United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR D BERRY (Solicitor) Berry & Walton Chancery House 8 King Street King's Lynn Norfolk PE30 1ES
For the Respondent	MR C BREEN (Of Counsel) Instructed by: Lockett Loveday McMahon 82 King Street Manchester M2 4WQ


 


MR JUSTICE LINDSAY (PRESIDENT

1. On the 10th April 1999 Mr William Bunting presented an IT1 dated the 8th March 1999 against Hertel (UK) Ltd claiming unfair dismissal or for redundancy. On the 17th March 1999 his wife, Pauline, had done the same. Their son, Shane, did likewise. Each claimed to have been employed first by Fine Finished Ltd, then, upon a transfer, by Petrochemical Maintenance Services Ltd ("PMS") and then each asserted that, by reason of a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations ("TUPE"), each had become employed by the Respondent, Hertel. We will need to look in more detail later at its characteristics but it would be fair to describe PMS as a Bunting family company, one which had been incorporated for the purpose of carrying out building work, road repairs and maintenance and general building maintenance for a company, Dow Chemicals ("Dow"), with whom it had a contract, "the DC Contract", at Dow's factory at Kings Lynn Norfolk.
2. In its IT3 Hertel denied that there had been any relevant transfer but, by the time of the hearing at the Employment Tribunal, the issues had broadened and when the matter came before the Tribunal at Norwich under the Chairmanship of Mr A.B. Pollok in July and September 1999 the Tribunal was able, correctly in our view, to identify 3 chief issues. The Employment Tribunal said:-

"The Tribunal identified three critical issues in the present case namely:

1. Prior to the termination of the DC Contract, was PMS's operation an undertaking or part of an undertaking for the purpose of Regulation 3 (1) of the Regulations of 1981?

2. If so, was that undertaking transferred so that it retained its identity in the hands of the Respondent?

3. Were the first and second applicants employees of PMS?

It was accepted by Mr Breen for the respondent that the third applicant was an employee of PMS".

The Employment Tribunal held that there had been no relevant transfer and hence that Hertel was under no liability to any of the applicants but, lest their views were wrong, the Tribunal went on to consider whether either of Mr William Bunting and Mrs Pauline Bunting had been an employee of PMS and held that neither had been. Thus, again, in consequence, Hertel could have been under no liability to Mr William Bunting and his wife in respect of unfair dismissal or redundancy.

3. All 3 applicants, for whom Mr D. Berry appears, as he did below, appeal. Hertel appears, as it did below, by Mr C. Breen, to resist the appeals.
4. PMS was incorporated on the 22nd June 1992 under the name "Miscellaneous and Others Ltd.". Each of its two issued £1 shares were in the name of L & A Secretarial Ltd. and, on the same day, those two shares were transferred by that transferor, as to one of them to Mr William Bunting (the Register of Transfers says "as Trustee") and, as for the other, to Mr David Berry, again marked "as Trustee". That Mr Berry, solicitor, is the same Mr Berry as appeared below and appears before us for the Appellants. On the same day, 22nd June 1992, a discretionary trust was declared by Deed by Mr Berry and Mr William Bunting declaring trusts in relation to such shares of Miscellaneous and Others Ltd. as the trustees might from time-to-time acquire and which were to be held on the trusts of that Deed. The Deed, at any rate in the copy before us, is defective in several respects but the intended beneficiaries (which did not include Mr William Bunting) were clearly all members of the Bunting family and included Mrs Pauline Bunting and Shane Bunting. The Deed defined "the Power of Appointment" as a "power to appoint any replacement trustee ...." but that defined term was never again used in the course of the Deed and presumably therefore the powers of appointing new trustees or of removing trustees were merely the statutory ones. The Trust was to be called "the Billy Bunting Fine Finished Discretionary Trust No. 1". There was a "No. 2" trust as well. There were express powers in the Trust Deed whereunder a director or employee of the Company was not to be thereby disqualified from being a trustee nor, if a trustee, from retaining remuneration paid to him by the Company. Were there to be tied vote between only two trustees the provision, otherwise applicable, that the first-named trustee would have a casting vote, was expressly not to apply. There would presumably therefore be deadlock upon a tied vote between only two trustees. To that extent, were the present trustees, Mr Berry and Mr William Bunting, to differ as trustees then, unless his was in favour of the status quo, Mr Berry's preference would not prevail.
5. At some stage, as we assume (the papers do not show it), Miscellaneous and Others Ltd. changed its name to become that of PMS. The Employment Tribunal, which held that at all material times Mr William Bunting and his solicitor, Mr Berry, in the capacity of trustees, owned the majority shareholding of PMS, appears to have understated the position, which was that they owned the whole of the shareholding. There was no joint holding; each of Mr Berry and Mr Bunting held one share. But there is no dispute but that the Employment Tribunal was correct in holding that all material times Mr William Bunting was a director of PMS and that Mrs Bunting was either its Secretary or at one point, jointly its Secretary (with Mr Berry). It does not appear that there was ever any director of PMS other than Mr William Bunting, nor that the shareholding ever increased beyond the two £1 shares so far described. It was against this background that the Employment Tribunal turned to the question of whether Mr William Bunting and Mrs Bunting had been employees of PMS as, failing that, they had no claim whatsoever to have become employees of Hertel.
6. The Employment Tribunal expressly held that neither Mr William Bunting nor his wife had a written contract of employment and there is no finding that either had an oral one either. Each received a salary from which both Income Tax and National Insurance Contributions had been deducted. Each also had a debenture over the Company's assets (although the date and terms thereof are not recorded). The Employment Tribunal directed itself by reference to the well-known dictum of McKenna J. in Ready-Mixed Concrete (South East) Ltd. -v- Ministry of Pensions [1968] 2 QB 497 which it summarised (it is not said inaccurately) as:-

"1. Did the worker undertake to provide his own work and skill in return for remuneration?

2. Was there a sufficient degree of control to enable the worker fairly to be called a servant?

3. Were there any other factors inconsistent with the existence of a contract for service?"

As to the first of those, the Employment Tribunal concluded:-

".... Both the first and second applicant [Mr William and Mrs Bunting] provided services of an administrative nature to the Company in return for reward in the form of a salary."

It is notable that that finding does not include that there had been any "undertaking" by the two "workers" and, as mentioned, the Employment Tribunal expressly held them to have had no written contracts of employment and made no finding as to any oral ones.

7. As for the third of those factors, the Employment Tribunal considered that and held:-

"It may be that the label of "an employment contract" was applied to describe the relationship between the first and second applicants and PMS Ltd.. It may also be they suffered the deduction of Income Tax and National Insurance payments from the sums paid to them by PMS Ltd.. However, in the view of the Tribunal those factors alone are not enough in reality to constitute a bona fide contract of service such as was called for if the Regulations of 1981" [TUPE] "were to apply."

8. The Employment Tribunal also directed itself by reference to Secretary of State for Trade and Industry -v- Bottrill [199] IRLR 326 C.A. from which a highly material citation was made.
9. Against this background of the first and third elements of McKenna J.'s dictum having plainly been considered and, moreover, as, by its reference to Bottrill, the Employment Tribunal clearly had in mind that control, whilst likely to be significant, was only one of the material factors to be taken into account, it is in our view, impossible to accept Mr Berry's argument that the Employment Tribunal applied only the control test, the second element. But the control test did undoubtedly loom large. And, as to that, the Tribunal held:-

"However, the Tribunal was in no doubt that the Company [PMS] had no control over the activities of [Mr William Bunting or Mrs Bunting]. This was the case because [Mr William Bunting] in his capacity as trustee of the discretionary settlements which own the majority shareholding in PMS was in the last resort able to determine any issue requiring a decision effecting the Company including the continued employment of himself and the second applicant. Thus, for example, if it had come to the point, both applicants could determine when they would attend for work or indeed if they would attend for work at all and, further, what work they would perform if they did attend for work. Their decision regarding such matters could not have been gain said by either the Company or any other person. It was true that Mr David Berry, the co-trustee, had a right as a shareholder to be formally consulted at Company meetings but since he was dependent upon the first applicant for the payment of his professional fees as a solicitor and further because the first applicant would have the power of appointing additional trustees, his say in the councils of the Company, of which he was not an officer, would have counted for little against that of [Mr William Bunting]. Such a state of affairs was, in the view of the Tribunal, entirely inconsistent with [Mr William Bunting and Mrs Bunting] holding the status of employees."

10. Plainly there are aspects of that reasoning which are vulnerable but the Tribunal's conclusion, that the preference of Mr Bunting and his wife in relation to what, if anything, was to be required of them could not be effectively challenged, is not a conclusion we can be sure was wrong. We have no notes of the evidence given below; the Chairman's Notes were not sought. We are thus not in a position to rule that any of the primary facts described was unfounded. Moreover, as a director (and, it would seem, the only director of the Company) Mr William Bunting would be the person to determine what, if any, requirements should be laid upon this "worker" or that. A challenge, ultimately, by shareholders could, in theory, have been possible but the only person able to mount such a challenge would have been Mr Berry and he was fettered not only, perhaps, by reason of the factors which the Employment Tribunal describe but, more formally, because so long as Mr William Bunting as trustee was of the same view as he was qua director, there would have been a stalemate amongst the trustees. In turn that would mean that no effective expression of a shareholder's view contrary to Mr William Bunting's view as director would have been possible and, consequently, that the status quo would remain the case, namely that Mr William Bunting's own specification of what the company required of himself and his wife should regulate what was required of them, as should also his office of director.
11. Mr Berry refers to the recent case of Sellars Arenascene Ltd -v- Connolly C.A. now reported at 2001 [IRLR] 222. Mr Connolly had a written contract of employment, held only a majority of the relevant shares and was not (it would seem) a sole director as his written contract made provision for obedience to directions given by the Board of Directors. His contract made express provision for his duties, his hours of work and his holidays. He was in those respects better placed than Mr William Bunting and Mrs Bunting to be regarded as an employee of the company concerned. The Court of Appeal held in Connolly that the only legitimate conclusion on the facts of that case was that Mr Connolly had been an employee. The Court of Appeal did not in any way doubt Bottrill supra in the course of its reversing the Employment Tribunal's decision (as the Employment Appeal Tribunal had also done) but held that on the facts the Tribunal in Connolly had placed too much emphasis on and had, indeed, misunderstood the relevance of Mr Connolly having been a majority shareholder.
12. We have been unable to see any corresponding improper emphasis or over-reliance by the Employment Tribunal in the case at hand. Both Bottrill supra and (at its paragraph 18) Sellars Arenascene make the point that the actual conduct of the parties is likely to be relevant but in the absence of Chairman's Notes the Appellants before us have been fettered in their submissions on fact. We have not felt able to jump from abstract propositions such as that directors as such are not entitled to salary and that Mr William Bunting and Mrs Bunting received sums apparently described as salaries and which suffered deductions appropriate to salaries to a conclusion, one of fact, that they were employees. Moreover, in the absence of Chairman's Notes of any such evidence, we have felt unable to rely upon Mr Berry's assertion that Mr William Bunting and Mrs Bunting regarded themselves as employees, an assertion which could hardly have been determinative even if there had been a finding to such effect. All in all, we cannot see Sellars Arenascene as materially assisting Mr William Bunting and Mrs Bunting and we remain unconvinced that in this part of the case the Employment Tribunal in its reasoning committed themselves to anything which was in error of law.
13. Accordingly, irrespective of our conclusion on TUPE, the appeals of Mr William Bunting and Mrs Bunting must be dismissed.
14. Whilst we do not rely on this, the highly artificial way in which Mr William and Mrs Bunting came to be dismissed by PMS serves chiefly to underline how unlike that of the position of most employees was their position. First of all, Mr Berry, the solicitor to, and fellow trustee of, Mr William Bunting, was appointed, presumably by Mr William Bunting or by Mr William Bunting and Mr Berry together, to be joint Secretary of the Company with Mrs Bunting. Then, on the very same day, letters were signed by Mr Berry as joint Secretary (and presumably as drafted by him) to each of Mr William Bunting and Mrs Bunting advising them that PMS was to make them redundant with effect from the 5th April 1999, a letter which, as joint Secretary, he could only have had authority to compose and send had he been authorised by the sole director and by his joint Secretary, who, accordingly, had already known of it and authorised it. The letters also advised Mr William and Mrs Bunting, the debenture holders, that "the debenture holders had called in their loan". Mr Bunting then resigned from his brief office as joint Secretary of the Company, the only office he ever held in it. Although, as we say, we do not rely upon the point, such a rigmarole does nothing to assist Mr William and Mrs Bunting in their claim that the Employment Tribunal erred when it found them not to have been in a "genuine employer/employee relationship".
15. We now turn to TUPE and the question of whether there was a relevant transfer. Given our conclusion as to Mr William and Mrs Bunting not being employees this question affects only Shane, who was conceded to have been an employee of PMS.
16. PMS had the DC Contract. Work done by PMS was predominantly in performance of the DC Contract and 95% of its income came from that source. PMS employed 6 men, one of whom was Shane. In February 1999 PMS learned that the DC Contract was to end, as it did on or about the 5th March 1999. Dow gave a contract to Hertel, which not only did work such as that which PMS had done but, perhaps by way of two recently acquired scaffolding and insulation companies, also did scaffolding and supplied electrical services and pipe insulation. Dow, a member of an international group of companies, had given the contract to Hertel as it wished that all its factories in Europe should be managed and serviced by Hertel. Hertel, plainly, was a company of considerably of greater resources than had been PMS. Whilst PMS had had the DC Contract it had operated from temporary mobile offices which it owned and which were placed on the Dow site. After PMS had lost the DC Contract the offices were removed by PMS and Hertel put on its own mobile offices but at a different part of the Dow site. The Dow contract was then managed from another site, away from the Dow site, by Hertel.
17. The employees of Hertel and of the recently acquired scaffolding and insulation companies which it had acquired were pooled in the sense that any could be required to do the tasks of any of the three companies. PMS had owned its own diggers (which it had sometimes hired out to others when they had not been required at the Dow site) and had employed its own digger drivers but, by contrast, Hertel hired such equipment and drivers as and when needed. Hertel had offered to buy some equipment from PMS but Mr William Bunting had not accepted the offer. In the event, no tools, equipment, motor vehicles or protective clothing used by Hertel had come from PMS but all had been provided directly by Hertel. Of the six employees of PMS three took up employment with Hertel, one left altogether, one stayed with PMS (which therefore presumably continued in some existence beyond total dormancy) and Shane went to another Bunting family company. Hertel had similar but separate contracts with Dow for services at other Dow sites. Whereas the DC Contract had been for the provision by PMS only of "civil services", the contract Dow made with Hertel in respect of the Kings Lynn Dow site was for scaffolding, insulation, painting and civil work. The DC Contract had provided:-

"Nothing contained in this agreement shall be interpreted or construed to mean or to imply that Dow shall request contractor to perform all or any service of the nature or character covered by this agreement and Dow reserves the right to perform such service itself or have the same performed by others."

There would not seem to have been any such express provision in the contract which Hertel made with Dow in respect of the Kings Lynn site.

18. In relation to TUPE the Employment Tribunal directed itself by reference to Spijker [1986] ECR 1119, Dines -v- Initial Health Care Services Ltd [1995] ICR 11, Kelman -v- The Care Contract Services Ltd [1995] ICR 260, Suzen [1997] ICR 662 and ECM Vehicle Delivery Services Ltd -v- Cox [1999] IRLR 559 C.A.. The Employment Tribunal concluded that the economic entity, the transfer or not of which was required to be considered consisted of the management of PMS, its employees, its assets (such as equipment), its premises and its right to carry out the DC Contract. If that was right (and Mr Berry does not argue that it was wrong) then the answer to the next question, whether that economic entity was transferred, virtually answers itself. The management of PMS (its only director and its Company Secretary) did not transfer to Hertel, three out of six only of its employees did transfer to Hertel, none of its assets transferred but, as it would seem, were retained by PMS, no premises were transferred, not even PMS's mobile offices, and there was no assignment by PMS of any right to carry out the DC Contract, which was terminated and replaced by a different contract with a different contractor.
19. In answering that next question the Employment Tribunal made reference to the facts that PMS's mobile offices had been removed from the Dow site, that work was now, after the change, done, as to scaffolding and insulation, that had not be done before, that there was a greater flexibility of working methods (presumably referring to the fact that employees of Hertel and of its two acquired companies could all be required to do any of the work which fell within the ambit of any of the three companies), that the Hertel employees did not do digging work or use digging equipment, that none of PMS's management had any continuing part in the work done and that no member of the Bunting family was employed after the change. The Employment Tribunal concluded:-

"It seemed to the members of the Tribunal that because of the changes which he [an observant visitor] would have detected [he] would have been obliged to say to himself "What has happened to PMS?" because he could find scant, if any, evidence of its continued operation even though the company itself still existed. It was, therefore, our conclusion that the economic entity represented by PMS had not retained its identity after the termination of the original DC Contract and the grant of a new DC Contract to the Respondent. Whilst we accepted that both the Respondent and PMS were carrying out a maintenance function at Kings Lynn and that three of the former PMS employees were engaged by the Respondent but nevertheless in our view that was insufficient evidence to support the assertion that the identity of PMS remained after the grant of the new contract to the Respondent."

That conclusion is consistent with passages in Suzen supra namely:-

"The mere loss of a service contract to a competitor cannot therefore by itself indicate the existence of a transfer within the meaning of the Directive (77/187/EEC). In those circumstances, the service undertaking previously entrusted with the contract does not, on losing a customer, thereby cease fully to exist, and a business or part of a business belonging to it cannot be considered to have been transferred to the new awardee of the contract."

The second passage, in Suzen's paragraph 23, albeit in relation to a contract for cleaning of premises, in effect said that the Directive was to be interpreted as not applying to a situation where, a contract "out-sourced" to one undertaking had then been given to another undertaking:-

"... if there is no concomitant transfer from one undertaking to the other of significant tangible or intangible assets or taking over by the new employer of a major part of the workforce, in terms of their numbers and skills, assigned by his predecessor to the performance of the contract."

There had been, as we have mentioned, no transfer of assets, tangible or intangible, in the case at hand and only three of the six employees transferred to Hertel but neither transferred of the two persons, Mr William Bunting and Mrs Bunting, who, though not employees, had been involved in its management. There was no finding that a major part of the workforce, either in terms of numbers or skills, assigned by PMS to performance of the DC Contract had been taken over by Hertel. Although there has been a tendency, post ECM supra, to ponder whether the importance of Suzen has been overstated, the Employment Tribunal did have the ECM case before it and relied upon it. ECM emphasises the need to look at all facts characterising the transaction in question and to reflect on the decisive criterion of whether the entity in question had retained its identity. Both of those requirements were performed by the Employment Tribunal and whilst it cannot, perhaps, be said that no Employment Tribunal properly directing itself could have come to any different conclusion, it equally cannot be said that this Employment Tribunal's conclusion represented the espousal of some impermissible option.

20. We thus do not hold the Employment Tribunal to have been in error of law in this second subject, TUPE. It is a minor comfort to us that, even if that were wrong, then it would affect only Shane Bunting who, after only a short service with PMS, was dismissed by PMS on a Friday and began work for another company under his father's control on the following Monday; his award, had he been entitled to one, would only have been likely to have been small. Leaving that minor comfort aside, we dismiss the appeal as to TUPE and accordingly, in all respects dismiss all appeals.