United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR J LEE (Solicitor) Messrs MBM Commercial LLP 5th Floor 7 Castle Street Edinburgh EH2 3AH
For the First Respondent For the Second Respondent	MR S MARGO (of Counsel) Instructed by: Messrs Jeffrey Green Russell Solicitors Apollo House 56 New Bond Street London W1S 1RG No appearance or representation by or on behalf of the Second Respondent


 


SUMMARY

TRANSFER OF UNDERTAKINGS – Economic technical or organizational reason

Reg 7 of TUPE – whether dismissal for a reason connected with the transfer that is not an ETO reason entailing changes in the workforce.

Tribunal correct to follow and apply Harrison Bowden v Bowden [1994] ICR 186 in preference to Ibex Trading v Walton [1994] ICR 907 – see Morris v John Grose [1998] ICR 655 and CAB Automotive Ltd v Blake and anr [2007] UKEAT/0298/07. Amicus and anr v Dymanex Friction [1999] ICR 511 discussed.

Tribunal's finding as to administrator's reason for dismissing Claimant not perverse or insufficiently reasoned.

Tribunal's approach to "ETO reason entailing changes in workforce" flawed; but Tribunal's decision plainly right, given its findings as to the reason, in the light of Berriman v Delabole Slate Ltd [1985] ICR 546 and Whitehouse v Chas A Blatchford & Sons Ltd [1999] IRLR 492.


 


HIS HONOUR JUDGE RICHARDSON

1. This is an appeal against a judgment of the Employment Tribunal sitting in Watford (Employment Judge Southam presiding) dated 30 March 2010. It raises issues concerning reg. 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE").
2. It is convenient to retain the nomenclature used at the hearing below. The Claimant (Mr Bruno Baillavoine) was employed by the First Respondent (Ultralon Holdings Ltd). He was its Chief Executive Officer. The Second Respondent (Ultralon Ltd) was a subsidiary. These Respondents were placed into administration on 23 May 2008. The administrators were Mr John Montague and Mr Robert Caven of Grant Thornton. The Claimant was dismissed by them on the very same day. On 25 June 2008 the business and assets of the First and Second Respondents and of another subsidiary were sold as a going concern to the Third Respondent (Spaceright Europe Ltd). It is not in dispute that this sale amounted to a transfer of an undertaking – a "relevant transfer" - in which the Claimant had been employed for the purposes of TUPE.
3. The Tribunal held that the Claimant had been unfairly dismissed by the First Respondent. It held that the sole or principal reason for his dismissal was a reason connected with the transfer which was not an economic, technical or organisational ("ETO") reason entailing changes in the workforce. Consequent upon these findings as a matter of law the liability of the First Respondent to pay compensation for unfair and wrongful dismissal is transferred to the Third Respondent. Hence it is the Third Respondent which appeals the Tribunal's judgment. The First and Second Respondents have taken no active part in the proceedings below or on appeal. The Secretary of State for Business Innovation & Skills has indicated that he does not intend to make any submissions on the appeal.

The statutory provisions

4. It is convenient to have the key statutory provisions in mind from the outset. Reg 7 of TUPE provides:

"7 Dismissal of employee because of relevant transfer

(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 his dismissal is -

(a) the transfer itself, or

(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.

(2) This paragraph applies where the sole or principal reason for the dismissal is a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce of either the transferor or transferee before or after a relevant transfer.

(3) Where paragraph (2) applies –

(a) paragraph (1) shall not apply;

(b) without prejudice to the application of section 98(4) of the 1996 Act (test of fair dismissal), the dismissal shall, for the purposes of section 98(1) and 135 of that Act (reason for dismissal), be regarded as having been for redundancy where section 98(2)(c) of that Act applies, or otherwise for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held.

(4) The provisions of this regulation apply irrespective of whether the employee in question is assigned to the organised grouping of resources or employees that is, or will be, transferred.

5. By virtue of reg. 4(1) of TUPE a relevant transfer does not operate to terminate the contract of employment of "any person employed by the transferor and assigned to the organised grouping of resources or employees which is subject to the relevant transfer". The contract takes effect after the transfer as if originally made between the employee and the transferee. By virtue of reg. 4(2) in such a case all the transferor's liabilities in connection with the contract are transferred to the transferee.
6. Who, then, will be "a person employed by the transferor" for the purposes of reg. 4(1) and (2)? Reg. 4(3) provides the answer, linking with reg. 7:

"4(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."

The background facts

7. The Claimant had been Chief Executive Officer of the First Respondent since 2003. He owned a 55% shareholding. Mr David Gallick owned the other 45%. The Second Respondent was a subsidiary company. Its business was the sale of whiteboards and other educational products to schools. In 2005 the business developed to include the supply of mobile furniture. Another subsidiary was established to supply mobile folding furniture to the educational sector.
8. As the turnover of the group of companies increased a financial consultant was recruited – Mr Symon. He was recruited to work as financial director, but was never formally appointed to that post. Moreover an operations director, Mr McSporran, was engaged; again he was never formally appointed a director. Further capital was required for the business. A venture capital investor, Chrysalis VCT, invested funds into the First Respondent. Mr John Nettleton became chairman and director.
9. Between December 2007 and February 2008 there were board discussions about the financial position of the group. It was said in February 2008 that a short term loan to the extent of £140,000 was required. Premises in Watford were being sold. The venture capital investor wished to provide equity rather than a loan. The Claimant and Mr Gallick resisted this proposal. But by 29 April the position had worsened. The Tribunal record that at a board meeting on this day all agreed that the company could not continue in business without raising additional funds of £300,000.
10. By this time the Claimant himself was interested in acquiring a subsidiary from the group. He negotiated with Mr Nettleton. He thought the sale was going ahead. But on 19 May Mr Craven of Grant Thornton told him he had been asked to look at the financial health of the companies with a view to their administration. On 23 May the bankers of the First and Second Respondents put them into administration (with, the Tribunal record, the written consent of the Claimant and Mr Gallick). On that very day the Claimant was dismissed by the administrators.
11. The administrators made some other employees redundant: these were at the Watford premises, which were in any event to be sold. Otherwise they arranged funding from the bank to enable the business to continue while it was marketed. The Tribunal made no finding that the administrators arranged funding from the bank; but the administrators' report dated 18 December 2008, which was before the Tribunal, makes it plain that this was the case.
12. On 25 June 2008 the administrators entered into a sale agreement by which the business and assets of the First and Second Respondents and of the other subsidiary were sold to the Third Respondent, which was subsequently re-named Spaceright Europe Ltd. The directors of the new company included Mr Symon, Mr McSporran and the son of Mr Nettleton, as well as others new to the business.
13. In these circumstances it is not surprising that the Claimant was suspicious about the activities of Mr Nettleton, Mr Symon, Mr McSporran and the administrators. His shares in the First Respondent were worthless. He had lost his substantial income as chief executive officer. Newcomers, who had been in the business only for a year or so, were now running it.

The Tribunal proceedings and reasons

14. The Claimant presented a claim for unfair dismissal on 16 August 2008. He alleged that the administrators were working with Mr Symon and Mr McSporran to achieve their ends; that the administrators were persuaded by Mr Symon and Mr McSporran to hold other bidders to tight time lines to prevent effective bids; and that the transfer had already been agreed at least in principle at the time of his dismissal. These allegations were briefly denied in the Third Respondent's response.
15. A noteworthy feature of the proceedings is that the administrators who dismissed the Claimant did not give evidence. The Third Respondent called only Mr Symon: they did not call Mr McSporran and took no steps to call the administrators. The Claimant wished to call them and applied for an order to the Tribunal. The administrators objected on grounds of expense, offering only to provide a witness statement and supplementary witness statement from Mr Caven, the administrator principally responsible. The Tribunal refused the application for witness orders and made provision only for Mr Caven to answer questions in response to a list provided by the Claimant. This Mr Caven did on 11 March 2010.
16. Thus at the hearing, which took place on 15 and 16 March 2010, the Tribunal heard oral evidence only from the Claimant and Mr Symon. It received a bundle of documents containing Mr Caven's response, which made it clear that he was responsible for dismissing the Claimant. But it had no oral evidence from him.
17. In its reasons the Tribunal set out the law which it sought to apply. It made reference to reg. 4(1) and (3) and to reg. 7. It also referred to Harrison Bowden v Bowden [1994] ICR 186, Ibex Trading v Walton [1994] ICR 907 and Morris v John Grose [1998] ICR 655, to which we shall return.
18. The Tribunal set out the background facts in rather more detail than we have done. In its primary findings of fact the Tribunal said little about the dismissal itself, or the reasons for it, or the circumstances in which the business came to be transferred to the Third Respondent. But, as we have said, it had relatively little evidence on these issues. The Tribunal said:

"13.25 On 25 June 2008 the administrators of the companies entered into a sale agreement by which the business and assets of the first and second respondents and Spaceright Limited were sold to a company called UL 2008 Limited, the third respondent, subsequently renamed as Spaceright Europe Ltd. The directors of the third respondent included Mr Symon, Mr McSporran and James Nettleton. There were other directors who had not previously been involved in any way in the business of the first and second respondents. It was the third offer of UL 2008 Limited that was accepted and the bid had the support of external investors. A copy of the sale contract appeared in the bundle at [151-216].

13.26 In response to questions from the claimant Mr Caven stated:

'The Claimant was employed as managing director of the company. This role became redundant on our appointment and given the high salary costs of the Claimant as compared to other employees, his role was identified as being one which the business could operate without and which would make significant cost savings. The Claimant was therefore made redundant on our appointment.

The Claimant carried out a unique role so there was no selection criteria other than as mentioned above.'"

19. The Tribunal made findings as to the Claimant's employer and the date of dismissal which are no longer in dispute. In paragraphs 17 – 19 the Tribunal then continued as follows:

"17. The third question is: what was the reason for the claimant's dismissal? Was it a reason connected with the transfer that is not an economic, technical or organisation reason of the employer, entailing changes in the workforce of the employer? We bear in mind what Mr Caven said in response to the claimant's questions. It seems to us that the claimant, as a Chief Executive Officer, was redundant because no purchaser of the businesses from the administrator would require such an officer. The purchaser would either be an existing company with its own chief executive officer or it would be a new venture, where the chief executive officer would come from the ranks of the directors. It was therefore necessary for the administrators to dispense with the claimant's services.

18. We are faced with two authorities from 1994 which are to the contrary effect. In Ibex Trading the Employment Appeal Tribunal thought that whilst the employees were dismissed for a reason connected with a possible transfer, they had not been dismissed for a reason connected with the ultimate transfer of the business, which occurred some four months after the employees had been dismissed. In the Harrison Bowden case, the same tribunal held that dismissals could be for a reason connected with the transfer even though no actual prospective transferee had been identified at the time of the dismissal. We prefer the reasoning in the Harrison Bowden case. It seems to us here that the claimant was dismissed so as to enable a purchaser of the business to acquire the business and assets without the continued employment of its Chief Executive Officer. The claimant's salary of £120,000 might also have presented a problem for a prospective purchaser of the business. For these reasons we are satisfied that the reason for the claimant's dismissal was connected with the transfer of the business and assets of the first and second respondents to the third respondent.

19. The second part of the third question however is whether or not, since the reason for the claimant's dismissal is, as we have held, a reason connected with the transfer, that reason is an economic, technical or organisational reason entailing changes in the workforce of the first respondent. We think that the answer to this particular question is straightforward. The reason for the claimant's dismissal may well have been economic, at least in part. It could also be said to be an organisational reason. But it is clear that the reason does not entail changes in the workforce of the first respondent. The first respondent was a holding company. It did not have a workforce. The claimant's pay was transmitted to him by means of a payroll operated for the purposes of the second respondent. Even if we were to include the workforce of the second respondent in our consideration of the reason for the dismissal it seems to us that the reason identified above does not entail changes in that workforce. The reason for the claimant's dismissal (see above: paragraph 17) is peculiar to him and to his circumstances and does not apply to the wider workforce. It follows that regulation 7(1) applies. The reason for the claimant's dismissal was a reason connected with the subsequent transfer but it was not an economic, technical or organisational reason entailing changes in the workforce of the first respondent. Accordingly, the claimant's dismissal by the first respondent was unfair."

The appeal

20. On behalf of the Third Respondent Mr Lee challenges both the finding of the Tribunal that the principal reason for dismissal was connected with the transfer and the finding that it was not an ETO reason entailing changes in the workforce. It is convenient to consider these aspects of the reasoning separately.

Reason connected with the transfer

21. On this question Mr Lee submitted that the Tribunal ought to have followed the reasoning of the Appeal Tribunal in Ibex Trading v Walton [1994] ICR 907 rather than the reasoning of its earlier decision in Harrison Bowden [1994] ICR 186. The decision in Ibex is to the effect that a specific transfer must be in contemplation at the time of dismissal if the dismissal is to be connected with the transfer. Since the Tribunal did not find any specific transfer to be in contemplation, it ought to have found the dismissal to be unconnected to the transfer.
22. Mr Lee took us through the cases on this question, including Palmar v Ferranti International plc (1997) EAT/710/96, Morris v John Grose Group [1998] ICR 655, CAB Automotive Ltd v Blake and anr [2007] UKEAT 0298/07, and Amicus and anr v Dymanex Friction [1999] ICR 511. He accepted that the trend of the cases was to follow Harrison Bowden. He submitted, however, that the authorities cast the net too wide. If the transfer meant any potential or intended transfer it must follow, he submitted, that in any case where administrators are appointed pursuant to the financial difficulties of a business a transfer must be more than a mere possibility and the reason for dismissal will be connected to the transfer. Alternatively, he submitted that Ibex and Harrison Bowden were reconcilable. Each required that the administrator must have a specific transfer in mind at the time of dismissal.
23. This was Mr Lee's principal submission of law on the question whether the reason related to the transfer. But he also submitted, on a variety of grounds, that the Tribunal's reasoning in paragraph 17 of its reasons was perverse or insufficiently reasoned to comply with the requirements of the law. He argued that the Tribunal had no evidence on which to base its findings; that it "misconstrued" the evidence of the administrator; that it had in particular no reason to conclude that the purchaser of the business would not require a chief executive officer; and that it had, as he put it, "no evidential basis" to close its mind to alternative possibilities. He criticised the Tribunal for making no findings as to whether there was collusion between the administrators and Mr Nettleton, Mr McSporran and Mr Symons. This, he said, was an issue the Tribunal was bound to determine. He criticised the Tribunal for making no finding as to the likelihood at the date of dismissal that a transfer would take place. He submitted that the Tribunal left out of account the fact that the First and Second Respondents would not be able to meet their payroll in three day's time. He submitted that this case was similar to Dynamex, where the administrator had to dismiss employees because the business was insolvent and had no money to pay them.
24. We reject these submissions.
25. As to the law, we prefer the reasoning in Harrison Bowden to the reasoning in Ibex Trading. The key passage in Harrison Bowden is at (1994) ICR 186 at 191D-G:

"We do not therefore accept the construction contended for by Mr Jennings. We think that the reference to 'the transfer' is a reference to a transfer which actually takes place which these Regulations contemplate by the definition of 'the relevant transfer.' Regulation 8(1) is directed to the situation both before and after such a transfer. We cannot see that it is of importance that the transferee has been identified at or before the moment of dismissal. P. Bork International A/S v Foreningen af Arbejdsledere I Danmark (Case 101/87) [1988] ECR 3071, the decision of the European Court of Justice which prompted and informed the decision of the House of Lords in Litster v Forth Dry Dock & Engineering Co Ltd [1989] ICR 341, suggests that the approach in considering such cases such as these is to look back in time to see what actually happened. In that case there was no question of the transferee being identified at the moment of dismissal and yet it was a case in which the workers concerned were protected by the Directive.

The other related point made by Mr Jennings is that the decision in Litster only applies to a case where there is collusion between the transferor and transferee. Obviously you cannot have collusion if the transferee is not identified. We have looked carefully at the decision of Litster. There is nothing in that decision to support the proposition that it applies only to a case of collusion, although Litster itself was such a case. In the course of his speech, at p379b, Lord Oliver of Aylmerton referred to the position where there was collusion 'or otherwise'. That, it seems to us, makes it clear the Lord Oliver was not confining the decision to cases of collusion, nor could he have been, since the House of Lords was principally concerned with the way in which the regulation was to be construed."

26. We prefer this reasoning on the same grounds as those set out by the Appeal Tribunal in Morris; see [1998] ICR 655 at 666C-G:

"In our view, however, the words 'the transfer' towards the end of regulation 8(1) do not by necessary construction have to refer to the relevant particular transfer which has actually taken place. If that was the necessary meaning of regulation 8(1) it could have been made quite clear by the use of words such as 'that transfer' or 'the particular transfer'. Although 'the' is described as a definite article, it is not always used as such in ordinary English, and in our view the words 'the transfer', as they are used in regulation 8(1), could perfectly well mean 'transfer' or 'a transfer'. In our judgment this view of the meaning of regulation 8(1) is more consistent with the broad scope of Directive (77/187/EEC).

Moreover, to decide otherwise would lead to quite unfair anomalies, as the appeal tribunal in Harrison Bowden Ltd v Bowden [1994] ICR 186 pointed out. Why, for instance, should employees, who are dismissed by reason of a particular anticipated transfer which does not go through but which is promptly replaced by another comparable transfer in circumstances where a transfer to someone was inevitable, not have the benefit of regulation 8(1), subject to regulation 8(2), when they would have had that protection if the original transfer had gone through? Yet this would be the result of a restrictive construction of 'the transfer' in regulation 8(1).

To construe regulation 8(1) in the way in which we do will not, in our view, open the floodgate of automatic unfair dismissal in any case where dismissal has in fact preceded a transfer, as Miss Eady submitted. A transfer or a reason connected with it must still be the reason or principal reason for dismissal for regulation 8(1) to apply, and a tribunal is unlikely to find that requirement proved if there are dismissals so that an undertaking can continue in operation when a transfer is no more than a remote possibility. In any event we see nothing incongruous or inconsistent with the purpose of Directive (77/187/EEC) and the Regulations of 1981 in a large proportion of dismissals before a transfer being caught by regulation 8(1), subject to regulation 8(2): quite the reverse in our view.

We, therefore, prefer what was said about the definite article in Harrison Bowden Ltd v Bowden [1994] ICR 186 to what was said in Ibex Trading Co Ltd v Walton [1994] ICR 907, although we note that the judgment in the latter case contemplated it not being necessary for the prospective transferee to be identified at the time of the dismissal, and one purchaser taking the place of another for regulation 8(1) to apply. The judgment appears to contemplate one purchaser taking the place of another, which amounts to one transfer taking the place of another, but regulation 8(1) still applying."

27. Moreover, we consider that the effect of Morris and CAB Automotive v Blake (see paragraphs 32-33) is effectively to settle the correct legal approach on this question at the level of the Appeal Tribunal. The Tribunal was entirely correct to follow the approach in Harrison Bowden; and would have been in error if it had followed Ibex Trading.
28. The difference of approach between Ibex and Harrison Bowden does not seem to have been considered in the Court of Appeal or the Court of Session. Dynamex is a decision of the Court of Appeal on the question whether an administrator dismissed an employee for a reason connected to the transfer, but the line of cases to which we have referred was not cited to the Court of Appeal.
29. The facts of Dynamex appear to be as follows. By the date of dismissal of the employees there was no money to pay their wages. No bank funding was available. The administrator, without collusion with the owner of the transferor company, disposed of the assets of the transferor company in various ways, selling raw materials and work in progress to one company, plant and machinery to another and what the Tribunal describe as the production line to a new company called Dynamex, yet to be formed. Dynamex effectively packaged the assets together, re-hired some employees and continued the business. It was held that the finding that the administrator had not acted collusively with the owner of the transferor company was conclusive: the reason for dismissal cannot have been connected with the transfer.
30. Ward LJ summarised the position as follows:

"As the Tribunal found, the administrator dismissed the employees in spite of the transfer not with a view to effecting it. That finding destroys any argument that the transfer had anything to do with the dismissals."

31. It seems to us that this explains why the Court of Appeal was not referred to and did not consider the line of authorities to which we have referred. In that case collusion with the owner of the existing company was the only issue. But that will not always be the issue. An administrator may dismiss employees to ease the path to a transfer without colluding with the owner of the transferor company.
32. As to Mr Lee's wider submission, we do not accept that the Tribunal reached a perverse decision or that its decision was unreasoned.
33. In this case the Tribunal correctly focussed on the reasons of the administrator. It took the statement of the administrator as its starting point. It was entitled to make findings which took into account the context and to draw on its own experience of employment issues. Mr Caven said that the appointment of the administrators rendered the Claimant redundant. It is true that the administrators had a right to manage the business prevailing over that of the chief executive or managing director; but if the business was to be transferred, which was what they contemplated, it would need a managing director. The Tribunal was entitled to consider why, given that a going concern would need a managing director, the administrators made the Claimant redundant. The conclusion they reached was entirely tenable. In our judgment it involves no error of law or perversity.
34. It is true that the Claimant had put his case more widely, alleging collusion. In many cases we would have strong sympathy with the submission of Mr Lee that the Tribunal should have decided that issue. In this case, however, as we have explained, it had very limited evidence to decide it. We do not think the Tribunal erred in law by considering whether, even on the basis that there was no collusion, the administrator's reason for dismissal was connected to the transfer which he was contemplating. As we have said, collusion with existing owners or managers is not the only basis for a finding that the reason for dismissal was connected to a transfer.
35. Nor do we accept Mr Lee's submission that the Tribunal needed to make more precise findings as to the likelihood of a transfer taking place. In this case there is no doubt that the administrator was contemplating a transfer at the time of dismissal and no reason to doubt that he had solid grounds for doing so. The transfer was effected the following month.
36. Nor do we accept Mr Lee's submission that the Tribunal was bound, on the evidence, to find that the administrator dismissed the Claimant because the business could not afford his salary. As we have pointed out, it was part of the background that the bank funded the business while a transfer was sought. This, unlike some of the cases cited to us, was not a case where the financial exigencies left the administrator without choices.
37. We accept that the Tribunal's reasoning is brief. This has to be seen against the background of the limited relevant evidence available to it. In our judgment the Tribunal's reasoning on this point sufficiently tells the parties and the Appeal Tribunal how the issue was decided.

ETO reason entailing changes in the workforce

38. Mr Lee submitted that the Tribunal erred in law in concluding that the Claimant's dismissal was not for an economic technical or organisational reason entailing changes in the workforce.
39. He concentrated his fire on the Tribunal's conclusion that the reason did not entail changes in the workforce. He submitted that even if the First Respondent is to be considered in isolation the Claimant was its workforce. There is no reason why a workforce should not be a workforce of one, just as a single person can amount to a relevant economic entity: Schmidt (1994) IRLR 302 at paras 15-20. Likewise, it would not matter if the Claimant's position was unique, so long as changes in the workforce were entailed.
40. We consider that Mr Lee is correct in this submission. There is no inherent reason why, for the purposes of reg. 7, there should not be a workforce of one; and no inherent reason why a reason which is otherwise an ETO reason should not qualify if it entails changes in the workforce as regards a single person.
41. On behalf of the Claimant, Mr Margo accepts that the Tribunal erred in law in this respect. He submits, however, that once granted the Tribunal was entitled to reach the conclusion set out in paragraph 17 of its reasons, it followed that the reason was not an ETO reason entailing changes in the workforce as that expression has been explained in the authorities. This submission was made in Mr Margo's skeleton argument, though the Claimant's Answer to the Appeal Tribunal did not seek to uphold the reasons of the Tribunal on another ground. We raised this point with Mr Lee. He did not seek to take a procedural point on the failure to mention the argument in the Claimant's answer. If he had done so, we would, we think, have granted leave to amend the answer and to argue the point. We have no doubt that it is just and fair for the point to be argued.
42. The relevant law concerning ETO reasons entailing changes in the workforce has been considered by the Court of Appeal in Berriman v Delabole Slate Ltd [1985] ICR 546 and in Whitehouse v Chas A Blatchford & Sons Ltd [1999] IRLR 492. These cases were not cited to the Tribunal.
43. In Berriman Lord Donaldson said:

"First, the phrase 'economic, technical or organisational reason entailing changes in the workforce' in our judgment requires that the change in the workforce is part of the economic, technical or organisational reason. The employers' plan must be to achieve changes in the workforce. It must be an objective of the plan, not just a possible consequence of it.

Secondly, we do not think that the dismissal of one employee followed by the engagement of another in his place constitutes a change in the 'workforce'. To our minds, the word 'workforce' connotes the whole body of employees as an entity: it corresponds to the 'strength' or the 'establishment'. Changes in the identity of the individuals who make up the workforce do not constitute changes in the workforce itself so long as the overall numbers and functions of the employees looked at a whole remain unchanged."

44. In Whitehouse Beldam LJ said:

"19. The provisions of the Directive were not cited in the case of Wheeler v Patel, supra, but the Vice-Chancellor in giving the decision held that the scope of the word 'economic' should be restricted. It was to be related to the conduct of the business and did not include broad economic reasons for dismissal, such as achieving an agreement for sale. The employee in that case was employed by the vendor of a shop in his business which he proposed to sell. Before transferring the shop to a prospective purchaser, he dismissed her. The employment tribunal had found that the reason for the dismissal could have been to bring about a sale which would not otherwise have taken place, and this could amount to an economic reason within the meaning of reg. 8(2) of the Regulations.

20. After reviewing an earlier decision of the Scottish Employment Appeal Tribunal, the Vice-Chancellor said:

'The references to 'technical' and to 'organisational' reasons seem to us to be references to reasons which relate to the conduct of the business. In our view, the adjective, 'economic', must be construed eiusdem generis with the adjectives 'technical' and 'organisational'. The 'economic' reasons apt to being the case within paragraph [8](2) must, in our view, be reasons which relate to the conduct of the business. If the economic reason were no more than a desire to obtain an enhanced price, or no more than a desire to achieve a sale, it would not be a reason which related to the conduct of the business. It would not in our judgment, be an 'economic' reason for the purposes of paragraph (2). We think that an eiusdem generis approach to construction justifies giving a limited meaning to the adjective 'economic' in paragraph (2). We think the need to leave a sensible scope for paragraph (1) similarly requires a limited meaning to be given to the adjective 'economic' in paragraph (2).'

It is to be observed that the transferor in that case had no intention of continuing the business and consequently his reason for dismissing the employee could not have been related to his future conduct of the business. It seems to me that the words 'economic technical or organisational reason entailing changes in the workforce' clearly support the conclusion that the reason must be connected with the future conduct of the business as a going concern.

21. I do not find it surprising that the Vice-Chancellor's restriction on the scope of the word 'economic' in the manner he suggested has subsequently been followed in other similar cases. Nor do I think it necessary to refer to them, for they are merely examples, which do not, in my view, add to the relevant principles."

45. And Buxton LJ said:

"44. The reason for dismissal must be related to the conduct of the business and a dismissal that is simply related to the sale of the business does not so qualify."

46. Applying those principles, it is in our judgment plain that the administrator's reason as found by the Tribunal in paragraph 17 of its reasons was not an ETO reason entailing changes in the workforce. The reason did not relate to the conduct of the business as a going concern; the business was always going to need a managing director. It did not contemplate a diminution in the number of employees in the ongoing business, for it was contemplated that the Claimant would be replaced (as indeed he was). The reason was related to the sale of the business.
47. For these reasons the appeal will be dismissed.