United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR S DEVONSHIRE (Of Counsel) Instructed by: Messrs Prettys Solicitors Elm House 25 Elm Street Ipswich Suffolk IP1 3QW
For the 1st Respondent For the 2nd – 5th Respondents	MR K SMITH (Of Counsel) IRPC Group Ltd Noon Sun Horsforth Lane Greenfield Oldham OL3 7HL MR S GORTON (Of Counsel) Instructed by: Messrs John A Behn Twyford & Co, Solicitors Number One Moorfields PO Box 19 Liverpool L69 2EJ


 


MR JUSTICE NELSON

1. This is an appeal against the decision of the Employment Tribunal at Liverpool of 12 February 2001 when it held that there had been a transfer of an undertaking under the Transfer of Undertakings (Protection of Employment) Regulations 1981, as amended, (TUPE) between the first Respondent and the Appellant. The Appellant contends that had the Tribunal properly directed itself it would have concluded that there was no transfer of an undertaking in the present case, and that the EAT should substitute its own finding to that effect.
2. The Appellant (P&O) had also sought to appeal the Tribunal's decision that none of the Applicants objected to the transfer under regulation 5(4)(A) of the Transfer Regulation and that the dismissals of the second Respondent (Ms Hulse) the fourth Respondent (Mr Williams) and the fifth Respondent (Mr Thomason) were automatically unfair, the defence of economic technical or organisational reason entailing changes of the workforce under regulation 8(2) being held inapplicable. At the preliminary hearing before the Employment Appeal Tribunal however the only ground which went for full hearing was the appeal relating to the transfer of undertaking from Initial to P&O.

The Facts

3. Shell UK Ltd (Shell) had a substantial in house fleet of vehicles to transport its fuel products of petroleum, bitumen,

lubricants and gas. Their fleet dealt with about 75% of their haulage requirements and the balance was dealt with by a contractor (buffer resource) of hired vehicles and drivers. Under this arrangement P&O and Initial were contracted to provide a back up petroleum delivery service, P&O operating in the Midlands and the North West and Initial operating in the North West and Scotland. P&O and Initial shared the work to be provided in the North West and neither company worked exclusively for particular customers. Initial provided fifty wagons and thirty drivers for this purpose and Ms Hulse, Mr Philip, Mr Williams and Mr Thomason were employed by Initial as administrative staff.

4. P&O administered their contract with Shell from office accommodation provided by Shell at Stanlow. The four applicants worked there, Mr Williams and Mr Thomason sharing an office with two P&O employees and Mr Philip and Ms Hulse working in the adjacent office. Mr Philip was the Shell contract manager, Ms Hulse the Shell contract administrator and Mr Williams and Mr Thomason were operations supervisors.
5. In late 1998 Shell decided to contract out the entirety of its delivery function. P&O tendered to provide a national service for all of Shell's products and in April 1999 were awarded the contract to provide a comprehensive petroleum delivery service for Shell throughout the UK, bitumen, gases and lubricant delivery services being awarded to other contractors. The contract commenced on 1^st August 1999 and Shell terminated all of its existing arrangements with its contractors with effect from the end of July 1999. Shell expressly required that the contract be administered from Wythenshaw, rather than Stanlow.
6. Shell and P&O acknowledged that the contract constituted a TUPE transfer of Shell's petroleum distribution function to P&O. P&O took on all Shell's petroleum delivery drivers and a large part of Shell's LGV fleet. They also took on Initial's drivers but not the support staff or the vehicles. P&O denied that there was a relevant transfer of Initial's contract with Shell. Initial however contended that its business providing a back up petroleum delivery service to Shell in the North West and Scotland was transferred to P&O when P&O won the national contract. Initial also contended that Ms Hulse, Mr Philip, Mr Williams and Mr Thomason, the four applicants, were employed in the provision of administrative support services to that business and should therefore have been TUPE transferred to P&O.
7. As a consequence the second, third, fourth and fifth Respondents were in a state of confusion at the 31^st July 1999. Initial, their former employers, maintained their employment had been transferred to P&O, whereas P&O denied that it had. On 2^nd August 1999 Mr Philip and Ms Hulse reported for duty at P&O's Trans European office at Stanlow, where they had previously worked. Mr Philip telephoned Mr Doyle at P&O who denied that the four Respondents had been transferred, and offered them no work. When Mr Williams returned from holiday on 9^th August 1999 he was told the same. Mr Thomason had previously taken up alternative employment with P&O at Wythenshaw as a despatch clerk on less favourable terms and conditions. Neither Mr Williams nor Ms Hulse applied for positions with P&O. Neither of them wish to work at Wythenshaw where the administrative centre for the new contract was now based.
8. Ms Hulse, Mr Philip, Mr Williams and Mr Thomason claimed that they were unfairly dismissed in connection with the transfer of an undertaking between Initial and P&O. Initial asserted that there had been the relevant transfer alternatively that they had fairly dismissed the applicants for redundancy, and P&O contended that there was no relevant transfer.

The Employment Tribunal's findings.

9. In paragraph 3.1 of its decision the Tribunal expressed the issue as to transfer as follows:

"Did the awarding by Shell to P&O of a national contract to deliver its petroleum throughout the UK amount to a transfer to P&O of that part of Initial's business, which was dedicated to the provision of 'back up' delivery services in the North West and Scotland. In particular was Initial's contract with Shell an undertaking or discrete economic entity; and if so, was the undertaking transferred so that it retained its identity in the hands of the transferee – P&O."

10. There is no dispute as to the findings of fact made by the Tribunal, and it is accepted that para. 3.1 is a reasonable formulation of the transfer issue.
11. The Tribunal described the central question as being whether the undertaking retained its identity as indicated, inter alia, by the fact that its operation was actually continued or resumed. It noted that a transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract and stated that when considering the term entity: -

"It cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its work force, its management staff; the way in which its work is organised; its operating methods, or indeed where appropriate the operational resources available to it." (paragraph 6.1)

12. In order to decide the issues the Tribunal applied the following test in paragraph 2 of its decision: -

"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 moveable 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 not therefore be considered in isolation."

13. The Tribunal considered the submissions and having applied the tests which it set out in its decision concluded that 'Initial's back up' business was a discrete economic entity capable of being transferred. There was a dedicated work force of which the administration was a part, they operated from a single location and the operation had dedicated resources. They concluded that the business carried out by Initial was the supply of road wagons with drivers and administrative support staff suitable for the loading, transportation and delivery of liquid petroleum products for Shell, and that the business of P&O was exactly the same as that carried out by Initial save that it included the provision of a management information service.
14. The Tribunal noted that it was the activity itself which was important not its scale. Petroleum was still delivered in road tankers to more or less the same petrol stations and the change from regional to a national operation was irrelevant. The activity carried by P&O was very similar to the activity carried out by Initial and the provision of a management information service, was an additional service provided by P&O, and did not detract from the core delivery i.e. delivering petroleum products.
15. No tangible assets were transferred. P&P did not take on Initial's wagons. The Tribunal considered this

an important factor because the activity was dependant on the use of wagons. However all the drivers were transferred and it was interesting to note that they were taken on 'as if TUPE applied' although P&O were keen to state that it was not because TUPE in fact applied. The only employees not to be transferred were the four administrative staff, the applicants. The only intangible asset and customer was Shell, and the contract was with Shell. Shell remained the customer. There was no suspension of the activity when P&O took on the national contract.

16. On the basis of the above matters the Tribunal concluded that Initial's activity of providing the petroleum delivery buffer resource retained its identity when that part of the business was taken over by P&O and hence there was a relevant transfer.

The Submissions.

17. The Appellant puts forward two bases in support of the contention that the Tribunal misdirected itself in finding that there had been a transfer in the present case. Firstly the Employment Tribunal didn't have the benefit of the decision in Oy Liikenne AB-v-Liskojarvi and Juntunen (case C-172/99) [2001] IRLR 171 (ECJ). This case, it is submitted, decides: -

"Where tangible assets contributes significantly to the performance of the activity, the absence of a transfer to a significant extent from the old to the new contractor of such assets, which are necessary for the proper functioning of the entity, must lead to the conclusion that the entity does not retain its identity." (Paragraph 42)

18. The Appellant submits that in an asset intensive industry, such as the delivery of petroleum products by tanker, the absence of a transfer of such assets or a significant part of them is decisive. In such circumstances the entity does not retain its identity and there cannot therefore have been any transfer of undertaking. Whilst a court must look at numerous different factors in making its decision there are two ends of the scale; at one end, in a non asset intensive industry, such as catering, where asset transfer is not significant, at the other end where it is asset intensive, such as a bus service, the absence of a transfer of assets is decisive. In the middle there will be cases where the absence of one factor will not be decisive. Oy Liikenne is not however decided on its facts, relating to solely scheduled public transport services, but applies to all cases of asset intensive industries. It is the nature of the activity which matters.
19. Two cases in the Court of Appeal have followed Oy Liikenne, firstly ADI (UK) Limited-v-Willer [2001] IRLR 542 and RCO Support Services-v-Unison [2002] IRLR 401. In ADI (UK) Limited the Court of Appeal recognised the importance of identifying a transfer of assets when dealing with an asset intensive business as opposed to labour intensive business. (Per May LJ at 550 para. 34, Dyson LJ at para 51 and Simon Brown LJ at para 77.) Betts-v-Brintel Helicopters Limited [1997] IRLR 361 was noted by Lord Justice Dyson as being a case involving an asset intensive business where neither the assets had nor the workforce had transferred and no transfer was held to have taken place by the Court of Appeal.
20. In RCO Support Services Lord Justice Mummery did not state that one factor could never be decisive. It was implicit in his judgment that that could be the case. The distinction between asset and labour intensive businesses was not however considered even though Lord Justice Mummery rejected the proposition that 'there can never be a transfer of an undertaking in a contracting out case if neither assets nor workforce are transferred'.
21. The Employment Tribunal in this case found that: -

"No tangible assets were transferred. P&O did not take on Initial's wagons. This is an important factor because this activity is dependent on the use of wagons.."(Paragraph 8.2.4)

22. The facts are indistinguishable therefore from those of Oy Liikenne where the European Court of Justice stated that in such circumstances the absence of a transfer of assets was decisive. Had the case of Oy Liikenne been before the Employment Tribunal they would therefore have been obliged to have followed it and found that no transfer had taken place. There was no material difference between a scheduled public transport service and the delivery of petroleum products provided by P&O and Initial. There was in reality no transfer of intangible assets here any more than there was in Oy Liikenne where the contract was also transferred.
23. The approach set out in earlier cases such as Spijkers-v-Gebroeders Benedik Abattoir [1986] ECR 119 has been qualified and that is accepted in RCO Support Services and ADI (UK) Limited. The Respondents are unable to rely on ECM (Vehicle Delivery Service) Limited-v-Cox [1999] IRLR 559 as that was a case decided on its own particular facts, before Oy Liikenne or RCO where no point was taken on the transfer of intangible assets.
24. Secondly the Appellant contends that the Employment Tribunal confused the business entity with the activity entrusted to it. Even if they had set out the right test they had failed to apply it properly, and in particular had overlooked the crucial question of whether Initial's undertaking, limited to Scotland and the North West, had retained its identity in the hands of P&O, who were providing a comprehensive, as opposed to a back up service and providing it nationally as opposed to regionally.
25. It could be seen that the Tribunal had erred in its application of the appropriate tests when it said in paragraph 8.2.2: -

"It is the activity itself which is important, not its scale. Petroleum was still delivered, in road tankers, to more or less the same petrol stations. The change from a regional to a national operation is irrelevant."

26. The authorities all make it clear that the mere fact that a service provided by two organisations is similar does not support the conclusion that an economic entity was transferred as Lord Justice May said in ADI (UK) Limited: -

"An entity cannot be reduced to the activity entrusted to it and the mere loss of a service contract to a competitor cannot by itself indicate the existence of transfer within the meaning of the Directive." (Para 34).

27. The Appellant submits that it is important to look at the management structures and staff and how the business is organised rather than simply at the activity which is being performed. The fact that the service provided by P&O was comprehensive as opposed to the back up service provided by Initial and the fact that P&O were providing their service nationally rather than, as Initial were, limited to Scotland and the North West, were relevant and should properly have been taken into account.
28. The submissions made on behalf of the second to fifth Respondents were adopted by the first Respondent. They submitted that the decision by the Employment Tribunal was impeccable. It properly set out the appropriate tests and correctly applied them. Oy Liikenne did not decide that in all cases of an asset intensive industry the absence of a transfer of such assets, or a significant part of them, inevitably meant that the entity did not retain its identity. The fact that there was no transfer of assets in such a case was an important matter to be considered with other relevant factors. The first Respondent added that the drivers were transferred on a TUPE basis even though P&O did not accept this. The fact that the transfer of the drivers had taken place 'as if TUPE applied' was a relevant factor in this case.
29. As to Oy Liikenne the Respondent submitted that although on the face of it paragraphs 39 and 42 of that decision were inconsistent they were not, if it was appreciated that a two stage process was involved. First of all, all factors had to be looked at in the round and then the court could say whether one was more influential than the others. The Employment Tribunal here had performed this task and had specifically reminded themselves in 8.2.4 of their decision that the fact that P&O did not take on Initial's wagons was 'an important factor because this activity was dependent on the use of wagons.' In effect therefore, although the decision was not before them, they were applying the principles laid out in Oy Liikenne. They gave themselves a model direction and then followed it through.
30. Oy Liikenne was distinguishable on the facts from the present case firstly by virtue of the fact that it related to a schedule public bus service and secondly that in Oy Liikenne there was no transfer of any intangible assets of value as that fell to nil on the expiry of the old contract (para 40) whereas in the present case there was a transfer of Shell as a customer, and Shell remained the customer. (Para 8.2.5)
31. As to the Appellant's second contention, the Employment Tribunal did consider the manner in which the business was organised and not just the activity performed. They were entitled to disregard the change from regional to national as irrelevant having considered the matter and para 8.3 of their decision showed that they carried out the correct balancing exercise. The Appellant has taken para 8.2.2 of the decision out of context. It does not reduce the business entity to the activity entrusted to it, but simply assesses whether the scale of the operation and the change from national to regional is important. The decision at para 6.1 makes it quite clear that the Tribunal had it clearly in mind that the entity could not be reduced to the activity entrusted to it.
32. The decision of ECM was also relevant, as although the decision turned in part on whether the Tribunal could take into account the reason why employees from the earlier contractor had not been employed by the new contractor, a transfer of undertaking was found on the basis that the customers were essentially the same and the work that was going on was essentially the same, with the same result even though none of the staff were taken on. Paragraph 21 of the decision makes it plain that those facts alone justified the finding of a transfer.

Decision.

33. The approach of the European Court of Justice in deciding whether a transfer of an undertaking had occurred remains 'multifactorial'. This was stated by the Court of Appeal in RCO Support Services at paragraph 26 of Lord Justice Mummery's judgment. This remains the case even though Süzen-v-Zehnacker Gebaudereinigung GmbH Krankenhausservice, C-13/95 [1997] IRLR 255 ECJ and later judgments of the Court of Justice have now interpreted the Directive as setting limits to its application in contracting out cases which were not expressly identified in Spijkers [1986] ECR 1119 or earlier judgments. (Paragraphs 24 and 26 of RCO Support Services). In ADI (UK) Limited Lord Justice May, having reviewed the cases, stated: -

"The cases are unanimous to the effect that the facts have to been taken as a whole and not considered individually in isolation. In my view Mr Randall is correct in submitting that the case of Allen indicates that the European Court of Justice continues to adhere to its decision in Süzen in so far as that case might represent something of a retreat from earlier cases including Schmidt". (Paragraph 33 – see also paragraph 34).

34. The case of Oy Liikenne itself however makes it plain that the 'multifactorial' approach remains. In paragraph 33 of the decision the Court of Justice stated: -

"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 moveable property are transferred, the value 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)".

35. This is a clear affirmation of the tests set out in Spijkers and Süzen, to the effect that all relevant facts need to be weighed in making a decision on the question of transfer. It is important to note that the Employment Tribunal set out the test it applied in precisely the same terms as that recited by the European Court of Justice in paragraph 33 of its decision.
36. In paragraph 35 of its decision in Oy Liikenne the European Court of Justice said :-

"..the national court, in assessing the facts characterising the transaction in question must take into account among other things the scope of undertaking or business concern. 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."

37. Having set out the appropriate tests the Court of Justice considered how they applied to the facts of the case before them involving the operation of local bus routes. In paragraph 39 of their decision they stated :-

"However, bus transport cannot be regarded as an activity based essentially on manpower, as it requires substantial plant and equipment…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."

38. They then took that circumstance into account on the facts of the case before them and concluded in paragraph 42:-

"However, in a sector such as scheduled public transport by bus, where the tangible assets contribute significantly to the performance of the activity, the absence of a transfer to a significant extent from the old to the new contractor of such assets, which are necessary for the proper functioning of the entity, must lead to the conclusion that the entity does not retain its identity."

39. In our opinion the Court of Justice was not laying down a principle that in all cases of asset intensive industries the absence of a transfer, to a significant extent, of such assets would always lead to the conclusion that no transfer had taken place. When the judgment is read as a whole it is apparent that the Court of Justice was reaffirming the principle that all relevant factors had to be weighed in assessing whether a transfer had taken place or not, and that the weight to be given to particular factors would vary in accordance with the facts of the case. Thus, in an asset intensive industry the fact that assets were not transferred will be 'a circumstance to be taken into account.' In some cases of this type the absence of a transfer will be decisive in some it will not. On the facts of the case before them relating to 'scheduled public transport by bus' they concluded that the absence of a transfer of assets was such an important circumstance that it must lead to the conclusion that no transfer had taken place.
40. The relative significance of assets in relation to manpower and how each contributes to the performance of the particular activity will vary according to the facts of the particular case. The whole of the transaction has to be looked at in order to see whether one particular factor is decisive; that includes all the circumstances of the transaction.
41. Here, the Employment Tribunal set out the facts fully and accurately. They set out the appropriate tests and, even without the decision of Oy Liikenne before them, noted that the fact that no tangible assets were transferred was an important factor. Their approach to weighing the various factors before them was in our view impeccable. They took into account the relationship between P&O and Shell, Initial and Shell and between P&O and Initial. There is no basis upon which it can properly be contended that they failed to weigh those factors properly, and having noted that the absence of transfer of assets was an important factor in their consideration we see no reason to believe that had they had the decision in Oy Liikenne before them, they would have come to any different conclusion. They did in effect apply the decision in Oy Liikenne and in particular the importance of the absence of transfer of tangible assets.
42. It is difficult to assess whether the facts of Oy Liikenne are distinguishable from the present case. We do not consider that there is any real distinction in intangible asset transfer as in each case the contract with the customer was the intangible asset the value of which may have fallen to nil on the expiry of the contract. (Oy Liikenne para 40.) The inter relationship between P&O Shell and Initial adds, however, a layer of complexity which appears not to have been present in the Oy Liikenne case. Furthermore the drivers were taken on 'as if TUPE applied'; a fact which does not appear to have been the case in Oy Liikenne. These appear to us therefore to be features which distinguish the facts of Oy Liikenne from the present case.
43. We conclude in relation to this ground of appeal that the decision in Oy Liikenne did not bind the Tribunal to conclude that the absence of a transfer of Initial's wagons inevitably meant that no transfer had taken place. In any event the relevant factors to be weighed in the balance appear to be different. We are satisfied that the Employment Tribunal set out the facts and the legal tests accurately and applied them properly.
44. As to the second ground of appeal, namely that the Employment Tribunal reduced the entity to the activity entrusted to it, we are not satisfied that the Employment Tribunal made such an error. When they described the activity itself as important, not its scale, in para 8.2.2 they were not considering the entity as a whole but only whether or not the change from a regional to a national operation was significant. The decision as a whole indicates quite clearly that the Employment Tribunal was considering the whole manner in which the business was organised and not just the activity itself. This is clear from the careful recitation of the detailed facts and the contents of paragraph 8. Paragraph 6.1. of the decision demonstrates quite clearly that the Employment Tribunal had in mind the fact that an entity could not be reduced to the activity entrusted to it, but the workforce, management staff, the way in which the work was organised, operating methods and resources had to be considered as well. We are satisfied that the Tribunal carried out this task and was entitled to conclude that the difference between a comprehensive, as opposed to a back up service, and a national as opposed to a regional service were not significant or relevant distinctions.
45. We are not satisfied that the ECM decision helps us in the determination of this appeal. We agree with the Appellant that ECM was decided on its own facts and in essence found, as Lord Justice May said in ADI (UK) Limited, that a 'transferee who does not take on employees of the transferor in order to avoid the application of the Regulations cannot rely on the fact that the employees were not taken on as a factor going to the question of whether there was a transfer for the purposes of the Regulations'.

Conclusion.

46. We are not satisfied that the Employment Tribunal made any error in its approach to its task nor in the manner in which it carried it out. It weighed all the relevant factors and came to a conclusion which was permissible on the facts properly found by them and the legal tests properly applied by them. They were not bound by the decision in Oy Liikenne to find that no transfer had taken place, and as they took into account all factors which Oy Liikenne required them to, made no error of law. The appeal is therefore dismissed.