United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the First Appellant For the Second Appellant	MR KENNETH TIBBITT (the Appellant in Person) MS HELEN HOBHOUSE (of Counsel) Bar Pro Bono Unit
For the Respondents	MS ANNA DIAMOND (of Counsel) Instructed by: Messrs Pinsent Curtis Biddle Solicitors 3 Colmore Circus Birmingham B4 6BH


 


HIS HONOUR JUDGE J McMULLEN QC

1. This case is about the application of the Transfer of Undertaking (Protection of Employment) Regulations 1981 (TUPE) where there is a dispute over whether the employee is assigned to the undertaking transferred. We will continue to refer to the parties as Applicants and Respondents.

Introduction

2. It is an appeal by the Applicants in those proceedings against a reserved decision of an Employment Tribunal sitting at Stratford (East), Chairman Ms I Manley, promulgated with Extended Reasons on 19 November 2001. The Applicants represented themselves, according to the Employment Tribunal with credit. Today Ms Helen Hobhouse for the Bar Pro Bon Unit represented Ms McNabb. Mr Tibbitt adopted what she said and also spoke for himself. We too pay tribute to the control with which he has conducted his case. The Respondents were represented at the Tribunal and here by Ms Anna Diamond of Counsel.
3. The Applicants claimed that they were dismissed in connection with relevant transfer and as such their dismissals were automatically unfair. The Respondents contended that they did not employ the Applicants. The essential issue, as defined by the Employment Tribunal, was to determine whether the Applicants' contracts of employment transferred on a relevant transfer of an undertaking by operation of TUPE. The Tribunal decided that they did not.
4. The Applicants appeal against that finding on grounds set out in a Notice of Appeal, Skeleton Arguments submitted by both of them, and Notices of Appeal, together with oral submissions today.
5. Directions were given in this appeal at a preliminary hearing, Mr Recorder Underhill QC presiding, on 6 September 2002. The Chairman's notes and documents would not be necessary as the facts had been found and there was no complaint of perversity. The EAT was particularly pessimistic about the prospects of success at a full hearing but allowed the matter to come forward.

The Facts

6. The case concerns three companies. HW Holdings Ltd ("Holdings"), HW Engineering Ltd ("Engineering"), and HW Environmental Ltd ("Environmental"). The First Respondent to the proceedings, Wagon PLC, set up a new company Hawtal Whiting Ltd in order to purchase Engineering from the receiver.
7. The Applicants were engaged in different positions within the various companies which require some explanation. Mr Tibbitt commenced employment with Engineering on 4 September 1989. He was promoted in 1996 to Director. He was held in very high esteem by the Directors of Engineering. At the relevant time, November 2000, Engineering employed about 400 people. Holdings employed about 30. Almost all of those people were transferred by reason of TUPE in circumstances which we will describe shortly.
8. During the course of Mr Tibbitt's involvement with Engineering he met Ms McNabb. She introduced a technology known as Environmental Vehicle Emission Control ("EVEC"). It is a means by which environmental-friendly approaches are taken to exhaust emissions from internal combustion engines. It had been invented by a person who initially took 40% shareholding in an entity which became Environmental. This company was set up in order to ringfence the operations concerned with the development of EVEC. EVEC has been described as a project. The inventor was given his shareholdings in Environmental in order that he would not involve himself in other parts of the HW group.
9. The Tribunal found that there were no employees in Environmental; but that required some qualification since it had expenditure by way of salaries and travel which were met through Engineering. Environmental had separate offices within the group buildings. There were other subsidiary companies.
10. Mr Tibbitt was appointed Managing Director of Environmental and resigned as a Director of Engineering in April 1998. The Tribunal made clear that the Applicant was engaged upon the EVEC project. There was an ample basis for it to come to that conclusion.
11. Ms McNabb joined Holdings as Manager of Business Development and Marketing, with responsibility for Environmental, on 28 April 1997. She too was engaged on EVEC. The Tribunal made findings upon an ample basis which are summarised in the Tribunal's conclusion "both Applicants concentrated their efforts on the EVEC project." Principally it involved marketing.
12. On 20 October 2000 Holdings and Engineering went into administrative receivership and accountants were appointed as receivers.
13. On 25 October 2000 Wagon bought Engineering and certain assets belonging to Holdings. It is common ground that there was an immediate or almost immediate transfer to Hawtal Whiting Ltd of those operations and that the purchase invoked the operation of TUPE. As a result almost all of the employees went over.
14. There were some exceptions. Expressly excluded from the sale agreement were Mr Tibbitt and Ms McNabb. With some surprise they found that they had not been taken on. The precise reason for this was not explained to us or to the Employment Tribunal.
15. Their claims crystallised on 6 December 2000 when a leading officer in Wagon wrote to both of the Applicants telling them that they had not been transferred. As a result of that, they presented Originating Applications on 24 January 2001.
16. The affront genuinely felt by the Applicants can be gauged by the terse description of events they set out. It was contended that the sale of the business and assets of Engineering and Holdings amounted to a transfer for the purposes of TUPE and the refusal by Wagon or by Hawtall Whiting Ltd to recognise that fact entitled the Applicants no longer to consider themselves employed by reason of those events.
17. In fact the Applicants continued to work and to be paid until May 2001 when, more dramatically still, they appear to have been refused admission to the premises. Some 14 months later Mr Tibbitt told us he was given his P45. He does not appear to have been paid anything upon the rupture of the relationship which the Tribunal held to have been between himself and Environmental.
18. These stark facts, therefore, point to a requirement that the Respondent should show some reason disconnected to the transfer; alternatively, that the Applicants were not engaged in that part of the undertakings which were transferred by the receiver. It is the latter route which the Respondents took in this case.
19. The surprising aspects of the case involve a comparison between those employees who were also working on EVEC and the Applicants. Three other employees and an administrative worker also spent substantial amounts of their time on EVEC. They were transferred. The Tribunal noted that it was possible that they had been assigned to Environmental but, due to an error, were included in the automatic transfer. That is one explanation. Another (ours) could be that they went over on transfer by offer and acceptance or by acquiescence. It is a factor which was relevant to the Tribunal's consideration and it has considered it in detail and given the solution set out above. It does not shed light on the essential question: where were the Applicants assigned to work? In other words, just because some people assigned to EVEC went over on transfer does not mean that others also must do so if they were not in truth assigned.
20. The Tribunal considered the pros and cons on the issue of assignment. It considered the following matters as indicative of a relationship between the Applicants and either Environmental (Mr Tibbitt) or Holdings (Ms McNabb).
21. The Tribunal regarded as important in weighing the balance, that Mr Tibbitt had been employed on paper by Engineering throughout, that the whole of that business and assets transferred and that there was a close connection between Environmental, Engineering and Holdings.
22. It was also noted that Mr Tibbitt spent a considerable part of his time ensuring that Engineering was also promoted and a number of assets of Engineering were used by Mr Tibbitt and by Ms McNabb in the performance of their duties. There was a fair degree of integration.
23. Contra-indicative were the fact that Environmental was set up deliberately as a separate company with Mr Tibbitt as its Managing Director. Documentation indicated that the Applicants were expected to spend the majority of their time on EVEC and that Environmental was not a wholly-owned subsidiary. As we have pointed out, 40% of the shares were held by the inventor.
24. The Tribunal noted that there was commercial value within Environmental and came to the conclusion, having weighed the balance of those competing factors, that the Respondents did not purchase the assets of Environmental, nor was there a transfer of an undertaking of Environmental. The Tribunal considered this matter over four days and came to the conclusion that it had no alternative to the decision that the Applicants' contracts of employment were not transferred at the relevant time.

The legislation

25. It is common ground that the Tribunal correctly directed itself in relation to the relevant legislation and jurisprudence.
26. Regulation 5 (1) of the TUPE Regulations provides as follows

5 (1) "…a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee."

That of course is transposition by the United Kingdom of the obligations set out in the Acquired Rights Directive 77/187, applicable at the time. The Tribunal had regard to the purpose of that Directive, which is "the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded".

27. The Tribunal addressed itself to Botzen v Rotterdamsche Droogdok Maatschappij B.V. 186/33 [1986] 2 CMLR 50 and Duncan Webb Offset (Maidstone) Ltd v Cooper & Others [1995] IRRL 633, to which we shall come. It found the test set out in that latter case to be particularly helpful to the situation which it was addressing.
28. The authorities indicate that the Tribunal should take a factual approach to assessing the degree of involvement of a person at the time of a relevant transfer. In the Botzen case the European Court of Justice adopted a Commission submission (see page 57, paragraph 14) as follows:

[14] "…the only decisive criterion regarding the transfer of employees' rights and obligations is whether or not a transfer takes place of the department to which they were assigned and which formed the organisational framework within which their employment relationship took effect.

[15] …it is therefore sufficient to establish to which part of the undertaking or business the employee was assigned.

[16] The answer to the second and third questions must therefore be that Article 3 (1) of Directive 77/187 must be interpreted as not covering the transferor's rights and obligations arising from a contract of employment or an employment relationship existing on the date of the transfer and entered into with employees who, although not employed in the transferred part of the undertaking, performed certain duties which involved the use of assets assigned to the part transferred or who, whilst being employed in an administrative department of the undertaking which has not itself been transferred, carried out certain duties for the benefit of the part transferred."

That negative answer to the question posed by the Dutch Court follows precisely the terms of the question.

29. More illumination is given on reading Advocate General Slynn's Opinion in that case, based as it is upon practical considerations (see page 53), where he said this:

"…if a worker is in fact engaged in the activities of the whole business or in several parts then he cannot be regarded for the purpose of the Directive as an employee 'of' the part of the business transferred.

Practical considerations, it seems to me, compel this result. An employee who works at several factories on e.g. maintenance or personnel work, or as a salesman for the whole range of products of the business, would otherwise be able to claim that he was transferred to the new owner of part only of the business. His job would then be very different in its scope and maybe even in its place. That would seem contrary to the aim of the Directive which is to make a transfer of employment which is in all respects identical save as to the employer. Equally, if two parts of the business were transferred respectively to different transferees, and another part were retained, the employee who worked in both or in a general department such as maintenance or accounts or sales, would, in theory, be able to claim that he had been transferred to each or at any rate to claim an option. That option does not seem to me to be conferred by the Directive.

There may be borderline cases, but it seems to me essential to reduce these to the minimum by having a clearly workable test.

It is possible that in an exceptional case part of the business may be sold in which it cannot be said that there are any workers who are wholly engaged in that part. This, however, has to be accepted and seems likely to be an infrequent occurrence. Conversely, subject to reliance on Article 4 of the Directive, the part transferred must take with it all the employees who are wholly employed in it."

30. So the Advocate General gave a slightly different answer to the question as to the test which must be operated so as to ask whether employees are assigned to the part transferred. The degree of involvement in the part transferred is a matter of fact for the Tribunal to determine. An employee who is wholly engaged in the part of the business would be transferred with it (see the answer given by Slynn AG). On the other hand, an employee who had only certain duties in the part transferred, or who used only certain of the assets, would not be (see the holding of the Court). The differentiation between those two positions is a matter for the Employment Tribunal.
31. Fortunately the EAT has given further guidance in Duncan Webb Offset (Maidstone) Ltd v Cooper & Others [1995] IRRL 633, a judgment of Mr Justice Morison P with members. The EAT there set out three different situations in which the transfer of a contract of employment might or might not be effective. As we have noted, the Employment Tribunal in our case was particularly affected by the third example in Mr Justice Morison's taxonomy. See paragraph 17 where he said this:

3 "X employs a number of people on X's sole business. The whole of that undertaking is transferred by X to Y. X is part of a group of companies. Some of X's employees work partly for X and partly for other parts of the group. Here, it seems to us, that almost certainly X's employees will be transferred; but we recognise that there may be cases where one can say that despite being employed by X they were in reality assigned to the business of another part of the group. This simply recognises that the contract of employment test is not the only matter for consideration. In other words, an employee might be employed by one company but be assigned to the business of another. Again, Tribunals will keep in mind the purpose of the Directive and the need to avoid complicated corporate structures from getting in the way of a result which gives effect to that purpose."

Submissions

32. All addresses to us today have, in one way or another, relied upon that passage; and correctly so since it informed the Employment Tribunal's judgment and, as will be seen, ours too.
33. Ms Hobhouse also contends that the Tribunal was inconsistent in its approach to those employees engaged upon EVEC work, as we have explained above, separating three specialists and Ms Peck as going over on transfer and leaving behind the two Applicants. That is a powerful point, noted by the Tribunal.
34. Ms Hobhouse relies particularly on the emphasis in that passage on organisation. She has contended, with Mr Tibbitt in tow, that the business of Environmental simply could not support the employment of him once there was a transfer of Engineering.

Conclusions

35. The Tribunal however uses the word 'structure' in it reasons and takes that from an organigram headed 'HW ENVIRONMENTAL LIMITED. CURRENT STRUCTURE.' In it are clearly depicted both of the Applicants, together with Ms Peck who was Admin & Office Support. The rest of the persons named on the organigram are contractors. According to this structure Environmental had other functions: Strategy, Marketing & Negotiation, Patents, Legal and Licensing, RD Test and Analysis, done, partly by Mr Tibbitt, partly by Ms McNabb, partly by others. Thus it seems there is an organisational structure for Environmental sufficient to pass the test set out by Mr Justice Morison in the EAT's third case.
36. We agree that it does not defeat the Respondent's case that there was no transfer of the part in which the Applicants worked simply because other employees engaged upon EVEC were transferred. It does, it seems to us, provide no conclusive answer to the central question in this case.
37. The conclusion which we reach is the same as the Tribunal's. There was no dispute on the facts. The Tribunal has applied the correct law to the facts as found by it. The Applicants were not dismissed on 6 December 2000, as the Tribunal held. We consider there is no error in its reasoning or in its findings.
38. Like the Employment Tribunal, we express our sympathy to both of these Applicants, who have been left in the lurch as a result of the transfer, seeing all their colleagues going over and protected following the receivership by reason of these very important employment protection Regulations. The Applicants appear to have been dismissed in May 2001, although Mr Tibbitt cannot say by whom or from what. The logic of the Tribunal's decision is that Mr Tibbitt was employed by Environmental and Ms McNabb either by Holdings or by Environmental, but the Holdings part in which she was engaged did not transfer since she was deployed onto EVEC work.
39. Mr Tibbitt told us (and presumably he shared this with Ms McNabb) that he had received legal advice shortly after May 2001 when they found themselves locked out. It may well be that they could apply to launch fresh proceedings out of time if they felt that that was the only solution to the fact that they have been out of work, apparently dismissed, after long service (in Mr Tibbitt's case) and without any form of compensation or notice. We do not hold out any great hope for that project but it is a matter which Mr Tibbitt and Ms McNabb may wish to consider. Whether it is in the interests of justice for a Tribunal to allow this matter to go ahead, two years out of time, would be a matter for it to decide.
40. In those circumstances, both appeals are dismissed.

Costs

41. The specific basis in EAT Rule 34 has not been pointed out to us but we take it to be unreasonable conduct in the pursuit of this claim.
42. In our judgment, once a division of the EAT decides at a Preliminary Hearing that it is reasonably arguable with a reasonable prospect of success that the case should go forward to a full hearing, it cannot normally be said to be unreasonable for an Appellant in person hearing those words to go ahead. It is not just for them to be under the threat of a costs order, at least for simply pursuing a case which has gone through from a Preliminary Hearing, in the absence of a change of circumstances.
43. We do not consider that either Ms McNabb or Mr Tibbitt have behaved unreasonably in bringing this case before us, even though the first EAT was pessimistic. This is not a case which was hopeless or misconceived and they were not ill-advised to pursue the matter after the Preliminary Hearing to us.
44. We are most grateful for the work done by both counsel and by the Pro Bono Unit.