Industrial Tribunals Northern Ireland Decisions

 
THE INDUSTRIAL TRIBUNALS

CASE REFS: 952/05

953/05

CLAIMANTS: Gemma McCullagh

Geraldine O'Donnell

RESPONDENTS: 1. Barry Fox

2. Christine Meyler

3. Kevin McGuigan

DECISION ON A PRE-HEARING REVIEW

The decision of the tribunal is that there was a relevant transfer of an undertaking and the claimants' contracts of employment have transferred to the first-named respondent with all resulting liabilities.

Constitution of Tribunal:

Vice President (Sitting alone): Mrs M Price

Appearances:

The claimants were represented by Mr K Denvir, Barrister-at-Law, instructed by Oliver Roche, Solicitor.

The first-named respondent did not appear, nor was he represented.

The second and third-named respondents were represented by Mr M Robinson, Barrister-at-Law, instructed by King & Gowdy, Solicitors.

1. The issue to be determined was:-

"Whether there was a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981."

Facts found

2. The claimants were employed to work for a firm of solicitors known as R H O'Connor & Company. It consisted of three partners, Mr Barry Fox, Ms Christine Meyler and Mr Kevin McGuigan (the respondents in this case). It is common case that in 2003, the first-named respondent became ill, he left work for a while and came back to work in January 2005. The evidence the tribunal has accepted from the third-named respondent is that there was disagreement between the partners which turned into a most acrimonious scene in or about the beginning of 2005 so the partners decided that the partnership must be dissolved. The second and third-named respondents were setting up their own partnership and the first-named respondent was going to set up as a sole partner.
3. The partners agreed that as the premises in High Street, Omagh, belonged to the partnership they would sell that partnership and set up two new partnerships with different addresses. The third-named respondent approached all the six members of staff and asked them if they would like to transfer with him and the second-named respondent. Four of the staff said they would like to go with them and the two claimants decided to work with the first-named respondent. It is common case that there was no formal dissolution agreement entered into by the parties, but I have accepted evidence and seen documentation to show that all the partners instructed solicitors to act in their interests. Despite the acrimony that developed there was a final agreement drawn up in the High Court between counsel acting for the parties. This agreement reflected the fact that the second and third-named respondents would return the files they had taken from the practice before 22 February 2005, and they would be able to retain other files. They were able to retain the computers used by their secretaries and some of the office equipment. I have seen documentation which referred to the separation of accounts for the two separate partnerships being set up. There is a letter from the first-named respondent's solicitor to show that in respect of the premises situated at 11 High Street, Omagh, it was agreed that "from the date of dissolution 'which is now 22 February 2005' the said premises will be used solely for the administrative purpose of winding up R H O'Connor & Company".
4. The two claimants worked on Thursday 17 February 2005 as normal in the premises. They returned to work on 18 February 2005 to find that the only items left in the premises were their desks and computers, all the files had been taken and various other forms, such as legal aid forms had been taken. They stated that by lunch time it was obvious they had no work to do and the first-named respondent told them to leave and go home. They started work for the first-named respondent in his new premises on Monday 21 February 2005 and both claimants have remained in his employment since then. The third-named respondent stated that the four people who stayed with his partnership continued on the same terms and conditions as they had enjoyed before.
5. The claimants produced P45s which they had been sent on behalf of R H O'Connor & Company. These showed that their final date of employment was 18 February 2005. The tribunal noted that these P45s were prepared on 2 March 2005 when the claimants were then working for the first-named respondent.
6. The tribunal had been referred to agreed documentation. However counsel for the second and third-named respondents produced a letter which had been received by his solicitor dated 15 February 2005. This looks the same as the letter in the bundle produced to the tribunal. However, it can be seen that additional paragraphs are in the letter which was sent to the second and third-named respondents' solicitor. Those paragraphs are significant, in that they refer to the plans for the staff. At the penultimate paragraph of the letter, which I accept was received by King & Gowdy, it states:-

"As far as staff are concerned it will have to be acknowledged by the parties that the members of staff being retained by Mr McGuigan and Ms Meyler and the members of staff being retained by Mr Fox will be directly responsible to the retaining partner."

Then the final paragraph states:-

"You may wish to confirm my recollection of the consultation with Mr McGuigan, but subject to agreement on notification of the existing clients, it would appear that the dissolution could take place with the appointment of Mr Brian Mellon and thereby mitigate the costs involved in a formal dissolution by the Court."

7. Similarly there was a letter sent to King & Gowdy on 11 February 2005 which referred to a schedule, which is referred to as "our own schedule". It was not in the bundle produced to the tribunal. Counsel for second and third-named respondents produced this schedule which clearly refers to the dissolution of the partnership and in particular the first-named respondent's solicitor refers under the heading 'Practical Issues' to transfer of staff under TUPE Regulations. He also refers under 'Financial Issues' to valuation of goodwill in buy-out scenario and also agreed valuation of work in progress files, treatment of partner time and at 21. – split of furniture and equipment; 22. – valuation and buy-out of motor vehicles; 23. – agreed valuation of recoverable debtors and mechanism to collect partnership debtors. Also under a heading stating 'Potential Taxation Issues' the first-named respondent's solicitor refers at 34. to 'treatment and timing of final VAT return – availability of transfer of business as a going concern relief'.

Application of relevant law to the facts

8. Counsel for the first-named respondent submitted that as there was no formal dissolution agreement in existence this was not a transfer of an undertaking. Similarly he stated that because the claimants had received P45s they had been dismissed by the partnership and there was not a transfer.
9. The tribunal has considered the Transfer of Undertakings Regulations 1981 and a significant factor of this is that they are also called Protection of Employment Regulations. The tribunal finds that there was an identifiable undertaking called R H O'Connor & Company. It was a solicitor's practice which had clients, goodwill, business assets and traded for profit. This partnership came to an end because the three solicitors could not continue to work together. They all recognised this and set up two separate entities. In doing so, there was a transfer of client files, there was transfer of business assets, such as computers, dictaphones, desks, cars, there was a potential transfer of liabilities and credits in terms of monies and the staff volunteered to work for the new businesses. The fact that R H O'Connor & Company ceased to trade on 18 February 2005 is not particularly significant when one considers that the six employees involved all started to work for the partners they had chosen on the following Monday, so there was, in effect, no break in their continuity of employment. They were not dismissed by either partner and the P45 which was prepared by the administrator on 2 March 2005 was to finalise matters with R H O'Connor & Company, rather than to signify a dismissal.
10. In relation to the question of whether there was a formal dissolution agreement, the tribunal is satisfied that this partnership had come to an end and all those involved recognised and wanted to continue the businesses in two separate partnerships. The Regulations state:-

"The Transfer of Undertakings Regulations apply whether the transfer is effected by sale or by some other disposition or by operation of law."

The tribunal is satisfied that this was a situation of some other disposition, ie the parties agreed as to how it was going to be dissolved. The definition of 'undertaking' in Regulation 2(1) and the provisions of Regulation 2(2) show that while these Regulations apply to transfers, both of an undertaking and of part of an undertaking, in either case what is transferred must be transferred as a, for example, business, ie a going concern. In this case that is exactly what happened.

11. The question is not solely of clients and the business being transferred, but it also applied to all the assets of this partnership which were divided and transferred to the two new partnerships. A significant factor is that both firms of solicitors who were acting for the partners in this case recognised that there was goodwill in the business which was going to be transferred as well as assets.
12. Having determined that there was a relevant transfer of an undertaking, Regulation 5 states:-

"That a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transfer or in the undertaking or part-transfer, but any such contract which would otherwise have been terminated by the transferee shall have effect after the transfer as if originally made between the person so employed and the transferee. This necessitates that 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."

13. The issue of whether there has been a relevant transfer of an undertaking has been considered in numerous decisions of both the European Court of Justice and the UK Courts. The EAT, in the case of Cheesman v R Brewer Contracts Ltd 2001 IRLR 144 helpfully analysed this case law and distilled the relevant principles. On the question of whether there has been a transfer, the EAT derived the following principles from the leading cases:-

"(i) … the decisive criteria for establishing the existence of a transfer is whether the entity in question retains its identity, as indicated ... by the fact that its operation is actually continued or resumed; ...

(iii) in considering whether the conditions for ... a transfer are met, it is necessary to consider all the factors characterising the transaction in question, but each as a single factor and none is to be considered in isolation;

(iv) amongst the matters ... for consideration are the type of undertaking, whether or not its tangible assets are transferred, the value of its intangible assets at the time of transfer, whether or not the majority of its employees are taken over by the new company, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, in which they are suspended;

(v) … account has to be taken ... of the type of undertaking or business in issue, and the degree of importance to be attached to the several criteria will necessarily vary according to the activity carried on;

(vi) where an economic entity is able to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction ... cannot logically depend on the transfer of such assets;

(vii) even where the assets are owned and are required to run the undertaking, the fact that they do not pass does not preclude a transfer;

(x) the absence of any contractual link between the transferor and transferee may be evidence that there has been no relevant transfer, but it is certainly not conclusive as there is no need for any such direct contractual relationship

(xi when no employees are transferred, the reasons why that is the case can be relevant as to whether or not there was a transfer."

14. The tribunal is satisfied that the contracts of employment of the two claimants have transferred over to the first-named respondent. This relates to the various tests which have been outlined above. The effects of this relevant transfer are that the claims for redundancy payment are not upheld. Neither is the claim for pay in lieu of notice, as the claimants' terms of contract have transferred over to the first-named respondent, including continuity of employment rights. There would appear to be an issue still in relation to the pay that they should have received for the week ending 18 February 2005 and hopefully that matter will be resolved.

Vice President:

Date and place of hearing: 2 June 2006, Strabane

Date decision recorded in register and issued to parties: