ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RICHARDS
SIR DAVID KEENE
| SPACERIGHT EUROPE LIMITED
|- and -
|(1)MR BRUNO BAILLAVOINE
(2) THE SECRETARY OF STATE FOR BUSINESS INNOVATION AND SKILLS
MR KEITH BRYANT and MR SAUL MARGO (instructed by Messrs Jeffrey Green Russell) for the First Respondent
Hearing date: 17th November 2011
LORD JUSTICE MUMMERY:
Crown Copyright ©
(1) On 23 May 2008 Utralon Holdings and its subsidiary Ultralon Limited went into administration. On the same day the administrators dismissed the Claimant along with 43 other employees. Both Ultralon companies subsequently went into liquidation.
(2) On 25 June 2008 the administrators sold the business and assets of the Utralon companies to Spaceright.
The essence of the perversity challenge is that, in finding that the reason for the dismissal was connected with the transfer to Spaceright, the ET rejected, without giving reasons, the administrators' evidence pointing to a reason that was not connected with the transfer, namely an administration cost-saving reason.
(2) Misinterpretation of TUPE.
This ground is that the ET misdirected itself on the proper construction of regulation 7(1) relating to a reason "connected with the transfer" (my emphasis). The ET declined to follow the decision of the EAT in Ibex Trading v. Walton  ICR 907. The EAT held in Ibex that, where administrators dismissed employees with the aim of making the insolvent business more saleable, it could not be said that the reason for the dismissal was connected with "the transfer" of the assets of the business effected some four months later, because, at the relevant date (the dismissal), there was only the possibility of a transfer. The particular relevant transfer that ultimately took place was neither in being nor in negotiation or in contemplation at the date of the dismissal. In short, there was not in existence, at the date of dismissal, an actual or prospective transfer for the dismissal reason to be connected with. Spaceright submits that the ET erred in law in (a) declining to follow Ibex and instead (b) following EAT decisions to the opposite effect in Harrison Bowden v. Bowden  ICR 186 and Morris v.John Grose  ICR 655.
(3) Wrong approach to ETO defence.
The final criticism is that the ET erred in its approach to the ETO defence. Although the EAT in fact agreed with Spaceright on this point, it went on to dismiss this ground of appeal because, on the ET's finding of facts, the correct application of the ETO defence led to the same result.
"1. The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce."
"(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the 1996 Act (unfair dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is-
(a) the transfer itself; or
(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce."
"13.24 On 23 May administrators were appointed by the company's bankers Halifax Bank of Scotland: Mr Caven was one of the administrators. On the same day, the claimant was dismissed orally from his employment by Mr Caven. The administrators decided to continue trading the company's business with a view to selling it as a going concern. They dismissed a number of other employees. A letter was sent to the claimant at his former address, purporting to confirm the termination of his employment by Ultralon Limited. The claimant would not see a version of this letter sent to his true address until early July."
"The Claimant was employed as managing director of the company. This role became redundant on our appointment and given the high salary costs of the Claimant as compared to other employees, his role was identified as being one which the business could operate without and which would make significant cost savings. The Claimant was therefore made redundant on our appointment.
The Claimant carried out a unique role so there was no selection criteria other than as mentioned above."
"We obtained funding from the Bank in order to continue to trade whilst we undertook a marketing exercise for the business of the Company."
"17. The third question is: what was the reason for the claimant's dismissal? Was it a reason connected with the transfer that is not an economic, technical or organisational reason of the employer, entailing changes in the work force of the employer? We bear in mind what Mr Caven said in response to the claimant's questions. It seems to us that the claimant, as a Chief Executive Officer, was redundant because no purchaser of the businesses from the administrator would require such an officer. The purchaser would either be an existing company with its own chief executive officer or it would be a new venture, where the chief executive officer would come from the ranks of the directors. It was therefore necessary for the administrators to dispense with the claimant's services.
18. We are faced with two authorities from 1994 which are to the contrary effect. In Ibex Trading the Employment Appeal Tribunal thought that whilst the employees were dismissed for a reason connected with a possible transfer, they had not been dismissed for a reason connected with the ultimate transfer of the business, which occurred some four months after the employees had been dismissed. In the Harrison Bowden case, the same tribunal held that dismissals could be for a reason connected with the transfer, even though no actual prospective transferee had been identified at the time of the dismissal. We prefer the reasoning in the Harrison Bowden case. It seems to us here that the claimant was dismissed so as to enable a purchaser of the business to acquire the business and assets without the continued employment of its Chief Executive Officer. The claimant's salary of £120,000 might also have presented a problem for a prospective purchaser of the business. For these reasons we are satisfied that the reason for the Claimant's dismissal was connected with the transfer of the business and assets of [Ultralon and Ultralon Holdings] to [Spaceright].
19. The second part of the third question however is whether or not, since the reason for the claimant's dismissal is, as we have held, a reason connected with the transfer, that reason is an economic, technical or organisational reason entailing changes in the workforce of [Ultralon Holdings]. We think that the answer to this particular question is straightforward. The reason for the claimant's dismissal may well have been economic, at least in part. It could also be said to be an organisational reason. But it is clear that the reason does not entail changes in the workforce of [Ultralon Holdings]. [Utralon Holdings] was a holding company. It did not have a workforce. The claimant's pay was transmitted to him by means of a payroll operated for the purposes of [Ultralon]. Even if we were to include the workforce of [Ultralon] in our consideration of the reason for the dismissal it seems to us that the reason identified above does not entail changes in that workforce. The reason for the claimant's dismissal (see above paragraph 17) is peculiar to him and to his circumstances and does not apply to the wider workforce. It follows that regulation 7(1) applies. The reason for the claimant's dismissal was a reason connected with the subsequent transfer but it was not an economic technical or organisational reason entailing changes in the workforce of [Ultralon Holdings]. Accordingly, the claimant's dismissal by [Ultralon Holdings] was unfair."
"33. In this case the Tribunal correctly focussed on the reasons of the administrator. It took the statement of the administrator as its starting point. It was entitled to make findings which took into account the context and to draw on its own experience of employment issues. Mr Caven said that the appointment of the administrators rendered the Claimant redundant. It is true that the administrators had a right to manage the business prevailing over that of the chief executive or managing director, but if the business was to be transferred, which was what they contemplated, it would need a managing director. The Tribunal was entitled to consider why, given that a going concern would need a managing director, the administrators made the Claimant redundant. The conclusion they reached was entirely tenable. In our judgment it involves no error of law."
"35. Nor do we accept Mr Lee's submission that the Tribunal needed to make more precise findings as to the likelihood of a transfer taking place. In this case there is no doubt that the administrator was contemplating a transfer at the time of dismissal and no reason to doubt that he had solid reasons for doing so. The transfer was effected the following month.
36. Nor do we accept Mr Lee's submission that the Tribunal was bound, on the evidence, to find that the administrator dismissed the Claimant because the business could not afford his salary. As we have pointed out, it was part of the background that the bank funded the business while a transfer was sought. This, unlike some of the cases cited to us, was not a case where the financial exigencies left the administrator without choices.
37. We accept that the Tribunal's reasoning is brief. This has to be seen against the background of the limited relevant evidence available to it. In our judgment the Tribunal's reasoning on this point sufficiently tells the parties and the Appeal Tribunal how the issue was decided."
"46. Applying those principles, it is in our judgment plain that the administrator's reason as found by the Tribunal in paragraph 17 of its reasons was not an ETO reason entailing changes in the workforce. The reason did not relate to the conduct of the business as a going concern; the business was always going to need a managing director. It did not contemplate a diminution in the number of employees in the ongoing business, for it was contemplated that the Claimant would be replaced (as indeed he was). The reason was related to the sale of the business."
I. Perverse finding
II.Erroneous interpretation of Article 7(1) and conflicting authorities
"Contrary to what was said in Harrison Bowden …we attach significance to the definite article in regulation 8(1) [now 7(1)] ' that employee shall be treated …as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal.' The link, in terms of time, between the dismissals and the transfers will vary considerably. In Litster v Forth Dry Dock & Engineering Co. Ltd.  ICR 341 the time difference was one hour; often it will be more. A transfer is not just a single event: it extends over a period of time culminating in a completion. However, here, the employees were dismissed before any offer had been made for the business. Whilst it could be properly said that they were dismissed for a reason connected with a possible transfer of the business, on the facts here we are not satisfied that they were dismissed by reason of the transfer or for a reason connected with the transfer. A transfer was, at the stage of the dismissal, a mere twinkle in the eye and might well never have occurred. We do not say that in every case it is necessary for the prospective transferee to be identified; because sometimes one purchaser drops out at the last minute and another purchaser replaces him."
" …would open a loophole in this legislation which presumes continuity of employment and attempts to ensure the protection of workers when undertakings are transferred. There is also a conceptual difficulty in distinguishing between a prospective transferee and the actual transferee. Why should it make any difference if there is one front runner at the point of dismissal who is then perhaps, as the example was put to us, gazumped by another one but in the meantime the employees have been dismissed? If their dismissal was connected with the transfer one would expect this legislation to protect them."
"In our view, however, the words "the transfer" towards the end of regulation 8(1) do not by necessary construction have to refer to the relevant particular transfer which has actually taken place. If that was the necessary meaning of regulation 8(1) it could have been made quite clear by the use of words such as "that transfer" or "the particular transfer." Although "the" is described as a definite article, it is not always used as such in ordinary English, and in our view the words "the transfer," as they are used in regulation 8(1), could perfectly well mean "transfer" or "a transfer." In our judgment this view of the meaning of regulation 8(1) is more consistent with the broad scope of Directive (77/187/EEC)."
"…In our judgment the tribunal should have asked whether a transfer to any transferee who might appear, or a reason connected with such a transfer was the reason or principal reason for his dismissal."
Discussion and conclusions
Lord Justice Richards:
Sir David Keene :