United Kingdom Employment Appeal Tribunal

BAILII case number: [1993] UKEAT 386_92_2705

Appeal No. EAT/386/92

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 26th, 27th & 28th April 1993

and 27th May 1993

Judgment delivered on 30th July 1993

Before

THE HONOURABLE MR JUSTICE WOOD MC (P)

MR D O GLADWIN CBE JP

MR K M HACK

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T WREN & ORS          APPELLANTS

(1) EASTBOURNE BOROUGH COUNCIL

(2) UK WASTE CONTROL LTD          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellants Mr J Hand QC

Mr T Linden

(of Counsel)

Messrs Pattinson & Brewer

8-12 New Road

Chatham, Kent

ME4 4QR

For the Respondents (1st) Mr M Lowe

(of Counsel)

Borough Secretary and

Solicitor

Town Hall

Grove Road, Eastbourne

East Sussex BN21 4UG

For the Respondents (2nd) Mr D M Dencer

(of Counsel)

Messrs Pannone & Partners

14 New Street

LONDON EC2M 4TR


 


MR JUSTICE WOOD (PRESIDENT): Of the 18 Appellants (Applicants before the Industrial Tribunal) Mr Adams is a special case. It is agreed that his appeal should be adjourned sine die with liberty to apply. We so order. The remaining appeals can be considered together.

The first Respondents, Eastbourne Borough Council (the Council) was under an obligation pursuant to the terms of the Local Government Act 1988 to seek competitive tenders for certain identified activities (Section 2(2)), which included "collection of refuse" and "other cleaning", including the cleaning of streets. The second Respondent, UK Waste Control Ltd (the Company) was the successful tenderer from 1st October 1990. It undertook those activities for which the Council was responsible.

An Industrial Tribunal sitting at Brighton reached a unanimous decision that the contract between the Council and the Company did not effect a transfer of an undertaking as defined in the Transfer of Undertakings (Protection of Employment) Regulations 1981, (the Regulations). The Applicants now appeal. They were all employees of the Council in the Cleansing section of the Council's Borough Services Department (BSD). They included a supervisor, drivers, refuse collectors, street sweepers and other categories.

In the case of each Applicant his contract of employment with the Council was terminated by a notice dated 19th July 1990 expiring on 30th September. The reason for each dismissal was redundancy. It is clear from the documentation that the Council had consulted the relevant Trade Unions at all stages and that wide consultation had taken place. No criticism is levelled at it from the procedural aspects. Each Applicant has received his redundancy payment.

The Applicants allege against the Council "unfair dismissal" and claim reinstatement.

As against the Company they also allege unfair dismissal and claim reinstatement, but these claims are based upon the provisions of the Regulations.

We are informed that a substantial number of cases are awaiting in Industrial Tribunals pending the decision in this case. We have been asked to examine the present state of the law on a wide basis and not to restrict ourselves only to what may be necessary for a decision of this appeal. Once again, decisions from the European Court of Justice have thrown the UK law into a state of uncertainty and we are asked to give such help as we are able to those dealing with these matters day by day.

The relevant Regulations are:

"R2-(1) "undertaking" includes any trade or business but does not include any undertaking or part of an undertaking which is not in the nature of a commercial venture."

"R3-(1) Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated.

(2) Subject as aforesaid, these Regulations so apply whether the transfer is effected by sale or by some other disposition or by operation of law.

(3) ...

(4) It is hereby declared that a transfer of an undertaking or part of one may be effected by a series of two or more transactions between the same parties, but in determining whether or not such a series constitutes a single transfer regard shall be had to the extent to which the undertaking or part was controlled by the transferor and transferee respectively before the last transaction, to the lapse of time between each of the transactions, to the intention of the parties and to all the other circumstances.

..."

"R5-(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 a 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.

(3) Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions.

..."

"R8-(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 V of the 1978 Act and Articles 20 to 41 of the 1976 Order (unfair dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal.

(2) Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee -

(a)paragraph (1) above shall not apply to his dismissal; but

(b)without prejudice to the application of section 57(3) of the 1978 Act or Article 22(10) of the 1976 Order (test of fair dismissal), the dismissal shall for the purposes of section 57(1)(b) of that Act and Article 22(1)(b) of that Order (substantial reason for dismissal) be regarded as having been for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held.

..."

These Regulations are intended to comply with the obligation of the UK Government, under Article 189 of the Treaty of Rome, to give effect to Directive 77/187 of the Council (the Directive) on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses.

Article 1 reads:

"1. This Directive shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger.

..."

Article 2:

"For the purpose of this Directive:

(a)"Transferor" means any natural or legal person who, by reason of a transfer within the meaning of Article 1(1), ceases to be the employer in respect of the undertaking, business or part of the business;

(b)"transferee" means any natural or legal person who, by reason of a transfer within the meaning of Article 1(1), becomes the employer in respect of the undertaking, business or part of the business;

..."

Article 3:

"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 within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.

..."

Article 4:

"1. The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissal that may take place for economic, technical or organisational reasons entailing changes in the work force.

..."

The Notices of Appearance filed by the Council allege that from 30th September 1990 their requirements to employ staff on refuse collection or street sweeping ceased, and accordingly that the Applicants and others were redundant and were dismissed for that reason. As we have said each was paid his redundancy payment.

The Company defence alleges that no Applicant was employed by it and the Regulations did not apply as there was no transfer of an undertaking within its provisions.

The Industrial Tribunal was presented with substantial bundles of documents and some written statements. It also heard oral evidence from a number of witnesses. We take the facts shortly.

Prior to 1984 the provision of some of the many services carried out by the Council under its statutory duties or powers was made directly or through the Technical Services Department. Refuse collection, street cleansing and public convenience attendance and cleansing were carried out by a contractor: but that service reverted to the Council's Direct Labour Organisation (DLO) in April 1987. The provisions of the Local Government Planning and Land Act 1980 and its subordinate legislation required a percentage of work only to be carried out by direct employment if it was won by competitive tender. Consequently in April 1984 the Council reorganised the system and all manual labour forces were grouped into one organisation called the Borough Services Department (BSD).

The introduction of compulsory competitive tendering had the effect of extending the need for internal charging systems. More areas of work were to be put out to tender. BSD had several divisions including cleansing. It carried out work for other departments of the Council principally the Technical Services Department and there was an internal cost allocation system.

BSD also did work for other public bodies within the meaning of the Local Authorities (Goods and Services) Act 1970. These included the County Council, other District Councils and various Housing Associations. Ninety per cent of the total work was for the Council, 8% for other public bodies and some 2% for others. The whole of BSD was closed down on 30th September 1990, the date upon which the Appellants' contracts of service came to an end.

By the provisions of S.12 of the Control of Pollution Act 1974 the Council was required to collect household refuse without charge. There was also a duty to keep the streets clean and a duty to offer a commercial waste collection service. Until BSD was closed down the refuse collection and street sweeping service was provided by it under the professional supervision of the then Council's Director of Technical Services. That service was now operated under contract by the Company. However the Council through its Director of Technical Services remains responsible for this service and its provision for the public.

As we have said the Council was required to put refuse collection and street cleansing out to tender. After due consideration it was resolved to accept the tender from the Company. The contract started on 1st October 1990 and the service of the Company also started that day. As the Tribunal commented:

"That left those Council employees engaged on refuse collection and street sweeping with no work to do for the Council as from that date."

The Tribunal added:

"We also heard that it had been part of the tendering arrangements that the successful tenderer would have the option of taking over the lease under which the Council's Cleansing Department was held, which was due to expire on 31st March 1992; and also to purchase or take over from the Council its vehicles used in connection with the cleansing services and other vehicles so used held under leasing or hire arrangements by the Council. The Company exercised those options, took an assignment of the lease, and took over the vehicles."

During the hearing of the appeal we were told that the Company had interviewed most if not all of the 83 employees working in the Cleansing Department. Forty-seven were engaged by the Company, to which were added 23 from outside, making a total of 70 employees when the Company started the operation. Thus 36 ex-employees were not taken on. Some took early retirement, but the 18 Applicants are alleging unfair dismissal.

No reliance was placed by the Applicants upon the direct effect of Directive 77/187. The case was presented upon the basis of the Regulations. The Directive could only have had effect (if any) against the Council and not against the Company.

The issues for the Tribunal to decide were therefore -

(a) What was the undertaking alleged to have been transferred?

(b) Was it within Regulation 2(2) and in particular did any undertaking so found fall within the exception "any undertaking or part of an undertaking which is not in the nature of a commercial venture"?

(c) Was there a relevant transfer of that undertaking?

The Industrial Tribunal was provided with extensive submissions from the Bar, some of them in writing, but felt that the short and decisive point was that nothing had been transferred by the Council to the Company on 30th September 1990. Its reasoning is set out in paragraphs 31 to 33 of the Decision as follows:

"31 It was part of Mr Brennan's submission that it could not have been the intention that Local Authority employees should be in an inferior or less advantageous position to that of employees of other employers. That could be seen as being answered by Mr Dencer's submission that if the contractor were to be required to stand in the shoes of the Local Authority in all respects in regard to employees, that would negate (or emasculate as he put it) the provisions and intent of the 1988 Act. But we take the view that this part of Mr Brennan's submission must be subjugated to or be dependent on the fundamental point we have to decide - was there a relevant transfer as defined in the Regulations?

32 We have it well in mind that Regulation 3(1) of the Regulations stipulates that a relevant transfer is constituted by the transfer from "one person to another of an undertaking ... or a part of one ..." It could be argued, therefore, that in the way EBS was promoted and publicised that was the undertaking, and waste disposal and cleansing were part of it; indeed that was the way Mr Brennan presented it. We make no findings as to that because as we see it the reality of the situation and what actually happened was that that part of EBS activities which consisted of waste collection and street cleaning (which are statutory duties or obligations of the Council), ceased because the Council entered into an agreement with a third party (the Company) to carry out those services. The Council terminated its existing arrangements and made fresh arrangements with the Company. We find that there was no element of transfer about that. The lease which was assigned and the sale and other arrangements made in connection with the vehicles are in the category of transfer of assets, not an integral or necessary part of that which the Company contracted to do.

33 Our finding is that the Regulations do not apply because there was not a relevant transfer. It follows that it is not necessary for us to decide whether or not the activities of EBS or any of them were ultra vires, and if they were, whether that would make any difference to the application of the Regulations to any transaction in respect of those activities, or some of them."

In view of the earlier findings of fact in the decision, we have understood EBS (Eastbourne Borough Services) in this paragraph to refer to BSD.

It is clear that the Regulations must be construed "so as to accord with the interpretation of the Directive as laid down by the European Court of Justice, if that can be done without distorting the meaning of the domestic legislation." per Lord Keith of Kinkel - Webb v. Emo Air Cargo Ltd [1993] ICR 175 at 186D-E.

We note that the phrase in Article 1 of the Directive "as the result of a legal transfer or merger", is in the French "resultante' d`une cession conventionnelle ou d`une fusion." We do not understand that the transfer must be legal in form, but it must not be illegal. It is the substance rather than the form which is of the essence. That it can take place through a number of transactions or phases is also clear.

On one matter the EEC law and UK law are clear and definite. These issues are all issues of fact provided that there is no misdirection of law.

We were referred to a substantial number of EEC cases but venture to suggest that there are now three leading cases from which help can be obtained. The law has advanced recently and since the decision of this Industrial Tribunal.

Those three cases are Spijkers v. Benedick & Ors [1986] ECR 1119; Dr Sophie Redmond Stichting v. Bartol & Ors [1992] IRLR 366; and Rask & Anr v. ISS Kantineservice A/S [1993] IRLR 133. The basic principles to be applied are set out in Spijkers and are confirmed in the later cases. In the light of our approach to the decision of this Industrial Tribunal we do not deem it necessary to examine these cases in detail. It is sufficient for our present purposes and without referring to each and every element which can be relevant to summarise the guidance given by the EEC cases broadly as follows: that when considering a relevant transfer of an undertaking under the Regulations, it is necessary to take into account all the surrounding circumstances - whether variously mentioned in the cases or not -and to see whether there is a recognisable economic entity, a going concern (this can include the provision of services), which is run or operated or carried on by the alleged transferor (the previous employer) and which is being continued by the alleged transferee (the new employer). One must look at the substance of what has occurred and not the form, it is a transfer or transmission or translation of the economic entity, the going concern. An activity is only part of an operation.

In many, if not most, cases this involves the benefit from transfer of premises or equipment relevant to that economic entity, but these are only factors, not essentials.

It is for the applicant to satisfy the Industrial Tribunal on both the issues which are before it.

Many of the authorities under UK law are concerned with the exception to Regulation 2(2), "In the nature of a commercial venture", but so far as the general approach is concerned it does not seem to us that there is any disagreement between the two jurisdictions.

In McLeod v. John Rostron & Sons Ltd (1972) 7 ITR 144 the company who manufactured paper ran a fleet of some eighty vehicles for the purposes of their business. The fleet was run by its transport division with its own manager and kept its own accounts but it was to some degree integrated into the general business. In 1970 because of the complexities of running transport the company decided to sell the transport division to BRS (Contracts) Ltd and to hire vehicles from them. The issue arose as to whether or not there had been a sale of a self-contained "part of the respondent's business so as to fall within the provisions of S.13(1)(a) of the Redundancy Payments Act 1965. In giving the judgment of the National Industrial Relations Court Sir John Donaldson said this at p.148E:

"We were also pressed in argument with the problems which arise in deciding whether something can be said to be "self-contained" and it was suggested that, in the present case, the fact that there was some measure of integration between the transport division and the rest of Rostrons made it impossible to say that the transport division was separate and self-contained. Certainly, it is a fact of modern life, that in order to obtain efficiency and economy there has very often to be some degree of integration. But in our judgment, integration of that sort does not disqualify a unit from being described as "separate and self-contained" provided that the unit is separable without destroying its essential identity."

In Lloyd v. Brassie [1969] 2 QB 98 Lord Denning MR put the test of the transference as a going concern "so that the business remains the same business but in different hands".

In Kenmere Ltd v. Frizzel [1968] 1 WLR 329, Widgery LJ posed the question thus, "In the end the vital consideration is whether the effect of the transaction was to put the transferee in possession of a going concern the activities of which he could carry on without interruption". These approaches were followed in Rastill v. Automatic Refreshment Services Ltd [1978] ICR 289 by Arnold J and by Griffiths J in Port Talbot Engineering Co Ltd v. Passmore [1975] ICR 234. Whether the latter case, relying as it does on ownership, would have been similarly decided on its facts today may be open to argument. See also Ward v. Haines Watts [1983] ICR 231.

Looking at the reasoning of this Industrial Tribunal it seems to us that it can be criticised on a number of grounds. First, it seems to us that it treated EBS (BSD) as a separate legal entity from the Council and therefore regarded this as what had been called a "tripartite" situation. In fact the only two legal entities were the Council and the Company. It was a bipartite, not a tripartite situation. Secondly, in the light of Sophie Redmond the transfer of services is capable of falling within the Regulations. There is no necessity for the transfer of assets. The fact that nothing concrete was transferred nor any goodwill, nor any outstanding contracts, does not of itself prevent there having been a transfer. All these questions are questions of fact and degree. They are factors to be considered but they are not conclusive. It seems to us that the Tribunal looked upon the transfer of services only as being itself incapable of being a transfer.

Thirdly, the Tribunal did not decide whether or not there was an undertaking within the Regulations which was capable of being transferred. That again is a question of fact and it is quite impossible, and indeed it would be improper of us to seek to decide that issue of fact. This case will have to be remitted.

The next point at issue concerns the definition of "undertaking" in Regulation 2 and in particular the phrase "in the nature of a commercial venture".

In the light of the amendment in the S.33 of the Trade Union Reform and Employment Rights Act 1993, we were first asked to ignore this phrase or to eradicate it from the definition as it stands. The amendment is not retrospective and if we were to accept this submission it would be the equivalent of ourselves effecting the amendment. This we decide we cannot do. In doing so we accept and adopt the reasoning of Lord Mayfield in Sterling v. Dietsmann Management Systems Ltd [1991] IRLR 368 at paragraph 18 of the judgment.

Reliance was placed upon Litster & Ors v. Forth Dry Dock and Engineering Co Ltd (in Receivership) [1989] ICR 341. HL. In that case no one doubted the existence of a transfer. Words were read into the Regulations, after a transfer was established and in order to give them effect in accordance with the Directive. It was done most particularly to give a remedy where the transferor was insolvent, and the transfer arose out of that insolvency. In the present case neither transferor nor transferee is insolvent and the only issue is against which Respondent does an applicant have a remedy, if any, and in what form. In the present case no direct reliance is placed upon the Directive and we bear in mind the guidance given by Lord Keith of Kinkel in Webb (supra) at p.186D - 187E.

It falls therefore to Industrial Tribunals and to this Tribunal to construe the phrase "the nature of a commercial venture" in accordance with UK, law bearing in mind that we should seek to do so in a way that does not conflict with the guidance given by the European Court of Justice. In so doing it is important to bear in mind that in all its decisions the European Court of Justice has stressed that the issue is one of fact. The value of the guidance given is in indicating those factors which may or may not be considered relevant in carrying out the balancing exercise.

The Court of Appeal has laid down the guidance in this connection and stresses that the issue is one of fact. The primary facts must be found. These will no doubt indicate factors -let us call them "positive" or "negative" - which point in one direction or the other. No one factor is conclusive whether positive or negative. No definition is desirable. All this is made clear in the judgment of May LJ in Woodcock v. The Committee for the time being of Friends School, Wigton, etc [1987] IRLR 98 at paragraph 13 - 17. We would only add that the absence of the profit motive is not fatal - Sophie Redmond (supra) and that the word "venture" indicates an element of voluntary choice, risk, hazarding, or chance.

Reliance was also placed upon Pepper (Inspector of Taxes) v. Hart [1993] ICR 291. HL, and we were asked to refer to HANSARD of 7th December 1981 when the House of Commons resolved "That the draft of the Transfer of Undertakings (Protection of Employment) Regulations 1981 which were laid before this House on 26th November, be approved." We have read the relevant passages without accepting that this submission has validity.

Woodcock (supra) decides that we should not seek a definition. Every case must depend upon its own primary facts as found and on all the surrounding circumstances. We also bear in mind the warning given by Lord Oliver in Pepper at p.302H where he says:

"It is, however, important to stress the limits within which such a relaxation is permissible and which are set out in the speech of my noble and learned friend. It can apply only where the expression of the legislative intention is genuinely ambiguous or obscure or where a literal or prima facie construction leads to a manifest absurdity and where the difficulty can be resolved by a clear statement directed to the matter in issue. Ingenuity can sometimes suggest ambiguity or obscurity where none exists in fact, and if the instant case were to be thought to justify the exercise of combing through reports of Parliamentary proceedings in the hope of unearthing some perhaps incautious expression of opinion in support of an improbable secondary meaning, the relaxation of the rule might indeed lead to the fruitless expense and labour which has been prayed in aid in the past as one of the reasons justifying its maintenance. But so long as the three conditions expressed in the speech of my noble and learned friend are understood and observed, I do not, for my part, consider that the relaxation of the rule which he has proposed will lead to any significant increase in the cost of litigation or in the burden of research required to be undertaken by legal advisers."

and to the guidance given by Lord Browne-Wilkinson at p.317B:

My Lords, I have come to the conclusion that, as a matter of law, there are sound reasons for making a limited modification to the existing rule (subject to strict safeguards) unless there are constitutional or practical reasons which outweigh them. In my judgment, subject to the question of the privileges of the House of Commons, reference to Parliamentary material should be permitted as an aid to the construction of legislation which is ambiguous or obscure or the literal meaning of which leads to an absurdity. Even in such cases references in court to Parliamentary material should only be permitted where such material clearly discloses the mischief aimed at or the legislative intention lying behind the ambiguous or obscure words. In the case of statements made in Parliament, as at present advised, I cannot foresee that any statement other than the statement of the Minister or other promoter of the Bill is likely to meet these criteria."

Having considered the principles set out in Pepper and the contents of the HANSARD Report we do not consider that we should place reliance upon them as it does not in our view satisfy the strict tests laid down. We exercise our discretion against the admission of that evidence in our deliberations.

Finally, it is argued before us that the evidence is clear that the Borough Council is not intent on profit, that it was carrying out a statutory duty and thus its activities could not on any view fall within the word "venture". Each factor may be a pointer it is not of itself conclusive, and every case must, in our judgment, be examined on its own facts.

The Industrial Tribunal did not identify the undertaking which might or might not be, or could or could not have been transferred, and in considering the issue of transfer did so without the guidance of the recent EEC cases.

For these reasons we consider that the decision must be considered flawed.

We therefore find ourselves in the position described by the learned Master of the Rolls, Sir John Donaldson in Dobie v. Burns International Security Services (UK) Ltd [1984] ICR 812. CA. to reach a conclusion on the evidence before us would undoubtedly amount to usurping the function of the Industrial Tribunal. It follows therefore that this appeal must be allowed and thiscase must be remitted to be reconsidered by an Industrial Tribunal. Leave to appeal.