Appeal No. UKEAT/0021/11/DA
UKEAT/0022/11/DA
UKEAT/0023/11/DA
EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON, EC4Y 8JX
At
the Tribunal
On
14 October 2011
Judgment handed down on 21 December 2011
Before
HIS
HONOUR JUDGE PETER CLARK
BARONESS DRAKE OF SHENE
MRS A GALLICO
MR
H PANNU AND OTHERS APPELLANTS
GEO W KING LTD (IN
LIQUIDATION) AND OTHERS RESPONDENTS
MR S AHMED AND OTHERS APPELLANTS
GEO W KING LTD (IN
LIQUIDATION) AND OTHERS RESPONDENTS
MR D GRACE APPELLANT
GEO
W KING LTD (IN LIQUIDATION) AND OTHERS RESPONDENTS
Transcript of Proceedings
JUDGMENT
SUMMARY
TRANSFER OF UNDERTAKINGS – Service provision change
Potential SPC under TUPE 2006, reg. 3(1)(b). Whether
Employment Tribunal entitled to find that reg. 3(3)(b) exclusion (potential
transferor’s activities consisted wholly or mainly of the supply of goods
rather than services) applied. They were. Appeals dismissed.
HIS HONOUR JUDGE PETER CLARK
1.
This appeal raises a question as to the proper meaning and effect of a
Service Provision Change (SPC) operating as a relevant transfer of employment
in accordance with regulation 3(1)(b), read with reg. 3(3) and in particular
reg. 3(3)(b) of the TUPE Regulations 2006.
Background
2.
The Claimants before the Bedford Employment Tribunal, Mr Pannu and
others, all worked on the First Respondent GWK’s X83 axle assembly line at
their factory premises at Letchworth until their dismissal by GWK on 30 April
2009. On that date all production at the factory finished – GWK has gone into
liquidation.
3.
GWK supplied the product of the Claimants’ work to the Third Respondent,
IBC Vehicles Ltd, who manufactured commercial vehicles at their Luton plant, under a contract for the supply of goods and services. After production ceased
at GWK’s plant, IBC entered into a contract with the Second Respondent,
Premier, for the assembly of parts formerly manufactured by GWK, at IBC’s Luton premises.
4.
Following termination of their employment the Claimants commenced these
proceedings. An Employment Tribunal chaired by Employment Judge Adamson heard
the case over 5 days and then deliberated for 2 days in private. By a Judgment
with Reasons promulgated on 14 October 2010 they held that the Claimants’
employment did not transfer to either Premier or IBC. Their claims for unfair
dismissal, lack of consultation with the recognised unions, GMB and Unite,
redundancy pay, holiday pay and notice pay succeeded against GWK in liquidation
only.
5.
Against the finding of no transfer the Claimants now appeal. They do
not challenge the ET’s finding that no old style transfer took place under reg.
3(1)(a) TUPE: the issue is whether the ET was entitled to conclude that the
activities involved consisted wholly or mainly of the supply of goods rather
than services by GWK to IBC, such that an SPC under reg. 3(1)(b) was excluded
by the terms of reg. 3(3)(b).
Service Provision Change
6.
In replacing the 1981 TUPE Regs, as amended, Parliament retained the old
style, EU driven concept of a transfer of an economic entity in reg. 3(1)(a) of
the 2006 Regulations and added, as a matter of purely domestic law, the concept
of an SPC to cover grey areas not catered for by the old style transfer,
particularly in circumstances where the holder of a service contract, e.g. cleaning
work, changed on the termination by the client of one contract and the awarding
of a new contract to a different contractor. That is a generalisation; such a
transfer may arise under reg. 3(1)(a) or (b). We are not here concerned with
that scenario. The focus is solely on reg. 3(1)(b) read with reg. 3(3)(b).
7.
In Metropolitan Resources Ltd v Churchill Dulwich Ltd
[2009] IRLR 700 (EAT) HHJ Burke QC, sitting alone, considered the effect of
reg. 3(1)(b). He was not, on the facts of that case, required to consider the
reg. 3(3)(b) exclusion which is in play in this case. However he observed
(para. 27), that the new SPC provisions appear to be straightforward and their
application to individual cases is essentially one of fact for ETs. We
respectfully agree and would apply the same observation to the operation of the
reg. 3(3)(b) exclusion.
8.
The scheme of an SPC transfer, on the present facts, lies first in reg.
3(1)(b)(ii), that is where activities are said to cease to be carried out by a
contractor (here GWK) on a client’s behalf (that is IBC) and are carried on
instead by a subsequent contractor (Premier) on behalf of IBC.
9.
However, a relevant transfer will only take place where the activities
concerned do not consist wholly or mainly of the supply of goods for, here,
IBC’s use (reg. 3(3)(b)).
10.
Pausing there, the expression ‘wholly or mainly’ is a familiar one to
ETs. The Redundancy Payments Act 1965, s.1(2) provided that an employee
shall be taken to be dismissed by reason of redundancy if the dismissal is
attributable wholly or mainly to cessation of a business or a diminution in the
requirements of the business for employees to carry out work of a particular
kind, etc (see now Employment Rights Act 1996, s.139(1) and Murray
v Foyles Meat, [2001] 1 AC 51). Similarly, at the time when Carver
v Saudi Airlines [1999] ICR 991 was decided by the Court of Appeal, no
claim arose under the Sex Discrimination Act 1975 if the claimant
employee did his or her work wholly or mainly outside Great Britain. In Carver,
Mantell LJ suggested that ‘mainly’ be given its literal meaning of for the most
part (p. 1003D).
11.
In the present case the ET at Bedford set out the factual background,
particularly the financial difficulties into which GWK fell in 2008, leading up
to its closure and the effect this had on the supply of parts to IBC.
Gradually the supply dwindled (see para. 22). The parts were sourced from a
Spanish supplier during this period, with the added shipping costs; IBC funded
the supply of parts to GWK from its suppliers directly, until following closure
of GWK, IBC entered into the new arrangement with Premier, who employed just
one of the GWK assembly workers, the Claimant Mr Grace, a supervisor.
12.
On the facts found the ET concluded in relation to the SPC transfer, at
paras. 40-43:
“40. We considered whether there had been a service provision
change. The activity carried out by the first Respondent was not simply the
assembly of modules, but the sourcing and acquisition of component parts as
referred to before albeit the assembly line was a part of that overall
activity. The assembly line was an organized grouping of employees, which had
the principal purpose of assembling the modules being built by the first
Respondent. Those modules were then, however, sold by the first Respondent to
its client the third Respondent. We considered whether activities were
transferred which did not consist wholly or mainly of a supply of good for the
third Respondent’s use. The manufacture of any goods requires a process where
activities are carried out. The purpose of the first Respondent in assembling
the components was to supply and sell those goods to the third Respondent.
41. In respect of the argument the assembly line was providing a
service in that it had to ensure that the goods were safe to use, we accept
that to be the case, but, that again was only part of the overall
responsibility of the first Respondent, who had to ensure the product it sold
was safe, not only once assembled, but also in respect of each module’s
constituent parts. The first Respondent’s overall process was more than one of
assembly.
42. We find that although that there was activity involved in
assembling those goods, Regulation 3(3)(b) TUPE applies and the employees on
the assembly line do not have the benefit of the protection potentially
provided by Regulation 3(1)(b). We find that the Claimants did not transfer
from the first Respondent to the second or third Respondent.
43. In so far as the third Respondent entered into arrangements
with the first, and the majority of that Respondent’s suppliers to pay for the
components, their transportation and in the process to acquire title to those
components, does not affect our conclusion as the principal purpose of that
exercise was one of expediency to secure the supply chain to the third
Respondent and not to change the fundamental position between the parties.”
The appeals
13.
For the purposes of the proceedings here and below the Claimants are
divided up as follows. First, Mr Pannu and others, all members of the GMB
Union (the GMB Claimants) represented by Mr MacNaughton. Secondly, Mr Ahmed
and others, members of Unite the Union (the Unite Claimants) represented by Mr
Hitchcock. Thirdly, Mr Grace, to whom we have referred, represented by Ms
Rayner.
14.
Finally, Mr Goudie QC appears with Ms Stout on behalf of Premier and
IBC. The Liquidator of GWC takes no active part in the proceedings.
15.
In advancing these appeals each of the Claimants’ advocates takes a
slightly different line. Ms Rayner, for Mr Grace, submits that the ET’s
conclusion that for the purposes of reg. 3(3)(b) the activities concerned
consisted wholly or mainly of the supply of goods for IBC’s use was legally
perverse. She argues that the facts found by the ET point inexorably to the
conclusion that the activities in question consisted of the supply of services,
such that the reg. 3(3)(b) exception is not engaged.
16.
In support of that submission she relies on the proposition that the
assembly process on GWK’s X83 axle assembly line was plainly a service
performed by the Claimants. Further, when GWK fell into difficulties IBC
arranged to pay GWK’s “tier two” suppliers direct for the parts which they
supplied to GWK so that all GWK was providing in the run up to the relevant date,
30 April 2009, was the service of assembling the axles, using parts paid for by
IBC. After that date, under the terms of the VAASA Agreement (Value Added
Assembler Services Agreement) made between IBC and Premier, Premier provided
its services to IBC in the same way as had GWK. Mr Grace was employed by
Premier as a supervisor on that process. The activities were the same pre and
post the relevant date.
17.
Mr MacNaughton prefers to focus on the scheme of the SPC provision in
reg. 3. He contends that the activities formerly carried out by GWK was the
service of assembling axles in which these Claimants were engaged. The
relevant Agreement prior to the 30 April 2009, dated 19 November 2008, which
described GWK as a “supplier of goods and services (production of axle
assemblies)” had attached to it a Schedule headed ‘Added Value’ which set out
the prices to be paid by IBC in respect of axles, struts and corners produced
by GWK. After the relevant date the VAASA Agreement delivered purely a
service; before that date GWK provided more service than goods.
18.
Mr Hitchcock’s submission on behalf of the Unite Claimants focuses on
the activities carried out by the contractor, GWK, and subsequently by Premier
which can only be the activities of the organised group of employees working on
the X83 assembly line prior to the relevant date, that is these Claimants.
Looked at in that way the ET applied the wrong test to the question under reg.
3(3)(b), whether the overall process/contract was wholly or mainly for the supply
of goods. On the facts found it was plainly for the supply of services.
19.
In response, Mr Goudie takes issue with the proposition that the
activities concerned are those carried out by the employees of the contractor,
the Claimants, prior to the relevant date, rather than those of the
contractor. Whilst those employees provide their services to the contractor,
the contractor, on the facts so the ET were entitled to find, carried out the
activity, wholly or mainly, of supplying goods, the assembled axles, struts and
corners to its client, IBC. Further, the ET was entitled to find (para. 43),
that the alteration in late 2008, whereby IBC paid GWK’s tier two suppliers
direct, did not alter the nature of the activity, which was mainly the supply
of goods, the completed parts, to IBC.
20.
Mr Goudie also submits that the arrangements with Premier after the
relevant date are strictly irrelevant to the reg. 3(3)(b) question. If at all
times up to the 30 April 2009 GWK were wholly or mainly supplying goods rather
than services to IBC then that is the end of the SPC transfer argument for the
Claimants; what happened after that date cannot affect that position. In
short, the reg. 3(3)(b) question was essentially one of fact for the ET. Its
conclusion cannot be characterised as perverse.
Conclusion
21.
Overall we prefer the submissions of Mr Goudie on the particular facts
of this case. We deal first with the admirably succinct submission of Mr
Hitchcock, that the focus must be on the activities of the relevant organised
group of employees. Identifying an organised grouping of employees carrying
out the activities concerned on behalf of the client is a pre-requisite of an
SPC under reg. 3(1)(b) by virtue of reg. 3(3)(a). Without that feature the SPC
transfer falls at the first hurdle. However, the fact that that organised
group provide a service (directly to their contractor employer) cannot answer,
of itself, the separate reg. 3(3)(b) question. We consider that some
assistance may be derived from the example given in the BIS guidance on the
supply of goods exception. The example is that of a contractor engaged to
supply sandwiches and drinks to a client’s canteen for sale by the client’s own
staff. That would not give rise to an SPC when the contract is awarded elsewhere,
even where the first contractor has a dedicated team assigned to making the
sandwiches for that particular contract. It may be otherwise where the
contractor provides not only the sandwiches and drink (the goods) but also the
canteen staff to dispense it at the client’s premises.
22.
Similarly, in this case, although GWK employed an organised group of
workers on the X83 assembly line dedicated to producing axles, struts and corners
for use in IBC’s van manufacturing process, GWK’s activity was the supply of
those finished goods to IBC. Whether the position materially changed after the
relevant date under the terms of the Agreement between IBC and Premier is
nothing to the point; either the nature of the activities changed, in which
case the requirements in reg. 3(1)(b) are not met, or they remain the same, in
which case a permissible finding that the GWK activities involved wholly or
mainly the supply of goods rather than services to IBC takes the case outside
the SPC regime by virtue of reg. 3(3)(b).
23.
Nor do we believe that the change in funding arrangements in late 2008
alters the position. That does not simply flow from business expediency,
although that forms part of the commercial background to the factual matrix in
this case; the fact remains that GWK’s activities remained the same, however
the raw materials used in producing the finished goods were paid for. To
conclude otherwise would be to divert attention from the relevant activities to
the nature of the contract between GWK and IBC which, although again forming
part of the factual matrix is not, of itself, the focus of reg. 3.
24.
Finally, perversity. We need hardly mention the high hurdle faced by
appellants relying on this ground of appeal: see Yeboah v Crofton
[2002] IRLR 634. Suffice it to say that, having considered the detailed
argument presented by all sides on the evidence before the ET, this challenge
fails.
25.
It follows that these appeals are dismissed.
