United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR A FREER GMB 22-24 Worple Road London SW19 4DD
For the Respondents	MR T LINDEN (of Counsel) EEF Broadway House Tothill Street London SW1H 9NQ


 


JUDGE BUTTER QC: This is an appeal by Mr Whitehouse from a decision of an Industrial Tribunal held at Sheffield whereby the tribunal unanimously decided that he had not been unfairly dismissed. The tribunal sat on 25th July 1997 and sent out their extended reasons on 14th October 1997.

The main facts are not in dispute. From 1975 onwards Mr Whitehouse was employed as a prosthetic technician with James Stubbs and Company Limited ["Stubbs"]. From 1987 they carried on business at the Disablement Service Centre at the Northern General Hospital in Sheffield under two successive five year contracts to provide prosthetic services. Mr Whitehouse and other technicians worked at that Centre. In June 1996, however, the contract came up for renewal. Stubbs tendered but were unsuccessful and the contract was awarded to Blatchford & Sons Ltd ["Blatchford"], the respondents. An important finding made by the tribunal is that:

"8. ... as part of the negotiation it was specified by the hospital that Blatchfords would have to reduce their charges by cutting the number of technicians employed at the Disablement Service Centre from 13 to 12."

In January 1997 Blatchford explained to the employees of Stubbs that they would be taking over the contract and that this would result in one redundancy among the technicians. On 1st April 1997 Blatchford took over from Stubbs at the Northern General Hospital. Shortly afterwards an assessment of the staff was carried out which the Industrial Tribunal found to be objective and fair, but Mr Whitehouse's marks were found to be the lowest of all. As a result he was told that his employment would end on 5th May and his subsequent appeal was unsuccessful.

Before the Industrial Tribunal, Blatchford accepted that there was a transfer of business. They said, however, that Mr Whitehouse was dismissed for an economic, technical or organisational reason entailing changes in Blatchford's workforce pursuant to Regulation 8(2) of the Transfer of Undertakings (Protection of Employment) Regulations 1981.

The relevant part of this Regulation reads as follows:

"(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 concerned with it is the reason or principal reason for his dismissal.

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

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

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

The main finding of the tribunal was set out in paragraph 12 of their decision as follows:

"12. The first matter that we have to decide is whether or not the respondents have established that the dismissal of the applicant was for an economic, technical or organisational reason within the meaning of Regulation 8. We accept that it was a condition of the contract with the Northern General Hospital that the new contractor should reduce the contract price by reducing the numbers of technicians. We accept that if Blatchfords had not offered to do this they would not have obtained the contract. It seems to us that a redundancy in such circumstances was inevitable. We conclude that the reason for the applicant's dismissal was an economic or organisational reason which entailed a change in the workforce and that the respondents have established a defence under Regulation 8(2)."

The tribunal then decided that Blatchford had acted reasonably in treating the redundancy as a sufficient reason for dismissing Mr Whitehouse. In view of their findings they therefore concluded that the dismissal was not unfair.

The main argument presented to the present tribunal on behalf of Mr Whitehouse was that the Industrial Tribunal failed to adopt the correct approach in relation to the application of Regulation 8(2). The two most important cases which have been cited to us are Berriman v Delabole Slate Ltd [1985] ICR 546 and Wheeler v Patel & another [1987] ICR 631.

In Berriman v Delabole Slate Ltd the facts were that the employers took over the quarrying business where the employee worked and they offered him a reduced rate of pay in order to put him on the same pay basis as that of their existing employees. He refused the offer and left the employment and subsequently complained of unfair dismissal. His complaint was dismissed by the Industrial Tribunal but their decision was reversed by the Employment Appeal Tribunal and the latter's decision was in turn upheld by the Court of Appeal. At page 551B-E, Browne-Wilkinson LJ, as he then was, giving the judgment of the Court said:

"It is the employers' reasons for their conduct not the employee's reaction to that conduct which is important. In the present case the reason for the employers' ultimatum was to produce standard rates of pay - not in any way to reduce the number in their workforce.

Then, in order to come within regulation 8(2), it has to be shown that that reason is an economic, technical or organisational reason entailing changes in the workforce. The reason itself (i.e. to produce standardisation in pay) does not involve any change either in the number or the functions of the workforce. The most that can be said is that such organisational reason may (not must) lead to the dismissal of those employees who do not fall into line coupled with the filling of the vacancies thereby caused by new employees prepared to accept the conditions of service. In our judgment that is not enough. First, the phrase "economic, technical or organisational reason entailing changes in the workforce" in our judgment requires that the change in the workforce is part of the economic, technical or organisation reason. The employers' plan must be to achieve changes in the workforce. It must be an objective of the plan, not just a possible consequence of it.

Secondly, we do not think that the dismissal of one employee followed by the engagement of another in his place constitutes a change in the "workforce." To our minds, the word "workforce" connotes the whole body of employees as en entity: it corresponds to the "strength" or the "establishment." Changes in the identity of the individuals who make up the workforce do not constitute changes in the workforce itself so long as the overall numbers and functions of the employees looked at as a whole remain unchanged."

Only that part of Wheeler v Patel and another which involves consideration of Regulation 8(2) is relevant. In that case the employee had been told that the shop in which she worked had been sold and that:

"the new owner has not advised us as to whether he wishes to continue to employ the existing staff."

In fact the new owner did not agree to take over any of the staff. Whether there was any change in the number of staff later employed is not known. The employee's complaint of unfair dismissal was rejected by the Industrial Tribunal but the Employment Appeal Tribunal concluded that she had in fact been unfairly dismissed. Consideration was given to an earlier decision of Anderson v Dalkeith Engineering Ltd [1985] ICR 66, a decision of the Employment Appeal Tribunal in Scotland. The construction placed upon Regulation 8(2) of that earlier tribunal was not accepted.

In giving the judgment of the Court, Scott J said at page 640A-C:

"The references to "technical" and to "organisational" reasons seem to us to be references to reasons which relate to the conduct of the business. In our view, the adjective, "economic," must be construed eiusdem generis with the adjectives "technical" and "organisational." The "economic" reasons apt to bring the case within paragraph (2), in our view, the reasons which relate to the conduct of the business. If the economic reason were no more than a desire to obtain an enhanced price, or no more than a desire to achieve a sale, it would not be a reason which related to the conduct of the business. it would not in our judgment, be an "economic" reason for the purposes of paragraph (2). We think that an eiusdem generis approach to construction justifies giving a limited meaning to the adjective "economic" in paragraph (2). We think the need to leave a sensible scope for paragraph (1) similarly requires a limited meaning to be given to the adjective "economic" in paragraph (2)."

Scott J then turned to consider the reasons for the dismissal of the employee. He concluded that it was not an "economic" reason within Regulation 8(2) and that it did not relate to the conduct of the business; it related simply to the desire to sell. Similarly if the reason for the dismissal of the employee and other employees was not that the purchaser was insisting that they be dismissed but that the vendor thought that the sale might more easily proceed if they were dismissed, the position would be the same.

Subsequently the approach of the Employment Appeal Tribunal in Wheeler was followed by the Employment Appeal Tribunal sitting in Scotland in the case of Gateway Hotels Ltd v Stewart [1988] IRLR 287.

At the hearing of the present appeal there is a division of view among the members. The majority (Judge Butter QC and Miss Whittingham) consider that the appeal should be dismissed for the following reasons. The Industrial Tribunal were entitled to conclude that although the question of contract price was involved, it was an express requirement of the hospital that Blatchford would cut the number of technicians employed at the Disablement Service Centre from 13 to 12. Blatchford appears to have had no option with the result that there was necessarily a change in the workforce. The position was therefore different from that which existed in Berriman where the reason for the employer's ultimatum was to produce standard rates of pay, not to reduce the number in the workforce. Similarly the position is different to that of Wheeler where the economic reason appears to have been no more than a desire to obtain an enhanced price or the desire to achieve a sale.

The minority view (Mr Tuffin) is that the appeal should be allowed for the following reasons. If the Industrial Tribunal is right, it would be easy for two employers at the time of the transfer to reach agreement that there should be a reduction of staff with the consequence that the object of the Regulations would be defeated. On the facts here, the real question was that of price. The case of Wheeler gives support for the proposition that the appeal should be allowed.

It follows that in these circumstances the appeal is dismissed. Because of the division of view among the members, the tribunal are willing to grant leave to appeal.