United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR SHANTANU MAJUMDAR (of Counsel) Instructed By: Mr D Parry Messrs Darbys Mallam Lewis Solicitors 52 New Inn Hall Street Oxford OX1 2QA
For the 1st Respondent For the 2nd, 3rd and 4th Respondents	MR JAMES WARD (of Counsel) Instructed By: Mr Julian Abraham Messrs Sternberg Reed Taylor & Gill Solicitors 12-18 Station Parade Barking Essex IG11 8DN MR PETER DOUGHTY (of Counsel) Instructed By: Messrs Paris Smith & Randall Solicitors 1 London Road Southampton SO15 2AE


 


MR JUSTICE MAURICE KAY:

1. This is an appeal from an Employment Tribunal sitting at London (North). The case arose out of an unusual set of circumstances in relation to a transfer to which the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) applied. It is appropriate for us first to describe the factual background.
2. Within the Infopress Group of Companies there were two companies: Infopress Limited ("Infopress"), which was concerned with the business of public relations consultancy, and Infopress Communications Limited ("Communications"), the business of which involved media analysis. Communications had only three employees, namely Mr. McKeone, Dr. Walker (who were both directors) and Mrs. Rose. The two companies had a shared administration and worked out of the same building. Key Communications Limited which is now known as Citigate Communications Limited ("Key") is a larger public relations company.
3. On 15 December 1998 discussions took place between Infopress and Key and their respective accountants about a possible merger or takeover by Key but they did not immediately bear fruit. In fact the financial circumstances of Infopress and Communications were not good at that time and on 23 December, at the invitation of both companies, their bank appointed common Administrative Receivers. The Receivers decided to approach Key as a prospective purchaser of the assets of both companies. Still on 23 December a meeting was held between the Receivers and the directors of Key, the managing director of which is Mr. Kent. The Employment Tribunal described that meeting in these terms:

"Mr Kent made it clear that Key was not interested in acquiring the Infopress business and were interested only in acquiring the intellectual property rights of Infopress (the right to use its trading name), its customer lists, the books and records and work in progress…..It had no interest in acquiring the premises …..or in taking on the employees of Infopress. There was no discussion regarding Communications as Key was not interested in the media analysis business…..However, Mr. Kent was aware that Mr. McKeone was interested in acquiring the media analysis business and to trade under the Impact name. As a favour to Mr. McKeone, Mr. Kent agreed with Mr. McKeone, who had no funds at such short notice before the Christmas/New Year break, that Key would acquire on his (Mr. McKeone's) behalf the media analysis business of Communications from the Receivers and Mr. McKeone would be given a year to repay the purchase price. In the event, after protracted negotiations, Mr. Kent on Key's behalf and the Receivers concluded an agreement whereby Key would purchase some of the business assets of Infopress and the transfer of those assets to Key would take place at 5.p.m. on Christmas Eve, 24 December 1998. On emerging from the meeting on 23 December, Mr. Kent had a corridor meeting with Mr. McKeone who reminded him of his promise to acquire the Communications media analysis business on his behalf. Mr. Kent went back to the meeting with the Receivers and they also agreed to the sale of the Communications media analysis business to Key and that the transfer also would take place at 5.p.m. on 24 December."

The purchase agreements were reduced to writing. The total consideration was £10,000 (plus VAT) - £7,500 for the Infopress name and £2,500 for the Impact name under which Communications traded.

4. At a meeting on 29 December the Receivers informed the employees of Infopress and Communications that their contracts of employment were terminated with effect from 24 December due to the insolvency of the two companies and they were informed that they should claim redundancy payments from the Redundancy Fund. They were handed letters dated 24 December purporting to terminate their contracts. Mrs. Rose was not at the meeting but Mr. McKeone telephoned her to tell her what had transpired and she received her letter on 5 January 1999.
5. In the event, two Infopress employees, Mr. Watson and Ms Boyd, were taken on by Key and Mr. Kent also agreed to offer interviews to the other Infopress employees but no such offer was made to the three Communications employees. Most of the Infopress employees were actively taken on by Key, at least initially.
6. On 29 December 1998 Mr. McKeone and Dr. Walker acquired a non-trading company called Impact Evaluation Services Limited ("Impact"), which had been owned by Infopress, from the Receivers. They started to trade under that style as a media analysis business. Mrs. Rose did some freelance work for them but she declined their offer of employment as Impact operated from Hampshire and she lived in Essex.
7. As yet, the arrangement between Key and Mr. McKeone was still unfinished. Key had acquired Communications' media analysis business on behalf of Mr. McKeone but had not yet transferred it to him or to Impact. The Employment Tribunal found:

"During this period [i.e. early 1999], various negotiations took place between Mr. Kent and Mr. McKeone on the precise nature of the future ownership of the Communications media analysis [business]……Discussions centred around whether there should be an outright transfer of the …..business to Impact or whether Key should retain a shareholding in the media analysis business and/or take shares in Impact."

In the event, on 19 April 1999 Key sold the media analysis business to Impact for £2,500 plus VAT, which sum was eventually paid some months later.

8. These events gave rise to a number of claims against Key and those which were not settled or withdrawn came before the Employment Tribunal. In this appeal we are concerned only with the claims of Mr. McKeone, Dr. Walker and Mrs. Rose against Key. The hearing before the Employment Tribunal was limited to preliminary and jurisdictional issues. The Tribunal concluded that Mr. McKeone and Dr. Walker should be permitted to pursue claims for redundancy payments to a substantive hearing and that Mrs Rose should be permitted to pursue claims for a redundancy payment, unfair dismissal and breach of contract to that stage. These are the decisions in respect of which Key now appeals to the Employment Appeals Tribunal.

The rationale of the Employment Tribunal

9. The Employment Tribunal expressed itself in these terms:

"At 5 p.m. on 24 December 1998 the economic entities comprising the public relations business of Infopress and the media analysis business of Communications were sold as separate entities to Key by the Receivers….and, consequently, the Tribunal is satisfied…..that the contracts of employment of all employees…were transferred….on 24 December under TUPE to Key."

On this basis it held that (1) the Secretary of State (who was a respondent before the Employment Tribunal) was under no liability; (2) the purported dismissals by the Receivers were ineffective because by 29 December the contracts of employment had been transferred to Key; and (3) there was a TUPE transfer from Key to Impact on 19 April 1999. However, the TUPE transfer to Impact was not part of a "series of transfers" under regulation 3 of TUPE, nor did it operate to transfer the contracts of employment of the three employees "because none of the three had been employed by Key during the period 24 December 1998 to 19 April 1999". Thus, their complaints lay against Key and not Impact.

10. On behalf of Key, Mr. Majumdar seeks to advance a number of grounds of appeal but what he identifies as his primary ground lies at the centre of his critique of the decision of the Employment Tribunal. It concerns the finding that the events of 23/24 December 1998 and beyond did not form part of a series under regulation 3. The relevant parts of regulation 3 provide:

"(1) Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated.

(2) Subject as aforesaid, these Regulations so apply whether the transfer is effected by sale or by some other disposition or by operation of law….

(4) It is hereby declared that a transfer of an undertaking or part of one –

(a) may be effected by a series of two or more transactions; and

(b) may take place whether or not any property is transferred to the transferee by the transferor…."

11. Mr. Majumdar submits that the Employment Tribunal did not properly direct itself on the issue of a "series of transactions" and that, if it had done so, it would have found that there was a relevant transfer which arose from a series of transactions, the effect of which was to transfer away from Key any responsibility for the entitlements of Mr. McKeone, Dr. Walker and Mrs Rose whose statutory remedies lie against Impact or Mr. McKeone. He further submits that that transfer in reality occurred by early January, by which time Mr. McKeone and Dr. Walker were actively trading through the medium of Impact, using that name, even though the arrangements with Key had not yet been finalised. Finally, he submits that at no stage did Key dismiss the three Communication employees. Essentially, the appeal is on the basis of erroneous legal analysis by the Employment Tribunal but it is also put in the alternative form that the reasons given by the Tribunal for its decision are inadequate and opaque and do not satisfy the requirements of Meek v. City of Birmingham Council.

Discussion

12. We go straight to the heart of the matter. It is clear to us that a number of features of this case called for careful consideration in relation to the issue of whether there was "a series of two or more transactions". The analysis by the Employment Tribunal is contained in this passage:

"There was no immediate further TUPE…..transfer of the Communications media analysis business within the meaning of TUPE …..from Key to Impact. The TUPE transfer of that business entity on 19 April 1999 from Key to Impact did not operate to transfer the employment contracts of Mrs. Rose, Mr. McKeone and Dr. Walker from Key to Impact under TUPE because none of them had been employed by Key during the period 24 December 1998 to 19 April 1999 and the transfer was not one of a series of transfers under regulation 3."

The emphasis on the word "immediate" is that of the Employment Tribunal.

13. In our judgment, the reasoning of the Employment Tribunal suffers from two analytical deficiencies. The first concerns the approach to "a series of two or more transactions". Having found that Key had acquired Communications on behalf of Mr. McKeone it is axiomatic that that arrangement was predicated on the assumption that there would be a further transaction whereby Communications would be transferred to Mr. McKeone or to his order. There was no transactional or statutory necessity for such further transaction to be immediate. Whether one looks forward from 24 December or back from 19 April a further transaction was always contemplated and, in our view, was conceived and took effect as part of a series. Mr. Majumdar submits that it took effect almost immediately or at the latest by early January 1999 by which time Mr. McKeone and Dr. Walker had commenced trading under the Impact name, having acquired the previously non-trading Impact company on 29 December. However, we do not consider it appropriate for us to come to a final conclusion on that point. We confine ourselves to finding that the Employment Tribunal fell into legal error when it considered whether there had been a series of transactions. That error arose out of a deficient analysis and the finding to which it gave rise was inadequately reasoned. Accordingly, this appeal must be allowed.
14. The second analytical deficiency in the decision of the Employment Tribunal relates to the contracts of employment of the three Communications employees. The Tribunal found, correctly, that they were the subject of a TUPE transfer to Key on 24 December. However, the analysis of what happened to them thereafter is extremely laconic. In the passage we have just quoted it is said that the employment contracts did not transfer to Impact on 19 April "because none of [the three employees] had been employed by Key during the period 24 December 1998 to 19 April 1999". However, this does not explain what had happened to the employment contracts in the meantime. If the employees or any of them had been dismissed by Key, such a dismissal would have to be looked at, at least in Mrs Rose's case, in the context of "transfer-connectedness" by reference to regulation 8. The process of termination would have to be considered in relation to the redundancy claims of all three. However, there is no analysis of the mechanism of termination or dismissal beyond the findings that "none had been employed by Key" and, in an earlier passage, "Key never offered employment to [the three] TUPE transferred employees from Communications". As we have related, the Tribunal found that the purported dismissals by the Receivers were ineffective. That was undoubtedly a correct finding. What then became of the employment contracts? Mr. Majumdar submits that Key did not terminate them by dismissal because, in the absence of a finding of constructive dismissal, dismissal requires at least some form of communication: McMaster v. Manchester Airport PLC [1998] IRLR 112. Mr. Ward and Mr. Doughty, on the other hand, submit that the three employees were dismissed by the omission to employ them or on the basis described by the Employment Appeal Tribunal in Premier Motors (Medway) Limited v. Total Oil Great Britain Limited [1984] 1 WLR 377, 382, which appears to be founded on a form of constructive dismissal.
15. The difficulty in the present case is that the reasoning of the Employment Tribunal on the dismissal/termination issue is unclear. In fairness to the Tribunal, this may be because it was deciding only preliminary issues and it may well have been reluctant to become more involved in the analysis of termination in view of the fact that it was sending the redundancy and, in Mrs. Rose's case, the unfair dismissal claims for a "full hearing". On the other hand, the Tribunal was concerned with the implications of a second TUPE transfer. Whether or not it formed part of a series of transactions, it was necessary for the Tribunal to analyse with rigour what had become of the employment contracts and this, in our judgment, was not done or, if it was, it is not apparent from the reasoning set out in the decision.
16. What, then, should follow from the analytical deficiencies which we have identified? In our judgment, the appeal must be allowed and the case resubmitted to a differently constituted Tribunal. However, we find no error in the conclusion of the Employment Tribunal on time limits, the ineffectiveness of the purported dismissals by the Receivers, or the lack of any liability on the part of the Secretary of State. In our judgment, those three findings should stand without determination. There should now be an early directions hearing in the Employment Tribunal to define the issues to be determined at the remitted hearing. We suspect that it would now be better if all remaining issues were determined at one hearing. Of course, after all this time and in view of the costs involved, it would be even better if the parties could settle their differences without the need for further litigation. The fact that it emerged during the hearing before us that it is common ground that Mrs. Rose is entitled to succeed against one or other of Key and Impact (or Mr. McKeone), ought to facilitate such a solution. We should add that, by previous order, Impact has been joined as a party to this appeal.