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 McMULLEN QC
UKEAT/0503/06/CEA

		Royal Courts of Justice Strand, London, WC2A 2LL
		30 /10/2007

Lord Justice Mummery :

The appeal

1. The issue in this appeal is whether there was an error of law in the decision of the employment tribunal (ET) upholding a claim by a former employee for breach of contract.
2. The appellant employee, Mrs Amanda Jackson, brought proceedings in the ET for damages for non-payment of enhanced contractual severance pay. She was made redundant in 2005 by the respondent employer, Computershare Investor Services PLC (CIS), to which her original employment contract had been transferred in 2004. Her original employment contract with the transferor employer, Ci (UK) Limited, contained no provision for enhanced severance pay.
3. The point turns on the interpretation of CIS's enhanced severance pay terms in the context of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE), which were in force at the material time.
4. The appeal is from the order of the Employment Appeal Tribunal (EAT) allowing an appeal by CIS from the decision of the ET sent to the parties on 31 July 2006. The ET upheld Mrs Jackson's unfair dismissal claim, which was not appealed, and her claim for enhanced severance pay, which was successfully appealed by CIS to the EAT.

TUPE

5. Mrs Jackson appeals to this court, with the permission of the EAT, which noted agreement by the parties on the importance of the point as potentially affecting employers' decisions taken long after a relevant TUPE transfer had occurred. As HHJ McMullen QC said in the judgment of the EAT, the essential issue is the entitlement of Mrs Jackson to enhanced severance terms offered by CIS and the claimed effect of regulation 5(1) of TUPE on them.
6. Regulation 5, which deals with the effect of a relevant transfer of an undertaking on contracts of employment, provides that

" (1) A relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee.

(2) Without prejudice to paragraph (1) above ….on the completion of the relevant transfer-

(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this Regulation to the transferee; and

(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee."

7. The court was also referred to Article 3 of the Acquired Rights Directive 2001/23/EC (ex 77/187/EEC) in Chapter II (Safeguarding of employees' rights) which provides-

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

8. The court was asked by Mr Patrick Green, counsel for Mrs Jackson, to note that the word "originally" appearing in Regulation 5(1) TUPE was absent from Article 3.1. According to his submissions, which are discussed later, this is relevant to the context of Mrs Jackson's employment contract with CIS and the interpretation of its provision for enhanced severance pay.
9. The rival submissions on the decisions of the ET and the EAT will be easier to follow if I first give a fuller account of the background facts.

Background facts

10. On 4 January 1999 Mrs Jackson was appointed Finance Manager with Ci (UK) Limited, which later became an associated company of CIS. Her contract was dated 1 December 1998. Ci(UK) Ltd and CIS are now part of an international group of companies based in Australia.
11. There were no terms relating to enhanced redundancy or severance payments in Mrs Jackson's employment contract with Ci(UK) Ltd.
12. In June 2004 Mrs Jackson's contract of employment was transferred to CIS, which had an enhanced severance pay scheme. This became relevant to Mrs Jackson's position in 2005 when she was made redundant and claimed to be entitled under the CIS enhanced severance terms.
13. CIS operated a dual system of redundancy terms drawing a distinction between cases where the date of entry was pre-1 March 2002 and "New Entrants after 1 March 2002." The ET held that the terms were incorporated in, and became part of, Mrs Jackson's contract when she transferred in 2004 (see paragraphs 14-17 of the ET decision) This is now accepted by CIS. The key question that led to the ET proceedings was whether Mrs Jackson should be treated as a pre-1 March 2002 joiner of CIS by virtue of her deemed continuity of employment with CIS as from 1999 reflecting the impact of Regulation 5(1).
14. The precise terms of the CIS severance provisions are critical:

" Severance Terms-Date of Entry pre 1 March 2002

Computershare Investor Services PLC and Computershare Limited operate two sets of severance terms and these are outlined below. The first set apply to those employees who joined prior to 1 March 2002 and the second apply to those staff who joined on or after 1 March 2002

Severance Terms-New Entrants on or after 1 March 2002-Severance Terms

Employees who joined the service of Computershare Investor Services PLC or Computershare Limited after 1 March 2002 will be entitled to the following table of severance terms in the event of redundancy. This table is broadly based on the Statutory Redundancy table however there is no weekly pay cap as for Statutory Redundancy. They will also be entitled to the agreed notice period for redundancies which is three months."

15. The severance terms were more generous for staff who joined CIS pre-1 March 2002 than for the new entrants joining CIS on or after that date. Naturally Mrs Jackson wished, if possible, to bring her case within the more generous regime.

Decisions of ET and EAT

16. The ET held that CIS had wrongly purported to apply the post-March 2002 provisions to Mrs Jackson. It should have applied the pre-March 2002 provisions. The ET reasoned as follows:

17….So, the question is: When did the claimant "join" the respondent? As a matter of fact, the answer is fairly simple, she joined them on the date of the transfer in 2004. In 1999 she was an employee of Ci (UK) Ltd. She wasn't an employee of the respondent but the respondent has to face up to the terms of the Transfer of Undertakings Regulations and, in particular, Regulation 5(1). These state:

[As set out in paragraph 6 above]

That is a deeming provision. No one is suggesting that her contract of employment was made by the respondent but it has effect as if made by the respondent. This is the reason why in calculating her redundancy payment they treated her service as beginning in 1999.

18. It is suggested on behalf of the respondent that Regulation 5(1) should be narrowly construed as relating only to the terms of the contract itself and not to the variations which took place in 2004 or 2005 but we see no reason to treat it in that way. The whole idea of the Transfer of Undertakings Regulations is to protect employees who have moved to another company. The respondent was not under an obligation to allow the claimant to take advantage of the redundancy policy which applied to other employees but as soon as her contract was varied to allow that she was entitled to pursue a claim under that contract in accordance with the deeming provisions of Regulation 5. In those circumstances, since she is deemed to have joined the respondent in 1999, she is entitled to a full redundancy payment."

17. It was agreed that, in the light of this ruling, her entitlement would exceed the ET's statutory limit of £25,000 for breach of contract and that the order for payment should be for the capped amount.
18. On CIS's appeal the EAT held that the ET erred in law in applying TUPE to Mrs Jackson so as to entitle her to a severance pay claim based on that of a pre-1 March 2002 joiner.
19. The EAT noted and rejected the logic of Mrs Jackson's claim that everything in her contractual terms, which was in place once the variation of the contract was agreed, harked back to her commencement of employment in 1999. It observed that the introduction of the severance terms by CIS, possibly after further collective bargaining, was a matter for it. CIS could, as a matter of contract, have provided no severance terms for her or it could have decided on a completely different set of terms, or that various employees could have been excluded from it.
20. The EAT held that

"22. ….There is no logical connection between the fact that the Claimant was, by TUPE, deemed to be employed by the Respondent from the date of her employment by its predecessor in 1999 and her ability to pick up all subsequent changes made by the Respondent."

21. It was also stated that, provided it has no connection to the relevant transfer, a variation in Mrs Jackson's contract could be effected by CIS. The fact that she is to be regarded, for statutory purposes, as having been employed by CIS from 1999 did not affect the central contractual analysis. The ET's reliance on TUPE to treat Mrs Jackson "as a pre-2002 joiner under the scheme was impermissible" (paragraph 24).
22. The EAT agreed with the ET that "joined", as used in the severance provisions, meant "actually joined" CIS. In her case that was at the date of the transfer in June 2004. The error of the ET was in using TUPE to change the plain meaning of "joined" in the CIS contract and to hold that she was entitled to be treated, for the purpose of eligibility to enhanced severance pay, as having joined CIS before 1 March 2002.

Discussion and conclusion

23. In my judgment the discussion should start with the facts. The ET found, as a fact, that Mrs Jackson joined CIS at the date of the transfer of the undertaking in which she was employed in June 2004. That is when she started to work for CIS. This fact is not, and cannot be, appealed, as appeals are by statute limited to questions of law arising from the decision of the ET or in the proceedings before the ET. This finding of fact is, in any event, obviously right. Mrs Jackson did not join CIS all the time that she was employed by Ci(UK) Ltd, which was down to the date of transfer in June 2004.
24. The discussion should then move to the part of the CIS contract expressly governing entitlement to enhanced severance pay. On the undisputed factual basis it is plain that, as a matter of their ordinary and natural meaning, the CIS enhanced severance provisions, which apply to the case of Mrs Jackson, are those relating to new entrants post-1 March 2002.
25. Mr Green submitted that the court should not stop there: it must then move to regulation 5(1) TUPE and interpret the CIS severance terms in the context of the TUPE stipulation that, after the transfer in June 2004, her employment contract with Ci(UK) Ltd "shall have effect …as if originally made" between Mrs Jackson and CIS.
26. A series of rulings of the Court of Justice on the interpretation of Article 3(1) of the Directive were cited by Mr Green: Molle Kro [1989] ICR 330 at paragraph 25; Daddy's Dance Hall [1988] IRLR 315 at paragraphs 14 and 15; P Bork International [1989] IRLR 41 at paragraph 13; and Collini and Chiappero v. Telecom Italia spa [2000] IRLR 788 at paragraphs 49 to 51.
27. Mr Green also adopted the section dealing with Transfer of Undertakings in the most recent edition of the IDS Employment Law Handbook on Transfer of Undertakings (July 2007). The Handbook discusses the current 2006 Regulations. Although they do not apply to this case, the new Regulation 4(1) is in the same terms as the old Regulation 5(1) of TUPE 1981. The Handbook explains how, by a statutory novation, the provisions in the final clause of the Regulation commencing with the word "but", are intended to override the common law position that an employment contract terminated on a change of employer. In consequence of legislative intervention, rather than of an agreement between the parties, the transferee is substituted for the transferor as one of the original parties to the employment contract. The original employment contract is not transferred: it is extinguished and replaced by another employment contract. The transferee steps into the shoes of the transferor, taking over the rights and obligations of the transferor under the employment contract, as if the transferee had contracted with the employee concerned from the date on which the employee was originally employed by the transferor.
28. I am unable to see how any of the cases cited or the discussion in the Handbook can assist Mrs Jackson on this appeal. It is not contended by Mr Green that TUPE applies so as to confer directly on Mrs Jackson a right to enhanced severance pay applicable to a pre-1 March 2002 joiner. It was not a right to which she was entitled before the transfer in 2004 and the variation by CIS of its relevant terms of contract.
29. The submission is rather that the contractual severance terms must be interpreted in the context of TUPE, which applied to the relevant transfer to CIS in 2004. What is that context? The purpose and effect of TUPE and the Directive, as implemented by TUPE, is to safeguard, as a matter of public policy, the existing rights of employees on a transfer of an undertaking and the change of employer by making it possible for an employee to work for the new employer on the same conditions as those agreed with the transferor. The employment relationship and its conditions continue unchanged as if agreed with the transferee. TUPE also enables the length of the employee's service with the transferor to be used in the determination of certain rights of the employee (e.g calculation of redundancy and severance payments, calculation of length of notice and of qualifying periods).
30. The TUPE and Acquired Rights provisions aim at preventing the employee in an undertaking from being prejudiced as a result of the transfer of the undertaking: see, for example, Power v. Regent Security Services Ltd [2007] ICR 970 at paragraph 51-52. It is not, however, their objective to confer additional rights on the employee or to improve the situation of the employee: see Viggosdottir v. Islandspostur HF [2002] IRLR 425 at paragraphs 35 to 39.
31. So, the true effect of the deeming provision in regulation 5(1), on which the ET relied, is not to give a transferred employee access to employment benefits other than those to which the employee was entitled before the transfer of the undertaking. CIS, as transferee, is substituted for Ci(UK) Ltd, as the contracting party, and the prior obligations of Ci(UK)Ltd and the rights of Mrs Jackson continue to have effect after the transfer.
32. The fact that, when CIS treated Mrs Jackson as a new entrant post-1 March 2002, it calculated her severance pay on the basis of her deemed continuity of service from 1999, is irrelevant to the question whether she is or is not a new entrant within the meaning of the CIS enhanced severance terms. This question (i.e. new entrant or not) is determined by the date when, as a fact, she joined CIS. It is not determined by the direct or indirect application of Regulation 5(1), or by its alleged contextual effects or by Mrs Jackson's deemed continuity of service from 1999, her previous service with Ci (UK)Ltd having been carried across by TUPE on the relevant transfer to CIS in June 2004.
33. In brief, I totally reject the attempt to make artificial use of TUPE in a contextual fashion for the purpose of interpreting CIS's contract for enhanced severance pay terms in a way which displaces ET's undoubtedly correct finding of fact that Mrs Jackson joined CIS after 1 March 2002 and miraculously transforms her from being a post-2002 new entrant into a pre- 2002 joiner.

Result

34. There was an error of law in the decision of the ET on Mrs Jackson's claim for damages for non-payment of enhanced severance pay. The EAT correctly allowed the appeal by CIS. I would dismiss Mrs Jackson's appeal to this court.

Lord Justice Maurice Kay:

35. I agree.

Lord Justice Wilson:

36. I also agree.