United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	JAMES TAYLER (of Counsel) Messrs Bridge McFarland Solicitors 19 South Street Mary's Gate Grimsby South Humberside DN31 1JE
For the first Respondents	ADRIAN LYNCH (of Counsel) Messrs Clarke Willmott & Clarke Solicitors 6 Hammet Street Taunton Somerset TA1 1RG
For the second Respondents	NO APPEARANCE BY OR ON BEHALF OF THE SECOND RESPONDENTS


 


JUDGE BYRT QC: This is an appeal against the decision on a preliminary point of an Industrial Tribunal sitting at Hull on the 7th November 1995 when they unanimously decided they did not have jurisdiction to entertain the Applicants' claims. The Applicants, some seven in number, now appeal that decision. From now on, we refer to them as the Appellants.

Prior to the hearing before the Employment Appeal Tribunal, the Appellants' solicitors indicated that they no longer were pursuing any claims against the Second Respondent, BRS Automotive Ltd, and therefore the latter have taken no part in the argument of the appeal before this tribunal nor have they attended. In this judgment, we refer to the First Respondent as "the Respondents" and the Second Respondent as "BRS".

In outline, the relevant facts are as follows: The Appellants were employed by BRS until Friday, the 27th January, 1995. Until the close of business that day, BRS had a contract with SAAB, the Swedish industrial concern, pursuant to which they undertook the distribution of their cars, imported into the United Kingdom. On that date, that contract came to an end, and the Respondents, who had won out in the tendering process, took it over as from Monday, the 30th January, 1995.

It had been known from a date in the previous December that BRS had lost the contract. It was also known that when the Respondents took over on the 30th January, they would not be wanting to employ the Appellants as part of their team of drivers. Bearing in mind that the Respondents were at that time rejecting any suggestion that the Transfer of Undertakings (Protection of Employment) Regulations 1981 applied, BRS began negotiating with the Appellants terms on which to settle any potential liability they might have. In due course, it was agreed that, in exchange for varying sized payments, the Appellants would accept voluntary redundancy and forgo any claims they might have against BRS under the relevant employment legislation. The tribunal found that, by the 27th January, all the substantive terms of such an agreement were "in place".

Under s.140 of the Employment Protection (Consolidation) Act 1978, any commitment by an employee to forgo his rights to claim under the Act is void unless the parties complete certain formalities prescribed by the section. Prior to the 27th January, an attempt was made to reduce the above terms into the written form of a compromise agreement which would comply with the requirements of the section. The draft agreement had to include an express undertaking that the employee has received independent legal advice from a named qualified lawyer who, in turn, satisfied certain criteria specified in the Act. On the 25th January, the solicitors acting for BRS sent such a draft of what had been agreed to the solicitors they understood to be acting for the Appellants. However, those solicitors wrote back on the 26th January saying they were not instructed in the negotiations. Those were being conducted by the Appellants' union. And they took exception to the inclusion in the draft of their name as that of the independent legal adviser. Unhappily, time ran out and the misunderstanding could not be resolved before the business was transferred with effect from the 30th January.

The Tribunal found as a fact that, as from the 27th, the Appellants acted as if to implement the terms of the settlement agreement. None of them presented themselves for work with the Respondents on the Monday morning. They either stayed at home or sought employment elsewhere, and ultimately collected the cheques for the monies it had been agreed they should be paid. They have since retained those sums.

The parties, after the week-end, agreed to pursue the alternative course available under s.140 for obtaining clearance of the terms of settlement. They used the good offices of an ACAS conciliation officer and as a result a compromise agreement in precisely the terms of the draft referred to above (less the s.140 undertaking) and a serious of COT3 agreements were signed up on Wednesday, the 1st February.

The compromise agreement was as follows:

"This agreement is made this 1st day of February 1995

Between the following:

[thereafter is listed the names of the Appellants] ... ("The Employees")

and

BRS AUTOMOTIVE LIMITED ...("The Employer")

WHEREAS:

1. The Employees were employed by the Employer and the terms as set out in this Agreement have been agreed between the parties.

2. The Employees' employment by the Employer terminated on 27 January 1995.

NOW IT IS HEREBY AGREED AND DECLARED as follows:

3. This Agreement has effect for the purposes of compromising by means of full and final settlement any and all of the following claims which the Employees individually or collectively may have against the Employer arising out of their employment or its termination:

...

(iv) any claim for unfair dismissal;

...

(vi) any claim for wrongful dismissal or breach of contract;

(vii) any claim pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 1981;

(viii) any claim howsoever arising out of the Employees' Contract of Employment either individually or collectively whether arising out of statute or at common law.

4. ...

5. In consideration of the foregoing the Employer will pay to the Employees individually those amounts set out within the Schedule attached hereto as Schedule 1, such payments to be made within 7 days ..."

The Appellants duly collected their cheques on or about the 6th February, and then on the 8th, commenced proceedings in the Industrial Tribunal against the Respondents, claiming that they had been dismissed on the 27th January with pay in lieu and a severance payment, that their employment had been transferred to the Respondents under the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981, and that accordingly they were "constructively dismissed by the Respondents as the terms and conditions of employment they had enjoyed were not acceptable to the new employer". They contended that, in all the circumstances, their dismissal was unreasonable and sought re-instatement or re-engagement.

The narrow issue the Tribunal sought to determine as a preliminary point was whether a compromise agreement entered into between the Appellants and BRS would enure for the benefit of the Respondents to the extent that the Tribunal would thereby be excluded from hearing the complaints of the Originating Application.

In setting out the reasons for their decision, the Industrial Tribunal recorded that, for the purpose of the argument on the preliminary point, two matters were, by agreement with the parties, assumed: first, that the Appellants were dismissed by BRS on the 27th January 1995; and second, that the 1981 Regulations applied. On the basis of those assumptions, they found that the terms of the negotiated settlement which were "in place" by the 27th January, effected a variation of each of the Appellants' contracts of employment, and such variation debarred them from pursuing claims against BRS consequent upon their dismissal; that on the transfer of the business, those contracts, as varied, transferred to the Respondents by operation of Regulation 5(1) and 5(2) of the 1981 Regulations so as to accord them the same measure of protection as BRS had enjoyed.

Mr Tayler, for the Appellants, contended that the Respondents could enjoy the protection of the varied contracts of employment, only if this benefit was transferred to them under the 1981 Regulations. It could not pass at common law as there was no privity of contract between the Respondents and the Appellants. He went on to submit that, for the Regulations to apply, the terms of the negotiated settlement had to exist (a) as a valid agreement (b) as at the date of transfer. In this instance, the transfer took place over the week-end of the 27th/30th January, and any terms of settlement agreed between the Appellants and BRS were at that time void because they did not meet the requirements of s.140 of the 1978 Act. For those reasons, BRS were statutorily disqualified at the moment of transfer from enjoying the protection those terms purported to afford them, and for the same reasons their benefit did not transfer to the Respondents. This argument is central to Mr Tayler's submissions though he raised a number of subsidiary points with which we will deal later.

Mr Lynch, for the Respondents, began his submissions by expressly reserving his clients' right to argue that the 1981 Regulations did not apply. However, on the agreed assumption that they did, he submitted their effect was at the moment of transfer to treat BRS and the Respondents as being fused as one employer, operating a continuing contract of employment with each Appellant so that it was as if the employee had originally been employed by the Respondents. In the result, he says, the Respondents, on transfer, inherited the same measure of protection as BRS enjoyed.

Second, he argued that any liability to the Appellants which passed to the Respondents as transferees under the 1981 Regulations, is derivative in nature, and so only passed to them if, on transfer, BRS was under a liability to the Appellants. Since, under the negotiated terms of settlement, BRS had successfully excluded any rights of the Appellants to bring claims against them under the relevant employment legislation, there remained over no source of liability which might attach to the Respondents.

Third, Mr Lynch submitted that the revolutionary provisions of the 1981 Regulations were enacted for the protection of employees, and this purpose should not be un-ended to the employers' detriment by an interpretation of the relevant legislation which was wholly contrary to the merits of the case.

However the nub of Mr Lynch's submissions was his contention that the issues whether the Appellants' contracts of employment had been varied, and if so what those varied terms might be, were questions of fact or of fact and law for the Industrial Tribunal to decide, and the Employment Appeal Tribunal should not disturb their findings in respect of those matters.

And so, how does this Tribunal find?

Before commenting on the Tribunal's decision, it is appropriate to consider the law arising on the facts, and our starting point must be the assumption, agreed by both parties for the purposes of this preliminary point, that the Appellants were dismissed by BRS on the 27th January, 1995, that is before the business was transferred over the following week-end. Therefore Regulation 8(1) of the 1981 Regulations applies. This states:

"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."

The Tribunal made no express finding that the dismissals were effected because of the transfer but we are satisfied that this is implicit in their findings and in any event is not disputed by either party. Accordingly, on the 27th January, at the moment of dismissal, the Appellants are to be treated as having been unfairly dismissed for the purposes of Part V of the 1978 Act, and BRS became exposed to a claim on that account unless, prior to such a claim being made, they had concluded a valid agreement with the Appellants settling any liability in that respect. As is apparent from the narrative related above, the parties did negotiate the terms of a settlement but they failed to secure its clearance under s.140 before the transfer of the business took place over the week-end of the 27th/30th January. Accordingly, at the moment in time of that transfer, BRS were liable to the Appellants and, if the 1981 Regulations applied and the narrative stopped there, that liability transferred to the Respondents without the protective benefit of the settlement.

For the purposes of arguing this preliminary point, it is assumed that the 1981 Regulations do apply. So it is unnecessary to consider Litster and Others v Forth Dry Dock and Engineering Ltd [1989] IRLR 161 and Meade and Baxendale v British Fuels Ltd [1996] IRLR 541 which reflect on the application of Regulation 5 where there has been a dismissal antecedent to the transfer; but before considering the effect of the parties' eventual statutory clearance of the settlement, it is necessary to consider what happens on transfer.

Regulation 5(2) of the 1981 Regulations says this:

" (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."

The nature and consequences of a transfer were considered by the Court of Session on the 17th March 1995 in the case of Stirling District Council v Allan and Others in which Lord Morison said as follows:

"In our opinion, there is no ambiguity in the provision contained in Regulation 5(2) that on completion of a relevant transfer "all the transferee's liabilities under or in connection with any such contract (i.e. the contract of employment of any person employed by the transferor) shall be transferred to the transferee." The word "transferred" necessarily denotes that all the transferor's liabilities, whether accrued or continuing pass to the transferee and the transferor is no longer subject to any of them. We agree with what was said by Morison J in Ibex Trading (in administration) v Walton and Others [1994] IRLR 564, at 567 para 30 that use of the word 'transfer' in its material and ordinary meaning suggests a taking away from one and a handing over to another ...".

The Court of Session went on expressly to reject the submission that after the transfer there remained a continuing joint liability of the transferor. They cited the case of Berg and Busschers v Besselsen [1989] IRLR 447 in which the European Court specifically refused to give effect to an argument advanced against the transferor of an undertaking, based on the general principle that a debt may be transferred only with creditor's consent, on the ground that this principle was overridden by the provisions of Article 3 of the Directive. In holding that, after the date of the transfer, the transferor is discharged from all obligations arising under a contract of employment or the employment relationship, the Court expressly drew attention to the fact that Member States had been given the power to provide for joint liability of the transferor and transferee, and the United Kingdom had chosen not to exercise the power to provide for joint liability.

Applying that law to the facts of the instant case, it would seem that the effect of the transfer of the business on the 27th/30th January was to relieve BRS of any statutory liability in respect of the Appellants' potential claim for wrongful dismissal, and a fortiori to relieve them of the need to do more to validate the terms of the settlement. Correspondingly - if the 1981 Regulations apply to this transfer - it would seem that the Respondents inherited a potential liability in respect of such claims and the illusory benefit of BRS's settlement which, at the time, afforded them no protection against such claims.

Understandably, as the Respondents were, at the time, denying the applicability of the 1981 Regulations, BRS continued their efforts to secure a valid settlement of the Appellants' potential claim against them as if the transfer of the business had no significance for them. Did the settlement agreements, signed up on the 1st February, benefit the Respondents?

In our opinion, the above cited authorities dispose of any argument that, after the transfer, BRS and the Respondents shared a joint liability to the Appellants so that once BRS settled with them, the Respondents' liability was thereby discharged. There was no such joint liability. In the result, BRS's eventual settlement with the Appellants could not benefit the Respondents by affording them such a discharge.

Now that the Respondents were deemed the Appellants' employers, could it be said they too were as if unseen signatories to and so beneficiaries of the agreements signed on the 1st February? Alternatively, might it be said that those agreement retrospectively validated that which the Tribunal found to be in place on the 27th January so that either as an agreement, free standing on its own, or as a variant of the Appellants' contracts of employment, its protective provisions passed to the Respondents?

We can see no ground for successfully arguing that the Respondents might, in law, be regarded as notional participants to the agreement signed on the 1st February. There has been no finding by the Tribunal nor any suggestion before us that there was any liaising between the Respondents and BRS so as to justify an argument based on agency. Therefore there is no common law argument which can circumvent the obstacle of there being no privity of contract between the Respondents and the Appellants. Nor, despite the apparent demerits of the Appellants' case, is there an argument that the 1981 Regulations would implicitly recognise such a fiction. To suggest otherwise, would be to argue a construction which would detract from the efficacy of the principle, based on public policy, running throughout those Regulations, namely the need to protect and preserve the rights of an employee on the transfer of an undertaking.

Nor, in our opinion, is there scope for arguing that agreements made after a transfer might validate what was agreed before. We appreciate that the Respondents in this case consider it unjust that they should be deprived of protection against these claims by the merest accident of timing. Equally, it might be supposed that, were fairness the determining factor, the Appellants and/or BRS might ask why the Respondents should be the beneficiaries of agreements made independently between others and towards the implementation of which they have made no financial contribution. But the law relevant to this situation is governed by Regulation 5 which makes the moment of transfer the point in time when the rights and obligations of the transferee crystallise. It does so by transferring such rights and obligations as the transfereor has at that moment to the transferee without break in time or overlap in responsibility: see Stirling District Council v Allan and Others (supra). There is no ground in logic or equity for arguing the Regulation should be construed so as to permit the balance sheet at that point to be adjusted by the transferee agreeing terms after the transfer with only one of the two other interested parties without consultation with or the involvement of the other.

It necessarily follows from the above, it is our judgment that, in law, the Appellants' right to claim against the Respondents has not been excluded by any agreement they entered into, and therefore the Industrial Tribunal have jurisdiction to hear their claims. To the extent that the Tribunal held that they had no such jurisdiction, we are satisfied they were in error. Our problem, as review body, is that the Tribunal's extended reasons are so brief in the exposition of the law they applied that we are unable to say with any precision at what point the error of law occurred. We are satisfied that the validity of the agreements made on or before the 27th January was in the forefront of the Appellants' arguments before the Tribunal as they have been before us but nowhere do the extended reasons touch upon that issue save to say that the settlement agreement was "in force" as at the 27th January. They do not record that the Tribunal took into account or applied s.140, and if the Tribunal did, the reasons do not say how the Tribunal came to conclude that, at the time of transfer, the settlement agreement was in force or enforceable. And, with respect, these are all matters which should have been addressed in the reasons. The irresistible inference is that the Tribunal erred in failing to take the section into account or to do so appropriately. We therefore must allow this appeal.

Before making our order, there are a couple of points Mr Tayler made upon which we should comment. In view of our conclusions in this appeal, we can do so briefly.

He suggested that because the Tribunal made no finding as to the role the conciliation officer played in the process of validating the settlement agreements, there was no finding that the steps he was required to take under s.134 of the 1978 Act were in fact taken. In the absence of any evidence about this, we think it a fair inference that he would have done what he is required to do under the Act so as to validate the agreement made with the help of his intervention.

Further, Mr Tayler argued in the alternative that the settlement agreements were void by reason of Regulation 12 of the 1981 Regulations which does not make any provision for a validation process of the sort which is available under s.140 of the 1978 Act. He supported his argument with citations from Wilson and Others v St Helens Borough Council [1996] ICR 711. We consider that that authority is distinguishable on the ground that, in the present case, there were dismissals which invoked Regulation 8(1). That Regulation requires such dismissal to be treated as unfair for the purposes of Part V of the 1978 Act, and any compromise of a claim under that part of the Act would be amenable to the validation procedures under s.140. Any contrary conclusion would be surprising in that it would deprive the parties of the admirable help available through ACAS for the resolution of industrial dispute. In this aspect, we accept the succinct submissions of Mr Lynch.

In allowing this appeal, we direct that this case be remitted to the same tribunal with a direction that they proceed with the hearing of the claims for unfair dismissal.