United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR A FREER (Solicitor) Instructed By: Pattinson & Brewer 71 Kingsway London WC2B 6ST
For the Respondent	MR M WEST (Advocacy Systems Manager) Peninsula Business Services Ltd Riverside New Bailey Street Manchester M3 5PB


 


MR RECORDER BURKE QC:

The Facts

1. Mrs. Green appeals against the dismissal by the Employment Tribunal, sitting at London South, chaired by Mr. Walker and promulgated with extended reasons on 27^th November 2000, of her claim that she had been unfairly dismissed.
2. We can set out the facts briefly from the findings of the Tribunal. Mrs. Green was employed at a residential home, called St. John's Residential Home, in Brockley, South London. The proprietor of the home was Mrs. Ormerod; she worked as the home's senior manager. Mr. Elan was the financial manager; and Mrs. Green was employed as the care manager. There were 20 other employees.
3. The care home business fell into financial difficulties; from profits in the region of £23,000 per annum its results fell to a position in which, in the final accounting period prior to April 2000, it made a loss of over £8,000.
4. On 1^st April 2001 the business was acquired by Elan Care Limited, the Respondents. It was common ground before the Employment Tribunal that the acquisition was a transfer of a business to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE") applied. It was then necessary for Mr. Elan, who together with his wife owned the shares in the Respondents, to tackle the serious financial situation in which the business found itself. He decided to make a fundamental reorganisation of management by combining the functions previously performed by Mrs. Ormerod and Mrs. Green with his own functions. Thus the jobs of all 3 managers were to be merged into one job, namely that of Mr. Elan, save that Mrs. Elan, who had not previously been employed in the business, was to provide some help in discharging Mrs. Green's functions. The Tribunal, at para 4 of their reasons, found :

"(Mr. Elan) decided that it would be possible to amalgamate the work that Mrs. Ormerod and Mrs. Green had been doing and that it could then be performed by him"

and at paragraph 16 of their reasons found :

"After the acquisition, the work of Mrs. Green was to be performed thereafter by Mr. Elan principally and, to a minor degree by Mrs. Elan".

5. In place of her continuing in her job as Care Manager, all the functions of which had been reallocated, Mr. Elan offered to Mrs. Green a job as senior carer; this job, as she accepted in evidence, was substantially different from her managerial job; she would no longer be a manager; her salary in her managerial job had been £19,000 p.a.; as a senior carer the salary offered was £10,000 p.a. She declined the offer and was dismissed with effect from 31^st May 2000.
6. There was, it seems, no evidence before the Tribunal as to whether she was replaced by the appointment of another carer or senior carer; and nothing turns on it.

The Issues

7. It was not in dispute before the Tribunal that the dismissal of Mrs. Green was a dismissal connected with the transfer. Accordingly pursuant to Regulation 8(1) of TUPE Mrs. Green's dismissal was automatically unfair unless Regulation 8(1) was disapplied by Regulation 8(2). Regulation 8(2) provides, so far as relevant :-

"(2) Where an economic, technical or organizational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee :

(a) paragraph (1) above shall not apply to his dismissal; but

(b) ... the dismissal shall ... be regarded as having been for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held."

The effect of Regulation 8(2) is that if the employer proves (and it is common ground that the burden of proof lies on the employer) that the reason or principal reason for the dismissal of the relevant employee was an economic, technical or organizational reason (familiarly abbreviated to an "ETO" reason) entailing charges in the workforce, the case is taken out of the automatic unfairness provisions of Regulation 8(1) and the employer is treated as having established a potentially fair reason for the dismissal. In such a case the Tribunal then has to determine whether in all the circumstances the dismissal was or was not fair pursuant to Section 98(4) of the Employment Rights Act 1996.

8. The primary issue before the Tribunal was, as the Tribunal set out in paragraph 5 of their reasons, whether the dismissal of Mrs. Green was automatically unfair pursuant to Regulation 8(1) or whether the Respondents had made out the Regulation 8(2) defence. There was, of course, a secondary issue which arose if the Tribunal decided that the defence was made out, namely whether the dismissal was fair or unfair. Upon the primary issue, it does not seem to have been in dispute that the Respondents' reason was an economic reason; if it was in dispute, the Tribunal found at paragraph 16 of their reasons that there was an economic reason for the changes which the Respondents made; and that finding has not been challenged. The Tribunal had then to decide whether that reason was the reason or the principal reason for the dismissal of Mrs. Green and whether the reason entailed changes in the workforce.

The Decision

9. The Tribunal decided in favour of the Respondents. It said, at paragraphs 16 and 17 of its reasons :

"16. It is also for the employer to show that the reasons given entail a change in the workforce. We are satisfied that there was such a change. After the acquisition, the work of Mrs. Green was to be performed thereafter by Mr. Elan principally and to a minor degree by Mrs. Elan. Mrs. Green herself concedes that the new job she was offered was substantially different from that which she had hitherto been performing.

17. We have concluded that the proposal to do away with the job of care manager and to offer Mrs. Green a lesser post as senior carer was part of a reorganizational plan which also involved Mr. Elan combining duties he previously performed with Mrs. Green's duties and those relinquished by Mrs. Ormerod".

10. Having thus found that the Respondents had made out the Regulation 8(2) defence, the Tribunal then concluded that the dismissal was fair; and therefore Mrs. Green's claim failed.

The Submissions on Appeal

11. In his Notice of Appeal and skeleton argument, Mr. Freer on behalf of Mrs. Green put forward two separate lines of attack upon the Tribunal's decision. Firstly he submitted that the Tribunal had failed to make a finding as to what was the reason or the principal reason for the dismissal as required by Regulation 8(2); however he abandoned this line of attack at the outset of the hearing of appeal and we need say no more about it. Secondly he submitted that the Tribunal had erred in law in reaching their conclusion that the reason for the dismissal was a reason entailing changes in the workforce this issue marked out the territory covered by the appeal. It was accepted that if the Tribunal had not erred in law in this respect, the appeal would fail; no criticism was made of the Tribunal's decision as to fairness.
12. Mr. Freer's argument, in summary form, was that the Tribunal had not, in deciding whether the Respondents' economic reason entailed a change in the workforce, approached the question by considering the workforce as a whole but had considered only the position of Mrs. Green; if the workforce as a whole had been considered, the Tribunal would or should have appreciated, on the evidence, that the same work continued to be undertaken by the business, the same service was being provided to the residents and the Respondents employed the same number of employees. In place of Mrs. Ormerod, Mrs. Green and Mr. Elan, the Respondents were proposing, by the changes they wished to make, to employ Mr. Elan, Mrs. Elan and Mrs. Green, albeit in the cases of Mr. Elan and Mrs. Green in different capacities, These changes, it was submitted, could not amount to a change in the workforce; even if they were capable of amounting to such a change, the Tribunal had not applied the correct test or approach and in failing to do so had erred in law.
13. Mr. Freer relied strongly upon the decision of the Court of Appeal in Berriman v. Delabole Slate Ltd. (1985 IRLR 305). In that case the employee had been transferred under TUPE to the employment of the transferee; the transferee, immediately after the transfer, sought to impose upon the employee a reduction in wages in order to bring his earnings into line with a pre-existing agreement between the employee and a trade union on the basis of which the transferee's own employees were paid. The employee refused to work on reduced terms and terminated his employment. The Tribunal found that he had been constructively dismissed and that the dismissal was in connection with the transfer; it went on to find, however, that the action taken by the transferee was for an ETO reason entailing changes in the workforce. The EAT (at 1984 IRLR 395) allowed the employee's appeal on the basis that a change only in the terms and conditions of an employee's employment was not a change in the workforce. The Court of Appeal upheld the decision of the EAT; the argument put to the Court of Appeal was that the transferee's actions involved the dismissal of the employee because the employee refused to accept the change in his terms and conditions and thus the reason for dismissal entailed a change in the workforce. This submission was rejected. Browne-Wilkinson LJ, as he then was, giving the judgment of the Court said at paragraph 13 :

"It is the company's reasons for its conduct not the employee's reaction to that conduct which is important. In the present case the reason for the company's ultimatum was to produce standard rates of pay - not in any way to reduce the number in its workforce"

It is relevant in the context of this case to add to that paragraph the comment that in that case the reason for the company's ultimatum did not in any way involve any change the allocation of duties within its workforce.

14. Browne-Wilkinson LJ continued, at paragraphs 14 and 15 :

"14. Then, in order to come within regulation 8(2), it has to be shown that that reason is an economic, technical or organisational reason entailing changes in the workforce. The reason itself (ie to produce standardisation in pay) does not involve any change either in the number or the functions of the workforce. The most that can be said is that such organisational reason may (not must) lead to the dismissal of those employees who do not fall into line coupled with the filling of the vacancies thereby caused by new employees prepared to accept the conditions of service. In our judgment that is not enough. First, the phrase 'economic, technical or organisational reason entailing changes in the workforce' in our judgment requires that the change in the workforce is part of the economic, technical or organisational reason. The employer's plan must be to achieve changes in the workforce. It must be an objective of the plan, not just a possible consequence of it.

15. Secondly, we do not think that the dismissal of one employee followed by the engagement of another in his place constitutes a change in the 'workforce'. To our minds, the word 'workforce' connotes the whole body of employees as an entity: it corresponds to the 'strength' or the 'establishment'. Changes in the identity of the individuals who make up the workforce do not constitute changes in the workforce itself so long as the overall numbers and functions of the employees looked at as a whole remain unchanged."

15. Mr. Freer submitted that the Tribunal in this case had erred in a manner similar to the error of the Tribunal in Berriman; they did not look at the workforce as a whole or at the "strength" or the "establishment"; in reality this was a case in which the Respondents had simply sought to change Mrs. Green's terms and conditions, as had the transferees in Berriman.
16. It is, in our judgment, important to note that the decision in Berriman does not limit the application of Regulation 8(2) to cases in which there is a reduction in the number of the workforce. The passages cited above permit of the possibility that a change in functions within the workforce may fall within Regulation 8(2). On the other hand counsel for the transferee in Berriman did not argue to the contrary; it was not necessary to do so.
17. However, in Crawford v. Swinton Insurance Brokers Ltd. (1990 IRLR 42) the possible effect of change in functions within the workforce was expressly considered by the EAT, presided over by Knox J. The facts of Crawford were straightforward; Mrs. Crawford was employed as a typist and clerk; the employer's business was transferred to Swinton Insurance Brokers Ltd., the transferees. Because the transferees used standard letters and did not need typists, Mrs. Crawford and a colleague were offered substantially different duties - in Mrs. Crawford's case the selling of insurance. She resigned and, as in the case of Mr. Berriman, she was found to have been constructively dismissed. In her case, too, the Tribunal found that the dismissal fell within Regulation 8(2). On appeal the EAT remitted the matter to the same Tribunal because the Tribunal had not properly considered what was the principal reason for Mrs. Crawford's dismissal. It did not, however, uphold the transferee's submission that no change in the workforce could have been entailed because there was no reduction in or change in the identity of even one member of the workforce. At paragraph 30, having cited the passage in the judgment in Berriman which we have set out in paragraph 14 above, the EAT said :-

"30. What, in our judgment, has to be looked at, is the workforce as an entity, that is to say, as a whole, separate from the individuals who made it up and it then has to be seen whether the reason in question is one which involves a change in that workforce, strength or establishment and we are satisfied that there can well be a change in a workforce if the same people are kept on but they are given entirely different jobs to do. We would regard a workforce that was engaged in a different occupation as being, for the purpose of regulation 8(2) changed if that happened as a result of an organisational change on a relevant transfer. Accordingly, we are not persuaded by Mr. Giffin's first point that there must be a change in identity amongst the workforce for there to be an organisational reason entailing a change in the workforce."

18. Mr. Freer submitted, correctly, that Crawford supports the principle arising from Berriman that the Tribunal must look at the workforce as a whole. He accepted, in the light of Crawford, that a change in function within the workforce could be sufficient and that a reduction in the numbers of the workforce was not always necessary; but he argued that in the present case the Tribunal had not looked at the workforce as a whole, had not taken into account that the numbers within the workforce were to be the same under the changes proposed by the Respondents and had looked only at the position of Mrs. Green which was one, as in Berriman, simply of a reduction in salary.
19. Mr. Freer further criticised paragraph 18 of the Tribunal's decision in which they said that Mrs. Elan constituted an additional member of staff rather than a reduction but that if a reduction in staff was not essential, the same applied to an increase in staff. He pointed out that Mrs. Elan's addition to the staff did not in fact produce an increase but a maintaining of the same numbers.
20. Both Berriman and Crawford were constructive dismissal cases; but, save for the comment that the real reason for the employee's conduct may be less easy to discern in such a case than in a case of direct dismissal, it was common ground that the difference between the types of dismissal was of no relevance for the purposes of the point at issue.
21. Mr. West on behalf of the Respondents submitted that, in a case where the duties of a substantial section or proportion of the workforce are changed, it is open to a Tribunal to decide that a change in the workforce is entailed; and that in such a case the Tribunal's decision is essentially one of fact. In contrast to Berriman which was a case in which there was neither a change in functions or in numbers within the workforce, this was a case in which, as the Tribunal in effect found at paragraphs 16 and 17 of the decision, the whole management structure of the business was radically changed. While it was true that the Respondents' plans did not involve a reduction of the workforce (or an addition to the workforce) Mrs. Green's position in management was abolished as was that of Mrs. Ormerod. Mr. Elan took on their functions together with his own; and the only other member of the management team was Mrs. Elan who was found to have assumed some of Mrs. Green's functions to a minor degree.
22. The Tribunal, submitted Mr. West, had sufficiently considered the workforce as a whole; in any event it was sufficient for them to identify a substantial area or section of the workforce in which change was made.
23. Mr. West drew our attention to Harris v. Bulmers Plastics Ltd. (EAT 1418/95 - unreported) in which the EAT dismissed an employee's appeal against a Tribunal's finding in favour of an employer on the basis of the application of Regulation 8(2) in circumstances in which there had been dismissals caused by the absence of funds and to Whitehouse v. Chas A. Blatchford and Sons Ltd. (1999 IRLR 493) which deals with the circumstances in which there may be an "economic technical or organisational reason" rather than with "entailing changes in the workforce".

Conclusions

24. There is nothing in the words of Regulation 8(2) or in the decision of the Court of Appeal in Berriman which limits its application to a case in which the numbers of the workforce have been reduced. The relevant words are apt to include both change in number and change in functions. We would distinguish Berriman from this case, as did the EAT in Crawford, on the basis that in Berriman there was neither a change of numbers nor a change of functions. Crawford plainly establishes that a change in functions within the workforce may, in law, be sufficient; and we respectfully agree with and adopt what the Employment Appeal Tribunal said in the passage we have cited from the decision in Crawford at paragraph 17 above.
25. Accordingly the fact that, under the proposed changes, the number of the workforce, strength or establishment was to remain the same (only because Mrs. Elan took on, to a minor degree, Mrs. Green's management functions), did not prevent the Tribunal from concluding that the Respondents' reason entailed changes in the workforce. While a minor change in the functions of one employee or a small number of employees in a large workforce might not be sufficient, considering the workforce as a whole, to amount to a change in the workforce, in our judgment where the steps taken by the employer involve a real change in functions in a substantial or key area of the workforce it is open to a Tribunal to find that changes in the workforce are entailed.
26. In this case, on the Tribunal's findings of fact, while there had previously been 3 managers, the changes produced a situation in which there was thereafter only one manager, Mr. Elan, together with some minor assistance from Mrs. Elan. Although Mrs. Green would, under these changes, have been retained, if she had accepted them, she would only have been retained in a wholly different and non-managerial position. Thus the changes involved a wholesale reorganization in the management structure and a reduction in the number of managers by at least one. We have no hesitation in concluding that, on these facts, it was open to the Tribunal to find that the Respondents' ETO reason entailed changes in the workforce.
27. We do not take the view that the Tribunal failed to consider the issue in the manner laid down in Berriman and Crawford. The Tribunal made express reference to both decisions in its decision; they correctly described the general effect of each; at paragraph 15, immediately before proceeding to set out their conclusions, they set out the material passage in paragraph 30 in the Employment Appeal Tribunal's judgment in Crawford. While in paragraphs 16 and 17 the Tribunal do not expressly say that they were considering the workforce as a whole, it is clear that they must have had that passage in mind in forming and expressing their conclusions in these paragraphs; and we see nothing in the words which the Tribunal used in these paragraphs to suggest that they did not do so.
28. The Tribunal had before them, on their findings of fact, a case in which there were major changes in function within both a substantial and a key area of the Respondents' workforce. They were entitled in these facts to conclude, as they did, that change in the workforce was entailed.
29. While the reasoning in paragraph 18 of the Tribunal's decision is either mistaken or confused, we do not regard that paragraph as in any way essential to the decision which would have been to precisely the same effect without it. If anything the Tribunal in paragraph 18, if they believed that the addition of Mrs. Elan to the workforce increased the size of the workforce, might be thought to have taken a view of the facts which was too favourable to Mrs. Green. We are satisfied that any error in paragraph 18 does not affect the validity of the remainder of the Tribunal's decision.
30. Finally even if we had taken the view that the Tribunal had failed to approach the issue, in accordance with Berriman and Crawford, by looking at the workforce as a whole we would not have sent this case back to the same or a different Tribunal; in our view a proper approach to the primary facts of this case could lead only to the conclusion which the Tribunal reached.
31. For these reasons this appeal is dismissed.