a matter of law that in relation to leased equipment, the jurisprudence of Oy Liikenne is not dispositive, therefore the Employment Tribunal did not err in not dealing with that point; and (ii) that the Employment Tribunal's reasoning, although it could have been fuller, was comprehensible, based on fact and based upon a clear understanding of the argument put to it as to the analysis of this business as between being a labour intensive or an asset dependent business.
61. The Employment Appeal Tribunal went on to hold that it was necessary to identify which employees had been transferred and what their tasks were, and that this had not been done in respect of the Balfour Beatty jointing contract. But under the Interserve contract, the only major concern of the Employment Appeal Tribunal was in respect of the low voltage point already discussed. The persons transferred and the jobs that they did had been identified, as had the industrial context in which they did those jobs. A higher proportion of the workers transferred than in the case of the Balfour Beatty contract, and the Employment Tribunal found, as on the evidence it was open to it to find, that the reason for a significant balance of the labourers not transferring was an attempt to avoid TUPE. The equipment was, on the Employment Tribunal's findings, much less important than the securing of the services of the trained and accredited workers. The fact that the equipment was hired, not owned, was not merely an accounting matter, as the appellants suggested, but was of importance in showing the true nature of the enterprise. In this matter also, I would again place particular weight on the judgment of the lay members of the Employment Appeal Tribunal, which is recorded in paragraph 40 of their determination. It says this:

"The lay members, in particular, see this as being a case in which it could not be said that assets of a business had not been transferred since leased goods cannot be described easily as assets and the essential aspect of such a transaction is that, as a matter of practicality, similar items are used after as before the transfer and obtained for that purpose".

62. So far as the transfer of this undertaking is concerned, as the appellants' Grounds recognised, the answer to that question follows from the identification of the undertaking. The Employment Tribunal's clear finding that the same work was being carried out from January 2002 onwards by almost the same people with the same objectives is conclusive on that point.
63. As the Employment Appeal Tribunal recognised, although in some ways the Employment Tribunal's determination is not particularly easy to read, the essential law was understood and that law was applied to properly found facts. There is no basis for saying that the Employment Appeal Tribunal, or the Employment Tribunal, erred in law in that conclusion. I would dismiss the appeal.
64. LORD JUSTICE MAURICE KAY: I agree and shall add a few words of my own on two matters. The first is that Interserve can be in no doubt as to why it lost on the facts. Quite simply and in particular, the Employment Tribunal did not accept the evidence of Mr McLean about the events of December 2001 and January 2002, but did accept the evidence of the employees. These were permissible factual findings and were adequately reasoned, as my Lord, Lord Justice Buxton has demonstrated.
65. Secondly, and turning to the question of substantive legal error, the Employment Tribunal plainly attached significance to the fact that the relevant items of plant and equipment in this case, none of which was transferred, were leased rather than owned by Interserve. It is well known that in this country that is a common arrangement. It has not been the position in the cases from other jurisdictions which have been adjudicated upon by the Court of Justice. Where all the relevant plant and equipment is leased, the concept of asset reliance, or asset dependence, is not as strong as where it is owned. It seems to me that it would greatly undermine the purpose and effect of the Directive and the TUPE Regulations if we were to interpret the decisions of the Court of Justice as having laid down a principle which will always apply equally, regardless of whether the items of plant and equipment are owned or leased. In my judgment the Employment Tribunal was entitled, and indeed correct, to take this view. Strong support for it is now to be found in the Scottish Coal case to which my Lord has referred. Whilst it would have been better if the Employment Tribunal had explained its reasoning on this point more fully, I do not consider that the reasoning was such as to amount to legal error. It is obvious that it had in mind the considerations that were more fully articulated by the Employment Appeal Tribunal in paragraph 40 of its judgment.
66. I too would dismiss this appeal, because I discern no legal error in the determination of the Employment Tribunal upon which I have concentrated. In reaching that conclusion, like my Lord, Lord Justice Buxton, I have been greatly assisted by the judgment of the Employment Appeal Tribunal.
67. SIR PETER GIBSON: Despite Mr Jeans' powerful criticisms of the decision of the Employment Tribunal, I have also reached the clear conclusion that this appeal should be dismissed. Mr Jeans put in the forefront of his submissions the criticism that the Employment Tribunal had fundamentally failed to get to grip with the case, and he described the decision as impenetrable, indeed the most impenetrable he had ever encountered. Few counsel have as much experience in this field as Mr Jeans and his submissions deserve respect.
68. I recognise that there are imperfections in the decision of the Employment Tribunal. Put at its lowest, as the Employment Appeal Tribunal said, the decision is not an easy read. The wholesale adoption by the Employment Tribunal of the schedule of agreed facts was in my judgment unfortunate, particularly when that schedule is as confusing as this one is; see paragraph 28 of the Employment Appeal Tribunal's judgment. It is also, to my mind, not good practice simply to do as the Employment Tribunal did in relation to agreed facts without itself identifying the relevant facts. To do that is, in my judgment, to render the Employment Tribunal vulnerable to the criticisms which Rimer J, to my mind correctly, enunciated in Industrial Services Group v Mattinson.
69. That said, I have not been persuaded by Mr Jeans that the decision of the Employment Tribunal was open to the serious attack which he made on it. In particular, it seems to me, for the reasons which my Lords have given, that the requirements of Rule 30(6) of the Employment Tribunals' Rules of Procedure have been met, and that Interserve cannot properly say that it does not know why it has lost this case.
70. I would add a few words on a peripheral point which was touched on in the course of argument. In Hennessy v Craigmyle and Co Ltd [1986] ICR 461 at 470, Sir John Donaldson MR said:

"It is too often forgotten that, in the context of appeals from the Employment Appeal Tribunal, this court is a second-tier appellate court. Second-tier appellant courts are primarily concerned with the correctness of the trial court's decision."

71. Those remarks have frequently been repeated and applied to cases coming from the Employment Appeal Tribunal. The remarks serve to emphasise the primacy accorded in the statutory procedure to the Employment Tribunal as the tribunal of fact. Further, they point to the fact that to show that the Employment Appeal Tribunal has erred in its reasoning will not necessarily be conclusive as to the outcome of the appeal. The Employment Tribunal's decision may withstand critical scrutiny. The Hennessy v Craigmyle dictum does not, in my judgment, mean that the judgment of the Employment Appeal Tribunal should be ignored. It will frequently be necessary for this court to examine critically the reasoning of the Employment Appeal Tribunal and, if that reasoning is faulty, so to declare. It will also frequently be the case that this court will approve the reasoning of the Employment Appeal Tribunal, and will wish to adopt that reasoning as its own.
72. In the present case, I would pay tribute to the admirable judgment of the Employment Appeal Tribunal, with which I am in respectful agreement. For these, as well as the reasons given by my Lords, I too would dismiss this appeal.

Order: Appeal dismissed.