THE HONOURABLE LADY SMITH
Introduction
1.
This is an appeal by two employees who were dismissed by a company –
Clydeview Precision Engineering and Supplies Limited (“Clydeview”) – which,
they aver, transferred its business to Clydebank Engineering and Fabrication
Ltd (‘the Respondent’) at or about the time of their dismissal. They say that
the transfer was one to which the Transfer of Undertakings (Protection of
Employment) Regulations 2006 (“TUPE”) applied and that their
dismissals were by reason of the transfer. They claim that they were unfairly
dismissed and also that they were discriminated against on grounds of age.
2.
In a judgment registered on 10 January 2011, Employment Judge Roderick A
MacKenzie held that the Claimants’ claim had no reasonable prospects of success
and struck them out under rule 18(7) of the Employment Tribunal
(Constitution and Rules of Procedure) Regulations 2004. He refused
the Claimants’ application for a review of that judgment, by letter dated 4
February 2011 and they have appealed against that refusal.
3.
For convenience, I will continue referring to parties as Claimants and
Respondent.
4.
The Claimants were represented by Mr G Cunningham, advocate, before the
Tribunal and before me. The Respondent was represented by Mr B Caldow,
solicitor, before the Tribunal and before me.
Background
Averments of Fact
1) Claimants
5.
The Claimants were both employed as fabricators by Clydeview and worked
principally on engineering work for one particular client, Alexander Coaches.
The first named Claimant had been employed by Clydeview for 12 years prior to
dismissal and the second named Claimant for 10 years. Clydeview went into
administration shortly prior to the Claimants’ dismissal.
6.
The Claimants’ case is, essentially, that Clydeview transferred its
business to the Respondent; the Respondent company was formed on 17 November
2009, they were dismissed by Clydeview’s administrators on 20 November 2009 and
the Respondent continued, without interruption, carrying out the same work for
Alexanders at the same premises using the same equipment (which may have been
owned by Clydeview’s parent company), using the services of a number of the
Claimants’ former workmates to do so. Further, the two companies have
directors in common; the man who they understand to control the Respondent was,
it is said, present when the first Claimant returned to the premises to collect
his tools on 21 November 2009 and refused him entry. On that basis, they say
that TUPE applies, they have been unfairly dismissed (and discriminated against
on grounds of age) and that the liability owed to them has passed to the Respondent.
1) Respondent
7.
The Respondent’s response is that the Claimants were dismissed by
Clydeview’s administrators and were never employed by them, there was no
relevant transfer – the Respondent was not incorporated and ‘set up’ until
after the dismissals - there was no assignation or transfer to them of
Clydeview’s lease, no tools or equipment were transferred to them by Clydeview
(they purchased tools and equipment from the parent company), they acquired but
“some” unspecified assets and raw materials from Clydeview, there was no
contract between Clydeview and Alexanders Coaches and no contracts of
employment transferred to the Respondent from Clydeview. They have an esto
case that if there was a relevant transfer, they had no legal obligation to the
Claimants because they were dismissed by Clydeview’s administrators and not
employed by Clydeview immediately before the transfer took place and, further,
the exceptions provided for in regulation 7(1)(b) of TUPE applied.
Procedure in Employment Tribunal
8.
There was a case management discussion (“CMD”) on 29 April 2010 before Employment Judge Shona McLean. In her note of the CMD, dated 5 May 2010, she recorded parties’ respective positions and observed:
“At the Case Management Discussion it was apparent that since
the claim form and response had been presented the representatives had been
liaising and exchanging information. What was not entirely clear to me was the
extent to which a Pre- Hearing Review could take place on the basis of an
agreed statement of facts without the necessity of witnesses having to give
evidence.”
9.
Parties had agreed that they required fourteen days to consider their
respective positions in the light of information exchanged and so Employment
Judge McLean decided:
“The parties would then have a further period of 14 days in
which to consider the legal issues that are to be determined by the tribunal;
the extent to which these are apt for discussion at a Pre-Hearing Review and if
so are witnesses to be called and what is the likely duration of the hearing.”
10.
Parties’ agents sent notes to the Employment Tribunal containing their
submissions and proposals for further procedure.
11.
The Claimant’s solicitor sent in the first note. She set out clearly,
over 3 A4 size pages, the various facts of which the Claimants were aware
which, in their submission, showed directly and by inference that there had
been a relevant transfer, applying the case of Spijkers v Gebroeders
Benedik Abbattoir [1986] 2 CMLR 296. She submitted:
“It is the Claimant’s position that, although no formal process
has been applied and no contractual documents have changed hands to effect a
purchase or other transfer of a business, nonetheless it can be seen by the pre
and post transfer activities that there has been a de facto relevant
transfer. In order to demonstrate this the Claimants would seek to show that
all six considerations as laid down in the case of Spijkers have been
met.”
12.
That is, she made it plain that it was the Claimants’ position that
there required to be a hearing with evidence to determine the issue of whether
or not there had been a relevant transfer.
13.
The Respondent’s agent, after some delay, sent a note to the Employment
Tribunal proposing that a PHR should be set down to determine whether the Claimants’
claims had any reasonable prospects of success and that no evidence would be
necessary. He submitted that the relevant questions for determination were:
“A1 Did the respondent to these proceedings ever employ the
claimants?
A2 Did the respondent ever dismiss the claimants?
A3 Did the respondent ever refuse to employ the claimants?
A4 In the absence of ever employing or dismissing the employees,
in circumstances where the claimants accept that they were dismissed by the
administrator of another company, who was acting in his role as administrator,
is there a respondent named in these proceedings who could answer the
allegations regarding the dismissal of the claimant?
A5 Does the claim brought against the respondent stand any
reasonable prospects of success given that (i) the respondent at no point in
time employed the claimants; (ii) the respondent at no time dismissed the
claimants; (iii) the respondent at no point in time refused to employ the
claimants and (iv) none of the preceding points of (i) to (iii) appear to be
disputed by the claimants as a matter of fact?
A6 Should a pre hearing review be set down to consider whether
or not a relevant transfer took place?
A7 Does the note provided by the claimants’ representative
identify the questions that an employment tribunal would require to determine
to decide if a relevant transfer were to have occurred in the circumstances
complained of?
A8 If the Employment Tribunal moved to determine whether or not
a relevant transfer had occurred by listening to the evidence from the
claimants and the respondent’s witnesses, if it were decided that a relevant
transfer had occurred, would that be an end of the matter?
Separately, we would observe, as an aside, the question of
whether there was a relevant transfer is not determinative in a dispute
involving TUPE because the dismissing employer can have a defence to dismissal,
e.g. through TUPE Regulations 7 and in the instance of insolvency, Regulation
8.”
14.
There then followed certain questions which related to s.218 of Employment
Rights Act 1996 which are not relevant to the issues raised on appeal.
15.
The Claimants’ solicitor wrote promptly to the Employment Tribunal
responding to the Respondent’s note, by letter dated 20 July 2010, in which she stated:
“We remain of the view however that the first question to be
answered by the Tribunal is whether a relevant transfer in terms of the TUPE
Regulations has taken place. The Claimant’s Note advances the basis of the
evidence the Claimants would propose to lead to show that such a transfer had
indeed taken place. We note that the Respondent’s own note does not address any
of the issues in the Claimant’s Note.”
16.
In that letter she also set out six reasons why the Respondent’s
proposal should be rejected including that any question of whether or not the Respondent
had refused to employ the Claimants was irrelevant, that question A4 disclosed
that the Respondent’s understanding of the relevant law was misconceived, that
there was a fundamental contradiction in their position in respect that whilst
saying that the relevant transfer issue could be decided without evidence, they
were saying that the purpose of the PHR should be to consider strike out and
that question A8 appeared to ignore that, in an unfair dismissal case, the onus
of establishing the reason for the dismissal lies on the employer.
17.
The Claimants’ solicitor proposed that there be a three stage approach:
“1. Pre hearing review to determine whether a relevant transfer
under the TUPE Regulations has taken place.
2. If it is established that a relevant transfer has taken
place, the Tribunal is required to consider any defence advanced by the
Respondents as to whether the TUPE Regulations ought to be dis–applied.
3. Where there has been a relevant transfer and the Tribunal
finds there is no defence, the Tribunal would require to hear evidence on
quantum.”
18.
Also, at the third stage, if the Respondent was successful in their
opposition to the application of TUPE, evidence and submissions would, it was
proposed, require to be heard as to whether or not there had been a transfer
which fell within the provisions of s.218 of the Employment Rights Act 1996.
19.
The matter was put before the Employment Judge again. By letter dated
30 July 2010, the Employment Tribunal advised that:
“Employment Judge McLean has directed that a Pre-hearing Review
(PHR) will be arranged for this case. The issues to be determined are whether the
claims further to TUPE and s.218 of the Employment Rights Act 1996 stand any
reasonable prospect of succeeding having regard to questions A1 to A5 and B1
and B2 of the respondent’s note on preliminary issues.”
20.
No reasons were given for the apparent wholesale rejection of the
Claimants’ submissions and adoption of the procedure proposed by the
Respondent. Nothing was said about whether or not parties were to be allowed
to lead evidence at the PHR notwithstanding (a) there being no agreed statement
of facts; (b) the Employment Judge having, in her note following the CMD,
indicated that it remained to be determined whether or not evidence would be
required; and (c ) that the Respondent’s questions A1 to A4 plainly could not
be addressed without resolving the issue of whether or not there was a relevant
transfer which, in turn, required exploration of the factual averments in the
Claimants’ note, none of which had been admitted by the Respondent in their
note in response. Before me, Mr Cunningham, who was instructed less than 24
hours prior to the PHR, very frankly stated that, in retrospect, it would have
been better if the Claimants had sought a further CMD in advance of the date of
the PHR at which that could have been clarified. Equally, I observe that it
would have been open to the Employment Judge to fix one; if she had done so,
matters may well have turned out differently - it is difficult to see how it
would have been open to her, in the circumstances, to refuse to allow evidence
to be led.
The PHR on 2 December 2010
21.
The Employment Judge records that, at the start of the hearing, Mr
Cunningham explained that the Claimants’ position was that evidence was
required. He did not have witnesses in attendance and sought an adjournment.
That was opposed by Mr Caldow who submitted that the purpose of the PHR had
clearly been set out by Employment Judge McLean and no evidence required to be
given.
22.
Employment Judge MacKenzie declined to allow the adjournment. At
paragraph 6 of his written reasons he states:
“It was clear from the questions to be considered at the
Pre–Hearing Review that no evidence need be given and the purpose of leading
evidence could only be to establish if a relevant transfer in terms of TUPE had
taken place and that approach had already been rejected by the Employment
Judge. I therefore refused the claimants’ representative (sic) motion to
discharge the Pre-Hearing Review and fix a case management discussion to
consider further procedure.”
23.
The PHR proceeded, accordingly, on the basis of submissions only.
The Tribunal’s Judgment and Reasons following the PHR
24.
As above noted, the Tribunal struck out the Claimants’ claims as having
no reasonable prospects of success. The reasoning would appear to be in short
compass. It was noted that the right not to be unfairly dismissed can only be
asserted by an employee against his employer (Employment Rights Act 1996
s.94) and that, in terms of s.230(4) of the 1996 Act, employer means the person
by whom the employee was employed. Then, the Employment Judge explains:
“15. The claimants’ employers were Clydeview and Clydeview
dismissed the claimants. In their claim forms the claimants do not maintain the
respondents refused to employ them. In these circumstances the claimants claim
of unfair dismissal are claims that can only be made against Clydeview and not
the respondents.”
25.
On that basis, he concluded that the Claimants’ claims had no reasonable
prospects of success and struck them out in terms of rule 18(7)(b) of the 2004
Regulations. He cited, in support of his conclusion, the passage at paragraph
57 of Ezsias v North Glamorgan NHS Trust UKEAT/0705/05/SM, where
Elias P states:
“The classic example where striking out may occur is where the
Tribunal reaches a conclusion that even on the facts advances by the claimant
the case has no prospect of success as a matter of law. In such a case, one
would expect a decision to set out the allegations of the claimant, analyse the
relevant legal principles and indicate why the claim is bound to fail.”
26.
He does not explain why, as a matter of law, the Claimants’ factual
averments could not lead to the conclusion that their claims were well founded.
27.
The Employment Judge had been referred to a number of authorities
including Litster v Forth Dry Dock and Engineering Co Ltd [1989] SC (HL) 96 but, apart from quoting the above passage from Ezsias,
he does not discuss any of them.
The Claimants’ application for review
28.
The Claimants sought a review of the Tribunal’s judgment striking out
their claims. In a written application prepared by counsel, it was submitted
that the interests of justice required a review. The Employment Judge had
fallen into error and that, in the circumstances, it was wrong to have struck
out the claims without having heard evidence. On the facts averred by the Claimants,
which satisfied the test in Spijkers, there had been a
relevant transfer and that meant that, as a matter of law, their claims of
unfair dismissal and for age discrimination had passed to the respondent: Allen
& Ors v Stirling District Council [1995] ICR 1082. Further,
claims for discrimination were fact sensitive and tribunals should be slow to
dismiss them without hearing evidence: Anyanwu v South Bank Student Union
[2001] ICR 391 at 404. The test for strike out as discussed in Ezsias
had not been met. Even proceeding on the basis of the Respondent’s questions,
it was clear that evidence was required.
29.
By email dated 2 February 2011, the Respondent’s solicitor intimated
that the application was opposed, without advancing any reasoned opposition.
30.
The application for review was considered in chambers and by letter
dated 4 February 2011, the Employment Tribunal advised:
“The Employment Judge (R MacKenzie) has considered the
application in terms of Rule 34 in Schedule 1 to the Employment Tribunals
(Constitution and Rules of Procedure Regulations 2004) (sic) for a review of
his Judgment dated 10 January 2011.
The matters to be determined at the Pre- hearing Review were
clearly set out in the notice fixing the Pre – Hearing Review. It was clear
that no evidence required to be heard at the hearing to determine these
matters. If the claimants considered that other matters required to be
addressed at the Pre-hearing Review then a case management discussions should
have been requested prior to the Pre-Hearing Review.
The Employment Judge considers that the effect of Regulation
4(1) of TUPE is that liability for compensation passes to the transferee in
certain circumstances but the claim that there has been a dismissal is a claim
that can only be made against the party dismissing the claimants.”
Relevant Law
TUPE
31.
The relevant TUPE Regulations were those which came into force on 6 April 2006 (TUPE Regulations 2006). Regulation 3 provides that the transfers to
which they apply – relevant transfers - include:
“(1)(a) a transfer of an undertaking, business or part of an
undertaking or business situated immediately before the transfer in the United
Kingdom to another person where there is a transfer of an economic entity which
retains its identity..”
32.
In Spijkers the ECJ made it clear that the question of
whether or not there had been a transfer of an undertaking was one of fact
which required to be determined in the light of the whole surrounding
circumstances which characterised the transaction including whether or not
tangible assets were transferred, whether intangible assets were transferred,
the nature of the activities engaged in and whether or not they ceased at the
time of transfer, whether it transferred as a going concern and whether the
operation was continued or resumed by the transferee business carrying out the
same or similar activities.
33.
As to the effect of a relevant transfer on contracts of employment,
regulation 4 of which, insofar as relevant to the present case, provides:
“(1) ……a relevant transfer shall not operate so as to terminate
the contract of employment of any person employed by the transferor and
assigned to the organised grouping of resources or employees that is subject to
the relevant transfer, which would otherwise be terminated by the transfer, but
any such contract shall have effect after the transfer as if originally made
between the person so employed and the transferee.
(2)Without prejudice to paragraph (1), but subject to
regulations 8 and….on the completion of a relevant transfer –
(a) all the transferor’s rights, powers, duties and
liabilities under or in connection with any such contract shall be transferred
by virtue of this regulation to the transferee; and
(b) any act or omission before the transfer is completed,
…….in respect of that contract ……shall be deemed to have been an act or
omission of or in relation to the transferee.
(3) Any reference in paragraph (1) to a person employed by the
transferor and assigned to the organised grouping of resources or employees
that is subject to a relevant transfer, is a reference to a person so employed
immediately before the transfer, or who would have been so employed if he had
not been dismissed in the circumstances described in regulation 7(1),
including, where the transfer is effected by a series of two or more
transactions, a person so employed and assigned or who would have been so
employed and assigned immediately before any of those transactions.”
34.
Regulation 7(1) provides that a dismissal is unfair if the reason for it
is the relevant transfer or is a reason connected with that transfer which is
not an economic, technical or organisational reason entailing changes in the
workforce.
35.
Thus, an employee who is dismissed by reason of a relevant transfer or
for a reason connected with it which is not within one of the regulation 7(1)
exceptions, is deemed to have been employed ‘immediately before the transfer’
and is subject to the protection of regulation 4, with any liability arising
from the dismissal passing to the transferee. In such a case, the act of
dismissal, even if carried out by the transferor, is deemed to have been the
act of the transferee.
36.
Regulation 4 achieved statutory articulation of the principle determined
upon by the House of Lords in Litster, namely that if an employee
was dismissed in advance of a relevant transfer by reason of that transfer, he
nonetheless had TUPE protection as against the transferee business; the
employment would be deemed to have continued. In Litster, the
employees had claimed against the transferor – that was the wrong respondent.
They should have claimed against the transferee company. Similarly, in the
case of Stirling District Council v Allen, the Inner House
held that the transferring entity was the wrong respondent; liability had
passed from the respondent council to the company to whom they had transferred
certain service provision previously carried out by their direct labour
organisation.
37.
I would also refer to regulation 8 but only because the Respondent’s esto
case appears to proceed on the basis that the protection of regulations 4 and 7
of TUPE was not available to the Claimants because Clydeview were in
administration. Regulation 8(7) provides:
“Regulations 4 and 7 do not apply to any relevant transfer where
the transferor is the subject of bankruptcy proceedings or any analogous
insolvency proceedings which have been instituted with a view to the
liquidation of the assets of the transferor and are under the supervision of an
insolvency practitioner.”
38.
Clydeview was in administration when the Claimants were dismissed. Does
that mean that regulations 4 and 7 cannot apply to the Claimants? It does not;
I agree with Underhill P that, at the point of their institution – which, in
terms of regulation 8(7) is the relevant tempus inspiciendum –
administration proceedings are not “bankruptcy or analogous insolvency
proceedings” for the reasons so clearly explained in the case of OTG Ltd
v Barke and Ors UKEAT/0320/09/1602.
The appeal
39.
Mr Cunningham submitted that the Employment Judge’s fundamental error
was that he failed to consider whether or not TUPE applied and to appreciate
that, to determine that issue, it was necessary to hear evidence. He ought to
have fixed a further PHR at which evidence could be led. The test for strike
out was not met: Ezsias; Reilly v Tayside Public Transport
Company Ltd UKEATS/0065/BI. Further, he had failed to recognise
that the Respondent’s position, which was that they were not the right
respondent, was wrong in law.
40.
He explained that he had, at the PHR asked that the Employment Judge fix
a CMD, albeit that advance notice of that motion had not been given. The PHR
could have been converted into a CMD to consider further procedure. It should
have been clear to the Employment Judge, from the previous documentation
(Employment Judge McLean’s order of 30 July 2009, the Claimant’s note of
proposals for further procedure and the Respondent’s note of proposals for
further procedure), that there was an outstanding issue as to whether or not
evidence was to be led at the PHR. Further, it was plain that evidence was
required given the issue that clearly arose between parties as to whether or
not TUPE applied; if it did, as a matter of law, any liabilities arising from
the Claimants’ dismissals had passed to the Respondent: TUPE, Regulation 4 and
7; Litster v Forth Dry Dock and Engineering Co Ltd; Stirling
District Council v Allen & Ors. The Claimants had advanced a
case that there had been a relevant transfer which, prima facie, satisfied
the requirements of regulation 3: Spijkers v Gebroeders Benedik Abbattoir.
41.
He moved that the appeal be allowed and there be a remit to a fresh
employment tribunal with a direction that the issue of whether or not a TUPE
transfer took place be determined after evidence having been heard.
42.
For the Respondent, Mr Caldow submitted that the Employment Judge had
covered, as one of the issues before him, that of whether or not there was a
relevant transfer but that was not the fundamental point. What mattered was
that the Claimants had been dismissed by Clydeview, the company which was their
employer under s.230 of the 1996 Act and that claims for unfair dismissal could
only, under s.94, be brought against a person’s employer. That meant that the Claimants
had to name Clydeview, the alleged transferor as the respondent. They had not
done so. Even if TUPE applied, it was for the transferor to answer the claim. Mr
Caldow did not appear to understand or appreciate the import of the decision in
Litster and the terms of regulations 4 and 7.
43.
Subsequently, Mr Caldow accepted that it could be appropriate for the
transferee to be named as a respondent but in that case the claimant required,
he submitted, also to name the transferor. He was unable to refer to any authority
for that proposition which is not surprising as it is not correct in law.
Discussion and Decision
44.
I have no hesitation in upholding this appeal.
45.
First, the Employment Judge proceeded on the basis of a fundamental
error of law; it is not correct to say as, in his review decision he did, that
no claim for unfair dismissal can pass to the transferee in a transfer that is
relevant for TUPE purposes. I would refer to the “Relevant Law” section
above. If he had properly considered the relevant statutory and case
authorities – which were referred to in the well argued application for review -
he could only have realised that he had been wrong to conclude that where
employees are dismissed by the transferor any claim in respect of unfair
dismissal against the transferee is bound to fail.
46.
Secondly, at the PHR the Employment Judge failed to notice that there
had not been any prior determination of the issue of whether or not evidence
should be led. I would refer to my earlier observations regarding the procedural
history, particularly at paragraph 20. Parties had plainly been at odds as to
whether or not the PHR should be an evidential hearing. That was clear from the
terms of their written submissions following the PHR on 29 April 2010. Employment Judge McLean required to provide a reasoned determination of that issue
and state expressly in her order whether or not evidence was to be allowed.
Employment Judge MacKenzie’s failure may of course, have occurred because he
did not appreciate the significance of the Claimants’ case that there had been
a relevant transfer. Had he done so, he would, perhaps, have given closer
consideration to the Respondent’s questions A1 - 4 and realised that there
needed to be an enquiry into the facts surrounding the dismissals and business
changes involving Clydeview and the Respondent. He needed to do so. He would
also, perhaps, have appreciated that contrary to what he found as fact (without
hearing evidence), the Claimant’s case was not that they were dismissed by
Clydeview but by the administrators, leaving open the question of which company
dismissed them; if the transfer which they say occurred was, for instance,
found to have taken place prior to 20 November then their contracts of
employment would have transferred to the Respondent before the letters of
dismissal were issued and it could not have been Clydeview who dismissed them.
In all the circumstances, the only conclusion open to the Employment Judge was
that he could not determine the TUPE issue without first hearing evidence.
47.
Thirdly, the Employment Judge appears to have failed to consider and
have regard to the care that required to be taken before striking out a claim
as having no reasonable prospects of success. Nothing stated in Ezsias
suggests that it is a step which should be taken lightly. Whilst it may well
be clear, in an individual case, that testing a claimant’s case by taking his
averments at their highest, he could still not, as a matter of law, succeed,
the tribunal has to be satisfied that there are no reasonable prospects
of success and that it is not only a high test but one in respect of which the
onus lies on the party seeking strike out. I would refer to some of the
comments I made in the case of Reilly v Tayside Public Transport Company,
at paragraph 10:
“The Employment Judge required to have regard to the draconian
impact of an order for strike‑out. Such an order is, put shortly, the end
of matters; the Claimant is denied access to the Tribunal where his case can be
considered on the basis of evidence given on oath and, if so advised, tested by
parties or their representatives.”
Disposal
48.
In these circumstances, I will pronounce an order:
(a) upholding
the appeal;
(b) remitting
the Claimants’ claims to a freshly constituted Tribunal;
(c) directing that there be a Pre-Hearing Review at which evidence
may be led by parties to determine the issue of whether or not there was a
relevant transfer in terms of regulation 3 of TUPE 2006; and
(d) holding
a case management discussion prior to the Pre-Hearing Review referred to in
paragraph (c) either on the application of one of the parties or if it
considers it would be appropriate to do so.
49.
If the Employment Tribunal find that there was a relevant transfer, it
will, thereafter, require to fix further procedure in accordance with whatever,
at that stage, are the outstanding issues between parties.
50.
I should add that I am directing that the remit be to a fresh Tribunal
on account of the fundamental nature of the error in law that occurred here.
It is, I consider, better that a fresh pair of eyes be applied to these claims.
