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United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Securicor Guarding Ltd v Fraser Security Services Ltd & Ors [1996] UKEAT 350_95_1602 (16 February 1996)
URL: http://www.bailii.org/uk/cases/UKEAT/1996/350_95_1602.html
Cite as: [1996] UKEAT 350_95_1602
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At the Tribunal
Judgment delivered on 11 March 1996
HIS HONOUR JUDGE P CLARK
MRS R A VICKERS
MR N D WILLIS
(2) MR G HURN
(3) MR S JENKINS RESPONDENTS
JUDGMENT
Revised
APPEARANCES
For the Appellants MR T J A HOOPER
(of Counsel)
Harry Pool
Group Legal Dept
Securicor Management Services
Sutton Park House
15 Carshalton Road
Sutton
Surrey
SM1 4LD
For the 1st Respondents JANE FRASER
Managing Director
Fraser Security Services Ltd
Port House
Wells Lane
Wellington Street
Cardiff
CF1 8DW
For the 2nd and 3rd Respondents MR J O'HARA
Solicitor
Legal Dept
GMB
22-24 Worple Road
London
SW19 4DD
JUDGE CLARK: This is an appeal by Securicor Guarding Ltd ("Securicor") against a Reserved Decision of the Cardiff Industrial Tribunal (Chairman: Dr Rachel Davies) following a hearing held on 10 January and 16 February 1995. Full reasons for the Industrial Tribunal decision are dated 17 February 1995 ("the reasons"). The other parties to the appeal are Mr Gerald Hurn and Mr Stephen Jenkins ("the employees") who support the appeal and cross-appeal against one finding of the Tribunal ("the objection point") and Fraser Security Services Ltd ("Fraser") who support the Tribunal's decision.
THE ISSUE
By letters dated 10 October and 3 November 1994 the Industrial Tribunal directed that the hearing be confined to a preliminary issue, which is formulated in paragraph 1 of the reasons thus:
"1. On this preliminary hearing, the question for the tribunal is whether by reason of the Transfer of Undertakings Regulations 1991 [sic] the rights and obligations of the second respondents, Securicor Services Ltd, under the contracts of employment of the applicants, Mr Stephen Jenkins and Mr Gerald Hurn, have been transferred to the first respondents, Fraser Security Services Ltd."
THE FACTS
We take the following summary from the Tribunal's primary findings of fact contained in paragraphs 2 - 16 of the reasons and the documentary evidence which was before it.
At all relevant times until 8 August 1994 Securicor provided security and guarding services at commercial premises operated by Datamatic Ltd ("Datamatic") at Caerphilly, South Glamorgan, pursuant to a contract made between Datamatic Ltd and Securicor ("the guarding contract").
Mr Hurn commenced employment with Securicor on 10 September 1984 and Mr Jenkins on 31 October 1988. Both were employed as Security Officers. By contracts of employment in writing dated 7 May 1985 and 28 October 1988 respectively Mr Hurn was based at Newport Branch and Mr Jenkins at Cardiff. Each contract of employment incorporated the terms of Securicor's Handbook, which included the following Mobility Clause:
"MOBILITY OF EMPLOYMENT
Should the interests of the Company demand it, you may be required to serve at the Company's Head Office in London or at one of the Company's Branches and the particular nature of your employment may be changed at the Company's discretion. Any moves made in this connection will not affect the Company's right to terminate your employment under the terms of your contract of employment."
Further terms of the employees' employment contracts with Securicor included a rate of pay of £3.25 per hour plus £3.50 night shift allowance, 26 weeks full sick pay, membership of a pension scheme and five weeks' paid annual holiday.
Throughout his employment Mr Jenkins worked at the Datamatic site. He did overtime duties at other sites. Mr Hurn had worked solely at the Datamatic site from May 1992, having transferred there from another site in Newport. They were the only two Securicor guards at the site and thus were "static guards". Their work was described by the Tribunal as "normal security and guarding duties".
In April or May 1994 Datamatic put the guarding contract out to competitive tender. Two tenders were received; one from Securicor and one from Fraser.
By letter dated 11 May 1994 from Mr Andy Grice, Regional Contracts Manager of Securicor to Mr C. Stubbs of Datamatic, Securicor tendered for the guarding contract at a rate of £5.40 per hour, citing the terms and conditions of their employed guards as the main element in the price.
Fraser employed a total of some 90 guards. Their rate of pay was £2.75 per hour. Fraser's tender price for the guarding contract was £4.19 per hour. Datamatic awarded the new guarding contract to Fraser, based on its lower tender.
In correspondence Securicor contended that the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) applied, and informed the employees that their continued employment at the Datamatic site with the new contractor on the same terms and conditions of employment was protected by law.
Fraser disagreed. By letter dated 3 August 1994 to Securicor Mr Roberts of Fraser rejected the suggestion that TUPE applied, on the basis that "the contract renewal was under a re-structure and not subject to TUPE in any way". He was appalled at the suggestion that the employees would now be working for Fraser and indicated that Fraser's own staff would be deployed on the contract.
The employees wrote to Fraser, asserting their rights claimed under TUPE to continuing employment on the same terms and conditions of employment as with Securicor. Fraser denied any obligation to continue their employment, but offered employment at the site at the rate of £3 per hour. Both men declined.
On 8 August 1994 Fraser took over the guarding contract, using their existing staff. The employees were not moved to another site by Securicor under the mobility clause, its evidence being that no equivalent jobs on the same terms and conditions were available.
The employees applied to Securicor for work. They were taken on as "casuals", five days later, without the benefit of sick pay, night shift allowance or pension scheme membership. Mr Jenkins started at £3.30 per hour, but this rate was later reduced to £3.05 per hour. Mr Hurn was paid £3.45 per hour. Their hours of work were variable.
THE TRIBUNAL FINDINGS
The Tribunal concluded, after reviewing a number of authorities, that there had been no relevant transfer of an undertaking or part of an undertaking from Securicor to Fraser within the meaning of TUPE and that the employees' contracts of employment remained with Securicor (Reasons: paragraph 39).
That conclusion was based on the following reasoning:
(1) Following the changeover on 8 August the identity of the activity or economic entity was not retained. Reasons: paragraphs 40-53.
(2) The employees were not assigned to the activities at the Datamatic site. Reasons: paragraphs 54-60.
(3) Securicor's duties and obligations towards the employees were not transferred to Fraser; they remained intact with Securicor by virtue of paragraph 9(1)(a), (we think this must be paragraph 9(1)(b)), "temporary cessation of work", of Schedule 13 to the Employment Protection (Consolidation) Act 1978 (the 1978 Act). Reasons: paragraphs 61-64, 68.
(4) Alternatively, the employees objected to being employed by Fraser and were precluded from relying on TUPE by virtue of Regulation 5(4A) ("the objection point"). Reasons: paragraphs 65-66.
THE APPEAL
Having considered the submissions made by all parties before us, and the approach of the Tribunal, we are driven to conclude that each of the four findings identified above are flawed and cannot stand. Our reasons for so holding are as follows:
(1) Identifiable economic entity
The earlier cases, including each of those referred to in this part of the reasons (paragraphs 40-53) were considered and analysed by this Tribunal in Kelman v Care Contract Services Ltd [1995] ICR 260. A transcript of that decision, not then reported, was put before the Tribunal. We adopt the helpful summary of the law set out by Mummery J at p 266E - 268C of the report, and in particular the following propositions:
(i) the decisive criterion for determining whether there has been a transfer of an undertaking (including part of an undertaking) is whether, after the change, the undertaking has retained its identity. That question must be answered by looking at all the facts.
(ii) a transfer may occur even although there has been no transfer of assets, tangible or intangible. Intangible assets include goodwill.
(iii) a transfer may occur in the context of competitive tendering, involving a contract for the provision of services (including guarding and security services), where one contract is terminated and then re-granted to a different supplier. That may, but does not necessarily, involve use of the same staff before and after the changeover. We say not necessarily, since it would defeat the object of employment protection contained in TUPE to reflect the Directive (77/187/EEC) if a transferee could evade the application of TUPE simply by not retaining the staff formerly working in the undertaking.
(iv) the critical question is whether, taking a realistic view of the activities in which the employees were employed immediately prior to the change, there exists an economic entity which, despite changes, remains identifiable, though not necessarily identical, after the alleged transfer.
Applying these principles to the primary facts in this case there can be only one conclusion. There was a transfer of the guarding and security services at the Datamatic site, an identifiable economic entity, from Securicor to Fraser by way of termination of the Securicor guarding contract by Datamatic and re-grant to Fraser. That is a relevant transfer within the meaning of Regulation 3 of TUPE.
It follows from our conclusion that the Industrial Tribunal has reached a perverse conclusion in holding that the identity of the economic entity was not retained following the re-grant of the guarding contract to Fraser. In our judgment the Tribunal has fallen into error for a number of reasons:
(a) They appear to have been influenced by the fact that the employees did not move across with the contract. It is clear from the European Court of Justice ruling in Schmidt [1995] ICR 237 that this is not necessary. We repeat our observation in proposition (iii) above. A transferee cannot defeat the application of TUPE simply by refusing to continue the terms and conditions of employment of the transferor's relevant staff.
(b) They state, in paragraph 44 of the reasons:
"44. ... There was no direct re-allocation of the service contract, no transfer of assets or goodwill, no actual transfer of employees. ..."
It is quite clear that the absence of transferred assets or goodwill is not fatal to a transfer. The actual transfer of employees begs the question. In fact, there plainly was a re-allocation of the service contract. The same guarding and security duties continued as before. Fraser contend that there was a "restructuring". We take that to mean that a review of security arrangements at the site was carried out by Fraser and implemented. That does not alter the basic nature of the service originally provided by Securicor and continued at the same site by Fraser.
(c) The Tribunal were further influenced by the fact that the employees were almost immediately re-employed by Securicor. (Reasons: paragraph 47). In our judgment the sole cause of their being thrown back onto the labour market, and their subsequent re-engagement on a casual basis by Securicor, was Fraser's refusal to preserve their former terms and conditions of employment. The key lies in the Tribunal's finding at paragraph 49 of the reasons that the alleged transfer was a "fiction" because there cannot be a transfer from one employer to another who has made it clear that it cannot afford to take them on on existing terms and conditions and which imposes on them lower rates of pay than those payable by their original employer on re-engagement only five days later. The reason for this state of affairs, described by the Tribunal as absurd, is in our judgment that Fraser won the guarding contract by means of a lower tender based on the premise that it would not have to match the employees' existing terms and conditions with Securicor. We shall return to this aspect when dealing with the policy of TUPE and the Directive below.
(2) Assignment to the guarding contract
The Tribunal found that the employees' contracts of employment were not contracts "which would otherwise have been terminated by the transfer" within the meaning of Regulation 5(1) of TUPE.
They first find that the employees were not assigned to the Datamatic site because under their mobility clauses they could be required by Securicor to work elsewhere. It is true that Securicor had that contractual right, and had it been exercised on or before 8 August 1994 they would no longer be assigned to the Datamatic site. But it was not. These two employees were the "human stock" at the Datamatic site when Securicor held the guarding contract. The Tribunal relies upon the Court of Appeal decision in Gale v Northern General Hospital NHS Trust [1994] IRLR 292, from which that expression is taken. We are told that that authority was not cited to, or referred to by, the Tribunal during the hearing. That is unfortunate. In our judgment the Tribunal, in reaching its reserved decision, has misapplied the true effect of that case.
In Gale, the Applicant was a student nurse. His contract provided that his employment was for a course in registered general nurse training in the Sheffield School of Nursing. He was required to undertake clinical nurse training within the Sheffield Health District.
The issue before the Industrial Tribunal on his complaint of unfair dismissal was whether he was employed to work solely at the Northern General Hospital immediately before the date on which it assumed trust status in order to show a sufficient qualifying period of continuous employment.
In the course of the judgment of the Court given by Sir Thomas Bingham MR he considered the question of transfer under the EEC Business Transfers Directive. He concluded that at the relevant time the Applicant had not been assigned to the part transferred, namely the Hospital. He was not a member of the permanent staff of the Hospital, part of its "human stock", he was somebody who, at the behest of the health authority, was completing his training there.
The factual distinctions between that case and the instant case are immediately apparent. Here, the employees were Securicor's "human stock" at the Datamatic site". It may have been otherwise had they been "casuals", filling in from time to time at the site. They were not. They were static guards, assigned solely to that site unless and until transferred to another site or sites. The fact that Mr Jenkins performed additional overtime duties elsewhere is immaterial. We regard this part of the Tribunal's reasoning as unsupportable in law and in fact.
Secondly, the Tribunal purport to apply the reasoning of the European Court of Justice in Arie v Botzen [1986] 2 CMLR 50 to the facts as found (Reasons: paragraphs 33, 58). Again, we understand that the Tribunal received no submissions as to the effect of that decision. Based on that case the Tribunal find that the employees were based at Cardiff branch (Mr Jenkins) and Newport branch (Mr Hurn) and were therefore assigned to those bases and not the Datamatic site.
In our judgment such a finding involves a misapplication of the Arie v Botzen judgment. The kernel of that decision is contained at paragraphs 13-15 of the judgment (p 57). An employment relationship is essentially characterised by the link existing between the employee and the part of the undertaking or business to which he is assigned to carry out his duties.
On the Tribunal's findings of primary fact the employees did not carry out their duties at the Cardiff or Newport branches of Securicor. They carried them out at the Datamatic site. To hold otherwise involves a misdirection in law.
Thirdly, the Tribunal's finding that having been assigned to those branches there is no reason to suppose that "apart from" the Regulations the contracts of employment would have been terminated (Reasons: paragraph 59) disregards their own recording of Securicor's evidence, not rejected by the Tribunal, at paragraph 13 of the reasons, that at 8 August 1994 there was no available work for the employees elsewhere on the same terms and conditions and that the mobility clause was not invoked. It would be standing TUPE on its head to hold that because the transferee will not honour a relevant employee's existing terms and conditions of employment, and because the contract between the employee and the transferor contains a mobility clause, that has the effect of compelling the transferor to retain the employee on his existing terms.
(3) Temporary cessation of work
We should record at the outset a concession made, properly in our view, by Mr O'Hara before us on behalf of the employees:
(a) that there was no continuity of employment for the purposes of the 1978 Act upon re-employment by Securicor of the employees as "casuals", and
(b) that upon re-employment the employees were not employed on the same terms and conditions which applied prior to 8 August 1994.
Secondly, we accept Mr Hooper's submission on behalf of Securicor that the findings made by the Tribunal as to continuity of employment and the employees' terms and conditions of employment with Securicor after 8 August 1994, fell outside the preliminary issue identified in paragraph 1 of the reasons. Further, that such findings were made by the Industrial Tribunal without hearing submissions on the point.
For these reasons we set aside those findings.
However, we should add that in our judgment these findings were made erroneously on the facts of this case. A transfer, in our view, having taken place on 8 August 1994, all Securicor's liabilities, including those owed to the employees, passed to Fraser, and Securicor was then no longer subject to those liabilities. Allan v Stirling District Council [1995] ICR 1082 (C.S.). They were not resurrected by Securicor taking the employees back on different terms five days later.
Paragraph 9(1)(b) of Schedule 13 to the 1978 Act does not apply in this case. There are three elements to this artificial preservation of continuity. First, there must be a cessation of work; secondly, the cessation must be temporary; thirdly the temporary cessation must be the reason for the absence.
On the facts as found here the cessation of work at the Datamatic site was not temporary so far as Securicor was concerned, it was permanent due to the loss of the guarding contract. It was therefore not a temporary cessation which caused the employee's absence from work as in the case of lay-off. Further, the cause of their absence from work was Fraser's refusal to continue their employment at the Datamatic site on the same terms and conditions as before following the transfer. The employees never returned to work at the site after the transfer.
Finally, the employees were re-employed on different agreed terms. The Tribunal's finding that they were re-employed on their former terms is unsustainable. Such a finding is tantamount to imposing the same obligations placed on a transferee following a relevant transfer on to the transferor. The Tribunal's reasoning that the employees' acceptance of casual work was based on genuine and justifiable confusion as to their position does not constitute an agreed change of terms and conditions and can have no proper basis in law or fact.
(4) The objection point
At paragraph 20-22 of the reasons the Tribunal set out selected extracts from Regulation 5 of TUPE. Significantly, we think, they omit to mention Regulation 5(5) which provides:
"(5) Paragraphs (1) and (4A) above are without prejudice to any right of an employee arising apart from these regulations to terminate his contract of employment without notice if a substantial change is made in his working conditions to his detriment; but no such right shall arise by reason only that, under that paragraph, the identity of his employer changes unless the employee shows that, in all the circumstances, the change is a significant change and is to his detriment."
At paragraph 65 of the reasons the Tribunal considered the position had they found a relevant transfer of an undertaking in which the employees had been employed immediately before the transfer. They conclude that in those circumstances they would have held that the employees objected to becoming employed by Fraser and that by virtue of Regulation 5(4A) their contracts of employment were not transferred to Fraser.
They then considered the effect of Regulation 5(4B), which provides:
"Where an employee so objects the transfer of the undertaking or part in which he is employed shall operate so as 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."
However instead of treating the employees as not having been dismissed by Securicor, as Regulation 5(4B) expressly provides, they would have construed "terminate" as including temporary termination, compatible with a "temporary cessation of work" so as to ensure continuity of employment with Securicor.
Mr O'Hara submits that the opportunity for an employee to object to taking employment with the transferee is based on Article 4(2) of the European Convention for the Protection of Human Rights, which provides that no one shall be required to perform forced or compulsory labour.
This principle was made clear in relation to Article 3(1) of the EEC Directive 77/187 by the European Court of Justice in Katsikas v Konstantinidis [1993] IRLR 179. Thus, an employee has the right to object to the identity of his new employer following a transfer where his terms and conditions of employment otherwise remain the same.
This Tribunal would have found that the reason for the objection is immaterial, having regard to the words of Regulation 5(4A). The objection is to becoming employed by the transferee, not to becoming employed at a lower rate by the transferee.
However, that approach overlooks Regulation 5(5) which expressly preserves the employee's right to terminate his contract of employment without notice if a substantial change is made to his working conditions to his detriment. That is precisely what happened here on the Tribunal's findings of fact. Regulation 5(4A) is expressly subject to that right.
Further, we cannot accept the Tribunal's approach to Regulation 5(4B). It is the corollary of Regulation 5(4A). If an employee objects to becoming employed by the transferee following a relevant transfer in circumstances where his terms and conditions of employment remain otherwise unaltered then:
(A) the transferee acquires no liability towards the employee, and
(B) the employee's contract of employment with the transferor will be treated as having been terminated by operation of law. He will not be treated as having been dismissed.
The result, where he has exercised his free choice not to be employed by the transferee, will be that he has no employment protection rights against either the transferor or the transferee. That is not this case on the facts.
POLICY
We think that one explanation for the Tribunal's erroneous approach, as we have found it to be, may lie in their observations at paragraph 50 of the reasons where they say this:
"50. The only beneficiaries of such a transfer are Securicor. They are in the convenient position of feeling able, with a clear conscience, to abandon employees with statutory industrial rights towards whom they have contractual obligations relating to sick pay, pension and high hourly rates, and to re-engage them five days later deprived of statutory industrial rights and at lower rates and no benefits. That is not the purpose of the Regulations."
Mr Hooper, on behalf of Securicor, takes exception to what he characterises as a finding of bad faith on its part by the Tribunal which is unsupported by the evidence.
We think that overstates the position, but it raises the question as to what is the policy behind the Directive and TUPE. In our view the basic principle is that employees should be protected where the undertaking in which they work is transferred "over their heads".
Take this case. If the Tribunal are right in their conclusion the real beneficiary is Fraser, who won the Datamatic guarding contract by putting in a lower tender than Securicor on the basis that it would pay the guards less. Instead, both tenderers bid on a level playing field, that is, one where the terms and conditions of the staff are the same in either case. This provides the necessary protection for the employees, who can have no influence over whether or not the undertaking in which they work changes hands.
THE RESULT
We shall allow this appeal and substitute a declaration that by reason of TUPE the rights and obligations of Securicor, under the contracts of employment of the employees, have been transferred to Fraser.
We direct that the employees' complaints of unfair dismissal against Fraser be set down for hearing by a fresh Industrial Tribunal.
Note from Judge Clark:
21.2.96
It would be very helpful if you could get the draft back to me as soon as possible because I would like the finished draft to be available for the members who are going to be here on Friday.
Perhaps copies could be left in the members room on Friday morning.
[typed by Iris Pain]
MR N D WILLIS 22 February 1996
RESERVED JUDGMENT
SECURICOR GUARDING LTD
- V -
(1) FRASER SECURITY SERVICES LTD
(2) MR G HURN
(3) MR S JENKINS
Judge Clark has requested that a copy of the above judgment be sent to you.
Iris Pain