United Kingdom Employment Appeal Tribunal

APPEARANCES

 

UKEAT/0970/03/SM For the Appellants	MR S GORTON (of Counsel) Instructed by: UNISON The Employment Rights Unit, 1 Mabledon Place London WC1H 9AJ
For the First Respondent For the Second Respondents	Mr A HILLIER QC MR A BLAKE (of Counsel) Instructed by: Cheshire County Council Legal Services County Hall Chester CH1 1SF MR P GOULDING QC, MISS S FATIMA (of Counsel) Instructed by: Messrs Charles Russell 8-10 New Fetter Lane London EC4A 1RS
UKEAT/0971/03/SM For the Appellant	MR P GOULDING QC, MISS S FATIMA (of Counsel) Instructed by: Messrs Charles Russell 8-10 New Fetter Lane London EC4A 1RS
For the First Respondent and Second Respondent For the Second Respondent	Mr A HILLIER QC MR A BLAKE (of Counsel) Instructed by: Cheshire County Council Legal Services County Hall Chester CH1 1SF MR S GORTON (of Counsel) Instructed by: UNISON The Employment Rights Unit, 1 Mabledon Place London WC1H 9AJ


 


SUMMARY

Issue whether Employment Tribunal asked itself the right question and/or was perverse in failing to find that the principal reason for the Council's changed arrangements was to thwart TUPE and hence that the ECM point should have been injected into the (otherwise correctly applied) Spijkers test. Appeal dismissed.


 


THE HONOURABLE MR JUSTICE BURTON (PRESIDENT)

1. This is an appeal against the unanimous decision of the Employment Tribunal at Liverpool after a 10-day hearing in March 2003, by a Decision handed down on 1 October 2003. There are two Appellants, or sets of appellants. They are Omnisure Property Management Ltd, which was first Respondent below, which previously traded as and has been, and will in this judgment be, called SGI, and the second Appellants are Graham Astle, and other former employees of SGI. SGI was represented below, as it has been before us, by Paul Goulding QC and Ms Shaheed Fatima, Simon Gorton of Counsel represented those of the former SGI employees who were Applicants below and also appeal before us – there were certain other employees who brought Originating Applications in the same terms as those Applicants for whom Mr Gorton acted, one of whom, Mr Richards, represented himself before the Tribunal; but neither Mr Richards, nor any of the other unrepresented Applicants, have appealed, and so they are not comprehended in the generic description which, where relevant, we shall adopt, of "SGI employees". SGI and the SGI employees both appeal against the Tribunal's Decision that the business of the provision of architectural services by SGI for the Cheshire County Council ("the Council") was not transferred to the Council under a relevant transfer falling within the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE"): i.e. the Tribunal concluded that there was no "TUPE transfer", such as to enable the SGI employees, who lost their jobs with SGI, to bring claims against the Council, and thus that their rights remain only against SGI. The Council, successful below, was there, and before us, represented by Andrew Hillier QC and Andrew Blake.
2. As found by the Employment Tribunal in paragraphs 6 and 7 of its Decision, the Council had, until 1994, carried out all architectural services in-house. But then it outsourced architectural services to a contractor, Kennedy and Donkin, to which all the Council's staff transferred under a TUPE transfer. The Tribunal records as follows:

"6. … The Council regarded Kennedy and Donkin's performance as a disaster. The contract was awarded to SGI in April 1999 … There was a TUPE transfer from Kennedy and Donkin of all staff. About sixty five of the original Council staff were retained long-term by SGI. By January 2001 the Council, both officers and members, had serious concerns about SGI's performance and it was first considered whether SGI's contract should be terminated. It was not. However by 30 October 2001 it was "on the cards" that it would be, and a decision was made to engage a panel of consultants rather than a single contractor. It was felt by some members and probably by some officers that the performance of fifteen or so of the original Council staff [who had thus transferred from the Council via Kennedy and Donkin on to SGI] was well below par and the cause of many of the deficiencies in the performance of SGI. Notice of termination was given on 26 January 2002 with effect from 31 March 2002. A seminar was held for candidates on 26 February 2002; tenders were received by 25 March 2002; letters of appointment were sent out on 27 March 2002 to consultants in respect of all 350 [the Council's live] projects; the appointments were effective from 1 April 2002; consultant briefings took place from 9 April 2002 to 1 May 2002 … It follows that no consultant was in a position to take on a project on 1 April 2002."

3. The Tribunal then records as follows in paragraph 7:

"This case arises largely because during the interim period of SGI ceasing and the new panel taking up the project the Council carried out some minor activities of an architectural nature on 21 projects
[in the event as will be seen the Tribunal found that only 15 were relevant]
which would have been carried out by a consultant had any been "active"."

4. The architectural services required for the Council, and provided until termination of SGI's contract on 31 March 2002, fell into two general categories. The first was in respect of capital and planned maintenance projects ("CPM"). The other was cyclical and response maintenance ("CRM"). A help desk was operated by SGI to field and pass on enquiries and complaints relating to CRM: two employees of SGI manned the help desk, who are now numbered amongst the employees for whom Mr Gorton has acted, namely Ms Rogers and Ms Eccles.
5. From 1 April the following occurred, on the findings of the Tribunal:

5.1 CPM. The Council, after competitive tendering on "best value" basis, created a panel of consultant architects. Of the 350 existing CPM projects, the vast majority was at planning stage, and was tendered out on that basis. There was therefore no need for any architectural services to be provided thereafter by SGI or a successor, nor for any workforce, either in-house or outsourced. The architects organised the work themselves. 15 of the 350 projects had some minimal work to be finished off, either in respect of snagging visits or the issue of interim certificates. These findings appear in paragraphs 17, 17.1, 17.2, 17.3 and 17.4 of the Employment Tribunal's Decision and have not been challenged.

5.2 CRM. In general terms architectural services in relation to CRM works were, after the termination of the contract with SGI, carried on by the term contractors who had previously been controlled or supervised by SGI. This appears from paragraphs 19, 19.1, 20, 20.1, 21, 22, 22.1, 23 and 24 of the Decision, and once again there is no challenge to these findings. Although some work was now done in-house, the Tribunal found that the Council (paragraph 20) "now instructs the term contractors directly and liaises with establishment managers", and (paragraph 20.1)

"all the functions of both types of maintenance are still carried out … but they are clearly performed in a substantially different way: particularly there are no engineers employed as surveying staff engaged to fulfil the role of the field surveyor".


5.3 As to the Help Desk, the Tribunal records as follows:

"15.14 The help desk, which was staffed by two of the administrative staff, generally the same two, but not exclusively, was not a discrete cost centre, nor was it specifically managed; it was however an identifiable unit …; Ms Rogers and Ms Eccles spent the majority of their time working at it.

19. Response Maintenance: the primary function, the help desk, is now carried out by HBM, a term contractor [one of those term contractors previously controlled or supervised by SGI, and now instructed direct by the Council, as described above].

28… The Help Desk was … an identifiable unit within that entity; but … [not a] separate [part] of the undertaking.

29. … The Help Desk transferred to HBM, probably under a relevant transfer, but we did not consider that.

33. … the help desk seems to have retained its identity, but we were not asked to consider if it had transferred to HBM."

6. As will appear, the Tribunal found that there was no transfer of undertaking upon the termination of SGI's contract by the Council: except to the extent that the Tribunal, it seems, would have found that there was a transfer to HBM of the help desk. It recorded that it had not been asked to consider that question. That was a wrong understanding. Mr Goulding QC did indeed submit, in the alternative to his main case that there was a transfer of the entire entity to the Council, that the help desk was transferred to HBM by way of a TUPE transfer (see paragraphs 142-147 of his written submissions of 25 March 2003 and paragraph 9 of the further submissions which he, like the other counsel, put in supplementarily, in the light of the decision of the Employment Appeal Tribunal in Fairhurst Ward Abbots Ltd v Botes Building Ltd which was reported too late to be referred to during the oral hearing (EAT 27 March 2003) and was subsequently upheld in the Court of Appeal, reported at [2004] IRLR 304. All parties accept before us both that such argument was run by Mr Goulding QC, and that, in the light of Fairhurst, and of the findings of fact made by the Tribunal referred to above, there must be a finding that there was a TUPE transfer of the help desk to HBM. The unfortunate consequence of that is that Mr Gorton regretfully accepts, as he must, that the two employees have no claim against SGI or the Council. To that extent SGI's appeal (which is, for obvious reasons, not resisted by the Council) must succeed.

The main issue in this appeal

7. Leaving aside the question of the help desk, both SGI and the SGI employees assert that there was a TUPE transfer of the SGI employees (other than those two) to the Council. TUPE is the UK's method of implementing the Council Directive, originating in 1977, but now contained in 2001/23/EC/12 March 2001, Article 1 of which provides that:

"(a) This Directive shall apply to any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger."

8. The most obvious form of transfer is that arising out of a contractual transaction for the transfer of a business, no doubt with its assets, from A to B, as a result of which B then agrees to, and does, thereafter carry on the business previously carried on by A, and, if the Directive's purposes are achieved, with A's employees retained in the business. However it is clear, both by virtue of construction of the Directive, and of TUPE itself, and subsequent case law, that TUPE is not limited to such a straightforward situation. Indeed Article 1(b) provides:

"Subject to subparagraph (a) and the following provisions of this Article, there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary."

9. Thus where B ends up carrying on a business which can be shown to be (for the purpose of TUPE) the business previously carried on by A, there may be a TUPE transfer, even without any contractual relationship between A and B. This situation can and often does arise upon the termination of a contract between a client or main contractor and an agent or sub-contractor and, whether as a result of the tendering process or otherwise, replacement of that agent or subcontractor by a new agent or sub-contractor. There have been many authorities which have given assistance to the courts and tribunals to judge the question as to whether there has been a TUPE transfer, and the most significant European authorities, to which of course the Tribunal was referred, are Spijkers v Gebroeders [1986] ECR 1119, Foreningen Af Arbeitsjdsledere I Danmark v Daddy's Dance Hall [1989] ICR 330 and Süzen v Zehnacker [1997] ICR 662. Plainly relevant factors will be whether B takes over any or all of A's assets, or all or some of A's employees, or A's client, principal or customer, or some or all of A's clients or customers. As May LJ said in ADI (UK) Ltd v Willer [2001] IRLR 542, at paragraph 32:

"In my view confusion and uncertainty have arisen because the need for a legal transfer or merger, still present in the Directive, has been eliminated by purposive judicial interpretation, yet the perceived need to find a transfer of some kind remains."

10. If there is no transfer of business at all, as in Brookes v Borough Care Services Ltd [1998] ICR 1198, where there was only a share transfer, such that the business remained with the same legal entity, then TUPE cannot apply. If, however, a business ceases to be carried on by A, Spijkers establishes at 1128 that:

"11. … It follows that the decisive criterion for establishing whether there was 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 … 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 characterising 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 or 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 therefore be considered in isolation."

11. Mummery LJ in the Court of Appeal decision in ECM (Vehicle Delivery) Ltd v Cox [1999] 1162 at 1168 summarised the issue in that case as being whether "there was a continuation in the hands of ECM of the existence of a discrete economic entity previously carried on by Axial".
12. As May LJ summarises in ADI at paragraph 29:

"The decisions stress that the decisive criterion for a transfer is whether the business in question retains its identity, and an important consideration is whether the operation is continued by the new employer with the same or similar activities."

13. There is no challenge to the legal approach, or factual analysis, or findings of fact, or indeed the conclusion of the Tribunal with regard to the application of the Spijkers test referred to by Mummery LJ (adopting the submissions of Counsel) in RCO Services Ltd v Unison [2002] ICR 751 at paragraph 26 as the "multi-factorial approach", save in relation to what has been called the ECM or the ADI point (by reference to ECM and ADI referred to above). This point can be in general terms referred to in the words of Mummery LJ in ECM at 1169, whereby, in a case where some or all employees are not transferred or, more simplistically, were employed in the old business but are not employed in the new, as part of the Spijkers or multi-factorial test a tribunal is "entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed". There was an ECM point in this case, as will appear, which the Tribunal resolved in favour of the Council, and it has formed the nub of this appeal.
14. What that ECM point was we shall in due course explain. But, as we have indicated, without reference to the ECM point, or in the light of the Tribunal having resolved the ECM point in favour of the Council, the Tribunal carried out the Spijkers, or multi-factorial, test and, as we have stated, there is no issue between the parties in that regard:

14.1. Although Mr Hillier QC was concerned to emphasise the contrast between the position before (need for workforce) and after (no need for workforce), it became clear that the Council accepts that this is not a Brookes case, such that, on its case, there was a scenario to which the Tribunal was entitled to apply the Spijkers test, but it was right to resolve it in the Council's favour: i.e. business no longer carried on by A, but, on the basis of the findings by the Tribunal, business carried on by B so materially different that there was neither continuity nor retention of identity.

14.2. SGI and the SGI employees accept that, apart from the impact of the ECM point, the Tribunal's conclusions cannot be challenged.

15. These conclusions were as follows:

15.1. As to CRM:

"20.1 All the functions of both types of maintenance are still carried out, or need to be carried out, but they are clearly performed in a substantially different way. Particularly there are no engineers employed as surveying staff engaged to fulfil the role of the field surveyor.

30. … although the Council has retained responsibility for cyclical and response maintenance works it is not carried out in a way which is recognisable to the way it was done by SGI".

15.2. As to CPM:

"17.4. It can be seen that the work undertaken [on the 15 out of the 350 projects where some minimal work was done as described by the Tribunal] was minor …; the work was done to cover the vacuum where the appointed consultant had not become active; and could not be said to amount to a continuation of the operation of the business performed by SGI.

18. All architectural services in respect of capital works and planned maintenance were transferred to external consultants.

21. The Council do not perform any of the field surveyor's functions in respect of capital or planned maintenance works. These duties are not carried out by the panel of consultants. Although all the functions formerly carried out by the field surveyors are still carried out or remain to be done, the role of field surveyor no longer exists.

29. … The work done by the Council on … projects between 1 April 2002 and the date the consultants became active, although within the remit of a consultant's duties, did not amount to carrying on the operation of the business SGI were contracted to do.

30. We next considered the Spijkers Test: (i) the type of undertaking remained the same, the provision of Architectural Services (ii) tangible assets in the form of project drawings and files, both hard and electronic, were transferred (iii) there were no intangible assets (iv) no employees were transferred (v) the customers in the sense that the Council remained the client and the establishments owned by the council remained, are the same (vi) the degree of similarity between the activities carried on before and after the transfer: the business of the provision of Architectural Services is still carried on but it is operated very differently (vii) the period, if any, for which those activities were suspended: the Council never operated the business of the provision of architectural services in respect of [CPM]; it has however taken on provision of [CRM] (viii) retention of identity: the provision of Architectural Services, in respect of [CPM] works has not retained its identity since it is being carried out in a wholly different way."

16. The conclusion of the Tribunal thus was, set out in paragraph 31 of its Decision, that "in these circumstances the business of the provision of Architectural Services by SGI did not transfer to the Council under a relevant transfer".
17. We turn then to the "ECM point". As can be seen, no employees were "transferred", in the sense that the business carried on after 1 April 2002 did not use any of the SGI employees. This was because of the new structure adopted by the Council. The absence of such employees obviously contributed to the changed nature of the entity – or the changed nature of the entity is exemplified not least by reference to the absence of the workforce. The case for SGI and the SGI employees before the Tribunal was that the purpose of what occurred was to avoid – thwart – the operation of TUPE. The Council's case was that, although it had that wish, the purpose was to adopt the new commercially sensible structure. The seminal passage in relation to consideration of the ECM point is that in the judgment of Mummery LJ in ECM, which we have quoted in paragraph 13 above. That arose in a case where none of A's employees were taken on by B, who inherited A's contract with C: the Employment Tribunal (as appears from Mummery LJ's judgment at 1166G) found it "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 Regulations of 1981", and the EAT per Morison P ([1998] ICR 631) at 639E had considered 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". The Court of Appeal upheld the EAT's decision to uphold the Employment Tribunal's decision, but Mummery LJ did not adopt the reasoning of Morison P at first instance. His conclusion was simply that (at 1169E):

"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 in 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."

18. Following that guidance from Mummery LJ, the EAT in Whitewater Leisure Management Ltd v Barnes [2000] ICR 1049, in a judgment given by me, set out at 1058-9 the following, after referring to that passage in the judgment of Mummery LJ in ECM, and to Betts v Brintel Helicopters Ltd [1997] ICR 792:

"15.1. … 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, [TUPE] 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 Regulations of 1981, a decision not to take on any staff with the effect that the Regulations do not apply and a decision that, because it is not intended to take on any staff, the Regulations do not apply … 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 … [at] 1168 is at pains to point out, not only, as Morison P himself had done in the Appeal Tribunal, that the issue arose out of a finding by the employment tribunal, but also that, again as Morison P had concluded … [at] 639H-640B, 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 1169E-F, simply that "the tribunal was entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed by ECM"."


19. Further guidance has now since been given in two recent Court of Appeal decisions:

19.1. ADI was a case where there was an issue about why employees were not taken on by the transferee, and the employment tribunal majority (unlike the minority) had made no finding as to whether the purpose of the transferee was to avoid TUPE. Simon Brown LJ, as he then was, dissented. I refer only to the relevant passages in the majority judgments:

Per May LJ

"35. Consideration does, however, have to be given to the ECM point. As Mummery LJ said in that case, it is necessary to have regard, as a relevant circumstance, to the reason why Firm Security Group did not take on the nine security officers. Granted that, as is constantly stressed in the authorities, no one factor is determinative of whether there is a transfer for the purpose of the 1981 Regulations, in a labour-intensive case where the work or services are substantially the same and performed in the same place for the same person, questions relating to the taking on of employees may tip the scales one way or the other.

36. In my judgment, Mr Randall was correct to accept that there would have been a transfer in the present case for the purpose of the 1981 Regulations if the nine security officers had been taken on by Firm Security Group, and that there would also be a transfer if the reason why they were not taken on was in order to avoid the application of the Regulations. More generally, it seems to me that if, as in the present case, the economic entity is labour-intensive such that, applying Süzen, there is no transfer if the workforce is not taken on but there would be if there were, there will be a transfer if, although the workforce is not taken on, it is established that the reason or principal reason for this was in order to avoid the application of the Regulations. …

Per Dyson LJ

"51. As I read his judgment [in ECM] Mummery LJ is saying that the approach of the tribunal to the interpretation of the Regulations in the circumstances postulated was correct. The reason why the employees were not appointed was a relevant circumstance, and the tribunal was entitled to take it into account in deciding whether there had been a transfer within the meaning of the Regulations. It was not necessarily decisive because all relevant circumstances had to be taken into account: see Süzen … But it was relevant. In a labour-intensive case, whether the majority of the workforce is transferred is often likely to be decisive. In other cases, the transfer of the workforce may be less significant.

52. It seems to me that, if the circumstances of an alleged transfer of undertaking are such that an actual transfer of labour would be a relevant factor to be taken into account in deciding whether there has been a transfer of undertaking, then the tribunal will not only be entitled, but will be obliged, to consider the reason why the labour was not transferred, if that has been raised as an issue. If that reason is as was found by the tribunal in ECM ('an ECM reason') then for reasons that I shall explain shortly, in my judgment, it will be obliged to treat the case as if the labour had been transferred. I am not sure whether Mummery LJ went this far. I consider that the fact that labour has not been transferred for an ECM reason should be given no less weight than the facts (where it is the case) that labour has in fact been transferred. The fact that workers have not been transferred for an ECM reason is either relevant or irrelevant to the ultimate question of whether there has been a transfer of an undertaking. If it is relevant, this is because what occurs in such circumstances is to be treated as equivalent to an actual transfer of labour. I do not believe that there is any warrant for according to a failure to transfer for an ECM reason a half-way house between irrelevance and the full relevance that would be accorded to an actual transfer of labour.

53. It may well be asked: how can it be relevant to whether there has been the transfer of an undertaking to take into account the reasons why an essential component of that undertaking has not been transferred? Either the workforce has been transferred or it has not. If it has, then that is one of the relevant factors to be taken into account in deciding whether there has been a transfer of an economic entity which comprised the undertaking. If it has not, how can it be relevant? This is a powerful argument, but I can not accept it.

58. …In the present case … the Regulations must be interpreted as providing … that the employees are deemed to have been employed until immediately after the transfer. … The Regulations should be construed so as to create a fiction in order to prevent the purpose of the Directive and the Regulations from being thwarted by an employer who dismisses his labour in order to avoid the effect of the Regulations.

59. I would hold, therefore, that the mere fact that FSC did not take on any of ADI's labour force is not determinative of this appeal. For the reasons given earlier in this judgment, I am of the opinion that, since this is a labour-intensive case, if the reason why FSG did not take on the nine security officers was (as the employment tribunal minority found) in order to avoid the application of the Regulations, that would suggests very strongly that there was a transfer of undertaking in this case. But since the majority of the employment tribunal made no finding on this issue, it is necessary for the case to be remitted to the tribunal for reconsideration."

19.2 RCO is again a case where none of the workforce was taken on. ADI was considered, and Mummery LJ, with whom the rest of the court agreed, delivered the lead judgment. He concluded as follows:

"35. In RCO's submissions, the ECM point was treated as a matter of subjective motive of the putative transferee, which was condemned as obviously irrelevant, patently circular and plainly proving too much: the putative transferee has no obligations, unless there is a transfer and, as Süzen makes clear, a transfer cannot take place unless either assets or the workforce transfer. In a labour-intensive case the employees are the undertaking and the undertaking cannot be said to have transferred, if they have not. The putative transferee, who does not receive the benefit of the employees, should not be saddled with the burden of the employment liabilities. The Applicants and Unison were, for policy reasons, relying on circumstances in which there was no transfer to establish that there was a deemed transfer. There was no support for that approach in Directive 77/187 or in the decisions of the Court of Justice.

36. … I have reached the conclusion that, as I have attempted to indicate in ECM … this is not in truth a separate point. I am inclined to accept the submissions of RCO that a subjective motive of the putative transferee to avoid the application of the Directive and the 1981 Regulations is not the real point. The relevant exercise is that in Spijkers … i.e. objective consideration and assessment of all the facts, including the circumstances of the decision not to take on the workforce."

20. We have no doubt that in his judgment in ADI Dyson LJ went further than is justified by the authorities, or in particular by the judgment of the Court of Appeal in ECM, and further than was agreed by May LJ, and that when Mummery LJ reiterated the position in RCO, he went no further than he had done in ECM, and certainly did not support any proposition of a deemed transfer. We would respectfully agree with the proposition set out in paragraph 52 of Dyson LJ's judgment that "if the circumstances of an alleged transfer of undertaking are such that an actual transfer of labour would be a relevant factor to be taken into account in deciding whether there has been a transfer of undertaking, then the Tribunal will not only be entitled but will be obliged to consider the reason why the labour was not transferred if that has been raised as an issue". That is simply another way of expressing what May LJ said in paragraph 35, echoing Mummery LJ, namely that it is "necessary to have regard, as a relevant circumstance as to the reason why" a transferee did not take on employees. The central passage, in our judgment, is that set out in paragraph 36 of the judgment of May LJ, namely:

"36. If … the economic entity is labour-intensive such that, applying Süzen, there is no transfer if the workforce is not taken on but there would be if there were, there will be a transfer if, although the workforce is not taken on, it is established that the reason or principal reason for this was in order to avoid the application of the Regulations."

This is entirely consistent with that part of Dyson LJ's judgment before he expresses (in paragraph 52) a view as to which he is "not sure whether Mummery LJ went this far", and with the guidance given by Mummery LJ in both ECM and, subsequent to ADI, in RCO,

21. It follows that:

21.1 If it is not the reason or principal reason of the transferee to avoid the application of TUPE, then the question is not relevant and does not arise.

21.2 If it is, then it is a relevant factor to take into account in the Spijkers exercise, and may be decisive.

22. How is it to be taken into account as a relevant factor, which as Mummery LJ appears to accept in RCO is not entirely straightforward? May LJ's test may be appropriate in many factual circumstances, i.e. that one assumes that the workforce, or that part of it which was deliberately not taken on for an ECM reason, is transferred, and then asks, on that assumption, whether there is a TUPE transfer (i.e. "there would be if they were"). However that may not be apt in all factual circumstances, for example if the structure is so different that the assumed transfer of a workforce makes no sense. An alternative method is suggested by the EAT in a judgment of Judge Wilkie in Atos Origin UK Ltd v Amicus and Others [EAT/0566/03 26 February 2004 unreported] in which he suggests (at paragraph 22) that:

"… it seems to us manifest common sense for the Tribunal to consider what impact that policy had by considering what would have happened but for that policy. That is a matter of evidence and, no doubt in some cases, the drawing of an inference."

23. That may be a possible alternative route i.e. another way of following Mummery LJ's guidance that an ECM reason is a relevant consideration. We should add however that we do not agree with Judge Wilkie, in the same paragraph, when he suggests that such question arises where "in fact no staff have been transferred but the reason for that is either entirely, or to some extent, the adoption of a TUPE avoidance policy." Reference to "to some extent" is clearly inconsistent with the clear guidance of May LJ that the ECM reason must be the "reason or principal reason", and is indeed unsupported by any of the other authorities which we have cited, even including the judgment of Morison P in the EAT in ECM ("precisely because"). It is noteworthy that the Court of Appeal in ADI remitted the matter back to the Employment Tribunal to decide whether (as in ECM – see per Mummery LJ at 1169, and per May LJ at paragraph 28 of ADI) the reason (per Dyson LJ at paragraph 59) or the reason or principal reason (per May LJ at paragraph 37) was to avoid the application of TUPE. If the ECM reason is to be elevated into a factor in the Spijkers test, then it must first be established as such.
24. That is the approach which the Employment Tribunal adopted, plainly correctly, in this case, and their approach in this regard was not challenged by Mr Goulding QC, although he submits, as will be seen, that the Tribunal asked itself the wrong question, and/or gave itself the wrong answer in concluding that there was no ECM reason to inject into the Spijkers test. Consequently we do not believe that the Tribunal either was, or indeed has been suggested to be, wrong in setting out the law as it understood it to be, in the relevant part of paragraph 12 of its Decision:

"The transfer of an activity is a necessary but not a sufficient condition for a transfer to occur.

Where no employees are transferred, the reason why that is the case can be relevant as to whether there has been a TUPE transfer.

An intention to thwart TUPE simpliciter is not relevant in considering the test of whether there has in fact been a transfer, unless had the workforce been transferred there would have been a transfer.

"[Where] the economic entity is labour-intensive such that there is no transfer if the workforce is not taken on, but there would be if they were; there will be a transfer if, although the workforce is not taken on, it is established that the reason or principal reason for this was in order to avoid the application of the Regulations" see ADI … paragraphs 36 and 37…"

25. The Tribunal thus correctly approached the issues, first by deciding whether there was (and in the event deciding there was not) an ECM reason, and then, given that there was no ECM reason in their judgment, applying the Spijkers test without it. Had there been in its conclusion an ECM reason, the Tribunal would plainly have injected the ECM reason as a relevant factor into the Spijkers test, and it may or may not have been determinative, whether using precisely May LJ's approach in paragraph 36 of ADI, or Judge Wilkie's approach referred to in paragraph 22 above. But this appeal has, once all the matters set out above have been addressed, come down to the simple question as to whether this Tribunal ought to have found that there was an ECM reason and/or erred in law in failing so to find.
26. We therefore set out the central passage in the Employment Tribunal's Decision headed "Intention to Thwart TUPE".

"16. We asked ourselves was the reason, or the principal reason, the Council selected a market economy to thwart TUPE? Secondly, would there have been a transfer if the workforce had been taken on?

16.1. An intention to thwart TUPE simpliciter is not relevant in considering the test of whether there has in fact been transfer, unless, had the workforce been transferred, there would have been a transfer, in which case motive is relevant.

16.2. We are satisfied that the Council did want to "thwart" a TUPE transfer viz: (i) Mr Gould's paper dated January 2001 made clear his desire to avoid TUPE "I have no evidence that any other external provider could do better than [SGI], certainly if a further TUPE transfer were involved." … (ii) He repeated the same sentiment to Cabinet in his paper dated 5 February 2001 … (iii) At a meeting on or about 26 September 2001 between Mr Felton and Mr Williams for SGI, and Mr Gould and Mr Bate for the Council we are satisfied that the officers informed SGI that they were prepared to terminate the contract unless GI got rid of the ten or fifteen staff, who as it happens had emanated from the Council, who were underperforming. Mr Gould also expressed the view that if the contract was terminated then TUPE could be avoided. Surprisingly there is no memorandum from Mr Gould for this important meeting …(iv) At a further meeting on 11 October 2001 between SGI and the Council we are satisfied that Mr Bate said that half the capital team were not rated, that the preferred solution was to have a panel of consultants and that they [sic] could phase in a solution which would thwart TUPE …(v) the Resources Sub-Committee of the Council met on 30 October 2001 and on Mr Gould's recommendation resolved that the contract with SGI should be terminated and that the work should be dissipated among a number of consultants and contractors; further, that there should be a seminar for all members at which UNISON and SGI would be invited. …(vi) Surprisingly, neither Mr Bradley – UNISON, nor SGI were informed of the decision to terminate the contract; further, they were not present at Mr Gould's presentation during the seminar held on 4 December 2001, although he was at theirs. (vii) On 18 January 2002 Cllr Cousins, the Chair of the Resources Sub-Committee, informed Mr Cole, the Chairman of SGI that the Council would accept back those members of the workforce whose performance was suspect "over her dead body". (viii) On 21 January 2002 her committee decided to terminate the SGI contract and appoint a panel of consultants. (ix) Mr Ashton, who considered the public procurement regulations for the Council, informed Mr Gould that if lowest price was the basis for awarding contracts to consultants "… this would lead to an award to the top two or three which may effect a TUPE transfer." As a result lowest price was abandoned for "most economically advantageous tender". (x) The action list for a task force called ARSC, which was chaired by Mr Derbyshire and met about three times in February /March, to deal with transitional issues in connection with the termination of the contract, recorded that TUPE implications would limit the amount of work awarded to any Practice.

16.3. Conclusion: The Council did not want a significant number of staff who were employed by SGI to continue to be responsible for carrying out Architectural Services for the Council, either as employees or indirect labour. The Council was therefore most concerned to avoid a TUPE transfer. The provision of Architectural Services is labour intensive; but we accept the Council's contention that it had genuinely decided that the "market economy" was the best method of delivering those services; thus the Council although it retained the legal responsibility for providing the service did not require a workforce to do it, since it had appointed consultants to carry it out. The reason therefore the Council did not accept the workforce back was not to defeat TUPE, but because it had given the responsibility of carrying out the provision of Architectural Services to a panel of consultants; thus the Council did not require a workforce to operate the business. In these circumstances the question of whether, had the workforce been transferred, would there have been a [TUPE] transfer, does not arise.

27. Consequently in approaching the Spijkers test in the concluding part of its Decision, under the heading "The Transfer", the Tribunal had no ECM reason to include:

"29. The Council did wish to thwart TUPE, but they genuinely believed that a panel of consultants would serve their needs better than a single consultant. Further the reason they did not employ the applicants was because they had no work for them to do. There was no notional transfer for the provision of Architectural Services between 31 March 2002 and the date the consultants appointed to the panel became active on the projects to which they had been assigned."

28. Mr Goulding QC's submissions on behalf of SGI, with which Mr Gorton on behalf of the SGI employees associates himself, were twofold:

28.1 The Tribunal asked itself the wrong question, and therefore could not give the right answer.

28.2 If the Tribunal asked and answered the right question, it was perverse in the answer it gave.

The Wrong Question

29. Mr Goulding QC pointed to the question in paragraph 16 of the Decision as being "was the reason, or the principal reason, the Council selected a market economy to thwart TUPE?" The question, in his submission, should have been, 'was the reason or principal reason the Council did not take on the workforce to thwart TUPE?' He accepts that we must not regard a tribunal's decision as statute, or so construe it, but he submits that he is not doing so if he is pointing to the question which the tribunal itself says it was answering. The wrong nature of the question is, in his submission, important because it was not enough to ask why the Council selected a market economy, but that the Tribunal should have gone on to ask whether, having selected a market economy, it chose a particular method of market economy in order to avoid TUPE. Thus if it was going to ask a fact-based question, and not the one that he would have wished, the Tribunal should rather have formulated the question as being "was the reason or principal reason the Council selected a market economy, and implemented it the way it did, to thwart TUPE?" The importance of this is by reference to the last two subparagraphs of paragraph 16.2, (ix) and (x), which we have set out above. After the Council had decided to go for the "preferred solution" of a panel of consultants, without a workforce, Mr Ashton was recorded as pointing out to Mr Gould that if the criteria for competitive tendering for such consultants were lowest price, as opposed to best value, there was a risk that the 350 projects might end up being allocated to two or three consultants, which might lead to a TUPE transfer (not of course to the Council, but possibly to the two or three selected consultants). The Tribunal records its conclusion in paragraph 16.2(ix) that "as a result lowest price was abandoned for "most economically advantageous tender"". In subparagraph 16.2(x) the Tribunal records the comment that "TUPE implications will limit the amount of work awarded to any practice".
30. It is clear that Mr Goulding QC mounted an argument based on these points before the Employment Tribunal. This can be seen from paragraph 125.2.9 of his submissions of 25 March 2003, to which we have referred:

"This demonstrates the lengths to which the Council was prepared to go to avoid TUPE. The concern is clearly that if a large amount of work was awarded to any particular practice (amongst the panel of consultants) this might strengthen the argument that there was a TUPE transfer to the consultant, as a result of which the Council would be lumbered (as it would see it) with SGI's employees continuing to provide the services."

31. Mr Goulding QC submits therefore that had the Tribunal asked itself the correct question, namely primarily that set out in paragraph 29 above – "was the reason or principal reason the Council did not take on the workforce to thwart TUPE?", it would or might have answered that question differently, and he submits so particularly by reference to paragraph 16.2(ix) and (x).
32. Mr Hillier QC submits that there is no substance in this argument, and that it has been adopted by Mr Goulding QC as a way round the problem that he faces because of the difficulty of establishing before the EAT a perversity argument. Indeed Mr Goulding's alternative case, to which we shall come below, is that the Tribunal failed to take sufficient or any account of paragraph 16.2(ix) and (x) in arriving at its decision, and were thus perverse. He submits that the question posed by the Tribunal in paragraph 16, as to the Council selecting a market economy to thwart TUPE, is shorthand by reference to what occurred, i.e. the Tribunal appreciated that the Council did indeed, as was being accepted, select a market economy, but that it was still being suggested by SGI and the SGI employees that the Council did so for the purpose of thwarting TUPE. He submits that the Tribunal perfectly well understood the facts of the case, and the cogent nature of the arguments being put forward by Mr Goulding QC as to what he suggested was the real motivation of the Council. Further the very fact that the argument is set out in such strong terms in Mr Goulding's written submissions is the best indication that the argument was well understood by the Tribunal, and notwithstanding the matters set out at length in paragraph 16.2, all of which were taken not only from the evidence but the very written submissions of Mr Goulding QC, the Tribunal was not persuaded.
33. It is indeed fully clear to us that this Tribunal understood both the legal analysis and the facts very well. We are satisfied:

33.1 that the bullet point passages that we have quoted from paragraph 12 of the Decision in paragraph 24 above show that the Tribunal perfectly understood the question it was asking so far as concerned the ECM point, by reference to the issue relating to why the workforce was not transferred. Further, and in that context, the question that is asked in paragraph 16 itself, cannot, in our judgment, be divorced from the second question which the Tribunal immediately asked itself: "secondly, would there have been a transfer if the workforce had been taken on?" Of course that is indeed a second question and posed by reference to May LJ's approach, but it is, in our judgment, necessary that the Tribunal should only get to the second question if it has first asked the question which Mr Goulding QC thinks it should have asked (and, in our judgment, it did ask), namely why it is that the workforce was not taken on.

33.2 that this, however, is put beyond doubt, in our judgment, by paragraph 16.3, in which the answer to the question is given. The Tribunal's answer is "the reason therefore that the Council did not accept the workforce back was not to defeat TUPE …" Even if the question was ineloquently, incompletely or even inaccurately phrased, the answer that was given was the answer to the right question.

34. Mr Goulding QC was thus left, with Mr Gorton, to stand or fall by the perversity argument. Understandably in the course of submissions he was reluctant to accept that he was making an argument in perversity, and preferred to phrase it by reference to the Tribunal failing to take matters (of course he had in mind paragraph 16.2(ix) and (x)) into account. But what that means is that no reasonable Tribunal could have come to the conclusion that it did in the light of the facts set out in paragraphs 16.2, including 16.2(ix) and (x) – neither Mr Goulding QC nor Mr Gorton suggested there was some other evidence which the Tribunal failed to consider at all. Mr Goulding QC also put the case on the basis of what he called 'circularity'. The Council wanted to thwart TUPE. Therefore it came up with the scheme it did, and it then was found to have had the intention to implement the scheme and not to thwart TUPE. The very matter which ought to have been found by the Tribunal to be the best evidence of the intention being to thwart TUPE, namely the entering into of the scheme which it had devised for that purpose, was found by the Tribunal to be the Council's purpose, rather than that of thwarting of TUPE. This is a powerful argument, particularly in the light of matters of which the Tribunal was well aware and as to which it made the findings in paragraph 16.2. The Tribunal might easily have come to a different conclusion, had it been even more persuaded by the arguments of Mr Goulding QC and Mr Gorton than it obviously was. This Appeal Tribunal might have reached the alternative conclusion, certainly after considering the cogency of those very matters in paragraph 16.2. However Mr Hillier QC points out that the Tribunal heard all the evidence, including the cross-examination of the Council's witnesses, over ten days of hearing, and, according to the Tribunal's note, considered the matter in Chambers over a further three days. This is not a situation in which the scheme or structure which the Council put into place had no commercial or economic justification. Far from it, the new way of operating both in respect of CPM and CRM was plainly perfectly sensible. Can it be said that the Tribunal, in reaching the conclusion that it was not satisfied that the principal reason for entering into that new structure, a structure which had no need of a workforce for CPM, and needed only a very considerably reduced one in relation to CRM, was to thwart TUPE, reached a conclusion which was perverse, or to which no reasonable Tribunal could come? Having recited all the damning evidence upon which Mr Goulding QC and Mr Gorton relied, the Tribunal came to the conclusion that, whereas the Council was "most concerned to avoid a TUPE transfer", its purpose or principal purpose was not to thwart TUPE, but to implement "the market economy" as the best method of delivering architectural services. The Court of Appeal has repeatedly reminded this Appeal Tribunal that it must not substitute its own views, and must only very exceptionally indeed interfere in the conclusions of an employment tribunal, as the industrial jury, particularly one which has heard live evidence during a lengthy hearing. We have been reminded as recently as in Crofton v Yeboah [2002] IRLR 634 of the very limited ambit of the concept of perversity and the limited nature of the power of this Appeal Tribunal to interfere on that ground. This is not such a case. We must leave the industrial jury to its verdict.
35. In those circumstances these appeals are dismissed, and the SGI employees (save for the unfortunate two who were the subject of the TUPE transfer to HBM), must look to SGI for their remedy.