United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR SEAMUS SWEENEY (of Counsel) Instructed by: Messrs Ward Hadaway Solicitors Sandgate House 102 Quayside Newcastle upon Tyne NE1 3DX
For the First Respondent	No appearance or representation
For the Second Respondent	No appearance or representation (present to observe only)
For the Third Respondent	MR SIMON DEVONSHIRE (One of Her Majesty's Counsel) Instructed by: Messrs Capsticks LLP Solicitors 77-83 Upper Richmond Road London SW15 2TT


 


SUMMARY

TRANSFER OF UNDERTAKINGS: Service Provision Change

When the NMC after competitive tender gave a new contract for future solicitors' regulatory services to Capsticks, and none of the work in progress was handed over by Ward Hadaway, and no employee transferred, there was no service provision change under new TUPE 2006. Employment Tribunal Judgment upheld.


 


HIS HONOUR JUDGE McMULLEN QC

1. This case is about the application of Transfer of Undertakings (Protection of Employment) Regulations 2006 ("new TUPE") to what is argued to be a service provision change. It is the judgment of the Court, to which all members, appointed by statute for their diverse specialist experience, have contributed. We will refer to the parties as the Claimants, Mrs Scott and Mr Love on the one hand, and on the other, the two real protagonists in this dispute, who are the First Respondent, Messrs Ward Hadaway Solicitors, and the Second Respondent, Messrs Capsticks Solicitors LLP.

Introduction

2. It is an appeal by the First Respondent in those proceedings against a reserved judgment of an Employment Tribunal chaired by Employment Judge Warren, registered with Reasons on 4 August 2009, after a five-day hearing
3. The Claimants were represented by a solicitor, Ward Hadaway and Capsticks respectively by Mr Seamus Sweeney of Counsel and Mr Simon Devonshire QC. The Claimants do not make any representations to this Court. A Respondent's Answer was issued. They intend to take no part in the proceedings. Who wins this appeal is a matter of indifference to them.
4. Formally, the vehicle for the proceedings was a claim issued by both of the Claimants for a Declaration of terms and conditions and subsequently claims of unfair dismissal. The substance of the claim is whether or not there was a relevant transfer between the two Respondents. Capsticks contended TUPE did not apply to the circumstances which obtained on the agreed date of 1 October 2007; Ward Hadaway contended it did. The essential issue, as defined by the Employment Tribunal therefore, was to decide whether under new TUPE there had been a service provision change from Ward Hadaway to Capsticks. It held there was not. Ward Hadaway appeal against that judgment. Directions sending it to a full hearing were given by HHJ Hand QC.

The legislation

5. The relevant provisions of TUPE 2006 are as follows:

"3. A relevant transfer

(1) These Regulations apply to -

…

(b) a service provision change, that is a situation in which -

…

(ii) activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person ('a subsequent contractor') on the client's behalf, or

(iii) activities cease to be carried out by a contractor... on the client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by a client on his own behalf

and in which the conditions set out in paragraph (3) are satisfied.

…

(3) The conditions referred to in paragraph (1)(b) are that -

(a) immediately before the service provision change -

(i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;

(ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task or short-term duration ..."

6. A service provision change is different from a transfer of an undertaking, which is provided for in old style terms from 1981, now by Regulation 3(1)(a). In both cases the transferor's rights, powers and duties in connection with a contract of employment are transferred to the transferee. A contract of employment existing with Ward Hadaway would be carried on by automatic operation of law under TUPE Regulation 4 in the hands of Capsticks.

The facts

7. All the parties are solicitors. Ward Hadaway, a firm in Newcastle, is one of a panel of four who provided services for what is now the Nursing & Midwifery Council ("NMC"). This is the regulator of those caring professions and has a substantial case load. Ward Hadaway were engaged by contract to be the recipients of the NMC's work. The work included investigation, preparation and advocacy before various organs of the NMC. The relationship was renewed from time to time, most recently on 1 April 2006 by written contract for one year, which was extended for a further six months expiring on 30 September 2007. There is no obligation by NMC to allocate a case or any cases to Ward Hadaway, and the Tribunal found that there was no obligation upon Ward Hadaway to accept such cases. There had been a period when no work was allocated to Ward Hadaway in 2005 for six months.
8. In 2007 NMC decided to tender out its work and a single provider of its services was chosen: Capsticks. The work which Capsticks was to do was found by the Tribunal to be different in that much post-preparation work, previously in the hands of the four panel firms, was to be taken substantially in-house by NMC so that the advocacy was to be conducted by its own in-house team.
9. On 1 October 2007 the relationship regulated by contract had come to an end. No new contract was entered into with Ward Hadaway, and whatever expectation they had to be given work by the MMC ceased. No new work ever did come to them. It was the policy of NMC to provide such instructions as it sought to give to solicitors exclusively to Capsticks.
10. There were at the time between 100 and 140 cases in the files at Ward Hadaway providing work for at least six months. Even at 31 March 2009 there was work in progress on at least two major cases.
11. The issue at this pre-hearing review was whether the two Claimants and others had been the subject of a TUPE transfer. Part of that analysis was easy, for there was accepted to be an organised grouping of employees whose principal purpose had been the carrying out of activities on behalf of NMC. The issue which first arose for decision was what were the activities. The Employment Tribunal separated the work in progress and the expectation of future work, and held that only the former constituted activities within TUPE Regulations 3(1)(b)(ii) and 3(3). The Tribunal regarded that as the primary finding and said so:

"61. The first thing for the Tribunal to decide is what were the activities which were carried out by Ward Hadaway for the NMC? There appear to be two possible answers. The first, the provision of legal services in respect of cases actually referred by the NMC to Ward Hadaway and which had been accepted by Ward Hadaway. The other answer would include the right to receive future referrals by the NMC.

62. There is no dispute that there was no obligation on the NMC to refer cases to Ward Hadaway and the Tribunal finds that there was also no obligation on Ward Hadaway to necessarily accept any cases referred to them.

63. The contracts which we see in the bundle, an example of which is at 2520 only refer to those cases where the client relationship is established, ie that instructions have been given and those instructions have been accepted.

64. The Tribunal does not consider that the future likelihood of the request for the provision of legal services in the event of future instructions being given by the NMC to NMC can be considered as "activities carried out by Ward Hadaway".

65. What are "activities carried out by Ward Hadaway"? The Tribunal considers that it must sensibly be confined to those cases in which Ward Hadaway have been instructed and where they have accepted those instructions.

66. In this case those activities did not cease to be carried out by Ward Hadaway. In fact it is clear from Ward Hadaway's own evidence that as of 1 October there was potentially six months NMC work, enough to keep the whole team fully occupied. Those activities remained with Ward Hadaway and indeed some of those activities were still with them in March 2009, nothing transferred from Ward Hadaway to Capsticks in October 2007 or since.

67. So our principal finding is that in this case no activities cease to be carried out by Ward Hadaway therefore there was no service provision change. The 2006 TUPE regulations do not apply."

12. That should have been the end of the case, but the Tribunal went on to make a second finding lest it be wrong on its primary finding. That was to consider the following proposition: if the activities included the two firms' work in progress and the expectation, was there a service provision change? For that the Tribunal considered the nature of the work done before and after. The common theme of course was an organised grouping of workers in an activity on behalf of NMC. The Tribunal's conclusion on this secondary point was this:

"72.1 We look at the services provided to the NMC by Ward Hadaway. The service comprised three elements, an investigation stage which comprises the gathering of evidence, interviewing of witnesses usually done on a one to one basis. Completion of witness statements, collation of documentary evidence and submission of a report to the Preliminary Proceedings Committee under the old rules or the Investigation Committee under the new rules.

72.2 It was clear from the evidence that at the investigation stage Ward Hadaway carried out an investigation tantamount to preparing a case for a criminal trial. A detailed investigation and preparation of charges and a report submitted to the appropriate committee.

72.3 The second stage, the preparation for hearing stage, principally comprised a review of the file, a redaction of any unnecessary matters included in witness statements depending on the charges preferred and arrangements as to the availability and attendance of witnesses at the hearing.

72.4 The final stage was the hearing stage with the advocacy done almost exclusively by Mr Glendinning.

72.5 On a costs split the investigation stage took up about two thirds of the costs and the preparation and advocacy one third."

13. The Tribunal then considered what Capsticks were doing. There was less work at an earlier stage done by Capsticks than was carried out previously and the work was done by a paralegal, rather than as at Ward Hadaway, by qualified solicitors.
14. There was no transfer of any of the work in progress. Work allocated prior to 1 October 2007 to Ward Hadaway continued to be done until it was "run off". The new arrangement provided for substantially less work than that done by Ward Hadaway. The Tribunal then said this:

"…it cannot be said that the services provided by Capsticks would have been provided by Ward Hadaway but for the "transfer". As we have found there was no obligation on the NMC to have given the work to Ward Hadaway in the first instance."

15. The Tribunal went on to consider that the Claimants and others had continued to work after the putative transfer date.

Ward Hadaway's case

16. In an exemplary oral and written submission Mr Sweeney makes essentially three points. First, he contends that the Tribunal wrongly narrowed its sight of what were activities under Regulation 3, confining itself to the work in progress and wrongly excluding from its vision the expectation of future work. What else does a solicitors' firm do, he asks, than to be available in the hope or expectation that work will come through the door? This was as much a part of the activities as the work actually done on cases.
17. Secondly, the Tribunal was wrong in its depiction of the work done by Ward Hadaway on the one hand and the work thereafter done by Capsticks, bearing in mind the in-house work done by the NMC; although he did acknowledge that certain aspects of this were fact-sensitive, such as the depiction by the Tribunal of the amounts of work in phrases such as "substantially less".
18. Thirdly, the Tribunal wrongly failed to consider submissions made to it as to the automatic effect of TUPE if it applies, irrespective of what is happening on the ground. In this case, the fact that the two Claimants continued working would not affect the legal analysis of what occurred on the date of the transfer. The Tribunal wrongly focussed on contractual documents whereas as a matter of law (see Cheeseman v R Brewer Contracts Ltd [2001] IRLR 144) that is just one factor.

Capsticks' case

19. Capsticks contend that the decision as to what is an activity is pre-eminently one of fact. The Tribunal made a decision which was right or at least was permissible, having reviewed the material. The Tribunal did not include the additional expectation or opportunity in respect of future work within its description of the activities of the business. To have done so would invoke a recollection of "old TUPE", that is a transfer of a business.
20. That would conclude the case if the Tribunal were unimpeachable in that factual finding. However, again lest it were wrong, the Tribunal's findings in relation to the amount and the character of the work done by Ward Hadaway and then by Capsticks and in-house by the NMC were again facts for the Employment Tribunal on which its decision was neither jejune, wanting reasons, nor impermissible.
21. Secondly, the Tribunal's finding as to what was sufficiently similar, or the facts leading to that inference, were for it.
22. Thirdly, Mr Devonshire QC contended that if we were against him on both of those points, the Tribunal nevertheless made a correct decision in respect of the application of TUPE, although his position on this would require further examination if the matter were to be sent back for a finding.

The legal principles

23. The legal principles applicable in this case arise from a number of the authorities which have been put before us. We are most grateful to HHJ Burke QC for his analysis of the service provision changes in new TUPE 2006 set out in his judgment in Metropolitan Resources Ltd v Churchill Dulwich Ltd [2009] ICR 1380, heard before but reported after the judgment in the present case. The facts of that case are in one sense similar to ours in that they are to do with the loss of a contract for the provision to the Home Office of accommodation for asylum seekers and its inheritance by another provider. In that case a judgment by the employment tribunal that there was a relevant service provision change was upheld on appeal. On his way to making that conclusion, Judge Burke set out the three categories of service provision change and distinguished those from the economic entity:

"27 "Service provision change" is a wholly new statutory concept. It is not defined in terms of economic entity or of other concepts which have developed under the 1981 Regulations or by Community decisions on the Acquired Rights Directive prior to April 2006 when the new Regulations took effect. The circumstances in which service provision change is established are, in my judgment, comprehensively and clearly set out in regulation 3(1)(b) itself and regulation 3(3); if there was, immediately before the change relied upon, an organised grouping of employees which had as its principal purpose the carrying out of the activities in question, the client intends that those activities will be carried out by the alleged transferee, other than in connection with a single specific event or a task of short term duration, and the activities do not consist totally or mainly of the supply of goods for the client's use, and if those activities cease to be carried out by the alleged transferor and are carried out instead by the alleged transferee, a relevant transfer exists. In contrast to the words used to define transfer in the 1981 Regulations the new provisions appear to be straightforward; and their application to an individual case is, in my judgment, essentially one of fact."

He regarded the new three-part definition of service provision change as straightforward. It was introduced in order to alleviate the difficulties of old TUPE.

24. Judge Burke then went on to consider, taking, a straightforward and commonsense application, what a Tribunal should do, and he said this:

"30 The statutory words require the employment tribunal to concentrate upon the relevant activities; and tribunals will inevitably be faced, as in this case, with arguments that the activities carried on by the alleged transferee are not identical to the activities carried on by the alleged transferor because there are detailed differences between what the former does and what the latter did or in the manner in which the former performs and the latter performed the relevant tasks. However, it cannot, in my judgment, have been the intention of the introduction of the new concept of service provision change that that concept should not apply because of some minor difference or differences between the nature of the tasks carried on after what is said to have been a service provision change as compared with before it or in the way in which they are performed as compared with the nature or mode of performance of those tasks in the hands of the alleged transferor. A common sense and pragmatic approach is required to enable a case in which problems of this nature arise to be appropriately decided, as was adopted by the tribunal in the present case. The tribunal needs to ask itself whether the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor. The answer to that question will be one of fact and degree, to be assessed by the tribunal on the evidence in the individual case before it."

He also invoked an earlier judgment on new TUPE 2006 provided by Langstaff J and members in Kimberley Group Housing Ltd v Hambley & Ors [2008] ICR 1030. That was substantially followed by HHJ Ansell in OCS Group UK Ltd v Jones [2009] UKEAT/0038/09.

25. The only difference appears in a judgment which I gave in Compass Group UK & Ireland T/A Scholarest v Burke & Ors UKEAT/0623/06. In certain circumstances the analysis of what is fact and what is law suggested by Lord Hoffmann in Lawson v Serco Ltd [2006] ICR 250 gives rise to a question of law. So, a decision as to what are activities under TUPE 2006 is one for the Employment Tribunal alone. The findings of fact deserve sanctity. But the determination of an essential question of law once findings of fact are made is a question of law. Mr Sweeney relies upon that.

Discussion and conclusions

26. Applying the above authorities, we prefer the arguments of Mr Devonshire and have decided that the appeal should be dismissed.
27. The first issue is to decide what the Tribunal was doing when it was looking at the activities. There is some uncertainty in paragraph 60 of its Judgment for on its own it indicates that the Tribunal regarded the activities as including both work in progress and expected work. The clear findings in the succeeding paragraphs put that beyond doubt. The Tribunal was here deciding a question of fact. It had already decided one important fact. Ward Hadaway had been able to carry out the work in progress in 2005 while not expecting or taking new work. Although the Tribunal's finding on this simply says no new cases were allocated, we have been told it was beyond its capacity to deal with any more work during that six month period. Thus, if it were true that the activities carried on by Ward Hadaway included the availability for new work, the activity of doing the work in progress continued unabated when the availability dried up temporarily. That was a fact which the Tribunal had in its mind when looking at the ex[ectaopm of work. We did give anxious consideration to the possibility that this was, like the OCS case, a question of law. The application of Regulation 3(1) to those facts was a matter of law. But it was open to the Tribunal to conclude that activities were not so extensive. Indeed, the proposition that the activity includes, however loosely it is put, the availability of Ward Hadaway to do work for NMC, pointed towards an economic entity on the lines of old TUPE (now Regulation 3(1)(a)). We can see that a firm of solicitors would provide solicitors to do work, office equipment, professional indemnity insurance, CPD, access to legal resources and so on, in the hope that they might attract work, or even where there is a strong relationship, as there is here, that they might expect work. That could itself be an activity which could be transferred, but it looks to us more like an economic entity than a service provision. It is at most the opportunity to be on standby should NMC refer a case. We hold that, while it is arguable that that constituted part of the activities, the Tribunal cannot be faulted in its clear decision that the activities for the purposes of a service provision change were the work in progress.
28. On that basis it was not necessary for the Tribunal to consider anything further but it did. It went on to consider whether the work was of a different nature. It focussed on the correct tests. Its judgment as to the character and the quantity of the work and the nature of the service were all matters of fact for it to decide. The Tribunal made a permissible decision. Indeed, it seems to us to be correct.
29. Only if we are against Mr Devonshire thus far does he submit that it is necessary to deal with the third point. That would be heaping hypothesis on hypothesis, since we uphold the primary finding and the auxiliary finding. The appeal is dismissed. Permission to appeal refused [for reasons not transcribed].