England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MANCHESTER COUNTY COURT
HHJ PLATTS
Claim No. 0MA02292

		Royal Courts of Justice Strand, London, WC2A 2LL
		14/04/2011

Lord Justice Mummery:

Introduction

1. This appeal from an order of HHJ Platts dated 12 October 2010 raises points on the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) to an unusual set of circumstances.
2. On the trial of a preliminary issue judgment was given for the claimant Heartland (Midland) Limited. It was held that the contract of employment of the defendant, Mr Neil Marcroft, with PMI Health Group Limited (PMI standing for Private Medicine Intermediaries) was transferred to Heartland on 2 October 2009. TUPE applied to the transfer of PMI's commercial insurance undertaking to Heartland on that date and to Mr Marcroft's contract of employment.
3. The judge refused permission to appeal. Permission was granted by me on 29 November 2010 on the basis that the case raised points on TUPE that ought to be decided by the full court.
4. Two issues arise on Heartland's appeal.
5. The first is whether Mr Marcroft was "assigned" to the commercial insurance part of PMI's undertaking at the date immediately before the relevant transfer. The point arises under Regulation 4(1) which provides that

"…a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect as if originally made between the person so employed and the transferee."

6. That Regulation has to be read with Regulation 2(1) in which "assigned" is defined as meaning "assigned other than on a temporary basis." The main issue is whether, at the date of the transfer, Mr Marcroft was assigned to PMI's commercial insurance undertaking "on a temporary basis."
7. The second point arises under Regulation 4(7) which provides that:-

"Paragraphs (1) and (2) shall not operate to transfer the contract of employment and the rights, powers, duties and liabilities under or in connection with it of an employee who informs the transferor or the transferee that he objects to becoming employed by the transferee."

8. Where an employee so objects, the relevant transfer operates to terminate his contract of employment with the transferor, but he shall not be treated, for any purpose, as having been dismissed by the transferor: Regulation 4(8).
9. Mr Marcroft did not inform PMI or Heartland that he objected to becoming an employee of Heartland. His case is that the transfer to Heartland was inoperative as regards his contract of employment, because PMI did not provide him with information in writing, which would have enabled him to exercise his right to object to the transfer.
10. He relies on an implied term that he should have been given information in writing about the transfer and on regulation 13 as placing a duty on PMI to inform representatives of any employee, who might be affected by the transfer, of any matters as set out in that regulation to enable it to consult the representatives. Where an employer fails to comply with Regulation 13 TUPE provides that a complaint may be presented to an Employment Tribunal under Regulation 15 and appropriate compensation may be awarded.

Background

11. PMI carried on the business of brokers of various kinds of insurance including health and commercial insurance. Mr Marcroft has been employed in the insurance business for over 30 years. From July 2008 he was employed by PMI predominantly in the commercial insurance department of its business. He was responsible for sales. A team of 6 operated as Inter-Group Sales and included 3 financial advisers/sales staff, of which Mr Marcroft was one, and 3 support staff. His contract contained a restrictive covenant which he is alleged to have breached by approaching clients of PMI whose accounts he had managed or about whom he had acquired knowledge while with PMI with a view to their transferring business to a rival company.
12. In about August 2009 doubts were expressed by the directors of PMI about the development of the commercial insurance aspect of PMI's business and its viability. There were negotiations for the disposal of the commercial insurance undertaking to Heartland, a company owned by a Mr Brian Weetman, who had been approached by the directors of PMI to act as an independent consultant and to review the viability of PMI's commercial insurance business.
13. On 15 September 2009 Mr Marcroft, who had become disillusioned with the business, submitted notice of his resignation. It was agreed that the notice would expire on 26 October 2009, taking account of accrued holiday entitlement under the Working Time Regulations 1998. He was paid for the notice period and he retained the use of the company car and mobile phone until his employment terminated.
14. Mr Marcroft was officially informed by the directors at a meeting attended by him on 25 September 2009 that it was proposed to sell the commercial insurance business to Heartland, who had agreed to buy it. It was agreed that he need not attend the office to work, as there was very little work to be done in the commercial side of the business, but that he would be "on call" at home, if it became necessary. There was no consultation with him about any actual or prospective transfer to Heartland or to anyone else, nor did he receive any documentation about the transfer.
15. Between 25 September and 2 October 2009, when PMI entered into a formal written agreement for the transfer of its commercial insurance business as a going concern to Heartland, there was no evidence of substantial work being done or of meetings attended by clients with Mr Marcroft, though he fielded a few calls and finalised some account details. The written agreement made no reference to Mr Marcroft by name or to the transfer of his contract of employment.
16. Heartland claims that Mr Marcroft's employment was transferred to it by virtue of TUPE and that it is entitled to sue him for breach of the terms of his service agreement prohibiting soliciting by him of clients of the commercial insurance business. After the termination of his employment Mr Marcroft went to work for a rival company, the Doodson Broking Group Limited.
17. On 20 November 2009 PMI's solicitors wrote to Mr Marcroft alleging that he had breached his restrictive covenants in his PMI contract by soliciting clients of PMI. His solicitors replied on 26 November saying that TUPE applied and that his contract had been transferred to Heartland, which had the benefit of any covenants that were effective.
18. The claim for damages for breach of contract is now brought by Heartland relying on TUPE. Mr Marcroft has changed his tune. He asserts that TUPE did not apply, that there was no relevant transfer, that he was not employed by PMI, that he was not assigned to that part of the undertaking transferred, that he had ceased to be assigned before the date of the transfer and that PMI had deliberately breached its duty to provide him with information about the transfer, thereby by depriving him of the opportunity to object to it and rendering the transfer of his contract of employment ineffective.

Judgment of HHJ Platts

19. The judge found that no real thought was given to whether, if at all, any of PMI's employees would transfer to Heartland. The judge said that Mr Weetman never intended that any of the PMI employees would transfer as part of the sale agreement and he had no idea about TUPE or its operation.
20. On the various issues before him the judge held that there was a relevant transfer by PMI to Heartland under Regulation 3 of TUPE; that Mr Marcroft was employed by the transferor PMI; that Mr Marcroft was assigned to the business of the commercial insurance department at PMI which was transferred to Heartland; and that he had adequate opportunity to object to the transfer.
21. On the "assigned point" Mr Marcroft had suggested in his evidence that he could not be assigned to the commercial department (otherwise than on a temporary basis), as he spent some time dealing with private health business and other things. The judge found that that was untenable, as Mr Marcroft himself agreed that he spent 80% to 85% of his time on commercial insurance business and had no expertise in other areas of insurance with which PMI dealt. The judge found as a fact that certainly until he handed in his notice and "probably certainly" until 25 September 2009 Mr Marcroft was assigned to the commercial insurance business that was transferred to Heartland.
22. The judge then considered the position after those dates when there was little or no work for him to do. It was argued that he was no longer assigned to that part of the business, that he was "effectively an employee without any portfolio", that he was just sitting out his notice period and that he was not assigned to commercial insurance business at the key date of the transfer on 2 October.
23. The judge rejected the contention that he was not assigned to the undertaking transferred. He did so by reference to the various periods, holding that:-

(1) Before 15 September when he handed in his notice he was "certainly assigned to the commercial insurance department."

(2) Between 15 and 25 September he still did commercial work and "remained assigned during that period, despite the fact that he had handed in his notice. The fact of handing in his notice did not alter the situation. "

(3) After 25 September he "remained on call should any problems or questions arise." The judge said that that did not mean that "he ceased to be part of the commercial insurance team. In fact, it seems to me that PMI were still entitled to rely on him if anything arose."

24. The judge said that he was satisfied that Mr Marcroft

"…remained at all times assigned to that department and the part of the business which was transferred to the claimant on 2 October. After that, of course he was not assigned at all because there was nothing to be assigned to. "

25. I note that, although the judge had referred to the definition of "assigned" in TUPE as excluding assignment on a "temporary basis" (see paragraph 24 of his judgment) there was no further reference in his judgment to the question of being assigned on a temporary basis. I mention the omission, as it is submitted on behalf of Mr Marcroft that the judge erred in not dealing with that issue in relation to the periods after the giving of notice and official confirmation of the proposed transfer.
26. On the point that Mr Marcroft was not given information or an adequate opportunity to object to the transfer, the judge rejected the allegation that there was a conspiracy between PMI and Heartland to avoid the operation of, or to breach, the protective regime of TUPE. He also rejected the contention that it was a condition precedent for the statutory novation of a contract of employment that the employee has not exercised the right of objection when he was aware of his right. He found that there was no intentional or deliberate scheme between PMI and Heartland to avoid the operation of TUPE. Mr Weetman just did not apply his mind to TUPE and was probably not aware of it. He held that he was not satisfied that it was a condition precedent to the employment being transferred that the employee had been given notice of the proposed transfer. If it was, unscrupulous employers might fail to give notice in order to frustrate the intention of the Regulations and that could not be right. The remedy for failure to give any advice was provided for in regulation 15 and the obligation was on PMI, not on Heartland.
27. The judge concluded:-

"…It might seem somewhat surprising at first blush when I found that this was a result that was not intended, either by either party to the agreement nor by the defendant himself. But the regulations are not determined by the intention of the parties. Certainly as to the agreement to transfer, the intention for the parties, while relevant, cannot be determinative because the idea of the regulations is to provide protection to the employees who are not a party to that contract. Therefore that is not a relevant factor. Once the protection is provided to the employee then it must be right that the protection he has does not only protect him to his rights but it must carry with it any burdens that he has under the contract. So far as Mr Marcroft is concerned, if this sale had not taken place, he would have been bound by any restrictive covenant that he had and, in my judgment, the fact that the business was sold to Heartlands does not relieve him of that obligation for the reasons which I have given…"

Appellant's submissions

28. Mr Edward Morgan appearing for Mr Marcroft submits that the judge erred in law in several respects: he failed to interpret properly the protective nature of TUPE; he failed to give proper consideration to the notion of a temporary assignment in Regulation 2(1); and he failed to give adequate consideration to the fact that Mr Marcroft was not provided with information and documents or afforded a right to object to the transfer.
29. The first point taken is that Mr Marcroft was not assigned to the undertaking transferred either at all, or other than temporarily and so his contract of employment was not caught by the transfer to Heartland on 2 October. At this hearing Mr Morgan directed his submissions to the period after Mr Marcroft had handed in his notice. He contends that the judge erred in his application of the law by not expressly addressing in his judgment the temporary character of Mr Marcroft's position on assigned work while he was on "garden leave" without any requirement or expectation that he undertake duties during the currency of the leave. After his notice of his resignation he had only a very limited shelf life left with PMI.
30. Mr Morgan emphasises that only those employees who are assigned to an economic entity, other than on a temporary basis, will, absent objection, be transferred: see Botzen v Rotterdamsche Drrodok Maatschappij BV [1985] ECR 519 and Bademosi v Securiplan [2003] All ER(D) 435.
31. The second point is that the judge should have held that there was a failure to accommodate Mr Marcroft's right to object to the transfer and that meant that Heartland was precluded from relying on TUPE to say that there was a transfer to it of Mr Marcroft's contract of employment.
32. Mr Morgan relies on the "pivotal importance" of those aspects of the TUPE regime relating to the provision of information and to consultation through a representative, which safeguard an employee from being compelled to consent to a transfer. TUPE should be interpreted to safeguard his right to object to the statutory novation of his contract of employment. The provisions should, he submits, be given a purposive interpretation. He also submits that there was an implied obligation to provide the information to the employee in writing and that, if that obligation was breached, the transfer of that employee's contract was not effective.

Discussion and conclusions

33. Mr Marcroft does not challenge any of the judge's findings of primary fact as having no foundation in the evidence. The grounds of appeal are based on the alleged failure of the judge to apply the relevant TUPE provisions correctly to the facts found by him. It is said that he reached conclusions that no judge, properly directing himself on the law and the facts, could have reached.
34. Taking first the "assigned point" I agree with Mr Morgan that, in his treatment of the period after 15 September 2009, the judge did not state in terms that in TUPE "assigned" does not include "assigned on a temporary basis." The judge did not discuss the nature of Mr Marcroft's position in PMI during that period in terms of whether or not he was assigned on a temporary basis. I also understand why it may be said that, in that fag end of his contract, there was a temporary quality in the timescale of Mr Marcroft's employment with PMI. After he had given his notice his employment was time limited: it would terminate on 26 October.
35. In my judgment, however, the judge's decision on this point was not wrong. The judge dealt, in his findings of fact, with the substance of all of Mr Marcroft's arguments that he was not "assigned" within the meaning of TUPE. The findings were to the effect that, although Mr Marcroft gave notice and his work input was reduced, his previous position of being assigned to the commercial department of PMI continued down to the transfer of 2 October.
36. Mr Marcroft's case on the assigned point was put in number of ways, all of which were rejected by the judge on the facts. It was argued, first, that he was never assigned to the commercial department of PMI, as he did other kinds of insurance work. The judge rightly rejected that submission on the basis of the clear evidence of his position in relation to the commercial insurance department down 15 September 2009. It was submitted, secondly, that the position changed as a result of handing in his notice and of 26 October being agreed as the effective date of termination. In my view, the judge was entitled to reject that submission on the basis of the evidence about the work that Mr Marcroft continued to do after handing in his notice and on the basis that it cannot be right, in principle, that an employee is automatically assigned on a temporary basis, thereby losing the protection of TUPE, simply as a result of handing in his notice. It was submitted, thirdly, that things changed on and after 25 September when the sale of the undertaking to Heartland was officially confirmed to him and it was agreed that he could stay at home on call. The judge rejected that submission on the basis of the facts found by him about the nature of the work, albeit reduced in quantity, that Mr Marcroft did after that date. In my view, the judge was entitled in law to reach that conclusion on the facts.
37. The judge was aware of the legal position about being assigned on a temporary basis, as is apparent from his reference to the definition in paragraph 24 of his judgment. There is no challenge to the facts on which he based his conclusion that Mr Marcroft was assigned to the commercial department down to 15 September. As for the period of just over 2 weeks following, the judge made clear findings of fact about the reduced workload and the agreed termination date, which, in my view, are capable of supporting his conclusion that there was no change in Mr Marcroft's assigned position in the commercial department before the transfer date.
38. On the failure to inform and alleged denial of the right to object as grounds for rendering ineffective Mr Marcroft's transfer to Heartland, Mr Morgan's submissions face a number of difficulties.
39. The first difficulty is that, on the facts found by the judge, there was no conspiracy by PMI and Heartland to evade TUPE which would disentitle Heartland from saying that there was a TUPE transfer. Mr Marcroft was informed of the proposed transfer by PMI on 25 September. He did not object to the transfer either before or after 2 October 2009. On the contrary, he asserted through his solicitors in their letter of 26 November, by which time he was fully aware of the circumstances, that TUPE applied to transfer him from PMI and that Heartland had the benefit of any restrictive covenant that he was alleged to have breached.
40. The second difficulty is that there is no legal basis for saying that the transfer of his contract of employment was, on the facts found, ineffective. There is a duty under Regulation 13 to provide the representatives of the affected workers with certain information (which does not, however, include the right to object). It is not an obligation to provide the information to Mr Marcroft personally. But even if such a duty could somehow be spelled out of that regulation, the duty rests with the PMI, not Heartland since they are not his employer. The remedy for breach of the Regulation 13 duty is a claim in the Employment Tribunal under Regulations 15 and 16, not an avoidance of the transfer that has taken place.
41. Further, compliance with Regulation 13 is not a condition precedent to an effective transfer of a contract of employment. If it were, there would be no point in TUPE conferring the right to object, since the transferor employer in the position of PMI could always prevent a transfer by the simple device of not providing the employee's representative with information in compliance with Regulation 13. Such a construction would undermine the protective purpose of TUPE and the Directive implemented by it.
42. Finally, there is no basis in fact or law for the suggested implied term in the contract of employment that would render the transfer of it ineffective unless the employee has been provided with information by the employer about the transfer.

Result

43. I would dismiss the appeal. It has not been established that the decision of the judge was wrong on any of the points raised in the grounds of appeal or in argument. In my view, the ex tempore judgment of HHJ Platts is to be commended in every respect: he carefully considered the evidence and the submissions; he made clear and firm findings of fact; and he correctly interpreted and applied TUPE to those facts. In a case that was by no means straightforward the judge reached the right result on all the issues.

Lord Justice Patten:

44. I agree.

Lord Justice Elias:

45. I also agree.