United Kingdom Employment Appeal Tribunal

BAILII case number: [1993] UKEAT 507_93_0812

Appeal No. EAT/507/93

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 8th December 1993

Before

THE HONOURABLE MR JUSTICE MUMMERY (PRESIDENT)

MR P DAWSON OBE

MR A D SCOTT

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MR A TRAFFORD          APPELLANT

SHARPE & FISHER (BUILDING SUPPLIES) LTD          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellant DR JILL PEAY

Free Representation Unit

49-51 Bedford Row

LONDON WC1

For the Respondents MR L G WILDING

(Representative)

Personnel Management Services

Midland Buildings

Corporation Street

Chesterfield

Derbyshire S41 7TP


 


First draft 17.1.94

MR JUSTICE MUMMERY PRESIDENT) In cold legal terms the key question in this appeal is whether words should be implied in Regulation 8(2)(a) of the Transfer of Undertakings (Protection of Employment) Regulations 1981 in order to give legislative expression to the view of the Advocate-General in a recent decision of the European Court of Justice on the construction and scope of Article 4(1) of the Acquired Rights Directive 77/187 EEC.

In human terms the question is why should a 54 year old disabled man, who worked for the same company for 21 years be awarded only £780 when he was unfairly dismissed on 26th August 1992 by a company, Sharpe & Fisher (Building Supplies) Ltd, which purchased the undertaking of his previous employer on 7th August 1992.

The Proceedings

The Appellant is Mr Alan Trafford, a qualified Quantity Surveyor, who worked for 21 years as an estimator with H Tuckwell & Sons Ltd, Builders Supply Merchants, in Oxford. During his period of employment Mr Trafford developed a particular niche. He recently developed a disabled section within the Company. Mr Trafford is partly paralysed down the left side of this body and is registered disabled. He is well qualified to advise people about adapting equipment for use by the disabled.

Mr Trafford made a complaint of unfair dismissal to the Industrial Tribunal on 25th November 1992. His case was that he was dismissed without consultation. He was told at 3.15 p.m. on 26th August of impending redundancy and was given until 4.30 p.m. to decide whether to take redundancy or to apply for a possible new job. His claim was that the redundancy was also unfair because there existed jobs for an estimator. Those jobs were not offered to him.

Sharpe & Fisher's response was that all staff were briefed on the necessity to reduce the numbers employed, made aware of any vacancies in the branch and given an opportunity to apply. Mr Trafford was made redundant because his post as estimator no longer existed and he did not apply for any available vacancies.

On 30th April 1993 the Industrial Tribunal held at Reading unanimously decided that Mr Trafford had been unfairly dismissed and awarded him £780 compensation. By his Notice of Appeal dated 21st June 1993 Mr Trafford appeals against the amount of compensation and argues that the Industrial Tribunal erred in law in fixing it in such a low sum. Sharpe & Fisher resists the appeal, but it does not cross appeal against the finding of unfair dismissal.

The facts

Sharpe & Fisher is a company involved in the building supplies business in 15 branches, mainly in South Wales and the South West, with 500 staff and an annual turnover of roughly £45m . It works on the basis of a turnover of about £120,000 per employee in order to make a reasonable profit.

On 7th August 1992, Sharpe & Fisher acquired the buildings supplies business of Tuckwell's. On 10th August all the staff of Tuckwell's were briefed by Sharpe & Fisher's management and were informed that there would be a joint stock-take. The Industrial Tribunal found as a fact that at that time Sharpe & Fisher did not know precisely how many staff were employed by Tuckwell's or what its turnover was. It was subsequently discovered that there were in fact 49 employees and an annual turnover of £2.7m. On the basis of Sharpe & Fisher's turnover per employee, the expected turnover would, therefore, be in the region of £6m. This led Sharpe & Fisher to the conclusion that the numbers employed in Tuckwell's business were larger than considered viable.

In the following weeks briefing sessions took place. Small groups of employees were told of Sharpe & Fisher's intentions, though nothing explicit was stated about the possibility of redundancies. Mr Fisher had one or two individual discussions with Mr Traffford.

On 25th August Mr Fisher, in conjunction with the Directors of Sharpe & Fisher and its Personnel Department, had decided what staff structure would be implemented in the business. A chart was produced showing the personnel to be retained. Mr Trafford's position was not shown on the chart. Sharpe & Fisher did not offer an estimating/taking-off service or a disabled equipment advisory service and did not wish to offer such services in the future. Mr Fisher saw staff in groups of seven to ten. He showed them a new organisation chart and a list of vacancies.

On 26th August, Mr Fisher saw Mr Trafford alone. It was agreed that none of the vacancies was suitable for Mr Trafford. Mr Fisher said that there was no alternative to redundancy and gave him details of his entitlement.

The Tribunal's conclusions

On those findings of fact the Industrial Tribunal came to the following conclusions:

(1) Sharpe & Fisher had established that the reason for Mr Trafford's dismissal was redundancy, a potentially fair reason.

(2) Mr Trafford's contention that his dismissal was "automatically" unfair should be rejected. That contention was based principally on the provisions of Regulation 8 of the 1981 Regulations. That Regulation provides -

"(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."

There is no appeal by Sharpe & Fisher against the Tribunal's conclusion that the principal reason for Mr Trafford's dismissal was the transfer. Prima facie Mr Trafford is to be treated as unfairly dismissed.

(3) The Tribunal then considered sub-paragraph (2) of Regulation 8. That provides -

"(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 unfair 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."

The Tribunal concluded that Sharpe & Fisher brought itself within that exception by establishing an economic reason entailing changes in its workforce as the principal reason for Mr Trafford's dismissal. The Tribunal stated -

"The numbers required by Sharpe & Fisher were a function of the projected turnover of the business. Having found what that turnover was, Sharpe & Fisher's plan was to bring about changes in the workforce. They did not believe the business was viable without those changes being brought about and the principal reason for the dismissal was therefore an economic one, which clearly entailed changes in the workforce."

Mr Trafford appeals against that conclusion.

(4) The Tribunal considered whether, pursuant to S.57(3) of the 1978 Act, Sharpe & Fisher acted reasonably in treating redundancy as a sufficient reason for dismissing Mr Trafford. The Tribunal's conclusion was that Mr Trafford's dismissal was unfair because he was not warned of the possibility of redundancies and nothing said to him at that time amounted to consultation on that subject. The Tribunal said (paragraph 18) -

"In our view, such an absence of consultation will only be justified in the most extreme situations and this was not one of them. Certainly, it could not be claimed that a reasonable employer could reasonably conclude that such consultation would necessarily be wholly futile. Mr Trafford had views of his own as to his possible future position within the company and those views ought to have been canvassed. ..."

(5) Finally, the Tribunal considered the question of compensation and, in particular, what the result would have been had consultation taken place. It was argued on behalf of Mr Trafford that, as a result of consultation, Sharpe & Fisher might have changed its policy and retained the specialist services that Mr Trafford provided. The Tribunal rejected that contention, as it accepted the evidence of Mr Fisher that this would have been a complete departure from his Company's ordinary business and one which they would not have countenanced. The Tribunal also rejected Mr Trafford's contention that one of the buyers should have been made redundant and Mr Trafford taken that person's position. Mr Trafford had been employed initially as a buyer. Four existing buyers were transferred into the position of specialist sales/stock control. Some of them had less service than Mr Trafford. Mr Trafford's suggestion was that one of the buyers should have been "bumped" ie, Mr Trafford should have taken that person's position and that person should have been made redundant. The Tribunal rejected that contention because it accepted Mr Fisher's evidence that this was a suggestion that he would not have entertained. It was within the range of reasonable responses of a reasonable employer to act as Mr Fisher said he would have acted and to make redundant the person who actually held the redundant post.

On this basis the Tribunal concluded that consultation would not have made any difference in Mr Trafford's case, save that he would have continued to be employed during the period of consultation. Given his length of service and the complexity of the situation the Tribunal thought that consultation would have lasted for four weeks. He was therefore awarded four weeks' net weekly wage of £195 which totalled £780.

Mr Trafford's submissions

Mr Trafford's appeal against the quantum of compensation has been argued with commendable thoroughness by Miss Peay of the Free Representation Unit.

The principal point taken on the appeal concerned the construction of Regulation 8(2)(a) of the 1981 Regulations, having regard to the provisions of Article 4(1) of the Acquired Rights Directive. The thrust of the submission was that the consequence of Mr Trafford's construction of Regulation 8(2) was that the exception under Regulation 8(2) did not apply and that Mr Trafford's dismissal was "automatically" substantively unfair, and not simply unfairly by reason of the absence of consultation. In those circumstances it would have been open to the Tribunal to make a more generous award of compensation pursuant to S.74(1) of the 1978 Act which provides that -

"The amount of the compensatory award shall be such amount as the Tribunal considers just and equitable in all the circumstances having regard to loss sustained by the complainant in consequence of the dismissal insofar as that loss is attributable to action taken by the employer."

Miss Peay submitted, on behalf of Mr Trafford, that this result could be achieved by adding the following words to the end of Regulation 8(2)(a) after the word "dismissal"

"provided that the dismissal would have been made in any case."

If the proper construction of Regulation 8(2) required the insertion of those words, the Tribunal erred in law in holding that Sharpe & Fisher had brought itself within the exception of dismissals for economic reasons entailing changes in the workforce. Sharpe & Fisher had not shown on the evidence before the Tribunal that it knew, in advance of the transfer, that, quite apart from the transfer, there were economic reasons entailing changes in the workforce which would provide a reason for the dismissal of Mr Trafford. Sharpe & Fisher could not claim to have such advance knowledge. On its own evidence it did not know until after the transfer either the annual turnover of Tuckwell's or its total number of employees.

As Miss Pea recognised, this is a bold position to take on the construction of the Regulations. She developed her argument along the following lines.

(1) The 1981 Regulations are designed to implement the Acquired Rights Directive which provides for the protection of employees in the event of a change of employer, for example, through transfers of undertakings, and, in particular, to ensure that the rights of employees are safeguarded. That aim is manifestly social, as recognised by Van Gerven, Advocate General, in his Opinion in Katsikas v. Konstantinidis [1993] 1 CMLR 845 at 855, he said -

The Court has explained the object and system of the directive on several previous occasions. As the restructuring and concentrations of enterprises entailed by the establishment of the Common Market cannot be carried out at the expense of the social protection of employees, the aim of the directive is

"to safeguard, so far as possible, the rights of workers in the event of a change of employer by making it possible for them to continue to work for the transferee under the same conditions as those agreed with the transferor."

Therefore the aim of the directive is manifestly social. If an enterprise is transferred, the directive aims to safeguard, in the employee's interest, existing labour relationships and the social rights acquired in the framework of that relationship."

(2) The courts of the United Kingdom are under a duty to follow the approach of the European Court of Justice by giving a purposive construction to directives and to regulations made for the purpose of complying with directives. The greater flexibility gained by this approach enables the court, where necessary, to supply by implication words appropriate to ensure compliance with Community obligations. The court will make an implication which is entirely consistent with the general scheme of the 1981 Regulations and which is necessary if they are effectively to fulfil the purpose for which they were made of giving effect to the provisions of the Acquired Rights Directive. See Litster v. Forth Dry Dock Co Ltd [1989] ICR 341 at 349, 353 and 371.

(3) The implication of further words in Regulation 8(2)(a) is required in order to make that Regulation comply with the obligations contained in Article 4(1) of the Directive. Article 4(1) provides -

"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 dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce."

Regulation 8, in its present wording, does not give effect to the purpose of Article 4(1). In summary, Regulation 8 provides that a dismissal is unfair if the transfer or a reason connected with it is the reason for the dismissal, but not if the reason is economic, technical or organisational and entails a change in the workforce. Article 4(1) has been interpreted in EEC law as having a narrower effect than Regulation 8(2). Miss Peay referred to a passage in the Opinion of the Advocate General in D'Urso v. Ercole Marelli Elettromeccanica [1992] IRLR 136 at 146, paragraph 35 in these terms relating to Article 4(1) of the Directive:

"I do not share this view according to which the Directive permits any dismissal for economic, technical or organisational reasons. In fact, the Directive expressly prohibits such dismissals when they are the result of the transfer of the undertaking. Only dismissals which would have been made in any case, for instance if the decision was taken before there was any question of transferring the undertaking, fall within the exclusion. Article 4 of the Directive cannot therefore be relied upon as support for an argument for dismissing some of the employees because the undertaking has been transferred." (our emphasis)

As is readily apparent, that passage contains the words which Miss Peay submits should be inserted at the end of Regulation 8(2)(a).

This interesting argument was skilfully developed, both in a written Skeleton Argument and orally, to a Tribunal which appreciates and sympathises with the grounds for Mr Trafford's grievance in this matter. The Tribunal is, however, unable to accept the argument. It can find no error of law in the decision of the Industrial Tribunal that Sharpe & Fisher had brought itself within the economic reason exception in Regulation 8(2). The Tribunal is not satisfied that the implication of the words proposed in Regulation 8(2)(a) is necessary for those Regulations, "efectively to fulfil the purpose for which they were made of giving effect to the provisions of the Directive." In the case of Litster there were strong grounds justifying the decision of the House of Lords to imply words into the Regulations. If the words were not implied, the provisions of the Regulation could be easily evaded. Further, a number of decisions of the European Court had had the result which could only be achieved by inserting words in the Regulations.

This case falls far short of the Litster case. First, it is not obvious that there is a discrepancy between the protection given by Article 4(1) of the Directive and the protection given by Regulation 8 of the 1981 Regulations.

This Tribunal agrees that a purposive approach should be adopted to the construction of Regulation 8 and that the purpose of the Directive is a social one, aiming at safeguarding the rights of workers in the event of a change of employer. Such an approach does not, however, always mean that words should be inserted to enable an employee to succeed in a claim. The rights of workers must be safeguarded "so far as possible". It is not always possible to safeguard the rights of workers. As is recognised in the second sentence of Article 4(1), the rights of workers not to be dismissed on the transfer of an undertaking must not stand in the way of dismissals which take place for economic reasons entailing changes in the workforce. In such cases the rights of workers may be outweighed by the economic reasons.

Secondly, Miss Peay was unable to refer to any decision of the European Court of Justice which gives the same construction to Article 4(1) as that stated by the Advocate General in the case of D'Urso. The judgment of the court in that case does not contain an opinion to the same effect as the Advocate General or approve that part of his Opinion. This Tribunal does not feel justified in relying on a part of the Opinion of the Advocate General, which was not necessary for the judgment in the case, as a ground for implying words into Regulation 8(2)(b).

For these reasons the Tribunal rejects Mr Trafford's contention that the Industrial Tribunal erred in law in holding that Sharpe & Fisher had brought itself within Regulation 8(2) of the 1981 Regulations.

Other submissions

A number of other submissions were made on Mr Trafford's behalf which can be dealt with briefly.

Sharpe & Fisher's evidence

Miss Peay attacked the factual foundation for the conclusion of the Industrial Tribunal that Sharpe & Fisher had discharged the onus of establishing an economic reason for the dismissal of Mr Trafford. She questioned whether the Industrial Tribunal could have been satisfied on the evidence of the genuineness of the decision and whether it was made on the basis of proper information and for a good commercial reason. She referred to Gateway Hotels Ltd v. Stewart [1988] IRLR 287, in which it was held that the onus of proof is on the employer to establish an economic reason. It is not sufficient to deal with such matters in general terms. There must be a degree of precision in the evidence. Miss Peay went further and attempted to cast doubt on the figures given in evidence by Sharpe & Fisher that it expected a turnover figure of £120,000 per employee per annum. She sought to produce to this Tribunal published accounts and attempted to demonstrate that on the figures in those accounts the turnover per employee was about £82,000 in 1990 and £86,000 in 1991. We explained to Miss Peay that we could not allow her to pursue this line of argument since this evidence was, as she admitted, available by reasonable efforts for use at the hearing before the Industrial Tribunal but was not put by her to Mr Fisher in cross-examination. We do not, therefore, give leave to adduce this evidence on the appeal. In our judgment, the evidence given by Mr Fisher to the Tribunal and accepted by it on this point was sufficient to enable the Tribunal to find that Sharpe & Fisher had established an economic reason for dismissal entailing changes in the workforce.

Consultation and Compensation

Miss Peay submitted that, even if she were wrong on her primary argument, that Mr Trafford was entitled to compensation on the basis of an "automatically" substantive reason for unfair dismissal, the Tribunal erred in law in its assessment of compensation by reference to the period during which there should have been consultation with Mr Trafford. The Tribunal had held that consultation would have not been futile and that, because of the absence of consultation, Mr Trafford had been unfairly dismissed. This conclusion was reached by reference to S.57(3) of the 1978 Act, as referred to in Regulation 8(2)(b). Compensation was assessed on the basis that consultation would not have made any difference to the ultimate result of Mr Trafford's case. It was assessed by reference to the period during which the consultation would have taken place.

Miss Peay sought to attack this result from several different angles. First, she invoked Lord Bridge's statement in Polkey v. A E Dayton Services Ltd [1988] ICR 142 at 163. Lord Bridge approved the approach of Mr Justice Browne-Wilkinson in considering, at the stage of assessing compensation, the likely effect of taking appropriate procedural steps. Mr Justice Browne-Wilkinson said in the case of Sillifant v. Powell Duffryn [1983] 91 at 96 -

"There is no need for an `all or nothing' decision. If the industrial tribunal thinks there is a doubt whether or not the employee would have been dismissed, this element can be reflected by reducing the normal amount of compensation by a percentage representing the chance that the employee would still have lost his employment."

This point was not raised at the hearing before the Industrial Tribunal. The case of Polkey was not cited. No evidence or arguments were expressly advanced to the Tribunal based on the approach in the Sillifant case. Mr Wilding, a consultant who represented Sharpe & Fisher, objected to Miss Peay raising this new point for the first time on the appeal. The basis of his objection was that, if this point had been raised before the Industrial Tribunal, it might have affected the course of the evidence. We upheld Mr Wilding's objections.

We would add, however, that we are reluctant simply to leave the matter there. We are satisfied that on the findings of fact by the Industrial Tribunal, the principle in Polkey would not have assisted Mr Trafford. Although the Tribunal found, when considering unfair dismissal, that the procedural steps were not necessarily wholly futile, it decided, when considering compensation, to accept Mr Fisher's evidence that Sharpe & fisher would not have reached a different decision had consultation taken place. Miss Peay attacked that finding as perverse. She submitted that, having concluded that consultation was not futile, it was perverse to conclude that consultation would not have made any difference, rather than concluding that it might not have made a difference. Miss Peay argued that, if consultation had taken place, Mr Trafford might have persuaded the Company of the viability of the specialist disability advisory service and he might have persuaded them to act otherwise on the issue of "bumping" and redeployment. Sharpe & Fisher was hiding behind its own unreasonableness in saying that it would have been so intransigent that there was no prospect of altering their views, whatever might emerge during the process of consultation. Adequate consultation requires that parties should enter it with open minds.

Although we see the force of these submissions, we have not been persuaded by Miss Peay that the Industrial Tribunal was perverse in its conclusion that the only difference that consultation would have made was his continued employment during the period of consultation, which they estimated at four weeks. It accepted the evidence of Mr Fisher that the two alternative routes (ie the change of policy regarding specialist services and the "bumping") that Mr Trafford would have pressed in consultation, would not have countenanced by the Company. There was, therefore, evidence before the Tribunal from Mr Fisher which supported the Tribunal's conclusion that consultation would not have made any difference in Mr Trafford's case.

In those circumstances, we are unable to find any error of law in the Tribunal's award to Mr Trafford of £780 as four weeks' pay for the putative consultation period.

There is one final matter that we should mention as a result of a point raised by Mr Wilding in argument. He appeared to be submitting at one point that there was no obligation to inform and consult Mr Trafford because the 1981 Regulations only impose a duty to inform and consult trade union representatives: see Regulations 10 and 11. They did not impose a duty to inform and consult the employees, either as a group or individually. In our view, this submission fails to take account of the application of S.57(3) of the 1978 Act as referred to in Regulation 8(2). It also fails to take account of the express provision in Regulation 10(7) to the effect that if there are in any case special circumstances which render it not reasonably practicable for an employer to perform a duty imposed on him by Regulation 10, he must take all such steps towards performing that duty as are reasonably practicable in the circumstances. It is not necessary for us to say any more on the point. There was a clear finding on the part of the Industrial Tribunal that there had been an absence of consultation with Mr Trafford and that, for that reason, the dismissal was unfair. There was no appeal by Sharpe & Fisher against that part of the decision.

For all the above reasons, this appeal is dismissed.