SUMMARY
TRANSFER
OF UNDERTAKINGS – Dismissal/automatically unfair dismissal
The majority Employment Tribunal
inconsistently decided the dismissal of the Claimants was in order to harmonise
conditions and as a consequence productivity was improved, and at the same time
decided the move for productivity had been instituted prior to and not
connected with the transfer in respect of the transferee’s existing workforce.
The Employment Judge’s minority reasons did not make that error. Appeal
allowed and case remitted to a different Employment Tribunal.
HIS HONOUR JUDGE McMULLEN QC
1.
This case is about unfair dismissal following a relevant transfer of an
undertaking pursuant to the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations
2006. This 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 and the Respondent.
Introduction
2.
It is an appeal by the Respondent in those proceedings against a
majority Judgment of an Employment Tribunal under the chairmanship of Employment
Judge Coles sitting over four days including a day in chambers, registered
with Reasons on 9 February 2011. The Claimants were represented
throughout by Mr Michael Salter of counsel, and the Respondent by
Mr Timothy Cross, an employment consultant. The Claimants contended
they were automatically unfairly dismissed for a reason connected with the
transfer of the undertaking in which they had been employed up to
24 April 2009. The Respondent contended that the reason was not
connected with that transfer, but was for sound business reasons.
The issue
3.
The essential issue was to determine the reason for the acknowledged
change in the terms and conditions of employment and the dismissal of the
employees. The Employment Tribunal divided in the result; Employment
Judge Coles decided that the reason was not connected with the transfer,
and Mr Brina and Mr Aslam decided it was. The Respondent appeals.
Directions sending this appeal to a full hearing were given by
HHJ Richardson, whose view was that there were difficulties in certain of
the paragraphs and that the case was reasonably arguable that a change that
could have been made pre‑transfer, and was made for the Respondent’s
existing employees’ pre‑transfer, could have been made thereafter by the
Respondent when it inherited the current Claimants.
The legislation
4.
The legislation is not in dispute. TUPE 2006 provides:
“7(1) Where either before or after a relevant transfer, any
employee of the transferor or transferee is dismissed, that employee shall be
treated for the purposes of Part X of the 1996 Act (unfair dismissal) as
unfairly dismissed if the sole or principal reason for this dismissal is:-
(a) the transfer itself;
(b) a reason connected with the
transfer that is not an economic, technical or organizational reason entailing
changes in the workforce.’”
5.
Unfair dismissal pursuant to the Employment Rights Act 1996
is not the subject of a specific appeal, for the Tribunal decided that the
Claimants were not dismissed unfairly contrary to section 98 in its
ordinary sense. There is no appeal against that, nor is there a defence based
upon what is known as an ETO reason under Regulation 7(2), so the issue on
appeal draws simply from Regulation 7(1). It is only the background of
TUPE that makes the dismissals unfair.
The facts
6.
The Tribunal introduced the parties to us in this way:
“7. The respondent is a large organisation based in Lancashire with approximately 9,500 employees providing utility and building maintenance
services. Prior to April 2009, it held a contract with Modern Housing
Solutions (MHS) for the provision of appliance maintenance services (eg Central
Heating, cookers etc) in accommodation provided by the Ministry of Defence for
service personnel, including in the south west of England. All of the
respondent’s contracts with MHS were due to expire in March 2009.
8. From about October 2008, meetings took place between MHS
and its contractors, including the respondent, which highlighted the
deficiencies in the standard of accommodation provided by the MOD to service
personnel and the need for improved performance by the contractors who provided
maintenance services. The meetings also emphasised the budgeting constraints
being faced by Defence Estates (which was responsible for service accommodation)
and the requirement that any contractors providing services in the future would
not only have to do so at reduced cost but at the same time improve service
delivery, efficiency and productivity. MHS emphasised that if existing
contractors could not achieve the performance required, contracts would have to
be retendered.
9. The contractors involved also included Williams, the Company
which employed the claimants before they transferred to the respondent in
April 2009 and which provided building maintenance services.
10. Furthermore, MHS confirmed that in future it was looking to
award contracts for appliance and building maintenance services together and by
geographical area, as opposed to separate contractors for each service
provision.”
7.
Both Williams and the Respondent were dependent upon MHS for the supply
of work. In advance of the cessation of the contract the Respondent engaged in
workforce meetings in October 2008 following intervention by MHS, which
had highlighted the need for improvements in service delivery, efficiency and
performance. In January 2009 the Respondent reviewed the terms and
conditions for its group of workers, who are appliance engineers (that is, they
fix hardware in the buildings). It introduced performance‑related pay and
different hours. These were accepted by those appliance engineers in February
and March 2009.
8.
No changes were effected by Williams for its relevant staff. Williams
lost the contract; its contracts of employment were transferred by operation of
TUPE on 24 April 2009. The Respondent therefore had two groups of
employees, divided by craft: appliance and building engineers. The Respondent
recognised from even before the date of the transfer that it would review the
inherited business, and if there were to be any necessary changes, there would
be full consultation with the employees. This is pursuant to a letter dated
16 April 2009, which was introduced by the following: “The Company,
however, do propose to take three measures in respect of the transfer […].” In
due course there was full consultation with the Claimants and their trade
union, UCATT, about proposed changes. They could not be agreed for the present
cohort of about 20 employees, other employees having accepted them, and their
contracts of employment were terminated. They were dismissed but they
continued to work on on the new terms.
9.
The Tribunal heard evidence from the leading light of the Respondent:
“17. Mr Jones on behalf of the respondent told the Tribunal
that, following the transfer, management undertook a review of business
performance in respect of building fabric maintenance and soon recognised that
in order to meet the requirements of MHS under the contract productivity would
need to improve to the same extent as it had in respect of appliance
maintenance. It was felt that the continuation of existing working
arrangements would not produce the required improvements in performance. Based
on the respondent’s previous experience with the appliance engineers, it was
believed that such improvements would materialise from the introduction of
performance related pay.
18. Accordingly, the result was essentially a repetition of the
process which had previously been carried out in respect of the terms and
conditions of the maintenance engineers. The proposed changes and the basis
for them were communicated to the claimants during presentations on 21 May
and 2 June 2009. Thereafter, the respondent wrote to the claimants
on 9 June 2009 outlining the proposed changes and inviting employees
to accept them.”
10.
The Tribunal noted that in general terms the Claimants were better off
under the new regime, but the overall finding by the Tribunal is as follows:
“27. There was a transfer of an undertaking in April 2009
and accordingly by reason of the Regulations the claimants’ contracts of
employment automatically transferred to the respondent, with their terms and
conditions remaining intact. Although the implementation of the new terms and
conditions of employment may well have brought about an overall higher level of
remuneration, the claimants were on the face of it entitled to insist that old
terms and conditions of employment were more suitable and acceptable to them,
notwithstanding increase remuneration. Insistence upon a move to performance related
pay could properly be regarded by the claimants as a change resulting in less
favourable terms.”
11.
Realistically it may be that the employees in fact are better off, but
the finding by the Tribunal that the terms were changed to less favourable terms
is not here challenged. The Tribunal rather whimsically reflected upon the
evidence that it had been given about why Williams lost the contract, and said
this:
“28. The Tribunal was somewhat concerned that it did not receive
evidence about the circumstances under which Williams lost the contract with
MHS or whether this was because MHS would not have renewed the contract with
Williams unless Williams introduced similar terms and conditions of employment
to those which had been implemented by the respondent in respect of its
appliance engineers in February 2009. Nor was it told why building
maintenance would be susceptible to the same efficiency regime as appliance
maintenance.”
12.
It decided not to speculate further, and in fairness Mr Cross
points out that he was not able to present evidence about the problems with
Williams. This is understandable. Williams lost the contract to the
Respondent and there may not have been any love lost between them. The
Tribunal concluded in favour of the Respondent in the following way:
“29. Having regard to the facts and the legal interpretation of
those facts, the unanimous view of the Tribunal was that the sole or principal
reason for the dismissals was not the transfer itself.”
13.
That is not the subject of an appeal either. The real issue is whether
the dismissals were connected with the transfer, and as to this, and we
reproduce the relevant passages in full because they have been the subject of
careful scrutiny by the advocates before us:
“30. The majority view of the Tribunal was, however, that the
respondent had simply decided as the changes to the terms and conditions of
employment of the maintenance engineers had been successful, to vary the terms
and conditions of the building fabric engineers in the same way. This
amounted, in the majority view of the Tribunal, to a wish on the part of the
respondent to achieve harmonisation of the claimants’ terms and conditions with
those of existing employees which, having regard to the Berriman [v Delabole Slate Ltd
[1985] ICR 546] case, did not entail changes in the workforce and therefore did
not fall within the exemption under Regulation 7(1)(b).
[…]
32. The majority view was, therefore, that the principal reason
for the variation of the claimants’ terms and conditions of employment was to
achieve harmonisation with those of the respondent’s existing employees. The
fact that it was anticipated that this would achieve improved performance and
efficiency and thereby properly service and retain the contract with MHS would
have been a consequence of harmonisation but not the principal reason for the
variation.”
14.
The minority view was given by the Judge:
“33. Employment Judge Coles, in the minority, took a
different view on the question of causation. He took the view that there had
been adequate evidence presented by the respondent, in particular in the form
of the evidence from Mr Jones, which satisfied him that the principal
concern of the respondent was that, if it did not vary the terms and conditions
of the building engineers so as to achieve similar productivity and efficiency
that had been achieved when the terms and conditions of the appliance engineers
had been changed, there was a very serious risk that the contract with MHS
would not be renewed at all or would, even if it was renewed, ultimately be
lost because of the inability of the respondent to perform under the contract
as required by MHS. The minority view of Employment Judge Coles,
therefore, was that the principal reason for the variation was to achieve improved
performance and efficiency and thereby properly service and retain the contract
with MHS. The fact that this would result in harmonisation with the terms and
conditions of existing employees would have been a correspondence of the
variation but not the principal reason for it.”
The Respondent’s case
15.
The Respondent’s case could not be more simply put. The change that the
Respondent introduced into the terms and conditions was driven by the
Respondent’s need for productivity and efficiency, and it had already done that
and proved to its own satisfaction that the changes were necessary long before
the transfer, and therefore were not connected with it. Mr Cross submits
that those changes were necessary. The evidence of Mr Jones before the
Tribunal appears to have been accepted by it in the finding in
paragraph 17, notwithstanding the apparently divergent conclusion in
paragraph 28. Reading across from the success of the changes effected in
the Respondent’s business for its indigenous population pre‑transfer to
the incoming employees of Williams, he contends that the Tribunal was told by
Mr Jones that it was necessary to effect changes for the Williams cohort
because those changes had been so successful in respect of the indigenous
group. The Respondent had indeed won the contract not only to continue with the
appliance maintenance but also to take the contract off Williams.
Mr Cross contends that the finding in paragraph 30 is inconsistent
with the finding in paragraph 32. There was no simple intention by the
Respondent to tidy up the terms and conditions of employment so that everybody
looked the same; it was driven by, and not simply the consequence of, the need
for productivity, and therefore the need for productivity came before
harmonisation. There was no empty wish to harmonise; it was firmly rooted in
the Respondent’s experience of changing terms and conditions pre-transfer.
The Claimants’ case
16.
On behalf of the Claimants it is firmly argued by Mr Salter that a
question of fact arises here, and it has been decided, albeit by a majority,
based upon evidence before it. The language used by both the majority and the
minority is rooted in findings of evidence, and this Tribunal has made a
decision on the facts as to what was in the mind of the Respondent at the
time. In those circumstances the EAT should not intervene.
The legal principles
17.
The legal principles in a situation such as this are best exemplified in
the Judgment of the Employment Appeal Tribunal in Scotland, presided over by Lord
Johnston, in Carlton Care Ltd v Rooney and Ors
EAT/112/00, where there is this:
“5. It therefore must be the case in our view that where certain
relevant circumstances, principally economic, are prevalent before a transfer
which could result in legally valid variations of the contract taking place, if
such take place after the transfer, the transfer itself is not causally linked
to the fact of the variations in the contracts of employment. However, it also
has to be said that while the authorities such as they are and in particular
both Daddy’s Dance Hall supra and Wilson supra
support this proposition in particular where the variations are validly imposed
by national law, the fact that they are so validly imposed is not enough to
establish an immediate link with an admitted transfer of an undertaking in
terms of the Regulations. Such must be established upon the evidence.”
18.
The Tribunal addressed itself in relation to Berriman.
Although Mr Salter accepts that the target of that Judgment in the Court
of Appeal, which upheld the Judgment of the EAT overturning the Judgment of an
Employment Tribunal, was as to the availability of an ETO defence,
nevertheless the point about factual decisions is made.
Discussion and conclusions
19.
We bear in mind as we approach this decision that the Tribunal decided
the reason for the decision by management was based on evidence; that is, the
language of the majority and the minority. The Judge decided it was a question
of causation, which might in certain circumstances lead to a question of law,
but we accept Mr Salter’s proposition that what needed to be decided here
was the reason in the minds of the management for invoking proposals to
change the terms and conditions and, on resistance by the workers, to dismiss
them. We also bear in mind that this is a majority Judgment, and since the
members and the Judge all rely on evidence it cannot be said that there was no
evidence for the view taken by either division. The Judgment is written by the
Judge, and of course he has discharged his functions impeccably in recording
his own disagreement with the lay members, but we bear in mind that that is a delicate
task and we will not be pernickety about the way in which various parts of the
Judgment are phrased.
20.
We recognise that the questions of fact to be determined are in line
with the approach in Carlton; however, the basic flaw in this
Judgment arises from the juxtaposition of paragraphs 30 and 32.
It is clear to us that even the majority did not accept that there was a simple
wish to harmonise out of tidiness, for example. Such harmonisation was driven
by the success of the productivity changes that pre‑dated the transfer in
the Respondent’s business. The majority in paragraph 32 puts the sequence
the other way round (that is, that there was harmonisation and, as a matter of
fact, as a consequence there was an intention to improve productivity). That
cannot stand next to the finding by the majority in paragraph 30 that the
purpose was to vary the terms and conditions of the building engineers in the
same way. In our judgment there is a straight line linking what occurred in
the Respondent’s business in the early part of 2009 to effect productivity and
what occurred in it post‑transfer for those who as it happens were
inherited from Williams who were not on the productivity scheme. The language
of the unanimous Tribunal is all to that effect: see, for example,
paragraph 18, “a repetition of the process” that had occurred earlier, and
paragraph 14, “in a similar way”. It seems to us that since it is open to
an employer to effect productivity changes in accordance with the ordinary law,
this does not become unlawful when there has been a relevant transfer if the
reason is connected to that drive for productivity changes.
21.
Having identified that flaw in the reasoning of the majority, we turn to
the approach of the Judge, and it seems to us that that is the correct approach
to this case. It explains fully the reasons for it and is based upon what the
Judge describes as causation. We hold that the majority erred in its approach
to the essential question.
Disposal
22.
The issue for us now is whether or not we should decide the case or it
should be remitted. It is common ground that it cannot go back to this divided
Employment Tribunal out of fairness to it. Having heard argument from the
advocates, we consider it would be difficult for us to make the decision. In
principle we think Judge Coles takes the correct approach, but that is primarily
a question of fact to be decided by a three‑person Tribunal, and it would
not be right for us to decide the matter, albeit with the benefit of a reasoned
Judgment of the Judge in the minority. We are heartened to hear that the
issues will be much shorter, there being no issue in relation to ordinary unfair
dismissal, and there will be a direction in line with this Judgment that a
fresh Employment Tribunal consider the issue again as to whether the dismissal
of the Claimants was for a reason connected with the transfer on
24 April 2009.
