United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR P MEAD (of Counsel) Messrs Sheridans Solicitors 14 Red Lion Square London WC1R 4QL
For the 1st Respondent	MR C IUMEI (of Counsel) Bruce Piper Director of Legal Services UNISON 1 Mabledon Place London WC1H 9AJ
For the 2nd Respondent	MR A SHORT (of Counsel) Messrs Taylor Walton Solicitors 36-44 Alma Street Luton Bedfordshire LU1 2PL


 


JUDGE BYRT QC: This is an appeal against the decision of an Industrial Tribunal sitting at Bedford promulgated on 7th December 1995 whereby they unanimously decided that the Applicant, Mr Dyke, had been unfairly dismissed by the Appellants in this appeal.

The relevant facts as found by the Industrial Tribunal are as follows:

Mr Dyke had been employed by the St Albans District Council for some 33 years on that part of their work responsibilities called the Harpenden Town Council Work. That employment came to an end on 31st October 1994 when the District Council contracted out that work to the Appellants, MRS Environmental Services Ltd, in circumstances to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 applied. Mr Dyke continued to undertake the same work on the same terms and conditions as hitherto but, as from the date of transfer, his employers were the Appellants.

Mr Dyke does not drive, and all his work has been in Harpenden. He looked after the village greens, the war memorial, the churchyard, the public hall, and Council offices. His work entailed grass cutting, leaf raking, and general maintenance of the grounds in those areas. The Tribunal found as a fact that these works took up some 75% of his time, the remaining 25% was spent still working for his old employers, the St Albans District Council, carrying out work which remained their responsibility in Harpenden. The Tribunal saw documentary evidence which enabled them to verify that this apportionment of his time was as accurate as they could assess it.

Within weeks of the Appellants becoming Mr Dyke's employers, the contract for the Harpenden Town Council work came up for renewal. Tenders were invited by that Council. The Appellants' tender was not accepted, and so the contract work passed to another. The Appellants were notified they had lost the work on 13th December. On 19th December, the Appellants wrote to the Town Council to ascertain the identity of the successful tenderer so that they could inform Mr Dyke who his new employers were and where next he was to report for work after the transfer. Curiously, the Harpenden Town Council, through their solicitors, replied on 22nd December, saying the 1981 Regulations did not apply to the transfer and accordingly they were not willing to disclose the name of their new contractor.

The Appellants notified Mr Dyke, by a hand delivered letter, dated 30th December that they had lost the Harpenden Town Council contract, that the 1981 Regulations applied, and that therefore his employment would transfer to the new contractor with effect from 1st January 1995. They ended the letter by saying they had tried to find out who the new contractor was but had been unsuccessful and accordingly could not provide him with the information in that respect. The Tribunal found as a fact that that letter effectively dismissed Mr Dyke from the Appellants' employment and that the reason for that dismissal was the transfer of the undertaking to the successful tenderer.

In fact, Mr Dyke was paid by the Appellants until 5th January. The transferee of the undertaking made no contact with him and effectively he was out of work from 6th January onwards. He made his application the Industrial Tribunals on 2nd March 1995, naming the Appellants the Respondents. He alleged a failure to comply with the 1981 Regulations, unfair selection for redundancy, and unfair dismissal. The Appellants entered their Appearance on 29th March and, in it, stated the transferee's identity was still unknown.

There was a hearing before the Industrial Tribunal on 30th June 1995 to determine as a preliminary issue whether the 1981 Regulations applied to the transfer of the Harpenden Town Council Work from the Appellants to their successor. The latter had, by then, been identified as Mr McBride and he had been joined as Second Respondent. The Chairman, sitting alone, held that the 1981 Regulations did apply to the transfer.

At the hearing of the full Tribunal, the Tribunal endorsed the applicability of the Regulations. They found that Mr Dyke had worked approximately 75% of his time in the part of the undertaking transferred and 25% in fulfilling duties within the part not so transferred. On the strength of those findings, they found that Mr Dyke worked a significant amount of his time in the part transferred and that he had therefore been allocated to that part. In conclusion, they stated that, on that basis, they would have found that the Applicant's employment was transferred from the Appellants to Mr McBride but for the fact that they felt themselves bound by the decision of the Employment Appeal Tribunal in Photostatic Copiers (Southern) Ltd v Okuda and Japan Office Equipment Ltd [1995] IRLR 11 in which it was held that there can be no effective transfer of an employee's contract of employment unless the employee had notice of both the fact of the transfer and the identity of the transferee. Accordingly, they held that on the facts of the present case, Mr Dyke's contract was not transferred.

They found that the Appellants' letter of 30th December 1994 effected Mr Dyke's dismissal and, since they unanimously found that the reason or principal reason for the dismissal was the transfer, the dismissal was automatically to be treated as unfair by the provisions of Regulation 8(1). Therefore, the Appellants were liable.

Mr Short, on behalf of Mr McBride, the transferee, sought to uphold the Tribunal's decision and entered no notice by way of a cross-appeal. He submitted that the decision in Photostatic Copiers Ltd (supra) was rightly decided and so no liability attached to his client. Since Regulation 5 had no applicability, the Appellants' liability for unfair dismissal could not be off-loaded on to him.

Mr Short further argued that Mr Dyke's employment did not transfer because he was not employed in that part of the undertaking transferred to Mr McBride. He submitted that the Tribunal, having set out the law appropriately in paragraph 10 of their reasons, fell into error in drawing their factual conclusions in paragraph 11 because they applied the wrong test.

The arguments of MRS, the transferors, and those advanced on behalf of Mr Dyke rode in tandem. Mr Mead and Mr Ciumei, for those parties respectively, supported the Tribunal's finding that Mr Dyke had been employed in the part of the undertaking which transferred. They contended that Photostatic Copiers Ltd (supra) had been wrongly decided, submitting that Mr Dyke's contract of employment transferred to Mr McBride despite the fact that neither appeared to know the identity of the other at the date of transfer.

If Mr McBride intended to challenge the Tribunal's finding that Mr Dyke worked for that part of the undertaking which transferred, he should have given notice by way of a cross-appeal that he so intended. However, his skeleton argument put all other parties on notice as to this point, and we therefore propose to deal with it, and do so first.

First, the facts: The Tribunal found that, prior to the termination of his employment, Mr Dyke was working for MRS on their contract work for Harpenden Town Council 75% of his time, For the remaining 25%, he was working elsewhere for another. That is a finding of fact which we are not asked to disturb nor would we be disposed to do so in any event. Further, the Tribunal found that Mr Dyke was assigned or allocated to the undertaking which was transferred. That also is a finding of fact which the Tribunal decided, having heard a substantial body of evidence relating to what work he did and for whom. This evidence is reflected in paragraphs 4 and 5 of the reasons. But did they apply the wrong legal test in coming to that conclusion?

Paragraph 11 reads:

"... we have no hesitation in finding that the Applicant worked for a significant amount of time in the part of the undertaking transferred and that he was therefore allocated to that part ..."

The test enunciated in Botzen v Rotterdamsche Droogdok Maatschappij BV [1985] ECR 519 uses the word "assign" rather than "allocate", but we do not think that the Tribunal sought to attach any significance to this disparity of terminology. Earlier, they had used the word 'assign' themselves. However, did they fall into error in, seemingly, believing that the measure of time Mr Dyke worked for MRS was the yardstick by which his assignment was to be judged?

In Duncan Web Offset (Maidstone) Ltd v Cooper [1995] IRLR 633, 634, quoted in Buchanan-Smith v Schleicher & Co International Ltd [1996] ICR 613, the appeal tribunal said:

"There will often be difficult questions of fact for industrial tribunals to consider when deciding who was 'assigned' and who was not. We were invited to give guidance to industrial tribunals about such a decision, but decline to do so because the facts will vary so markedly from case to case. In the course of argument a number were suggested, such as the amount of time spent on one part of the business or the other; the amount of value given to each part by the employee; terms of the contract of employment showing what the employee could be required to do; how the cost to the employer of the employee's services had been allocated between the different parts of the business. This is, plainly, not an exhaustive list; we are quite prepared to accept that these or some of these matters may well fall for consideration by an industrial tribunal which is seeking to determine to which part of his employer's business the employee had been assigned."

In Buchanan-Smith v Schleicher Ltd (supra), the Tribunal said:

"The test whether a person is employed in an undertaking or part is simple: was he assigned to that undertaking or part? That is a question of fact to be determined considering all the relevant circumstances."

From these decisions, it is clear that the appeal tribunal is not willing to prescribe how the industrial tribunal should go about deciding this issue of fact nor what it should consider as relevant in any given circumstance. It might well be that, in determining the assignment of a manual worker, the relevant considerations are very limited, the amount of time he worked for his employer being perhaps the main or only relevant factor a Tribunal might think it right to take into account. In this instance, Mr Short has not sought to highlight a relevant circumstance the Tribunal should have but failed to take into account - at least, he highlighted none which he submitted should have led them to come to a contrary conclusion.

We understand that the representatives for the other parties consider this concluding paragraph 11 might have been more happily phrased but we accept their submission that it would be wrong for the appeal tribunal to scrutinise the paragraph's wording, as with a toothcomb, to find an error of law in what essentially is a matter of fact for the industrial tribunal to decide. We are satisfied, having considered the appropriate authorities available to them at the time, the Tribunal had all the relevant considerations in mind and came to a finding which cannot be disturbed by us.

Once it had been found that Mr Dyke had been assigned to that part of the undertaking which had been transferred, it would not be disputed that, subject to any effect the case of Photostatic Copiers (Southern) Ltd (supra) might have, Regulation 5 of the 1981 Regulations would apply. The Tribunal found that Mr Dyke had been dismissed by the transferor, MRS, before the moment of transfer arrived in circumstances in which Regulation 8(1) applied; that is to say, they were satisfied that the transfer or a reason connected with it was the reason or principal reason for the dismissal. If that be the case, then Mr Dyke is to be regarded as a person employed in an undertaking or part of one transferred and was so employed immediately before the transfer so as ordinarily to invoke Regulation 5(1) and (2): Litster v Forth Dry Dock Co Ltd [1990] 1 AC 546.

As the Tribunal felt compelled by the decision in Photostatic Copiers (Southern) Ltd (supra) to hold that that Regulation did not apply because Mr Dyke never learned the identity of the transferor, it is perhaps convenient to begin consideration of this second issue by looking at that case. The nub of that appeal tribunal's decision is contained in the following passage:

"... At common law the substitution of one employer for another can be effected only by a novation of the contract of employment. Such a novation would require both the knowledge and the consent of the employee. The effect of Berg v Besselsen (supra) has been to abrogate this common law rule in the case of transfers of undertakings by obviating the need for the employee's consent. But it seems to us that there is nothing in that decision or in the 1981 Regulations which justifies any further departure from the recognised principles of contract. In particular, there is no reason to jettison the principle that novation of a contract requires at least the knowledge of all parties affected by it. In our judgment, therefore, in the case of a transfer of an undertaking, reg. 5(1) of the 1981 Regulations did not before the passing of the Trade Union Reform and Employment Rights Act 1993, and does not , take effect in relation to an employee's contract of employment unless and until the employee is given notice of (i) the fact of the transfer and (ii) the identity of the transferee."

None of the representatives in the case presently before us have argued that Mr Dyke's situation is distinguishable from that of the applicant in the above cited case, and, accordingly, we would in the ordinary course of events follow it. However, the Appellants - and Mr Dyke too - have argued that we should not follow the decision, and have taken us through a number of earlier authorities which were not cited to that appeal tribunal as well as some which have been promulgated since they made it. We propose now to consider those authorities we think helpful.

An appropriate starting point for our consideration is Article 3 of the EEC Directive 77/187 which, to make effective, Parliament passed the 1981 Regulations.

"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."

In the case of Foreningen AF Arbejdsledere I Danmark v Daddy's Dane Hall A/S [1988] IRLR 315, the European Court stated that the Directive 77/187 aimed at ensuring for workers affected by the transfer of an undertaking the safeguarding of their rights arising from their contract of employment, that this objective was a matter of public policy and as such, outside the control of the parties to the extent that the workers concerned do not have the option to waive the rights conferred. The provisions are mandatory.

In D'Urso and other v Ercole Marelli Elettromeccanica Generale SpA [1992] IRLR 136, the Court had this to say specifically about Article 3(1):

"Article 3(1) ... must be interpreted as meaning that all contract of employment ... existing at the date of transfer of an undertaking between the transferor and the employees of the undertaking transferred are transferred automatically to the transferee by reason of the transfer alone."

Despite the categorical tone of these interpretative authorities of the European Court, it has been recognised that there is one exception to the rule that the employee may not waive his safeguarded rights. He may freely object, after the transfer has taken place, to the continuance of his employment with the transferee in the circumstances and in so far as is permitted by member state law: see Daddy's Dance Hall (supra) and D'Urso and others (supra).

There is one other proposition, relevant to Mr Dyke's present case, established by European Court authorities. In Berg v Besselsen [1990] ICR 396, it was said that:

"... Article 3(1) must be interpreted as meaning that after the date of transfer and by virtue of the transfer alone, the transferor is discharged from all obligations arising under the contract of employment ... even if the workers employed in the undertaking did not consent or if they object, subject however to the power of member states to provide for joint liability of the transferor and the transferee after the date of transfer."

The United Kingdom has chosen not to exercise this power to provide for joint liability.

All these interpretative pronouncements of the European Court are reflected in the express provisions of the 1981 Regulations and the decisions of the United Kingdom Courts interpreting those Regulations.

Regulation 5 provides:

" (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."

This provision, reflective of Article 3(1), has been said to be mandatory in its terms and automatic in its application. This has been well illustrated in the case of Sunley Turriff Holdings Ltd v Thomson and others [1995] IRLR 184. In that case, the applicant was company secretary and chief accountant of Lilley Construction Ltd (LC) and of Lilley Construction (Scotland) (LC(S)). His contract of employment was with LC but part of his work included work in relation to LC(S). Receivers were appointed for both companies on 8th January 1993. The applicant continued to work, assisting the receivers. The business of LC(S) was sold to Sunley Turriff Holdings (STH) with effect from 18th January. The agreement was made in the name of LC(S). It was conceded that there was a transfer of undertaking from LC(S) to STH and that the transfer included part of the undertaking of LC. A substantial part of the applicant's work was concerned with the part of LC which was transferred. However, the applicant's name was not included on the schedule of employees transferred to STH. He continued working with the receivers until 12th March 1993 when he was made redundant, He brought unfair dismissal proceedings against STH.

On those facts, there was ample scope for mistaken belief and misunderstanding but in the course of the appeal tribunal's decision, Lord Coulsfield said as follows:

"The question must therefore be whether the first respondent [the applicant] must he held to have agreed to leave the undertaking transferred, and continue, under a new employment relationship, with the transferor. As we have mentioned, the first respondent was uncertain about his position, and made enquiries about it. It is clear that the appellants [STH], and very possibly the receivers, did not consider that the first respondent was included among the employees transferred. ... In our view, neither the appellants' (and the receivers) mistaken belief nor the first respondent's uncertainty could per se prevent the application of the Regulations. The Regulations are imperative in their terms and must apply whatever understandings or misunderstandings there may be. ... and we do not think that it would be consonant with the objectives of the Regulations to allow such uncertainty per se to prejudice the position of employees to whom the Regulations did apply at the material time on the proper understanding of the facts of the case."

We do not believe we distort the meaning of that passage when, using the words used in D'Urso and others (supra), we say that the mistaken belief or misunderstandings of the parties are of no consequence because, upon the transfer of the undertaking, the contract of employment of a person employed in that part transferred, is automatically transferred to the transferee.

The case of Sunley Turriff Holdings Ltd is an instructive illustration of the principle of automaticity at work. If a party is uncertain or does not know whether his contract of employment has transferred, he cannot have consented to the transfer. That case says lack of consent does not matter. It does not go as far as saying that a lack of knowledge as to the identity of the transferee is an irrelevant factor though its emphatic statement about how Regulation 5(1) has to operate might leave one in little doubt how the appeal tribunal would have answered had the identity of the transferee been in issue.

Photostatic Copiers (Southern) Ltd (supra) recognised that the consent of the employee to the transfer was of no consequence because of the decision in Berg v Besselsen (supra), but it argued that his lack of knowledge who the transferee is, was an altogether different matter because such knowledge is an essential ingredient of a common law novation.

In our judgment, the case of Secretary of State for Employment v Spence and others [1986] 1 QB 179 has something important to say about this. In his judgment, Balcombe LJ reviewed the relationship between Regulation 5 and the common law principles of novation. He began by citing from the speech of Lord Atkin in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, where he said:

"My Lords, I confess it appears to me astonishing that apart from overriding questions of public welfare power should be given to a court or anyone else to transfer a man without his knowledge and possibly against his will from the service of one person to the service of another. I had fancied that ingrained in the personal status of a citizen under our laws was the right to choose for himself whom he should serve: and that this right of choice constituted the main difference between a servant and a serf. But if Parliament has so enacted the result must be accepted."

Balcombe LJ then continued:

" Against that background, namely that without some statutory novation of the contract the transfer of an undertaking from one employer to another automatically determines contracts of service, I go back to regulation 5(1)."

Having recited the Regulation, he said:

"... provided you have a relevant transfer the common law rule does not apply; the employee's contract of service is not determined. ... Here one finds one of the statutory exceptions which Lord Atkin had in mind. So the paragraph has two effects: first, that a relevant transfer does not terminate a contract of employment; and the second effect, commencing with the word "but," is that there is a statutory novation of the contract."

The last mentioned authority is of considerable relevance as well as being a judgment of the Court of Appeal but it was apparently not cited at the hearing of Photostatic Copiers (Southern) Ltd. The case of Sunley Turriff Holdings Ltd (supra) was not heard until some seven months after the latter decision. We are of the view that had the appeal tribunal had the advantage of having those authorities cited, they might well have come to a different decision.

In our judgment, Regulation 5 imports a statutory novation which has effect regardless of whether the parties consented or had knowledge of the identity of each other. In the circumstances, on the facts of the present case, we choose not to follow Photostatic Copiers (Southern) Ltd, with the result that Mr Dyke's contract of employment is deemed by Regulation 5(1) to have automatically transferred to Mr McBride and is by Regulation 8(1) to be treated as terminated by unfair dismissal. Upon the transfer, Mr Dyke's employment relationship with MRS is deemed to have come to an end and all obligations formerly owed to him before transfer come to an end. This conclusion stems from Article 3(1): See Berg v Besselsen (supra) and D'Urso and others (supra). Regulation 5(2) is to be interpreted in the same way: See Stirling District Council v Allan and others (Court of Session, 17th March 1996 per Lord Morison). No liability therefore remains attaching to the Appellants since there is no provision in the United Kingdom legislation for joint liability.

Accordingly, we remit the case to the same tribunal with a direction that they consider the appropriate remedies available to Mr Dyke against Mr McBride alone.