United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR STEVEN WHITE (of Counsel) Instructed by: Messrs Blacks Solicitors LLP Hanover House 22 Clarendon Road Leeds LS2 9NZ
For the Respondent	MR MARTIN BUDWORTH (of Counsel) Instructed by: Messrs Lupton Fawcett Solicitors Yorkshire House East Parade Greek Street Leeds LS1 5BD


 


SUMMARY

TRANSFER OF UNDERTAKINGS – Consultation and other information

The cap on "a week's pay" under s.227 of the Employment Rights Act 1996 does not apply to awards for compensation under reg. 15 (8) of TUPE for breach of the information and consultation obligations.


 


THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)

1. On 13 November 2008 the First Respondent ("Dorlux") went into administration. Later the same day the administrator sold essentially the whole of the business to the Second Respondent ("Kozee"). That sale constituted a relevant transfer within the meaning of Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"). The GMB, who represented the manual workers at Dorlux, together with three individual non-manual workers in respect of whom no trade union was recognised, brought proceedings under regulation 15 of TUPE against both Dorlux and Kozee, complaining of a breach by Dorlux of the information and consultation obligations under regulations 13 and 14.
2. On 18 June 2009 an Employment Tribunal sitting at Leeds upheld the allegation of breach and made awards of compensation under regulation 15 (8) against both companies, jointly and severally, in the amount of 13 weeks' pay in favour of both the manual and non-manual workers.
3. Subsequently, five employees brought proceedings under regulation 15 (10) claiming that they had not been paid the compensation due to them by the reason of the previous award. On 12 February 2010 Employment Judge Keevash made awards against Kozee in their favour in various amounts ranging from £3,250 to £4,550. In the case of three of those employees he did not calculate the sum payable by reference to their actual weekly earnings but instead awarded the lesser amount of £350, being the cap prescribed by section 227 of the Employment Rights Act 1996. The three employees in question sought a review of that decision on the basis that as a matter of law no such cap applied to awards under regulation 15 of TUPE. By a Judgment and Reasons sent to the parties on 3 March 2010 Judge Keevash declined to review his decision.
4. The three employees in question have appealed against that decision. They have been represented before us by Mr Steven White of counsel. Kozee has been represented by Mr Martin Budworth. We are grateful to both counsel for their thoughtful submissions and thorough research.
5. We should start with regulation 15 (8) (a) of TUPE, which is the relevant provision for present purposes. That provides that where there has been a breach of the information and consultation obligations the Tribunal may order the transferor (and by paragraph 9 the transferee) to pay "appropriate compensation" to the specified classes of employee. Appropriate compensation is defined in regulation 16 (3) as "such sum not exceeding thirteen weeks' pay for the employee in question as the tribunal considers just and equitable having regard to the seriousness of the failure of the employer to comply with his duty".
6. Regulation 16 (4) provides as follows:

"Sections 220 to 228 of the 1996 Act shall apply for calculating the amount of a week's pay for any employee for the purposes of paragraph (3)…"

7. Sections 220 to 228 of the 1996 Act constitute a group of sections which define the term "a week's pay", being a fundamental concept for the purpose of a wide range of payments and awards provided for under the Act. They in fact constitute all but one of the sections constituting Chapter II of Part XIV of the 1996 Act: the only other section in that Chapter is section 229, which deals with certain supplementary matters. We need not set out the provisions of those sections in full. Section 220 is introductory. Sections 221 to 224 set out the mechanism for defining a week's pay in different kinds of employment. Sections 225 to 226 define the "calculation date". Our concern for present purposes is with section 227 (1), which read at the material time:

"(1) For the purpose of calculating—

(za) an award of compensation under section 80I(1)(b),

(a) a basic award of compensation for unfair dismissal,

(b) an additional award of compensation for unfair dismissal,

(ba) an award under section 112(5), or

(c) a redundancy payment,

the amount of a week's pay shall not exceed £350."

8. It should be noted that the particular types of payment or award referred to at (za)-(c) are not the only types of payment under the Act which are calculated by reference to a week's pay: in other words, there are some such payments which are uncapped. It should also be noted that TUPE is not the only other legislation which cross-refers to some or all of the provisions of Chapter II.
9. The case for Kozee, which the Employment Judge accepted, is that since regulation 16 (4) expressly incorporates section 227 the rule-maker's intention can only have been to apply the cap provided for by that section in the calculation of appropriate compensation under regulation 15: otherwise the cross-reference would have no effect. Mr Budworth points out that it would have been perfectly possible for the draftsman to cross-refer to "sections 220 to 226 and 228", or to adopt some other means of excluding a reference to section 227. There is indeed an example of that being done in the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006: see regulation 6 (4), which provides that Chapter II of Part XIV of the 1996 Act shall apply for the purpose of calculating a week's pay but "without the limit on a week's pay imposed by section 227 of that Act". Mr Budworth might also have referred to the Working Time Regulations 1998, in which the provisions covering the rate of pay for annual leave cross-refer to a definition of a week's pay in the 1996 Act but only to sections 221 to 224. In short, if the Secretary of State had intended to exclude the cap he could clearly have said so.
10. We do not accept that argument. It seems to us to fail simply as a matter of literal construction. No doubt regulation 16 (4) does cross-refer to section 227, in the sense that it refers to a group of sections of which it forms part; but all that that means is that it is necessary to apply the provisions of section 227 so far as applicable. When one looks at those provisions there is nothing in them that refers to the award of appropriate compensation under regulation 15 of TUPE. As already noted, the structure of section 227 (1) is that it identifies specifically each kind of award or payment to which the cap applies. It does not apply to every kind of payment under the Act defined by reference to a week's pay. If the intention had been to apply the cap to a payment under regulation 15 it seems to us that it would have been necessary either to amend section 227 to include an explicit reference to such payments or to make an express provision in TUPE itself to the application of the cap. If the Secretary of State had wished to amend section 227 itself he could have done so: regulation 20 of TUPE makes a number of consequential amendments of primary legislation, including the 1996 Act. But there is also a precedent for the alternative route of making express provision in the cross-referring legislation itself. Section 11 (4) of the Employment Relations Act 1999 provides that "Chapter II of Part XIV of the Employment Rights Act 1996 shall apply" to payment of compensation for breach of the right to be accompanied at disciplinary and grievance hearings; and sub-section (5) provides specifically that "the limit in section 227 (1) of the Employment Rights Act 1996 (maximum amount of week's pay) shall apply for the purposes of sub-section (3) above". The same formula is adopted in paragraph 12 of Schedule 6 of the Employment Equality (Age) Regulations 2006.
11. That is no doubt a literalist approach. If there were a clear indication from other admissible material that the Secretary of State intended that the cap should apply to payments under regulation 15 it might be appropriate to read the cross-reference to section 227 as achieving that result, notwithstanding the failure to amend its particular provisions or otherwise to refer explicitly to regulation 15. However, the indication would have to be clear, and we can see none. In fact, there are two indications which point the other way.
12. The first is that it was generally accepted under the previous version of TUPE (which was in force from 1982) that the cap did not apply to payments made under the equivalent of regulation 15 (8). If there had been an intention to change that position, one would have expected it to be clearly flagged. There is no such flag in the Regulations themselves nor is there in the travaux préparatoires to which we were helpfully referred: in particular, there is nothing in the consultation documents issued by the Department of Trade and Industry prior to the introduction of the 2006 version of TUPE or in the final regulatory impact assessment.
13. The second indication is of a similar character. Section 190 of the Trade Union and Labour Relations (Consolidation) Act 1992 likewise provides that protective awards for breaches of the information and consultation duty in the context of collective redundancies should be calculated by reference to a week's pay. Section 190 (4) cross-refers to "Chapter II of Part XIV of the 1996 Act" without any specific reference to section 227. In our experience and counsel's it has always been understood that such awards are uncapped. That understanding seems to us plainly right, especially given that in cases where legislation has used the formula of cross-reference to "Chapter II of Part XIV" it has specified in terms if the cap is to apply: see our previous references to the 1999 Act and the 2006 Regulations. If that is the case, then if Kozee's submissions were right the rule would be different as between protective awards and awards under regulation 15. Given that the two are clearly cognate and serve a similar purpose (see in particular Sweetin v Coral Racing [2006] IRLR 252) that would be a surprising and unsatisfactory result.
14. What Kozee's case comes down to is thus simply that it is pointless for regulation 16 (4) to cross-refer to section 227 if that section were not intended to have any effect. That does not seem to us a strong point. Section 227 is not in fact referred to specifically but merely as part of a compendious reference to the group of sections identified. It seems to us that the intention was to incorporate the mechanism provided for in Chapter II of Part XIV, whether or not all the particular sections in it had any application. (Indeed section 220, the introductory section, is on any view redundant.) If by some very strict standard this is loose drafting, so be it; but it seems to us that the effect is nevertheless clear. Mr Budworth sought to invoke the principle against doubtful penalisation. Even if this was the type of situation in which the principle might in theory apply, we see no real doubt about the meaning of the provisions here.
15. We should mention for completeness that we were told that at the time that the Regulations first came in the DTI website indicated that payments under regulation 15 were subject to the cap, but that that statement was subsequently removed. Even if those facts were capable of being admissible they are clearly wholly ambiguous and in practice give no assistance.
16. We were referred to an article by Professor McMullen in the Industrial Law Journal for 2006, at p. 113, in which he expressed the view that the cap did not apply. We are pleased that our view accords with his.
17. We accordingly allow the appeal. The parties have sensibly agreed what the appropriate awards on that basis would be so as to avoid the need for a remission to the Tribunal. They are as follows. The first Appellant, Mohammed Zahur, will be entitled to £9,100. The second Appellant, Mohammed Zaman, will be entitled to £13,000, and the third Appellant, Shahed Zaman, will be entitled to £9,100. We direct that those figures be substituted for those awarded by the Judge.