United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant
For the Respondents


 


MR JUSTICE CHARLES:

SCHEDULE TO JUDGMENT EAT/202/00

ECJ cases

(1) Spijkers v Benedik (Case 24/85) [1986] ECR 1119. Paragraphs 10 to 14 of the judgment of the ECJ are in the following terms:

"10 The United Kingdom Government and the Commission suggest that the essential criterion is whether the transferee is put in possession of a going concern and is able to continue its activities or at least activities of the same kind. The Netherlands Government emphasizes that, having regard to the social objective of the directive, it is clear that the term 'transfer' implies that the transferee actually carries on the activities of the transferor as part of the same business.

11 That view must be accepted. It is clear from the scheme of Directive No 77/187 and from the terms of Article 1(1) thereof that the directive is intended to ensure the continuity of employment relationships existing within a business, irrespective of any change of ownership. It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the directive is whether the business in question retains its identity.

12 Consequently, a transfer of an undertaking, business or part of a business does not occur merely because its assets are disposed of. Instead it is necessary to consider, in a case such as the present, whether the business was disposed of as a going concern, as would be indicated, inter alia, by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities.

13 In order to determine whether those conditions are met, it is necessary to consider all the facts characterizing the transaction in question, including the type of undertaking or business, whether or not the business's tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot be made and cannot therefore be considered in isolation."

(2) Schmidt (Case C-392/92) [1995] ICR 237. Paragraphs 12 to 18 of the judgment of the ECJ are in the following terms:

"12 According to the case-law of the Court (judgment in Case C-209/91 Watson Rask and Christensen v ISS Kantineservice [1992] ECR I-5755, at paragraph 15), the directive is applicable where, following a legal transfer or merger, there is a change in the legal or natural person who is responsible for carrying on the business and who by virtue of that fact incurs the obligations of an employer vis-à-vis the employees of the undertaking, regardless of whether or not ownership of the undertaking is transferred.

13 The protection provided by the directive applies in particular, by virtue of Article 1(1), where the transfer relates only to a business or part of a business, that is to say, a part of an undertaking. In those circumstances the transfer relates to employees assigned to that part of the undertaking since, as the Court held in its judgment in Case 186/83 Botzen and Others v Rotterdamsche Droogdok Maatschappij [1985] ECR 519, at paragraph 15, an employment relationship is essentially characterized by the link between the employee and the part of the undertaking or business to which he is assigned to carry out his duties.

14 Thus, when an undertaking entrusts by contract the responsibility for operating one of its services, such as cleaning, to another undertaking which thereby assumes the obligations of an employer towards employees assigned to those duties, that operation may come within the scope of the directive. As the Court held at paragraph 17 of its judgment in Watson Rask and Christensen, cited above, the fact that in such a case the activity transferred is for the transferor merely an ancillary activity not necessarily connected with its objects cannot have the effect of excluding that operation from the scope of the directive.

15 Nor is the fact that the activity in question was performed, prior to the transfer, by a single employee sufficient to preclude the application of the directive since its application does not depend on the number of employees assigned to the part of the undertaking which is the subject of the transfer. It should be noted that one of the objectives of the directive, as clearly stated in the second recital in the preamble thereto, is to protect employees in the event of a change of employer, in particular to ensure that their rights are safeguarded. That protection extends to all staff and must therefore be guaranteed even where only one employee is affected by the transfer.

16 The arguments of the Government of the Federal Republic of Germany and of the United Kingdom based on the absence of any transfer of tangible assets cannot be accepted either. The fact that in its case-law the Court includes the transfer of such assets among the various factors to be taken into account by a national court to enable it, when assessing a complex transaction as a whole, to decide whether an undertaking has in fact been transferred does not support the conclusion that the absence of these factors precludes the existence of a transfer. The safeguarding of employees' rights, which constitutes the subject-matter of the directive, as is clear from its actual title, cannot depend exclusively on consideration of a factor which the Court has in any event already held not to be decisive on its own (judgment in Case 24/85 Spijkers v Benedik [1986] ECR 1119, at paragraph 12).

17 According to the case-law of the Court (see the judgment in Spijkers, cited above, at paragraph 11, and the judgment in Case C-29/91 Dr Sophie Redmond Stichting v Bartol and Others [1992] ECR I-3189, at paragraph 23), the decisive criterion for establishing whether there is a transfer for the purposes of the directive is whether the business in question retains its identity. According to that case-law, the retention of that identity is indicated inter alia by the actual continuation or resumption by the new employer of the same or similar activities. Thus, in this case, where all the relevant information is contained in the order for reference, the similarity in the cleaning work performed before and after the transfer, which is reflected, moreover, in the offer to re-engage the employee in question, is typical of an operation which comes within the scope of the directive and which gives the employee whose activity has been transferred the protection afforded to him by that directive.

18 It may, however, be noted that while Article 4(1) of the directive provides that the transfer of an undertaking or part of an undertaking cannot in itself constitute grounds for dismissal by the transferor or the transferee, that provision does not stand in the way of dismissals for economic, technical or organizational reasons entailing changes in the workforce."

(3) Süzen v Zehnacker Gebäudereinigung (Case C-13/95) [1997] ICR 662. Paragraphs 10 to 16, 21 and 23 of the judgment of the ECJ are in the following terms:

"10 The aim of the directive is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The decisive criterion for establishing the existence of a transfer within the meaning of the directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (Case 24/85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and, most recently, Joined Cases C-171/94 and C-172/94 Merckx and Neubuys [1996] ECR I-1253, paragraph 16; see also the advisory opinion of the Court of the European Free Trade Association of 19 December 1996 in Case E-2/96 Ulstein and Røiseng, not yet reported, paragraph 27).

11 Whilst the lack of any contractual link between the transferor and the transferee or, as in this case, between the two undertakings successively entrusted with the cleaning of a school, may point to the absence of a transfer within the meaning of the directive, it is certainly not conclusive.

12 As has been held – most recently in Merckx and Neubuys (paragraph 28) – the directive is applicable wherever, in the context of contractual relations, there is a change in the natural or legal person who is responsible for carrying on the business and who incurs the obligations of an employer towards employees of the undertaking. Thus, there is no need, in order for the directive to be applicable, for there to be any direct contractual relationship between the transferor and the transferee: the transfer may also take place in two stages, through the intermediary of a third party such as the owner or the person putting up the capital.

13 For the directive to be applicable, however, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (Case C-48/94 Rygaard [1995] ECR I-2745, paragraph 20). The term entity thus refers to an organized grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective.

14 In order to determine whether the conditions for the transfer of an entity are met, it is necessary to consider all the facts characterizing the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers and Redmond Stichting, paragraphs 13 and 24 respectively).

15 As observed by most of the parties who commented on this point, the mere fact that the service provided by the old and the new awardees of a contract is similar does not therefore support the conclusion that an economic entity has been transferred. An entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organized, its operating methods or indeed, where appropriate, the operational resources available to it.

16 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. 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.

…

21 Since in certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognized that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, as stated in paragraph 21 of Rygaard, cited above, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis.

…

23 The answer to the questions from the national court must therefore be that Article 1(1) of the directive is to be interpreted as meaning that the directive does not apply to a situation in which a person who had entrusted the cleaning of his premises to a first undertaking terminates his contract with the latter and, for the performance of similar work, enters into a new contract with a second undertaking, if there is no concomitant transfer from one undertaking to the other of significant tangible 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."

(4) Sánchez Hidalgo and Others (Joined Cases C-173/96 and C-247/96) [1997] ICR 662. Paragraphs 26 to 32 of the judgment of the ECJ are in the following terms:

"26 Whilst such an entity must be sufficiently structured and autonomous, it will not necessarily have significant assets, material or immaterial. Indeed, in certain sectors, such as cleaning and surveillance, these assets are often reduced to their most basic and the activity is essentially based on manpower. Thus, an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity.

27 The presence of a sufficiently structured and autonomous entity within the undertaking awarded the contract is, in principle, not affected by the circumstance, which occurs quite frequently, that the undertaking is subject to observance of precise obligations imposed on it by the contract-awarding body. Although the influence which the contract-awarding body has on the service provided by the undertaking concerned may be extensive, the service-providing undertaking nevertheless normally retains a certain degree of freedom, albeit reduced, in organising and performing the service in question, without its task being capable of being interpreted as simply one of making personnel available to the contract-awarding body.

28 It is for the national courts which have made the references to determine, in the light of the criteria set out above, whether the home-help service for persons in need available in the Municipality of Guadalajara and the surveillance of the medical supplies depot of the Bundeswehr at Efringen-Kirchen were organised in the form of an economic entity within the first undertaking to which provision of the service in question was contracted out or the contract in question awarded.

29 In order to determine whether the conditions for the transfer of an entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers and Süzen, paragraphs 13 and 14 respectively).

30 So, the mere fact that the service provided by the old and new undertaking providing a contracted-out service or the old and new contract holder is similar does not justify the conclusion that there has been a transfer of an economic entity between the successor undertakings. Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it (Süzen, cited above, paragraph 15).

31 As pointed out in paragraph 29 of this judgment, the national court, in assessing the facts characterising the transaction in question, must take into account among other things the type of undertaking or business concerned. It follows that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Where in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Süzen, cited above, paragraph 18).

32 Since, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis (Süzen, cited above, paragraph 21)."

(5) Hernández Vidal and Others (Joined Cases C-127/96, C-229/96 and C-74/97) [1999] IRLR 132. Paragraphs 25 to 32 of the judgment of the ECJ are in the following terms:

"25 Similarly, Directive 77/187 must be capable of applying where, as in those cases before the national courts, a undertaking which used to have recourse to another undertaking for cleaning of its premises or part of them decides to terminate its contract with the other undertaking and in the future to carry out the work itself.

26 In order for Directive 77/187 to be applicable, however, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (Case C – 48/94 Rygaard [1995] ECR 1-2745, paragraph 20). The term "entity" thus refers to an organised grouping of persons and of assets enabling an economic activity which pursues a specific objective to be exercised (Suzen, cited above, paragraph 13)

27 Whilst such an entity must be sufficiently structured and autonomous, it will not necessarily have significant assets, tangible or intangible. Indeed, in certain sectors, such as cleaning, these assets are often reduced to their most basic and the activity is essentially based on manpower. Thus, an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity.

28 It is for the national courts which have made the references to determine, in the light of the criteria set forth above, whether the maintenance of the premises of the contract-awarding undertaking was organised in the form of an economic entity within the outside cleaning firm before the first undertaking decided to carry out the work itself.

29 In order to determine whether for the transfer of an entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of the undertaking of business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities are suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation(see, in particular, Spilkers and Suzen, paragraphs 13 and 14 respectively).

30 So, the mere fact that the maintenance work carried out by the cleaning firm and the work carried out by the undertaking which owns the premises is similar does not justify the conclusion that there has been a transfer of an economic entity between the two undertakings. Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it (Suzen, cited above, paragraph 15).

31 As pointed out in paragraph 29 of this judgment, the national court, in assessing the facts characterising the transaction in question, must take into account among other things the type of undertaking or business concerned. It follows that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Where in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Süzen, cited above, paragraph 18).

32 Since, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis (Süzen, cited above, paragraph 21)."

(6) Oy Liikenne Ab Liskojarvi (Case C-172/99) [2001] IRLR 171. Paragraphs 19 and 20 and 26 to 39 of the judgment of the ECJ refer to a number of the earlier authorities and are in the following terms:

"19 It must be recalled that the aim of Directive 77/187 is to ensure continuity of employment relationships within an economic entity, irrespective of any change of ownership. The fact that the activity carried on by such an entity is awarded successively to different operators by a public body cannot exclude the application of Directive 77/187, if passenger transport by bus does not involve the exercise of public authority (see, to that effect, joined cases C-173/96 and C-247/96 Sánchez Hidalgo and others [1999] IRLR 136, paragraphs 21 and 24).

20 The Court has thus held that Directive 77/187 may apply to a situation in which a public body which has contracted out its home-help service for persons in need or awarded a contract for the surveillance of some of its premises to one undertaking decides, on expiry or after termination of its contract with that undertaking, to contract out that service or award that contract to another undertaking (Sánchez Hidalgo, paragraph 34).

…

26 In view of the possible application of Directive 77/187 to a situation such as that before the national court, that court should, second, be given the criteria necessary to enable it to assess whether there was a transfer within the meaning of Article 1(1) of that Directive in the present case. The national court observes in this respect that the takeover of the bus routes was not based on a contract between the old and new contracts and no significant assets were transferred between them.

27 The test for establishing the existence of a transfer within the meaning of Directive 77/187 is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued or resumed (case 24/85 Spijkers [1986] ECR 1119, paragraphs 11 and 12, and case C-234/98 Allen and others [2000] IRLR 119, paragraph 23).

28 While the absence of any contractual link between the transferor and the transferee or, as in this case, between the two undertakings successively entrusted with the operation of bus routes may point to the absence of a transfer within the meaning of Directive 77/187, it is certainly not conclusive (case C-13/95 Süzen [1997] IRLR 255, paragraph 11).

29 Directive 77/187 is applicable wherever, in the context or contractual relations, there is a change in the natural or legal person responsible for carrying on the business and entering into the obligations of an employer towards employees of the undertaking. Thus there is no need, in order for that Directive to be applicable, for there to be any direct contractual relationship between the transferor and the transferee: the transfer may take place in two stages, through the intermediary of a third party such as the owner or the person putting up the capital (see, inter alia, joined cases C-171/94 and C-172/94 Merckx and Neuhuys [1996] IRLR 467, paragraphs 28-30, and Süzen, paragraph 12).

30 Directive 77/187 can therefore apply where there is no direct contractual link between two undertakings successively awarded a contract, following procedures for the award of public service contracts in accordance with Directive 92/50, for a non-maritime public transport service, such as the operation of scheduled local bus routes, by a legal person governed by public law.

31 For Directive 77/187 to be applicable, however, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (case C-48/94 Rygaard [1996] IRLR 51, paragraph 20). The term 'entity' thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective (Süzen, paragraph 13).

32 It is for the national court to establish if necessary, in the light of the guiding factors set out above, whether the operation of the bus routes at issue in the main proceedings was organised as an economic entity within Hakunilan Liikenne before being entrusted to Liikenne.

33 However, to determine whether the conditions for the transfer of an economic entity are satisfied, it is also necessary to consider all the factual circumstances characterising the transaction in question, including in particular the type of undertaking or business involved, whether or not its tangible assets such as buildings and movable property are transferred, the value of its intangible assets at the time of the transfer, whether or not the core of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. These are, however, merely single factors in the overall assessment which must be made, and cannot therefore be considered in isolation (see, in particular, Spijkers, paragraph 13, and Süzen, paragraph 14).

34 So the mere fact that the service provided by the old and the new contractors is similar does not justify the conclusion that there has been a transfer of an economic entity between the two undertakings. Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or indeed, where appropriate, the operational resources available to it (Süzen, paragraph 15, Sánchez Hidalgo, paragraph 30, and Allen, paragraph 27; see also joined cases C-127/96, C-229/96 and C-74/97 Hernández Vidal and others [1999] IRLR 132, paragraph 30).

35 As pointed out in paragraph 32 above, the national court, in assessing the facts characterising the transaction in question, must take into account among other things the type of undertaking or business concerned. It follows that the degree of importance to be attached to the various criteria for determining whether or not there has been a transfer within the meaning of the Directive will necessarily vary according to the activity carried on, and indeed the production or operating methods employed in the relevant undertaking, business or part of a business (Süzen, paragraph 18, Hernández Vidal, paragraph 31, and Sánchez Hidalgo, paragraph 31).

36 On this point, the Commission submits, referring to Süzen, that the absence of a transfer of assets between the old and new holders of the contract for bus transport is of no importance, whereas the fact that the new contractor took on an essential part of the employees of the old contractor is decisive.

37 The Court has indeed held that an economic entity may, in certain sectors, be able to function without any significant tangible or intangible assets, so that the maintenance of the identity of such an entity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Süzen, paragraph 18, Hernández Vidal, paragraph 31, and Sánchez Hidalgo, paragraph 31.

38 The Court thus held that, since in certain sectors in which activities are based essentially on manpower a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over an organised body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis (Süzen, paragraph 21, Hernández Vidal, paragraph 32, and Sánchez Hidalgo, paragraph 32.

39 However, bus transport cannot be regarded as an activity based essentially on manpower, as it requires substantial plant and equipment (see, reaching the same conclusion with respect to driveage work in mines, Allen, paragraph 30). The fact that the tangible assets used for operating the bus routes were not transferred from the old to the new contractor therefore constitutes a circumstance to be taken into account."

English cases

(1) ECM v Cox [1998] ICR 631 (EAT), [1999] ICR 1162 (C/A). The most relevant parts of the judgment of this Tribunal (which was delivered by the President – Morison J) are:

(i) the citation from the decision of the Employment Tribunal in that case at pages 634 G to 635 D which is in the following terms:

"The next question to be decided would be whether the economic entity had retained its identity following the transfer. The tribunal decided that it was clear that there were differences in the way that ECM carried out the VAG contract. For example, it was a totally networked system. The administration was done centrally in Carlisle. There were no local delivery centres, drivers were expected to be out five nights a week and the Pyewipe area at Grimsby was not used. It could be argued that the yardmen's inspection duties were partly to protect their own employers (Axial Ltd) at the time. The tribunal nevertheless concluded that the customers essentially were the same, and that the work that was going on was essentially the same. Cars were unloaded at Grimsby, were put onto transporters, and were driven to VAG dealers. The end result was the same. It was true to say that ECM did not take on any of [Axial's] staff but if this in itself was taken to be a good reason for saying that the Regulations of 1981 do not apply, this would give an opportunity for any employer to avoid the Regulations, simply by not giving an employee a contract. The tribunal decided that this was not an appropriate way of interpreting the Regulations. …

'It was clear from the facts of the case that the main reason why Axial employees had not been taken on by ECM was because ECM considered that it would not be appropriate to appoint them because they were in the process of taking action against ECM within the terms of the Regulations of 1981. The tribunal did not consider that this amounted to acting reasonably. If the applicants had rights under the Regulations they were entitled at the least to be given the same chance to get a job as the new employees [ECM] employed as a result of obtaining the VAG contract. They were never given this opportunity. Consequently the tribunal found that ECM were liable for the unfair dismissal of the drivers and the yardmen'.

(ii) The passage at pages 638 F to 638 H which is in the following terms:

"It seems to us that Süzen's case [1997] ICR 662 reaffirms earlier decisions of the European Court of Justice. It re-emphasises the importance of the court's judgment in the Spijkers case [1986] ECR 1119. But the court does not expressly deal with the situation in which an employer decides not to take on employees in an attempt to avoid the operation of the Regulations of 1981 and where if he had taken them on there would be a transfer within the meaning of the Regulations. It seems to us that, when properly understood, there is no conflict between the decision in Schmidt's case [1995] ICR 237 and the decision in Süzen's case: as Kennedy LJ said in Betts [1997] ICR 792, 807, there may have been a change in emphasis.

It can be said with confidence that neither the presence nor the absence of any one factor will demonstrate that a transfer of an undertaking has or has not occurred. It is a question of looking at the facts and keeping an eye on the purpose of the protection given by the Directive. To put it another way, the transfer of an activity is a necessary but not a sufficient condition for a transfer to occur; the transfer of staff, assets or goodwill is neither a necessary nor a sufficient condition."

(iii) The passage at page 639E to 639 H which is in the following terms:

"In this case, on the tribunal's findings, the transferee did not take on the men precisely because they were asserting that the Regulations of 1981 applied and were threatening proceedings on that basis. An obvious inference from the facts is that thereby the transferee hoped to defeat their claims. The question arises, therefore, where it is possible for a transferee to cause the Regulations to be disapplied by refusing to take on the workforce. Another way of putting the point is that if the taking on or not of the workforce controls the application or otherwise of the Regulations, then the question at issue is circular. The issue as to whether employees should have been taken on cannot be determined by asking whether they were taken on.

It seems to us that we should adopt a purposive approach to the interpretation of the Regulations so as to give effect to the Government's obligations thereunder. We cannot and do not accept that it would be proper for a transferee to be able to control the extent of his obligations by refusing to comply with them in the first place. There is nothing in the Süzen decision which requires us to adopt that course.

In this case, the employees concerned were 'conditioned' to the VAG contract, in the sense that their continued employment was contingent upon its continued existence; this was confirmed by the large numbers of employees who were made redundant. As such there was an economic entity as distinct from a mere activity, and it retained its identity after the transfer: the customers were essentially the same; the work done was essentially the same (the real result was the same)."

The Court of Appeal dismissed an appeal in the ECM case. The judgment of the Court of Appeal is given by Mummery LJ. The following passages from the judgment of Mummery LJ (between 1167A and 1169F) are of particular importance.

"The basis of the argument was that the change of emphasis of the European Court of Justice in Süzen v Zehnacker Gebäudereinigung G.m.b.H. Krankehausservice (Case C-13/95) [1997] ICR 662, as recognised and applied by the Court of Appeal in Betts v Brintel Helicopters Ltd [1997] ICR 792, meant that the employment tribunal had erred in law. It was submitted that the position on transfers of undertakings now is that, where the only continuing feature is the nature of the activity itself and all that continues is the service itself, it is impossible to find that an undertaking or part of an undertaking has been transferred. All that continued in this case after Axial had lost the VAG contract was the activity of delivering cars under the contract with VAG. The case against a transfer was strengthened by the significant differences identified by the employment tribunal between the way in which the VAG contract was performed by ECM after Axial had lost the contract." [see 1167 A to 1167 B]

"The appeal tribunal [1998] ICR 631, 639 E went further and said that it was a legitimate inference that ECM had refused to take on the staff precisely in order to prevent the Regulations of 1981 from applying and that if they had been taken on then the Regulations would clearly have applied. This was criticised as an erroneous approach in law, first, because it was not a legitimate inference from the decision of the employment tribunal that ECM had refused to take on the staff in order to avoid the transfer; rather it was because of the threat of litigation. Secondly, and in any event, there was no evidence of how many of the staff might have been taken on if there had been no threat of litigation.

Conclusion

In my judgment, this appeal fails on the ground that there is no error of law in the decision of the employment tribunal. In reaching its conclusion that the Regulations of 1981 applied, the employment tribunal had regard to all those factors which were held by the European Court of Justice in Spijkers v Gebroeders Benedik Abattoir C.V. (Case 24/85) [1986[] ECR 1119 to be relevant to the determination of the issue whether there was a transfer of an undertaking. The employment tribunal considered the factors on each side. They noted the differences in the way that ECM carried out the VAG contract, but pointed out that the customers were essentially the same and that the work that was going on was essentially the same, i.e., cars were unloaded at Grimsby, were put onto transporters and were driven to VAG dealers. The result was the same. The employment tribunal were entitled to conclude that, even though ECM did not take on any Axial staff, the identity of the economic entity in the hands of Axial was still retained in the hands of ECM after the loss of the VAG contract. This justified the finding of a transfer.

The employment tribunal applied the correct test, as laid down by the Court of Justice in Spijkers and followed in other cases, such as Schmidt [1995] ICR 237. Although the Süzen decision [1997] ICR 662 has been described as involving a shift of emphasis or a clarification of the law, nothing was said in Süzen which casts doubts on the correctness of the interpretation of the Acquired Rights Directive (Council Directive (77/187/E.E.C) (O.J. 1977, L.61, p.26)) in the earlier decision cited to and applied by the employment tribunal in the extended reasons.

In my judgment, it is clear that, but for the argument about the scope and effect of the later decision in Süzen, there would be no possible ground of appeal in this case. ECM's case has to be that Süzen makes all the difference. It does not in this case. The importance of Süzen has, I think, been overstated. The ruling in Süzen should be seen in its proper context.

(1) The Court of Justice has not overruled its previous interpretative rulings in cases such as Spijkers and Schmidt. This is clear not only from the citation of those cases in the judgment in Süzen, but also from their continued prominence in the reasoning of the Court of Justice in its post-Süzen decision in Sánchez Hidalgo v Asociatión de Servicios Aser (Case C-173/96) [1999] IRLR 136.

(2) It is still the case that it is for the national court to make the 'necessary factual appraisal' in order to decide whether there is a transfer in the light of the criteria laid down by the Court of Justice.

(3) It is still the case that those criteria involve consideration of 'all the facts characterising the transaction in question', as identified in Spijkers, at para. 13 of the judgment of the Court of Justice, in order to determine whether the undertaking has continued and retained its identity in different hands. The employment tribunal carried out a full factual appraisal, applied the correct criteria and concluded that, despite changes in the organisation of the operation for the delivery of cars under the VAG contract, there was a continuation in the hands of ECM of the existence of the discrete economic entity previously carried on by Axial.

(4) The importance of Süzen [1997] ICR 662 is that the Court of Justice identified limits to the application of the Acquired Rights Directive. On the one hand, it affirmed that:

(a) 'The decisive criterion for establishing the existence of a transfer within the meaning of the Directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued …' (p. 670, para 10);

(b) the absence of a direct contractual link or relationship between the transferor and the transferee is not conclusive against a transfer (paras.12 and 13);

(c) consideration of all the facts characterising the transaction in question is necessary (pp. 670-671, para. 14).

(1) On the other hand, it set limits by indicating that:

(a) 'the mere fact that the service provided by the old and the new awardees of a contract is similar does not therefore support the conclusion that an economic entity has been transferred'. Other factors are important – the workforce, the management staff, its operating methods and its operational resources (p. 671, para. 15):

(b) '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 … 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' (p. 671, para. 16);

(c) the question whether the majority of the employees are taken over by the new employer to enable him to carry on the activities of the undertaking on a regular basis is a factual circumstance to be taken into account, as well as the similarity of the pre and post transfer activities and the type of undertaking concerned, e.g., in labour intensive sectors (p. 672, paras. 20 and 21).

(6) This case is unaffected by the limits in Süzen. It is not a case (like Süzen) of the loss of a contract with one customer being asserted to amount to a transfer of an undertaking. It is not a case like Betts v Brintel Helicopters Ltd [1997] ICR 792 of the loss of a contract for one location being asserted to be a transfer of an undertaking. It is not a case of a transfer depending merely on a comparison of the similarity of the activities of Axial and ECM after the loss of the VAG contract by Axial. The transfer was established by the employment tribunal looking at all the relevant facts and concluding that this undertaking was based on the VAG contract and that it continued in different hands, even though no employees of Axial were appointed by ECM. The tribunal was entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed by ECM. The Court of Justice has not decided in Süzen or in any other case that this is an irrelevant circumstance or that the failure of the transferee to appoint any of the former employees of the transferor points conclusively against a transfer." [pages 1167 E to 1169 F]

(2) Whitewater Leisure Management Ltd v Barnes [2000] IRLR 456. Paragraph 13 of the judgment in the Whitewater case, Burton J said this:

"It seems to us, particularly as these are only guidelines, but always within the parameters set by Kennedy LJ, that one is looking to see whether the staff is "substantially the same", that the apparent contradictions, or at any rate uncertainties, in the formulation of these questions, when looking at an alleged transfer of a labour-intensive undertaking, can be reconciled. It may be that in a given case the question will be answered by totting up to see whether a majority of staff is taken on. In another case there may be a minority in number, but on examination of the skills of the employees, be they managerial, administrative or technical, the skills of those who have been taken on outweighs the mere numerical factor, such that, albeit not a majority, nevertheless those taken on constitute a major part. There may perhaps even be a reverse case where the taking on of a numerical majority would be outweighed if the significant employees, in terms of skills, who in fact constituted the important part of the undertaking, were not taken on. Again these precise questions about numbers of staff become less significant if there is a transfer of something else other than staff, so that the picture can be looked at in the round."

Paragraphs 14 to 16 of the judgment in the Whitewater case deal with what Burton J describes as the "ECM point" and are in the following terms:

"14. The ECM point

Into the relatively straightforward analysis above set out, of the posing and answering of the two questions, there has now emerged, as a result of the finding of fact by the employment tribunal in ECM, an additional factor. Morison J described the position thus in the Employment Appeal Tribunal at 419:

'In this case, on the tribunal's findings, the transferee did not take on the men precisely because they were asserting that the Regulations of 1981 applied and were threatening proceedings on that basis. An obvious inference from these facts is that thereby the transferee hoped to defeat their claims. The question arises, therefore, [whether] it is possible for a transferee to cause the Regulations to be disapplied by refusing to take on the workforce.'

The Court of Appeal found (at 562 paragraph 23(6)) that 'the tribunal was entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed by ECM'.

15. The following factors are plainly significant:-

15.1 In Betts, in which KLM decided not to take over any staff or equipment from Brintel, a similar point was argued (363). The conclusion that was or might have been reached, as appears from 366, was that if there had not been a ban by KLM on taking any Brintel employees some (or a modest number of) Brintel employees might or would have been engaged by KLM. Such a consideration, albeit hypothetical, at to what would or might have happened, would or could easily be part of the factual consideration given by a tribunal. But what the Court of Appeal in Betts did not say, and indeed the Court of Appeal in ECM did not say, is that if there be a finding of fact by a tribunal that there was a deliberate decision by a possible transferee not to take on any of the possible transferor's staff, in order that, or with the intended result that, the 1981 Regulation should not apply, then in such a circumstance all the employees are deemed to have been transferred.

15.2 In any event, if the 'reason why the employees were not appointed by ECM' is to be left to be considered as a factor by the employment tribunal, the interpretation and the weight must also be for them. Is subjective intention or motive, or objective purpose or effect to be judged? It may be difficult if not impossible to differentiate – if it is relevant to do so – between a decision not to take on any staff because it is desired to avoid, or not to trigger, the 1981 Regulations, a decision not to take on any staff with the effect that the 1981 Regulations do not apply and a decision that, because it is not intended to take on any staff, the 1981 Regulations do not apply. In any event, in Brookes v Borough Care Services and CLS Care Services Ltd [1998] IRLR 636 where a contractual transfer was expressly structured as a transfer of shares in order that the 1981 Regulations should not apply, the employment tribunal, and the Employment Appeal Tribunal on appeal, held that they did not, because 'the conduct of the undertaking via the first respondent had a deliberate and genuine commercial intent quite independent of the 1981 Regulations' (at 640 paragraph 58). On the one hand there will no doubt be scrutiny by the employment tribunal of the transactions, on the other hand the fact that there is not a transfer, because no transfer of staff, cannot itself lead to a conclusion that there is a transfer.

15.3 Mummery LJ in the Court of Appeal in ECM is at pains to point out, at 561-2, not only, as Morison J himself had done in the Employment Appeal Tribunal, that the issue arose out of a finding by the employment tribunal, but also that, again as Morison J had concluded (at 419), such factor did not, on the facts of ECM, stand alone as the only basis for the conclusion that there had been a transfer. ECM is thus not itself a case which would support, or at any rate exemplify, a proposition that, in the absence of a transfer of any assets or any staff, or of any other material factor indicating a transfer, the ECM point alone would be determinative of the issue of transfer.

16. It is in all those circumstances that Mummery LJ's guidance remains (at 562 paragraph 23(6)) simply that 'the tribunal was entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed by ECM'."

(the references of Burton J to the decision of the Court of Appeal in ECM at 561/2 in IRLR are cited above from 1167A to 1169F in ICR which report does not have paragraph numbers – paragraph 23(6) is at 1169E)

(3) RCO Support Services v UNISON [2000] ICR 1502. After a consideration therein of the decision of the Court of Appeal in Betts v Brintel Helicopters Ltd [1997] ICR 792 paragraphs 15, 17 and 18 of the judgment of this Tribunal in the RCO case (chaired by the President (Lindsay J)) are as follows:

"15 Against this background Kennedy LJ then turned to Süzen v Zehnacker Gebäudereinigung G.m.b.H. Krankehausservice (Case C-13/95) [1997] ICR 662. Kennedy LJ accepted [1997] ICR 792, 807F-G:

'That the decision in Süzen does represent a shift of emphasis, or at least a clarification of the law, and that some of the reasoning of the earlier decisions, if not the decisions themselves, may have to be reconsidered.'

Those 'earlier decisions' must have included Spijkers and Schmidt. Kennedy LJ held that there was an undertaking or economic entity consisting of the helicopters and infrastructure, the landing strips, premises and buildings at Beccles and the staff, the maintenance and support staff at Aberdeen, the contract between Shell and Brintel and the rights thereunder to land helicopters on the oil rigs and to use their facilities: see pp. 805 A-B and 807 G. But, as to whether that undertaking retained its identity in the hands of KLM, his answer was that clearly that was not the case: see p. 807 H. Counsel had failed to distinguish Süzen (see p. 806 H); and, although Kennedy LJ does not in terms say that he proposed to apply Süzen, the headnote is correct in saying that that was done and it is inherent in the passage last cited that the Court of Appeal in Betts had real doubts as to how far the reasoning in the earlier decisions such [as] Spijkers and Schmidt could be relied upon post-Süzen.

17 It is arguable that a decisive factor in ECM, and one which allowed the Court of Appeal to depart, as it might seem, from Süzen [1997] ICR 662 and Betts v Brintel Helicopters Ltd [1997] ICR 792, was that [in] ECM, the incoming contractor, had deliberately chosen not to employ former Axial staff in order to avoid the application of the Transfer of Undertakings (Protection of Employment) Regulations 1981: However, the Court of Appeal do not say that the point was so significant that in itself it justified a departure from the inflexible simplicity of a summary version of the decision in Süzen (a version, as it seems, adopted in Betts) that if there was neither a movement over of a majority of the workforce nor of any significant assets then there could be no transfer, which simple and inflexible summary view the Court of Appeal in ECM in any event denied existed. It may be that later decisions will seize upon this motive factor as a distinguishing feature of ECM which permitted the Court of Appeal to take the view it took of Süzen. However, we do not feel able to so hold, given the broader reasoning in ECM that Spijkers [1996] E.C.R. 1119 and Schmidt [1995] ICR 237 still held up and that the importance of Süzen could too easily be overstated. Indeed, had Mummery LJ seen this motive factor as of real importance it would have been likely that he would have expressly referred back to the discussions as to K.L.M.'s reasons for not employing former Brintel staff in Betts v Brintel Helicopters Ltd [1997] ICR 792, 794F-G, 797G, 805D and 806A. It is, in our view, only the Court of Appeal itself that will be able to attach to the motive factor the decisive importance we have described.

18 At our level, the two Court of Appeal cases we have looked at pull, as it seems to us, in different directions, with Betts underlining the Süzen decision that without assets or a majority of the workforce moving over there can have been no transfer, but with ECM underlining the continuing relevance of Spijkers and Schmidt as cases insisting that the matter is still one of fact to be approached in the round by the tribunal as the national fact finding court. It is not for us to pick and choose between them; given that ECM (Vehicle Delivery Service) Ltd v Cox [1999] ICR 1162 was heard and decided after Betts [1997] ICR 792 and given that it expressly considers Betts, then if there is, as we have thought there to be, tension between the two, we must follow the latter of the two. With that opening explanation of the law we now return in more detail to the facts."

In paragraph 16 the President referred to and cited from the decision of the Court of Appeal in the ECM case.