United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR C VAJDA QC Treasury Solicitor's Department Queen Anne's Chambers 28 Broadway London SW1H 9JS
For 33 Respondents For 5 Respondents	MR WATERHOUSE (Representative) MR T LINDEN (of Counsel) NO APPEARANCE OR REPRESENTATION BY OR ON BEHALF OF MRS WHITING, MR HOWARD AND MR COOK


 


JUDGE PETER CLARK: This is an Appeal by the Employer, MOD, against the decision of an Employment Tribunal sitting at Bristol under the chairmanship of Mr C F Sara, on 13^th/14^th January 1997. That decision, promulgated with extended reasons on 3^rd February 1997, related to a preliminary issue as to the terms and conditions of employment of the Applicant. The Appeal involves consideration of the House of Lords decision in the conjoined appeals of Wilson -v- St Helens Borough Council and British Fuels Ltd (BFL) -v- Baxendale and Meade [1998] IRLR 706.

Wilson and Meade & Baxendale

The Facts

1. Mr Wilson and 8 others ("the Applicants") were employed by Lancashire County Council ("LCC") at its Redbank home. In 1990 LCC gave notice that on grounds of cost it would not continue to run the home after 30^th September 1992. St Helens Borough Council ("St Helens") agreed to assume control of the home on 1^st October 1992 on the basis that it would involve no additional expense. That meant that there would have to be a reorganisation entailing a change in the workforce. Some of the staff at the home remained with LCC in different jobs; others were made redundant. Some 76 employees, including the Applicants were offered jobs with St Helens on terms different from those enjoyed with LCC. Each Applicant received a letter terminating their contracts of employment with LCC with effect from 30^th September 1992. Each then took up employment with St Helens on the new terms.
2. In June 1994 the Applicants claimed that they were being paid less by St Helens than was their contractual entitlement by reference to the terms and conditions of employment under which they were employed by LCC. They claimed the difference in wages by way of a complaint of unlawful deductions from wages under what is now Part II of the Employment Rights Act 1996.
3. Mr Baxendale commenced employment in 1977 and Mr Meade in 1978 with the British Coal Corporation ("BCC") or its subsidiary National Fuel Distributors ("NFD"). On 1^st September 1992 the undertakings of NFD and BFL, both subsidiaries of BCC, were merged.
4. By letters dated 20^th August 1992 BCC gave both men 3 months notice of dismissal by reason of redundancy, the effective date of termination to be 28^th August 1992. They each received pay in lieu of notice for the balance of the 3 month notice period, statutory redundancy payments and further redundancy pay under BFL's standard arrangements. Also by letter dated 20^th August each man was offered employment with BFL starting on 1^st September on terms less favourable than they had enjoyed with NFD. Both men signed the offer letter accepting employment with BFL on the new terms and commenced employment with BFL on 1^st September.
5. By letter dated 22^nd January 1993 the men were informed by BFL that their earlier employment with NFD would be treated as continuous with their current employment. They were then provided with statements of their new terms and conditions of employment by BFL which each accepted.
6. By an Originating Application presented on 23^rd September 1994 Mr Meade claimed under, now Section 11 of the 1996 Act, that he was employed by BFL on the terms applicable to his employment with NFD. He remained in the employment of BFL.
7. On 6^th February 1995 Mr Baxendale was dismissed by BFL by reason of redundancy. He brought a complaint before the Employment Tribunal claiming a redundancy payment and a finding of unfair dismissal, together with a Section 11 reference claiming that until his eventual dismissal he was employed by BFL on the terms applicable to his employment with NFD.

The Proceedings

8. In the case of Wilson & Others it had not been appreciated that a relevant transfer had taken place in 1992 for the purposes of Regulation 5 of the Transfer of Undertakings and Protection of Employment Regulations 1981 ("TUPE"). That point was first raised on 2^nd March 1993. St Helens contended that the new terms coming into force on 1^st October 1992 had been agreed between the parties and were lawful and binding.
9. An Employment Tribunal held that if either LCC or St Helens had then been faced with a claim of unfair dismissal by the affected employees they could have relied on an economic, technical or organisational ("ETO") reason for dismissal under Regulation 8(2) of TUPE. The Employment Tribunal went on to hold that the new contracts with St Helens operated to vary the Applicants' terms and conditions of employment with LCC. Alternatively, that even if the LCC terms survived the transfer, the Applicants had affirmed the new St Helens' terms by conduct. A lawful variation had taken place.
10. The cases of Meade & Baxendale were heard by different Employment Tribunals. In Meade, the Employment Tribunal held that Regulation 12 of TUPE did not mean that a dismissal for a reason connected with the transfer was void but rather that it should not be a ground for dismissal. They concluded that the dismissal by NFD was an effective dismissal and that the Applicant could have brought a claim for unfair dismissal within 3 months under Regulation 8 if he could show the dismissal was triggered by the transfer or a reason connected with it. That claim was subject to the ETO defence under Regulation 8(2). Mr Meade had freely agreed new terms and conditions with BFL; there was no contravention of Regulation 12.
11. In Baxendale's case the Employment Tribunal found that there was no dismissal in 1992. He had not claimed that he was constructively dismissed at that time and he had been, in effect, compensated for the less favourable terms with BFL by his redundancy and pay in lieu of notice package.
12. On appeal to the EAT:

(i) in the now conjoined cases of Meade & Baxendale a division presided over by Holland J [1996] IRLR 541 held that the employees had been dismissed in law by the transferors, NFD, prior to the relevant transfer to BFL and had been re-engaged by BFL on different terms. The dismissals were effective, even if unfair. They were not a nullity,

(ii) In Wilson [1996] IRLR 320, a division presided over by Mummery J held that if the operative reason for an agreed variation to an employee's terms and conditions of employment is the transfer of an undertaking, the variation is ineffective and the terms of the original contact of employment remain in force. The principle of automatic transfer in Regulation 5(1) of TUPE was mandatory and precluded even a consensual variation of the contract. There was no dismissal on 30^th September 1992. Therefore, Regulation 8 and the reason for dismissal there provided for was irrelevant. Reliance was placed on the European Court of Justice ("ECJ") decision in Daddy's Dance Hall [1988] IRLR 315.

13. The appeals to the Court of Appeal in both Wilson and Meade & Baxendale were then conjoined.
14. In the Court of Appeal [1997] IRLR 505, Beldam LJ, with whom Waite and Swinton Thomas LJJ agreed, held that in Meade & Baxendale the Applicants' appeals succeeded on the ground that their dismissals were ineffective and that the employer's appeal succeeded in Wilson since there was evidence that the changes in the employees' terms and conditions of employment was for an ETO under Regulation 8, and consequently Regulation 5 did not operate to continue the original contracts of employment.
15. On appeal to the House of Lords Lord Slynn of Hadleigh, giving the leading opinion with which the remainder of their lordships agreed, identified two issues for consideration:

(i) Whether, on the transfer of employment, the employees were entitled to retain the benefit of their terms and conditions of employment with the transferor. That required an answer to the question in each case whether the purported dismissals by the transferor took effect or were nullities.

(ii) Whether, even if they were entitled to retain their earlier terms and conditions following the transfer, the employees could agree to a variation in those terms.

16. As to the first question, for the reasons which he gave, Lord Slynn was of the opinion that the dismissals by the transferors were effective in each case. In so holding, his Lordship concluded that there was no tension between the Regulations and the Acquired Rights Directive (77/187). In these circumstances the employees had their domestic remedies, enforceable against the transferee, in respect of the dismissal, but not for the purpose of enforcing the pre-transfer terms and conditions of employment against the new employer.
17. Accordingly, it was strictly unnecessary for the House to deal with the second issue, although Lord Slynn expressed his opinion on that question.

The Facts in the Present Case

18. The 41 Applicants before the Bristol Employment Tribunal fell into two groups. The First Schedule employees commenced employment with MOD prior to 1^st March 1984; the Second Schedule employees commenced employment with a private contractor, SERCO, between September 1984 and February 1990. The significance of those dates is as follows:
19. RAF Quedgeley was an equipment supply depot operated by MOD. It included a depot undertaking furniture repair and storage for the RAF. Prior to 1^st March 1984 the First Schedule employees were employed at the depot under what may be called standard MOD terms.
20. In 1984 MOD contracted out the furniture repair and storage function to SERCO. All First Schedule employees were given notice of dismissal by MOD on 31^st August 1984 and were paid redundancy payments in accordance with the Civil Service terms. All were then offered and accepted fresh contracts of employment with SERCO on SERCO terms. All remained in SERCO's employment until 28^th February 1990. Between September 1984 and February 1990 the Second Schedule employees commenced employment with SERCO at the establishment on SERCO terms.
21. On 28^th February 19990 SERCO's contract with MOD expired and MOD decided to continue the running of the equipment store using its own direct labour. All Applicants were given notice of termination by SERCO effective on 28^th February 1990, paid redundancy payments and all were immediately offered and accepted employment with MOD.
22. Those contracts, effective from 1^st March 1990 were expressed to be for a fixed term of 2 years. Under the contracts the Applicants waived their right to claim unfair dismissal or to a redundancy payment under the Civil Service equivalent of the statutory scheme.
23. The contracts were renewed for further periods of 2 years in 1992 and 1994. Finally, on 31^st March 1996 RAF Quedgeley ceased to function. All Applicants were dismissed on expiry of their fixed term contracts on 31^st March 1996.

The Complaints

24. The Applicants having commenced these proceedings a directions hearing was held on 25^th September 1996 at which the heads of claim were identified as follows:

"i. Sums due under contract of employment

ii. Declarations of terms and conditions under Section 1 Employment Rights Act 1996

iii. Unfair dismissal."

25. A preliminary hearing was ordered to determine this preliminary issue:

"… the terms and conditions under which the Applicants are working or were working."

The Employment Tribunal Decision

26. The Employment Tribunal hearing that preliminary issue on 13^th/14^th January 1997 was then faced with an invidious choice between the conflicting Employment Appeal Tribunal decisions in Wilson and Mead & Baxendale.
27. The Applicants, relying on the Employment Appeal Tribunal approach in Wilson and the European Court of Justice decision in Daddy's Dance Hall, contended that, as to the First Schedule employees, the offer and acceptance of new terms in 1984 and again in 1990 amounted to an invalid consensual variation of the original MOD terms and that they were employed on those original terms throughout.
28. The Second Schedule employees sought to argue that after 1990 they too could rely on the standard MOD terms. That argument was rejected by the Employment Tribunal and is the subject of a cross-appeal by those employees.
29. MOD accepted that if the alteration in terms in 1984 and 1990 could be regarded as a variation in their terms it was ineffective. However, they relied on the notices of termination served in 1984 and 1990 as effective dismissals, followed by freely negotiated fresh terms and conditions of employment.
30. The Employment Tribunal took the view that if they followed the Employment Appeal Tribunal decision in Wilson the Applicants' contention succeeded (subject to the post-1990 argument on behalf of the Second Schedule employees, which they rejected); if they followed the Employment Appeal Tribunal approach in Meade, the MOD succeeded.
31. Put shortly, they followed the Wilson approach; found that there had been a consensual variation in 1984 and 1990 and that, following Daddy's Dance Hall, those variations were invalid so that:

(a) The First Schedule employees were throughout employed on standard MOD terms and conditions

(b) The Second Schedule employees were throughout employed on SERCO terms.

The Appeal

32. Mr Vajda QC submits that there is no factual distinction to be drawn between the present case and those of Wilson and Meade & Maxendale.
33. Applying the approach of Lord Slynn, the First Schedule employees

(a) were effectively dismissed by MOD on 31^st August 1984, having previously been employed on standard MOD terms and received redundancy payments;

(b) were employed by SERCO on SERCO terms from 1^st September 1984 until 28^th February 1990 when their employment with SERCO was effectively terminated with redundancy payments being made; and

(c) commenced employment on fixed term contracts with MOD on 1^st March 1990 and continued on those terms by renewal in 1992 and 1994 until their eventual dismissal on 31^st March 1996.

34. The Second Schedule employees were employed by SERCO on SERCO terms between 1984 and 28^th February 1990 when they too were effectively dismissed with redundancy payments and commenced employment with MOD on 1^st March 1990, whereupon they fell into line with phase (c) of the First Schedule employees' employment with MOD.
35. Mr Waterhouse, who represents all but 5 of the Applicants, Respondents to this Appeal, takes two points in answer. First, he relies on the European Court of Justice decision in Rotsart de Hertaing -v- Benoidt [1997] IRLR 127 for the proposition that contracts of employment are transferred automatically on transfer and that any purported variations in the contract are void. That case is not specifically referred to by Lord Slynn in Wilson, but we accept Mr Vajda's submission that de Hertaing raises no different principle from that in European Court of Justice case of Jules Dethier [1998] IRLR 266 which was referred to at paragraph 75 of the report of Lord Slynn's speech. Accordingly, that earlier case does not cause us to depart from the approach of Lord Slynn in Wilson.
36. Secondly, Mr Waterhouse submits correctly, that MOD is an emanation of the state and therefore cannot rely upon a failure by the UK Government to bring domestic law into line with the Directive. Foster -v- British Gas [1991] ICR 463. In this connection he submits that in 1984 the First Schedule employees had no remedy for unfair dismissal because at that time the TUPE regulations did not apply to non-commercial ventures. Pausing there, the short answer on the facts of this case is that in 1984 the transfer took place between a non-commercial transferor (MOD) and a commercial transferee (SERCO). Accordingly, there was no bar on those employees relying on a TUPE transfer for the purposes of bringing an unfair dismissal claim against SERCO.
37. In 1990 the transferee was MOD. As an emanation of the state it was open to the Applicants to bring a claim of unfair dismissal relying directly on the Directive and thus by-passing the TUPE regulations. In any event, we are not satisfied that the lack of a remedy for unfair dismissal would have altered the position, in the light of Lord Slynn's approach in Wilson.
38. Accordingly, we reject both arguments advanced by Mr Waterhouse in the Appeal, assuming that they were raised below (cf Jones -v- Burdett Coutts School [1998] IRLR 521).
39. Mr Linden appears on behalf of the remaining 5 Respondents to the Appeal, Ms Gardiner and Messrs Griffiths, Manns, Birchley and Mayo, members of the TGWU. Mr Birchley and Mr Mayo were First Schedule employees; the remainder Second Schedule employees.
40. He submits correctly that at the time of this Employment Tribunal decision the law was unclear. He argues that the question for the Employment Tribunal was whether, at the time of the various transfers, there was an effective dismissal or a consensual variation of the terms of the contract. Instead the Employment Tribunal proceeded on the basis that it was a dismissal case, but then failed to go on to investigate whether what appeared to be a dismissal may in fact have been an agreed variation. This point, he submits, was not raised in the House of Lords in Wilson. Both Wilson and Mead & Baxendale were by then proceeding on the basis that dismissals had taken place; the question was whether they were effective or not.
41. We return to the facts and the reasoning of the Employment Appeal Tribunal in Wilson on which it seems to us this Employment Tribunal based their approach. On 30^th September 1992 the employees were dismissed by LCC by reason of redundancy. On 1^st October 1992 they started work with St Helens on new terms and conditions. The Employment Appeal Tribunal proceeded on the basis that at the time of the transfer there was an ineffective consensual variation of the employee's terms and conditions of employment following the transfer. In the House of Lords Lord Slynn held that there was an effective dismissal in Wilson's case and that the effect of the transfer was to preserve the employee's rights arising out of that dismissal against the transferee; the transfer did not operate to continue the pre-transfer terms and conditions of employment with the transferee. In these circumstances, we are unable to find that there is any factual distinction between the present case and that of Wilson. Accordingly we hold, applying the House of Lords' decision in Wilson, that the Employment Tribunal fell into error in finding, at paragraph 24 of their reasons, that a dismissal followed by a re-engagement on different terms is, in reality, no different from a consensual variation and comes within the prohibition of variation in Daddy's Dance Hall. The correct analysis in accordance with the House of Lords approach is that contended for by Mr Vajda on behalf of MOD.

Conclusion

42. It follows that we shall allow this Appeal. The cross-appeal by those whom Mr Waterhouse represents, directed to the Tribunal's finding at paragraph 26 of their reasons in relation to the Second Schedule employees no longer arises and is dismissed.

Order

43. We set aside the Orders made by the Employment Tribunal and substitute the following declaration, that as from 1^st March 1990 the Applicants were employed on the terms of the fixed term contracts entered into by each of them with MOD and subsequently renewed in 1992 and 1994.
44. That deals with the subject matter of this Appeal. In the absence of full agreement between the parties we shall say no more about the claims identified at paragraph 11 of the Tribunal's reasons. These cases will return to the Employment Tribunal for further directions and/or determination.