United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MS JENNIFER EADY (of Counsel) Messrs Charles Russell Solicitors 8-10 Fetter Lane London EC4A 1RS
For the Respondents	MS MELANIE TETLER (of Counsel) Messrs Kidd Rapinet Solicitors 72 High Street Haslemere Surrey GU27 2HT


 


MR JUSTICE CHARLES: This is an appeal from the Chairman of an Employment Tribunal sitting alone at London (South). His Extended Reasons were sent to the parties on 14 May 1998.

1. The subject matter of the appeal is whether as a result of TUPE the Appellant company has a liability to pay the Respondents to this appeal profit related pay under, or by reference to, a scheme entered into prior to the relevant transfer. At the time of the transfer the Appellant company was called Building & Property Limited, it has since changed its name to Unicorn Consultancy Services Limited.

The Background Facts

2. All the Respondents to this appeal (the Employees) were employed by a company called W.A. Atkins (Services) Ltd (Atkins Services), a company which was engaged (inter alia) to carry out a works contract for the Surrey County Council.
3. Atkins Services was a subsidiary of a company called W.S. Atkins Ltd (the parent company). The parent company had other subsidiaries, we shall refer collectively to the companies in that group as the Atkins Group. The Employees' remuneration package with Atkins Services comprised various elements including a profit sharing bonus scheme (the Atkins PRP Scheme). We shall return to examine the provisions of the Atkins PRP Scheme.
4. The profit year for the purposes of the Atkins PRP Scheme is 1 April 1996 to 31 March 1997.
5. The works contract with Surrey County Council was put out to tender during 1996 and the bid of the Appellant company was successful. The works contract between Surrey County Council and Atkins Services came to an end on 31 March 1997. The entry into of a works contract between the Appellant company and the Surrey County Council was a relevant transfer for TUPE purposes and 25 out of 47 staff employed by Atkins Services on the Surrey County Council contract transferred to the Appellant company. This transfer took place on 1 April 1997. All of the Employees so transferred.
6. It was common ground before us that all the Employees worked for Atkins Services throughout the year 1 April 1996 to 31 March 1997 and thus throughout the profit year for the purposes of the Atkins PRP Scheme.

The Relevant Legislation

7. It was common ground before us that this was TUPE and the Acquired Rights Directive (Council Directive 77/187/EEC). The most relevant provisions are as follows:

(a) Regulation 5 of TUPE

"5(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.

(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."

(b) Article 3 of the Directive:

"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. "

Points of general importance arising on, and our approach to this appeal.

8. Both skeleton arguments (and in particular that of the Appellant company) indicate that this appeal raises points of some general importance. In opening the appeal Counsel for the Appellant company so submitted but she qualified that submission by informing us that the tax legislation concerning PRP Schemes was due to be changed next year and therefore that the points of general importance could be short-lived.
9. If, as was originally submitted, this appeal does raise points of general importance concerning PRP Schemes, we indicated that we would wish to consider giving the Inland Revenue an opportunity to be heard. We also indicated that we were concerned as to what effect, if any, any decision we might reach would have on the tax position of companies in the Atkins Group and their employees.
10. We were told that at an early stage of this dispute Atkins Services had taken the stance that the claims made by the Employees were nothing to do with them and that such claims had transferred to the Appellant company. As we understand it, at that stage issues as to what effect, if any, a decision would have on the tax liabilities of companies in the Atkins Group and their employees were not raised and were probably not in the minds of any of the persons concerned.
11. We think it is fair to say that once we raised the possibility of the Inland Revenue being invited to make submissions if they wished to either (i) generally as to the effect of a TUPE transfer on a PRP Scheme, or (ii) as to the effect of this TUPE transfer on the Atkins PRP Scheme, both sides "backed off" their assertions that this appeal raised points of general importance.
12. In particular Counsel for the Employees pointed out that this appeal involved small sums of money and if there was to be a further hearing, with the result that further costs would be incurred, this could well mean that the Employees would recover little or nothing even if they won. We acknowledge the force of this point.
13. Further, Counsel for the Appellant company informed us that the Appellant company had not approached the Inland Revenue because it had taken a commercial view. That view was that if it lost on this appeal and this meant that it had to make gross payments to the Employees it would make those payments. We can well understand why the Appellant company has taken this view.
14. Albeit that tax points were taken before the Employment Tribunal it seemed to us that neither side have given detailed consideration to the relevant tax provisions.
15. Our understanding was that the position of both sides to this appeal was that if they won this would not affect the tax position of companies in the Atkins Group or their employees. Further, we think that the understanding of both sides was that if the Employees were successful the Appellant company could make them a payment that was free of income tax.
16. If we had thought that our decision in this case was likely to be of general importance in connection with PRP Schemes then (subject to further argument) we would have been minded to:

(a) give the Inland Revenue an opportunity to be heard, and

(b) give companies in the Atkins Group (and possibly their employees through a representative) a right to be heard.

17. However as:

(a) we have concluded that the answer to this case turns on the particular wording of the Atkins PRP Scheme in the particular circumstances of this case,

(b) we think it is unlikely that our decisions will have any effect on the tax liabilities of companies in the Atkins Group and their employees, and

(c) the Appellant company has indicated that if necessary it will make gross payments to the Employees,

we have decided that we should determine this case without inviting submissions from the Inland Revenue or from companies in the Atkins Group (or their employees).

18. In doing so we have proceeded on the assumptions that our decision and reasoning:

(i) does not give rise to any general tax point concerning PRP Schemes, and

(ii) any tax problems for companies in the Atkins Group or their employees.

Indeed, we have proceeded on the assumption that whichever side is correct tax problems will not arise and thus, for example, if the Employees succeed the Appellant company can make net payments to the employees (although it will make gross payments if this is necessary or appropriate).

19. We hasten to add that we recognise that in these proceedings we cannot in any way bind the Inland Revenue, or companies in the Atkins Group, or their employees. We would however express the hope that having regard to the small sums involved that if our assumptions are incorrect the Inland Revenue would, if necessary as a matter of concession, accept that our decision and reasoning does not give rise to any adverse tax consequences, for example, if it leads to a conclusion that employees of companies in the Atkins Group have been slightly overpaid under their interpretation of the Atkins PRP Scheme in the light of the TUPE transfer with which we are concerned.

Authorities

20. We were referred to the following two cases decided by the European Court of Justice, namely Knud Wendelboe & Others v L.J. Music ApS in liquidation, case 19/83 and H.B.M Abels v The Administrative Board of the Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie, case 135/83.
21. We accept that the Wendelboe decision is authority for the proposition that in Article 3 the words "existing on the date of transfer" relate to the "contract of employment or ... employment relationship" and not to the words "rights and obligations". As we understood it this was accepted in oral submission by Counsel for the Appellant company. In our judgment she was correct to accept that this was so.
22. Paragraph 15 of the judgment in the Wendelboe case is in the following terms:

"That interpretation of the scope of Article 3(1) is also in conformity with the scheme and the purpose of the directive, which is intended to ensure, as far as possible, that the employment relationship continues unchanged with the transferee, in particular by obliging the transferee to continue to observe the terms and conditions of any collective agreement (Article 3(2)) and by protecting workers against dismissals motivated solely by the fact of the transfer (Article 4(1)). ... ."

We accept, and indeed it was common ground before us, that this is a fair summary of the purpose which underlies the Directive and thus TUPE.

23. Counsel for the Employees referred to the Abels case to counter written submissions made on behalf of the Appellant company that TUPE and Article 3 did not apply to contingent liabilities. The issue in the Abels case was whether Article 3 covered liabilities that were existing at the date of the transfer and it was held that it did. The case was therefore not concerned with contingent rights. However, we accept as was submitted by Counsel for the Employees that it is authority for the proposition that "contingent rights or liabilities" are not excluded as a class from a transfer. In oral argument Counsel for the Appellant company accepted that this was the case. Indeed, as we understood the position, it was never her case that contingent liabilities as a class were excluded.
24. The Abel case also contains passages both in the opinion of the Advocate General and in the judgment which identify the general purpose of Article 3 and thus of TUPE, for example, at paragraph 33 of the judgment where the Court says:

"... and the Commission maintained that the provision in question covers all obligations attaching to the transferor by reason of a contract of employment or an employment relationship, including claims of workers already enforceable against the previous employer. That follows from the purpose of the directive, which is intended to protect workers and, more particularly, to safeguard their rights upon a change of employer ..."

And at paragraph 37 of the judgment where it is said that:

"That interpretation is confirmed by the fact that Article 3(3) expressly excludes from the scope of paragraph (1), the provision at issue, "employees" rights to old age, invalidity or survivors' benefits under supplementary company or inter-company pension schemes outside the statutory social security schemes in Member States'. The existence of such a specific clause, limiting the scope of the basic rule, leads to the conclusion that Article 3(1) relates to all the rights of employees which are not covered by that exception, whether those rights arose after or before the transfer of the undertaking."

25. Again we accept that these passages indicate the general purpose underlying the Directive and TUPE.
26. At our prompting we were also referred to Marshall v Kerr [1995] AC 148 in particular at 160F to 161B and 164E to H which identify the approach to be taken to "deeming provisions". In those passages the approach of Nourse J in the case of IRC v Metrolands (Property Finance) Ltd [1981] 1 WLR 637 at 646 and of Peter Gibson J who gave the leading judgment in the Court of Appeal in Marshall v Kerr itself were approved. In our judgment these passages are to similar effect. The passage from the judgment of Peter Gibson J is in the following terms:

"For my part I take the correct approach in construing a deeming provision to be to give the words used their ordinary and natural meaning, consistent so far as possible with the policy of the Act and the purposes of the provisions so far as such policy and purposes can be ascertained; but if such construction would lead to injustice or absurdity, the application of the statutory fiction should be limited to the extent needed to avoid such injustice or absurdity, unless such application would clearly be within the purposes of the fiction. I further bear in mind that because one must treat as real that which is only deemed to be so, one must treat as real the consequences and incidents inevitably flowing from or accompanying that deemed state of affairs, unless prohibited from doing so."

27. The citation from the judgment of Nourse J indicates that in addition the court is

"entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to".

This shows that a different approach could be taken in connection with:

(i) deciding what a transferee should pay employees, and

(ii) deciding tax questions.

28. For example, in our judgment, it would be wrong to have regard to the deeming provisions contained in Regulation 5 of TUPE when considering whether or not the employees to whom the Atkins PRP Scheme relates constituted more than 80 per cent of all the employees in the employment unit at the beginning of that period (see Paragraph 6 of Schedule 8 to the ICTA 1988).

The Atkins PRP Scheme

29. The scheme document is headed "WS Atkins Limited, Profit-Related Pay Scheme 1996/97". It contains, amongst others, the following terms (with our emphases):

"DEFINITIONS

1. In these Rules the words and expressions below shall have the following meanings:-

...

Distributable Pool means the total amount of PRP to be paid to Eligible Employees for the Profit Period.

Eligible Employee means an employee who is subject to Schedule E tax and who participates in the Scheme under the Rules.

Employment means employment in the Employment Unit.

Employment Unit means the whole of the undertaking of WS Atkins Limited and its subsidiary companies.

Profit Period 1st April 1996 to 31st March 1997.

Profit Related Pay (PRP) means that part of the remuneration of an Eligible Employee which is paid in accordance with the Scheme Rules.

...

Scheme means the Profit Related Pay Scheme as constituted by and in accordance with these Rules as from time to time amended under Section 177B of the Act.

Scheme Employer means WS Atkins Limited ...

INTRODUCTION

3.1 The purpose of the Scheme is to distribute to Eligible Employees pay which is formally linked to the Profit of the Employment Unit calculated in accordance with the Rules.

3.2 All emoluments paid to Eligible Employees are paid through either WS Atkins (Services) Limited, WS Atkins Building Management Limited, WS Atkins Employment Services Limited, WS Atkins Property Services Limited, Cedac London Limited, Powertrack Engineering Company Limited or Network Train Engineering Services Limited, all wholly owned subsidiaries of WS Atkins Limited.

ELIGIBILITY

4.1 All Eligible Employees employed by WS Atkins (Services) Limited, WS Atkins Building Management Limited, WS Atkins Employment Services Limited, WS Atkins Property Services Limited, Cedac London Limited, Powertrack Engineering Company Limited or Network Train Engineering Services Limited during the Profit Period shall participate in the Scheme except those excluded from the Scheme by paragraph 7 of Schedule 8 of the Act.

4.2 No payment shall be made under the Scheme if at the start of the Profit Period the employees participating in the Scheme constitute less than 80% of all the employees in the Employment Unit. For this purpose any person who is excluded from the Scheme under Rule 4.1 shall not be counted.

4.3 Only those employed in the Employment Unit at the first of the month preceding the month in which payment of PRP is to be made will receive payment.

PROFIT PERIOD

5. If the Registration of the Scheme is cancelled with effect from a day after the beginning of the Profit Period, the Period shall be shortened and shall end on the effective date of that cancellation.

DISTRIBUTABLE POOL

6. Method A will be used to calculate the distributable Pool.

The Distributable Pool shall be 7.5% of the Profit of the Employment Unit in the Profit Period.

DISTRIBUTION

7. Provided the 80% test in Rule 4.2 is satisfied the whole of the Distributable Pool shall be paid to the Eligible Employees.

8. Payment shall be made by 30th November 1997.

9. An Eligible Employee's share of the Distributable Pool shall be based on Basic Pay using the following formula:-

Eligible Employee's Share = X x Y/Z where X is the amount of the Distributable Pool for the Profit Period.

Y is the Basic Pay paid excluding any PRP paid to the Eligible Employee during the Profit Period

and

Z is the total of the Basic Pay paid during the Profit Period to all Eligible Employees who receive payments.

Basic Pay means an Eligible Employee's basic pay paid to him during the Profit Period including sick pay and statutory maternity pay but excluding overtime payments, profit-related pay and all other allowances and benefits in kind.

DEFINITION OF PROFITS

10. A Profit and Loss account for the Employment Unit shall be prepared by the Scheme Employer for the Profit Period.

11. The Profit and Loss account shall give a true and fair view of the Profit or Loss of the Employment Unit and will comply, subject to Rules 12 and 14 below, with the requirements of Schedule 4 to the Companies Act 1985 as amended by the Companies Act 1989.

13. No changes will be made to the accounting policies used in preparing the Profit and Loss account if the effect of any such changes taken either singly or together would result in Profit differing by more than 5% from what Profit would have been if no change had been made.

ADMINISTRATION

15. The Scheme shall be administered by the Scheme Employer

16. The Scheme Employer shall register the Scheme with the Inland Revenue

18. The Scheme shall begin on 1st April 1996.

19. The Scheme shall remain in force until 31st March 1997.

20. The Scheme Employer shall have the right to terminate the Scheme.

Comments on the Atkins PRP Scheme

30. We make the following general comments on the Atkins PRP Scheme:

(a) Its purpose is to pay Eligible Employees pay that is linked to profit.

(b) It is only open to Eligible Employees, who must be employed by companies in the Atkins Group during the profit period, and on the facts of this case no problem arises in respect of any employee who was employed for only a part of the profit period or because the Employees were transferred during a profit period.

(c) The Employment Unit is the whole of the undertaking of the Atkins Group and the relevant profit is the profit of that undertaking.

(d) There are a number of potential reasons why during the Profit Period (i) a company and thus its undertaking, or the whole or parts of the undertaking of a company, may cease to be a part of the undertaking of the Atkins Group, or (ii) the Scheme Employer might want to exclude the undertaking of a company or companies within the Atkins Group from the Atkins PRP Scheme.

(e) It is not practical for the amount of PRP to be known immediately at the end of the Profit Period and it is therefore practically necessary to provide a period for its assessment before it can be paid.

(f) 'Eligible Employee' is loosely defined as being an employee who participates in the scheme

31. We asked whether it was known how the amounts paid to persons under the Atkins PRP Scheme had been calculated, and in particular who had been included as Eligible Employees to calculate the figure for Z. This was not known. It was thus not known whether (i) paragraph 4.1 had been interpreted and applied as requiring employees to be employed by one of the companies mentioned in Rule 4.1 during the whole of the Profit Period or only for part of it, or (ii) whether the Employees, who had been so employed for the whole of the Profit Period had been included in the assessing the denominator Z. In our judgment it is not necessary for us to know the answers to these points because (a) we do not need to express any views on point (i), and (b) such views as we express on point (ii), or which affect points (i) or (ii) cannot bind persons who are not parties to these proceedings.
32. In our judgment if one stands back from the detail of the arguments on construction a natural reading of the Atkins PRP Scheme is that by the date of the TUPE transfer all the Employees had 'earned their PRP pay' because they had worked in the Employment Unit (as defined) throughout the Profit Period.

The Argument of the Appellant Company

33. This is based on a construction of the Atkins PRP Scheme and is that as at the date of the TUPE transfer the Employees had no rights under the Atkins PRP Scheme.
34. The first point we make in respect of that argument is that we do not agree that this case is simply one of construction of the Atkins PRP Scheme. This is because Regulation 5 of TUPE contains deeming provisions and in our judgment the issue that arises is how the Atkins PRP Scheme is to be construed and applied having regard to the TUPE transfer, the terms of TUPE (including the deeming provisions contained therein) and TUPE's purpose. In our judgment this approach is supported by both Morris Angel & Son Ltd v Hollande & another [1993] IRLR 168 and Whent and others v T Cartledge Ltd [1997] IRLR 153 to which we were referred during the course of argument.
35. The Appellant company placed reliance on the Morris case in support of its argument based on the construction of the Atkins PRP scheme and in particular on the conclusions in that case that (i) the agreement in question could not be construed and applied as if the covenant restraining competition was with (and therefore related to customers of) the transferee company, and (ii) references to the group in that covenant were to be construed and applied as references to the group of which the transferor was a member at the time that the covenant was entered into. We accept that these are points that can be made in favour of the position of the Appellant company in this case. However we are of the view that at paragraph 21 of the judgment of Dillon LJ the Court of Appeal recognise and confirm that TUPE should be applied purposively having regard to the facts of a given case. Paragraph 21 is in the following terms:

"There is no doubt that the protection of employees' rights was the primary objective, but any contract of employment is a complex of rights and obligations on each side, and in Litster v Forth Dry Dock & Engineering Co Ltd [1989] IRLR 161 at pp.164-165 Lord Templeman summed up the effect of the EEC Directive as being that upon the transfer of a business from one employer to another, the benefit and burden of a contract of employment between the transferor and a worker in the business should devolve on the transferee. In the same case Lord Oliver stated at p.165, 21 that if primary or subordinate legislation enacted to give effect to the UK's obligations under the EEC Treaty can reasonably be construed so as to conform with those obligations, a purposive construction will be applied even though perhaps it may involve some departure from the strict and literal application of the words which the legislature has elected to use."

Further it goes without saying that in the Morris case the court was dealing with a different situation and agreement and in particular we are of the view that by paragraphs 22 and 23 of the judgment of Dillon LJ, which are in the following terms:

"The key words in reg.5(1) are the words: '... the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee'. It does have in a sense retrospective effect. Mr Justice Turner considered that the service agreement was therefore to be read ab initio as if made between the plaintiffs rather than the company and Mr Hollande. Clause 15(1) was therefore to be read as an agreement by Mr Hollande not in the relevant year to solicit or undertake business for persons who in the previous year - on the facts of this case the year to 27 April 1992 - had done business with the plaintiffs, not the persons who in that year had done business with the company or its subsidiaries - the group. It followed that, as Mr Hollande was not seeking to do business with persons who in the previous year had done business with the plaintiffs, but only with the persons who had done business with the company, there was no covenant available to the plaintiffs under which injunctive relief could be granted. Mr Justice Turner said that:

'It does not seem to me that the (now) plaintiffs have come within measurable distance of being able to assert a valid right which they can enforce under the provisions of clause 15(1) or (2) of the contract of employment.'

The difficulty about that approach to my mind is that it turns the obligation on the employee under clause 15(1) into a quite different and possibly much wider obligation than the obligation which bound him before the transfer, that is to say an obligation not to do business etc with the persons who had done business in the relevant year with the plaintiffs not the company. Such an obligation was not remotely in contemplation when the services agreement was entered into and I can see no reason why the regulation should have sought to change the burden on the employee. As Lord Templeman pointed out, the object was that the benefit and burden should devolve on the new employer. That would mean in the present context that the transferee should be able to enforce the same restriction."

the Court of Appeal show that they are having regard (i) to facts of the case, and (ii) to their conclusion that the approach of Turner J turns the obligation of the employee into "a quite different and possibly much wider obligation". This is an approach which has regard to the nature and extent of the rights and obligations that devolve pursuant to TUPE and in reaching their conclusion as to that in the Morris case the Court of Appeal plainly had regard to different considerations to those which arise in this case where what is under consideration is whether rights and obligations relating to a certain type of pay devolve. Further at paragraph 24 when Dillon LJ says:

"The more reasonable construction is in my judgment that the words 'the transfer shall have effect ...' are to be read as referring to the transferee as the owner of the undertaking transferred or in respect of the undertaking transferred. The effect therefore is that clause 15(1) can be enforced by the plaintiffs if Mr Hollande within the year after 27 April 1992 does business with persons who in the previous year had done business with the undertaking transferred, of which the plaintiffs are deemed as a result of the transfer retrospectively to have been the owner. The plaintiffs are thus given locus standi to enforce the restriction."

the Court of Appeal do rewrite the covenant in construing, and thus in applying, it after the transfer. They do so by reference to the undertaking transferred "of which the transferee is deemed retrospectively to be the owner". That construction and application is one that has regard to the deeming provisions in TUPE and its purpose and has the result that after the transfer the covenant is enforceable by the transferee but relates to customers of the undertaking transferred which was the undertaking of the group referred to in the original covenant.

36. The Whent case was relied on in particular by counsel for the Employees. In the Whent case this Tribunal found that following a TUPE transfer the transferee company remained bound to pay the employees who transferred by reference to NJC rates notwithstanding the withdrawal of the transferee company from the relevant collective agreement. In particular we were referred to paragraphs 16 and 18 of the judgment, which are in the following terms:

"The tribunal's next reason is that it 'cannot be right that an employer is bound ad infinitum by the terms of a collective agreement negotiated by bodies other than themselves'. In our view that is fallacious for a number of reasons. In the first place the employer is not in any event bound 'ad infinitum'. It can at any time, without breach of contract, negotiate variations of contract with individual employees, as its letter of 21 April 1994 professes it as being eager to do, or terminate their contracts on due notice and offer fresh ones. The latter course may no doubt lead to its incurring obligations to compensate for unfair dismissal, but that is a matter for it to weigh commercially. The words 'ad infinitum' are in truth no more than colourful surplusage; the question is simply whether the employer is still bound by the NJC agreement, so far as incorporated in individual contracts of employment, notwithstanding its 'withdrawal' from collective participation. The second reason why this argument is fallacious is that if correct there seems to be no reason why it would not have applied from the moment of transfer, whether or not the respondent had 'withdrawn', since there is no finding, and little likelihood, that it had any representation on the management side of the NJC. The third is that there is simply no reason why parties should not, if they choose, agree that matters such as remuneration be fixed by processes in which they do not themselves participate. The tribunal themselves accept that that is true of some employers who are not local authorities. It must, on the agreed facts set out near the beginning of this judgment, equally be true of non-union employees.

It might appear that a much more direct approach than an implied term would be to construe literally the opening words of clause 1: 'During your employment with the authority' (our emphasis), so that the clause ceased to apply upon the transfer of undertaking to the respondent. Mr Brown, however, conceded, in our view rightly, that as so construed the clause, or any implied term to similar effect, would have been void as an attempt to contract out of reg. 5 of TUPE, by virtue of reg. 12. Moreover such an approach would have entailed that the NJC agreement would have ceased to apply even if the respondent had not 'withdrawn', a result contended for by no one and contrary to the industrial tribunal's unappealed finding."

We accept that parts of those paragraphs (and in particular the passages that remuneration can be fixed by processes in which the parties have no part and that an implied term that limited the application of the NJC agreement to the period of employment with the authority would be void as an attempt to contract out of Regulation 5 of TUPE) can be said to support the Employees' arguments. However as with the Morris case the facts and the issues that arise in construing and applying the Atkins PRP Scheme are different to those that applied in the Whent case where no difficulty arose as to the application of the deeming provisions in Regulation 5 of TUPE and the problem that arose was what effect should be given to the contract of employment which was deemed to have been originally made with the transferee company when that company withdrew from the collective agreement.

37. In our judgment these two cases are no more than examples of the effect and application of TUPE in different situations and they do not provide clear or decisive support to either side.
38. Returning to the Atkins PRP Scheme the Appellant company argues that Eligibility is defined by Rule 4. From that it argues that Eligibility has three conditions for entitlement and unless and until all three conditions are satisfied an employee has no rights to PRP. This argument gives rise to two questions, namely (1) is it right when the Atkins PRP Scheme is construed as at the date it was entered into, and (2) what difference does the application of TUPE have to the construction, applicability and effect of the Atkins PRP Scheme.

Our Approach and Conclusion

39. In our judgment when the Atkins PRP Scheme is construed at the date it was entered into, and thus without regard to any effect of TUPE, the argument of the Appellant company that Rule 4 defines eligibility is not correct. Naturally we accept that Rule 4 is entitled "Eligibility" but:

(a) "Eligible Employee" is not defined by reference to Rule 4 and is defined as an 'employee who is subject to Schedule E tax and who participates in the Scheme under the Rules',

(b) Rule 4.2 is not concerned with the identification of employees who are eligible but is directed to a requirement imposed by the Tax legislation (see Paragraph 6 of Schedule 8 to the ICTA 1988),

(c) Rule 4.2 refers to "employees participating in the scheme at the start of the Profit Period", and to "any person who is excluded from the Scheme under Rule 4.1"; both of these phrases link with Rule 4.1 which indicate that it is Rule 4.1 which sets out the criteria for participation,

(d) albeit that it starts with a reference to Eligible Employees Rule 4.1, by its terms, also indicates that it is the Rule which sets out the criteria for participation in that it refers to "employment by" the companies in the Atkins Group during the profit period and states that they "shall participate in the scheme",

(e) this conclusion as to what constitutes "participation" under the Rules fits with (i) the ordinary meaning of the word "participates", (ii) the purpose of the scheme referred to in Rule 3.1 and (iii) the general point that the scheme is to encourage all who take part (and thus "participate") to increase the profit,

(f) the use of the phrase "will receive payment" in Rule 4.3 supports a conclusion that it is dealing with the point that it is necessary to ascertain the profits before the PRP is paid rather than with eligibility, and

(g) albeit that the phrases are coextensive Rule 4.3 (like Rule 4.2) refers to employees or persons employed 'in the Employment Unit' rather than to persons or employees 'employed by' listed companies (used in Rule 4.1) and this links Rule 4.3 to administration rather than eligibility.

40. Our rejection of the first limb of the argument of the Appellant company that Eligibility is defined by Rule 4 and has three limbs does not however mean that if the effect of TUPE is ignored an Eligible Employee is entitled to payment if he does not satisfy Rule 4.3. If, for example, an employee resigned before the date referred to in Rule 4.3 it seems to us that he would not be entitled to payment of PRP under the terms of the Atkins PRP Scheme. In our view if any effect of TUPE is ignored we agree with the assertion of the Appellant company that under the Atkins PRP Scheme PRP is not due and payable to an employee unless he satisfies Rule 4.3. Thus we agree with the submission of the Appellant company that if the effect of TUPE is ignored PRP would be paid to an employee if and only if he satisfied Rule 4.3 and on this hypothesis to do so he would have to be employed by a company in the Atkins Group on the date specified in Rule 4.3.
41. What is the effect of TUPE?
42. In our judgment our rejection of the argument of the Appellant company that Eligibility is defined by Rule 4 and has three limbs has the consequence that a detailed analysis of the terms of the Atkins PRP Scheme supports the view we expressed in paragraph 32 of this judgment that by the date of the TUPE transfer all the Employees had 'earned their PRP pay' because they had worked in the Employment Unit (as defined) throughout the Profit Period.. Other ways of putting this could be that the PRP was due but was not yet due and payable, or that the entitlement to be paid and thus to sue for the PRP was subject to a condition subsequent.
43. In our judgment, it would accord with the purposes of TUPE (see paragraphs 20 to 25 and 35 above) if the Appellant company was bound to pay PRP under the Atkins PRP Scheme to the Employees. Further as we have explained a purposive approach should be taken to the construction and application of TUPE and, in our judgment, when such an approach is taken in this case the result is that immediately before the TUPE transfer the transferor (i.e. the previous employer of the Employees, Atkins Services) had a liability or duty of a type that was within regulation 5 (2)(a) of TUPE to the Employees to pay, or procure the payment of, PRP as and when it became payable.
44. However this does not found a conclusion that TUPE has the effect that the Appellant company is bound to pay PRP under the Atkins PRP Scheme to the Employees. To determine whether or not this is the case we have to go and ask ourselves whether having regard to the deeming provisions in regulations 5(1) and (2)(b) of TUPE the Appellant company has a liability to pay PRP under the Atkins PRP Scheme to the Employees. This gives rise to the question how Rule 4.3 is to be construed and applied on the basis that the Employees' contracts of employment are to have effect as if they were made between the Employees and the Appellant company.
45. To satisfy Rule 4.3 an employee has to be "employed in the Employment Unit" on a certain date. The Employment Unit is defined as "the whole of the undertaking of WS Atkins Limited and its subsidiary companies". So to satisfy Rule 4.3 an employee has to be "employed in a part of the undertaking of WS Atkins Limited and its subsidiary companies". In the events that happened and as a result of TUPE all the Employees:

(a) were employed in a part of the undertaking that was part of the undertaking of the Atkins Group at the beginning of and throughout the Profit Period for the Atkins PRP Scheme, and

(b) remained employed in that undertaking at the date specified in Rule 4.3, albeit that by that date they were not employed by a company within the Atkins Group.

46. The transferor employer, Atkins Services, as a company within the Atkins Group and the employer of the Employees (i) either formally or informally must have agreed to participate in the Atkins PRP Scheme, and (ii) as the employer agreed that part of the Employees' pay was PRP under the Atkins PRP Scheme.
47. Regulation 5(1) of TUPE provides that the agreement between Atkins Services and the Employees that part of the Employees' pay is, or was, PRP under the Atkins PRP Scheme is to have effect after the transfer as if it had been made originally between the Appellant company and the Employees. In our judgment, in the circumstances of this case it follows that in construing and applying the Atkins PRP Scheme after the transfer in respect of the transferred contracts of employment, and thus in ascertaining the liabilities of the Appellant company under those contracts of employment, the Employees satisfy Rule 4.3 because at the date specified therein they were employees in the undertaking transferred. Our main reasons for this are:

(1) As a matter of language the requirement imposed by Rule 4.3 relates to employment in a defined undertaking rather than employment by a particular company.

(2) For the reasons we have given we consider Rule 4.3 to be a provision that does not define Eligibility but a provision that is directed, or primarily directed, to the fact that the PRP cannot be ascertained at the end of the Profit Period.

(3) It follows that we do not accept that its purpose, or main purpose, is to encourage employees to remain employed within the Atkins Group and then no doubt participate in the next PRP Scheme. If and in so far as it has this effect it is a subsidiary or "side wind" effect and the primary purpose of the PRP Scheme is to encourage employees to work hard and increase profit during the Profit Period (see for example Rule 3.1).

(4) In our view it follows that in determining whether the Employees who have "earned" the PRP element of their pay satisfy Rule 4.3, and thus whether the Appellant company is bound to pay them that element of their pay pursuant to their transferred contracts of employment and the Atkins PRP Scheme, the phrase "in the Employment Unit" (as defined) contained in Rule 4.3 should be construed and applied as employment in the undertaking transferred and not as continued employment by a company in the Atkins Group when the contracts of employment are as a consequence of the transfer and TUPE to have effect as if originally made between the Appellant company and the Employees.

48. We add that in our judgment, in the circumstances of this case, the deeming provisions contained in Regulation 5 (1) and (2)(b) of TUPE also have the consequence that in construing and applying the contracts of employment after the transfer (and thus the application in respect thereof of the Atkins PRP Scheme) the acts of the transferor employer (Atkins Services) as the employer concerning the obligations relating to pay under the contracts of employment, and thus its agreement to participate in the Atkins PRP Scheme, are to be deemed to have been done by the Appellant company. In our judgment this supports the conclusion we have reached without having regard to this effect of the deeming provisions because it has the consequence that in construing and applying the Atkins PRP Scheme the Appellant company is to be deemed to be an employer participating in the scheme.
49. However we make it clear that if our view as to the effect of the deeming provisions set out in paragraph 48 is wrong, for the reasons given above we are still of the view that as a consequence of TUPE in the circumstances of this case the Appellant company is bound to pay the Employees the PRP they claim pursuant to their transferred contracts of employment and the Atkins PRP Scheme.
50. In reaching this conclusion we have not forgotten that in other situations (e.g. a TUPE transfer during the Profit Period) practical problems would arise that do not arise on the facts of this case. We accept that on a TUPE transfer during the Profit Period difficulties would arise in ascertaining the profit and in administering the scheme because part of the profit would be made by a company outside the Atkins Group. We accept that this supports an argument that on its true construction the Atkins PRP Scheme relates only to profits of undertakings whilst they remain undertakings of a company within the Atkins Group. But in our judgment this does not lead to a result that our conclusion is wrong because:

(a) in our judgment the correct approach to the application of TUPE in respect of transferred contracts of employment is to construe and apply the relevant package of rights and obligations of the employees and employer (see paragraph 21 of the judgment in the Morris case) in the circumstances that exist and the result is not simply a matter of construction of the original contract and related documents,

(b) it follows that we should concentrate on the facts of this case,

(c) in any event if the Atkins PRP Scheme relates only to profits of undertakings whilst they remain undertakings of a company within the Atkins Group (i) this does not necessarily lead to a result that employees of a transferred undertaking should not be paid PRP calculated by reference to the profit of the undertakings of companies in the Atkins Group prior to the transfer and thus that Rule 4.3 should be construed so as to require employment by a company in the Atkins Group on the date specified therein, and (ii) a TUPE transfer of an undertaking during the Profit Period also gives rise to potential problems concerning the employees who remain employees of companies in the Atkins Group because the transfer may remove a profitable part of the undertakings to which they were contributing indirectly,

(d) as mentioned in paragraph 30(d) hereof there are a number of potential reasons why during the Profit Period (i) a company and thus its undertaking, or the whole or parts of the undertaking of a company, may cease to be a part of the undertaking of the Atkins Group, or (ii) the Scheme Employer might want to exclude the undertaking of a company or companies within the Atkins Group from the Atkins PRP Scheme and it seems to us that the practical problems arising in such circumstances, or on a TUPE transfer during the Profit Period, could be dealt with by an exercise of the power in Rule 20, and further or alternatively cancellation of the scheme pursuant to Rule 5 with the result that the Profit Period was shortened and employees who transfer pursuant to TUPE are in a similar position to the Employees in this case, and

(e) in a different factual situation which gave rise to practical problems and although we express no view on it, the alternative argument of the Employees that the Appellant company was under an obligation to provide a replacement scheme or make payments equivalent to those 'earned' under the Atkins PRP Scheme could be relevant and provide a solution that accords with the underlying purpose of TUPE.

Overall Conclusion

51. We dismiss the appeal.