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United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Inex Home Improvements Ltd v Hodgkins & Ors (Transfer of Undertakings : Service Provision Change) [2015] UKEAT 0329_14_2809 (28 September 2015)
URL: http://www.bailii.org/uk/cases/UKEAT/2015/0329_14_2809.html
Cite as: [2015] UKEAT 329_14_2809, [2015] UKEAT 0329_14_2809, [2016] IRLR 13, [2016] ICR 71
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EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8AE
At the Tribunal
Judgment handed down on 28 September 2015
Before
MR D BLEIMAN
MS N SUTCLIFFE
INEX HOME IMPROVEMENTS LIMITED APPELLANT
(1) Mr M Hodgkins & 10 Others
(2) MR J BRADLEY
(3) MR L FLOYD
(4) Midland Decorators Limited RESPONDENTS
Transcript of Proceedings
JUDGMENT
APPEARANCES
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(of Counsel) Instructed by: Collinson Grant Ltd Ryecroft Aviary Road Worsley Manchester M28 2WF
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(of Counsel) Instructed by: O H Parsons & Partners Solicitors Sovereign House 212-242 Shaftesbury Avenue London WC2H 8PR
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For the Second, Third and Fourth Respondents |
No appearance or representation by or on behalf of the Respondents |
SUMMARY
TRANSFER OF UNDERTAKINGS - Service Provision Change
1. The Claimants were employed by the Respondent as members of a group of workers dedicated to performing various building works on the “Sandwell contract”, which works had been subcontracted to Inex by Thomas Vale. Thomas Vale released the work in tranches, each with its dedicated works number.
2. During November and December 2012, Inex completed the works subject to Works Order No. 8 and Thomas Vale had not released a further tranche of work. It was anticipated that the next tranche subject to Works Order No. 9 would be issued in January 2013. Temporarily at least, there was no work available for the Claimants to carry out.
3. The Claimants were employed by Inex on the terms of the Construction Industry Joint Council (“CIJC”) Working Rule Agreement for the construction industry - a national agreement approved by the CIJC, whose adherent bodies include the main employers’ organisations and the main trade union in the construction industry.
4. The agreement provided that employees might be subject to temporary lay off “where work is temporarily stopped or is not provided by the employer”. In case of such a lay off, the employees would receive remuneration for a limited period and would then be required to register as available for work at the employee’s local JobCentre.
5. The CIJC issued the Joint Secretaries’ Guidance Notes on the Working Rule Agreement which provided under the rubric:
“Temporary Lay-off
The temporary lay-off provisions may only be used when the employer has a reasonable expectation of being able to provide work within a reasonable time.
In this context, an example of an employer who has a reasonable expectation to be able to provide work may be where a tender has been accepted but commencement delayed, where work is temporarily stopped due to weather conditions or for some other reason outside the employer’s control. Reasonable time is not legally defined, however, an operative who has been temporarily laid off for four or more consecutive weeks or six weeks cumulative in any 13 week period may claim a redundancy payment.
In no circumstances may the temporary lay-off rule be used where a genuine redundancy situation exists or to evade statutory obligations.”
6. The Claimants were laid off pursuant to the temporary lay off condition on various dates in November and December 2012, on the basis that the lay off was temporary. The Claimants remained employees of Inex and it was anticipated that further work would be available in January 2013. The Claimants were informed in terms that the lay off was temporary and that:
“… This situation is a temporary one and the main contractor, Thomas Vale, has confirmed that INEX Home Improvements should receive properties to refurbish from 7th January 2013. As a result [Inex confirms] that temporarily from 19th November 2012 there may be no work to give you.”
7. However, after what appears to have been a falling out between Inex and Thomas Vale, Thomas Vale issued Works Order No. 9 to Localrun in January 2013. The work was substantially the same as that in Works Order No. 8 that had been placed with Inex. The Employment Tribunal concluded that this amounted to a service provision change within Regulation 3 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). However, Employment Judge Kearsley concluded that the employment of the Claimants did not transfer, because immediately before the date of the service provision change they were no longer “an organised grouping of employees situated in Great Britain, which has as its principal purpose the carrying out of the activities concerned on behalf of the client”. To prevent unnecessary repetition we shall refer to this formula simply as a “grouping” or an “organised grouping”. His reasoning was that they could not be part of such a grouping because they were not working, having been temporarily laid off. If no work was being carried out, there could be no organised grouping as the activity had ceased. The Employment Judge held that he could not be satisfied that immediately before the service provision change an organised group of employees existed, which had as its principal purpose the carrying out of the relevant activities and therefore dismissed the possibility of the Claimants remaining as an organised grouping.
8. The Employment Appeal Tribunal concluded that a temporary absence from work, or cessation from work, did not in itself deprive employees who had been involved in the relevant “activities” of their status as an organised grouping of employees. Whether or not this was the case was a straightforward question of fact to be determined by an Employment Tribunal. An organised grouping may well continue in being despite a temporary cessation of the activity.
9. Additionally the Employment Appeal Tribunal held that principles derived from jurisprudence relating to the construction of the Acquired Rights Directive (Council Directive 2001/23/EC) applied notwithstanding that the provisions relating to service provision change did not derive from that Directive.
10. It was further held that when construing the service provision change provisions in TUPE, regard must be had to the expressed purpose of TUPE apparent from its title: namely Transfer of Undertakings (Protection of Employment) Regulations 2006 (our emphasis). The service provision change provisions were intended to provide protection for the employment of relevant employees of the original contractor and this had to be taken into account when construing the service provision change provisions.
11. The case is remitted for a further Preliminary Hearing at which Employment Judge Kearsley will determine in accordance with the Decision of the Employment Appeal Tribunal.
HIS HONOUR JUDGE SEROTA QC
Introduction
1. In this Judgment we shall refer to the parties to the appeal and the principal players as follows:
(i) Inex Home Improvements (the Appellant and original Respondent) as “Inex”;
(ii) Mr Hodgkins and the other Claimants as “the Claimants”;
(iii) Midland Decorators Ltd as “Midland”;
(iv) Sandwell Homes Ltd as “Sandwell”;
(v) Thomas Vale Construction Plc as “Thomas Vale”;
(vi) Localrun (Decorating) Ltd as “Localrun”;
(vii) Wates Construction Ltd as “Wates”.
2. This is an appeal by Inex from a Decision of the Employment Tribunal sitting at Birmingham (Employment Judge Kearsley sitting alone at a Preliminary Hearing). The Reasons were sent to the parties on 8 May 2014.
3. The case concerned the effect of a service provision change. The contractor, Thomas Vale, had placed by subcontract various painting and decorating works to Inex for work on what might be described as the “Sandwell contract” for Sandwell. Thomas Vale subcontracted a further tranche of those works to Localrun rather than to Inex, and the principal issue in the case was whether the Inex employees, who had worked on the Sandwell contract, had their employment transferred to Localrun by virtue of a service provision change under Transfer of Undertakings (Protection of Employment) Regulation 2006 (“TUPE”) Regulation 3(1)(b)(ii). The Employment Tribunal held in effect that there had been no TUPE transfer to Localrun because there had not been an organised grouping of employees, immediately before the service provision change. The Employment Judge did not consider whether the Claimants were assigned to an organised grouping. The Employment Tribunal will need to determine, in the light of this Judgment, not only whether there was an organised grouping at the relevant time but whether individual Claimants were assigned to that grouping.
4. The appeal was referred to a Full Hearing by HHJ Eady QC on 22 December 2014. Those Claimants who appear are resisting the appeal and appear to have settled with Localrun. We have skeletons from Inex and the Claimants only, who both appeared by counsel. Midland did not appear and chose not to lodge a skeleton argument, nor did the Claimants, Mr Floyd and Mr Bradley.
5. We will come to the detail shortly, but the service change provisions in TUPE were introduced into TUPE offering protection to employees working for a contractor on behalf of a client in circumstances where the client later placed the work with a subsequent contractor. We note for present purposes that this is a purely domestic provision, unlike other provisions in TUPE which derive from the implementation of the EU Acquired Rights Directive (Council Directive 2001/23/EC) as subsequently amended. It makes sense to set out Regulation 3 of TUPE at this stage in our Judgment, so the Decision of the Employment Tribunal and the parties’ submissions may be more easily understood:
“3. A relevant transfer
(1) These Regulations apply to -
(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;
(b) a service provision change, that is a situation in which -
(i) activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”);
(ii) activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf; or
(iii) activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf,
and in which the conditions set out in paragraph (3) are satisfied.
(2) In this regulation “economic entity” means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.
(2A) References in paragraph (1)(b) to activities being carried out instead by another person (including the client) are to activities which are fundamentally the same as the activities carried out by the person who has ceased to carry them out.
(3) The conditions referred to in paragraph (1)(b) are that -
(a) immediately before the service provision change -
(i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;
(ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and
(b) the activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.
(4) Subject to paragraph (1), these Regulations apply to -
(a) public and private undertakings engaged in economic activities whether or not they are operating for gain;
(b) a transfer or service provision change howsoever effected notwithstanding -
…
(ii) that the employment of persons employed in the undertaking, business or part transferred or, in the case of a service provision change, persons employed in the organised grouping of employees, is governed by any such law;
…”
6. As will appear later in this Judgment, an employee’s employment transfers on a service provision change (see Regulation 3(3)(a)) if he is assigned to a grouping of employees which immediately before the service provision change constituted an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client. This is something of a mouthful, and for the purposes of simplicity and to avoid repetition we will refer to this formula simply by referring to “a grouping” or to “an organised grouping of employees”.
Factual Background
7. We take this largely from the Decision of the Employment Tribunal.
8. In February 2010, Sandwell contracted with Thomas Vale to provide ongoing refurbishment works in various properties owned by Sandwell. We shall refer to this as the “Sandwell contract”, which continued on the same terms from February 2010 to 30 September 2014. We do not know a great deal about the Sandwell contract and the details are not relevant to these proceedings.
9. The work was evidently carried out in phases. Inex was not the first Thomas Vale subcontractor; nor was Thomas Vale the first contractor. Works order No.8 was the last carried out by Inex.
10. The Claimants were in a team dedicated to work on what we have referred to as the “Sandwell contract”. On 1 February 2010, the Claimants’ employment transferred from the previous contractor, Wates, to Thomas Vale by TUPE in similar circumstances to the present. On 4 January 2011, Thomas Vale subcontracted various painting and decorating works to Localrun (this is not relevant to the instant appeal) and also various refurbishment works to Inex. We assume that Thomas Vale retained its contract with Sandwell. There was, therefore, as at 13 May 2011 a TUPE transfer of the Claimants to Inex (we understand there was also some redundancy at this time but that is not relevant to these proceedings).
11. The Claimants were employed by Inex on the terms of the Construction Industry Joint Council (“CIJC”) Working Rule Agreement for the construction industry (see CIJC Rules). The agreement is a national agreement approved by the CIJC, whose adherent bodies include the main employers’ organisations and the main trade union in the construction industry. These terms were incorporated into individual contracts. We need to refer to the provisions of paragraph 17.4.1, “Temporary Lay-off”.
“Where work is temporarily stopped or is not provided by the employer the operative may be temporarily laid off. The operative shall, subject to the provisions of WR.17.4.2, be paid his normal rate of pay for the day on which he is notified of the lay-off and one fifth of “Guaranteed Minimum Weekly Earnings” as defined in WR.17 for each of the first five days of temporary lay-off. While the stoppage of work continues and the operative is prevented from actually working, the operative will be required by the employer to register as available for work at the operative’s local job centre.”
12. The CIJC issued the Joint Secretaries’ Guidance Notes on the Working Rule Agreement, which:
“… whilst not forming part of the Working Rules, are intended to assist employers and operatives to understand and implement the Working Rule Agreement.”
13. The note to Working Rule 17.4 of the Working Rule Agreement is relevant:
“WR.17.4. Temporary Lay-off
The temporary lay-off provisions may only be used when the employer has a reasonable expectation of being able to provide work within a reasonable time.
In this context, an example of an employer who has a reasonable expectation to be able to provide work may be where a tender has been accepted but commencement delayed, where work is temporarily stopped due to weather conditions or for some other reason outside the employer’s control. Reasonable time is not legally defined, however, an operative who has been temporarily laid off for four or more consecutive weeks or six weeks cumulative in any 13 week period may claim a redundancy payment.
In no circumstances may the temporary lay-off rule be used where a genuine redundancy situation exists or to evade statutory obligations.
An operative who is temporarily laid off is entitled to payment of one fifth of his guaranteed minimum earnings for the day of notification of lay-off and for each of the first five days of the lay-off subject to the limitations in WR.17.4.2.”
14. As at early November 2012, Inex’s works subject to Works Order No. 8 were coming to an end and Thomas Vale had not released a further tranche of work. On 7 November 2012, Inex notified the Claimants of a temporary absence of work as from 19 November 2012. From and after that date the Claimants were informed they would be laid off in accordance with Working Rule 17.4. The precise dates are irrelevant, but a standard form letter was sent out on 7 November 2012. An example addressed to Mr Hodgkins is in our bundle at page 340. The letter informs Mr Hodgkins that, as he was aware, from 19 November 2012, no new homes would be released to Inex for refurbishment as part of the Sandwell Homes contract:
“… This situation is a temporary one and the main contractor, Thomas Vale, has confirmed that INEX Home Improvements should receive properties to refurbish from 7th January 2013. As a result, I confirm that temporarily from 19th November 2012 there may be no work to give you.
So, in accordance with Working Rule 17.4 of the Construction Industry Joint Council Working Rule Agreement, I confirm that from 19th November 2012 or a date thereafter depending upon the business needs you will be temporarily laid off. I will provide the exact date in a separate letter. You do not need to attend work during the temporary lay-off period. You will be paid your ‘Guaranteed Minimum Weekly Earnings’ as defined in Working Rule 17 for the first five days of the temporary lay-off only. Thereafter, if the temporary cessation of work continues, in accordance with your contract, there is no further entitlement to pay. While the temporary stoppage of work continues, you should register as available for work at the local Jobcentre Plus.”
15. The letter goes on to thank Mr Hodgkins for his past hard work and efforts and Mr Read (the Senior Contracts Manager) who signed the letter, said that he was sorry for the situation:
“… but I am confident that it is temporary. For avoidance of doubt, this is not a notice of termination of your employment. You remain an employee. …”
Mr Hodgkins was asked to telephone Mr Read at least once a week so he could be kept updated about the situation:
“… In any event, I will contact you as soon as work becomes available.”
16. The Claimants were laid off on various dates between 16 November 2012 and 14 December 2012. It is most important to note the expectation that the lay off would be a “temporary lay-off”. No work would be given “temporarily”. There was a “temporary stoppage”. And the expectation of Inex was that work would be released by Thomas Vale in January 2013.
17. It appears there was some falling out between Inex and Thomas Vale, and Thomas Vale placed Works Order No. 9 with Localrun on 2 January 2013. The work was substantially the same as that in Works Order No. 8 that had been placed with Inex. The Employment Tribunal accepted that this amounted to a service provision change. The Employment Tribunal determined there was no TUPE transfer of the Claimants’ employment because at the time of the service provision change they were not working but had been temporarily laid off. There appears to have been some involvement of Midland and a proposed transfer of work to Midland, but Midland withdrew on hearing of the possibility of there being a TUPE transfer and played no part in the proceedings. We assume that Thomas Vale retained its contract with Sandwell.
18. As a result of Works Order No. 9 being placed by Thomas Vale with Localrun, Inex asserted there had been a TUPE transfer to Localrun; this was disputed by Localrun, which has not participated in the appeal. Some arrangements seem to have been made between various Claimants to take employment with Localrun, and we were told at the hearing that a number were in fact working on the Sandwell Homes contract for Localrun. It is noticeable that the Claimants oppose the appeal and seek to uphold the Decision of the Employment Tribunal. There is no dispute that there was a service provision change, but the Claimants dispute that there was a TUPE transfer.
The Decision of the Employment Tribunal
19. The Employment Tribunal set out the facts as we have briefly recounted them.
20. The Employment Tribunal summarised the issues agreed to be determined at the Preliminary Hearing as follows (paragraph 5):
“(1) Was there a service provision change under Regulation 3(1)(b)(iii) to Thomas Vale?
(a) If so, what was the effective date of transfer?
(b) If so, was there another service provision change under Regulation 3(1)(b)(i) to Localrun or Midland Decorators?
If so, what was the effective date of transfer?
(2) Was there a service provision change under Regulation 3(1)(b)(ii) to Localrun or Midland Decorators?
(a) If so, what was the effective date of transfer?
(3) Who is (or was) the Claimants’ employer/subsequent contractor?
(4) Are the provisions of Regulation 3.3 and/or 3.6 met?
(5) Were the Claimants assigned to the organised grouping?
(6) Were the Claimants dismissed?
(a) If so, on what date and by whom?”
21. The principal issue that exercised the attention of the Employment Tribunal was whether there was an organised grouping immediately before the service provision change. The Employment Tribunal set out Regulation 3, which we have already set out.
22. The Employment Tribunal spent some time analysing the question of whether there had in fact been a service provision change. The Employment Tribunal considered that there had been; it is unnecessary for us to consider this reasoning because the issue as to whether there was a service provision change or not is not an issue in this appeal. It is sufficient to refer to paragraphs 37 and 38 of the Decision, in which the Employment Tribunal explain why it was satisfied that the relevant “activities” carried out by Localrun were substantially the same as those carried out by Inex; those activities had ceased to be carried on by Inex on behalf of Thomas Vale and were instead carried out by Localrun on behalf of Thomas Vale. However, in relation to the question whether immediately before the service provision change an organised group of employees existed, which had as its principal purpose the carrying out of the activities we have referred to, the Employment Judge said:
“41. My answer to that question is ‘no’ because on 19 November all the relevant employees had been laid off. There was no work for them to do. Whilst they remained employees of INEX whilst being laid off, Mr Nunn acknowledged that there was no work for them to do and accordingly they were required to sign on. The activity had ceased by the time that the individuals were laid off. The lay off letters in the bundle say just that.”
The Notice of Appeal and Submissions in Support
23. Mr Brochwicz-Lewinski submitted that the appeal concerned one discrete point; namely whether the exercise of the contractual right of lay off is or should be fatal to the operation of a TUPE transfer of employment by way of service provision change; that was, he submitted, the effect of the Judgment, which Inex submits is wrong. For reasons of facility, and with the agreement of Mr Brochwicz-Lewinski, we shall refer to him hereafter as Mr Lewinski.
24. Mr Lewinski stressed the importance of the findings by the Employment Tribunal as to the evidence that the Claimants’ lay off was temporary and the firm expectation that further work would be available for them in January. He submitted that there was nothing to suggest that, in order to be a member of the “organised grouping of employees”, that group of employees had to be actually working or involved in the relevant activities immediately before the service provision change.
25. Mr Lewinski submitted that if the Employment Tribunal was correct, in any case where there was a temporary cessation of work immediately before the service provision change, TUPE could not apply. The principle applied by the Employment Tribunal was not peculiar to this particular lay off but a matter of general application.
26. Regulation 3(3)(a) was satisfied because the Claimants did constitute an organised grouping of employees engaged on the Sandwell contract and had been since they were first employed by Wates and through various employers and had been “dedicated” or “assigned” to the relevant activities. The conditions of section 3(3)(a)(i) were satisfied and the contrary had never been suggested in any previous case. The Claimants were not within the exception set out in Regulation (3)(3)(b). Mr Lewinski submitted that the Employment Judge misconstrued Regulation (3)(3)(a)(i), which was a provision relating to the allocation of personnel to a particular activity as opposed to being a requirement that those personnel should actually be undertaking the activity in question. The important matter was the “purpose” of the activity, which could be carried out whether or not the personnel were actually carrying out those activities at the time. The phrase “carrying out those activities” is used to define the required purpose of the grouping. It is not a requirement that the protection only applies to those physically carrying out those activities at the relevant time.
27. Mr Lewinski submitted that the fact that the Claimants were not working at the time did not strip them of the necessary characteristic of remaining an organised grouping of employees, but was in fact indicative that the carrying out of those activities was indeed their principal purpose and that the lay off was a result of the cessation or reduction of those activities.
28. Even after the lay off, the Claimants remained employed and as an organised grouping of employees.
29. There were good reasons why this approach should be maintained because the effect of the Employment Tribunal Decision would create a significant loophole in TUPE and the transfer of employment could easily be prevented by creating a lay off before the service provision change. Mr Lewinski drew our attention to Chambers & Anr v QCR Motors (UKEAT/0545/09). We did not find this case of any assistance because, although the point might have been taken, there is no reference to the point in the Decision. We were also referred to Eddie Stobart v Moreman [2012] IRLR 356 on the question of construction of the service change provisions in TUPE. He submitted that it was not intended by Underhill J to exclude conventional canons of statutory construction; we shall refer to this decision later in our Judgment.
30. On the principle that a temporary cessation in activities neither causes an economic entity to cease to exist nor does it prevent a transfer of an undertaking as between a transferor and a transferee, Mr Lewinski drew our attention to Wood v Caledon Social Club Ltd (Debarred) UKEAT/0528/09 and cases decided in the European Court of Justice such as Landsorganisationen I Danmark for Tjenerforbundet I Danmark v Ny Molle Kro [1989] IRLR 37 and also P Bork International A/S v Foreningen Af Arbejdsledere I Danmark [1989] IRLR 41. We shall return to these cases later in our Judgment.
31. Mr Lewinski submitted that the crucial paragraph in the Judgment was paragraph 41. The Employment Judge, having asked the question whether immediately before the service provision change an organised grouping of employees existed, which had as its principal purpose the carrying out of the relevant activities, had answered that question in the negative because:
“… all the relevant employees had been laid off. There was no work for them to do. … The activity had ceased by the time the individuals were laid off. ….”
32. Mr Lewinski answered a submission that employees suffered no detriment if they were not transferred because the employer retained responsibility for them. Mr Lewinski submitted that might be the case insofar as compensation for redundancy or unfair dismissal was concerned, but it would not protect their employment. The purpose of TUPE was “protection of employment” (our emphasis) as opposed to protection of employees. Mr Lewinski pointed out that cessation of work was a necessary ingredient of a service provision change.
The Claimants’ Submissions
33. Mr Cole, for the Respondents, submitted that the Judgment was an application of the relevant statutory wording to specific factual circumstances. It was a factual finding that this lay off prevented there being a relevant transfer where otherwise there would have been.
34. In the course of the hearing, Mr Cole conceded that, if the Judgment was correct, many lay offs would result in disapplication of TUPE in a service provision change case. However, he envisaged some situations (e.g. where some employees within a grouping were laid off, whilst others continued to work) in which TUPE might still apply. This would depend on the specific factual circumstances.
35. Mr Cole acknowledged that paragraph 41 of the Judgment was succinct. However, he invited us to look elsewhere in the Judgment, in particular paragraphs 20 and 21, which suggested that the lay offs resulted from circumstances involving a dispute, apparently around contract terms, between Inex and Thomas Vale. Mr Lewinski responded that any dispute appeared to have occurred on 10 December 2012, that is well after the 19 November date at which the Employment Tribunal found the lay offs to have occurred. In any event, he said that any such dispute was neither here nor there as nobody had supposed the activities would not continue, as they indeed did, only they would not continue with Inex as the contractor.
36. Mr Cole submitted that the present case should be distinguished from a case where employees had been required to continue to attend and receive payment even if there was no work for them. However, in the present case, not only were the Claimants not required to attend and were not paid but they were required to sign on at the JobCentre. Mr Cole accepted, however, that if his case was correct and there was a temporary cessation of work immediately before the service provision change, the organised group would then dissolve. If there are no activities to be carried out, there cannot be an organised group whose principal purpose is the carrying out of those activities, therefore, if there were no activities, applying the statutory language to the facts of the case, there had ceased to be an organised grouping of employees.
37. In a nutshell, if there were no activities, there could be no organised grouping and if there were no organised grouping, there could be no relevant activities.
38. Referring to the Eddie Stobart case, Mr Cole submitted there was no need to stretch the meaning of the Regulations so as to achieve a transfer. Even if there was a lacuna in the Regulations, this was not something that should concern the Employment Appeal Tribunal.
39. The relevant part of the TUPE Regulations applying to service provision changes was acknowledged by both parties to be domestic legislation not derived from the relevant EU Directive. Mr Lewinski conceded that it would therefore not be appropriate to give the Regulations a “purposive” reading in the sense of reading the Regulations so as to give effect to EU-derived employment rights.
40. However, he did suggest that, by reference to Halsbury’s Laws of England (volume 96, paragraph 1177), it would be appropriate, if necessary, i.e. where there are opposing constructions, to give a purposive reading of domestic legislation. However, he also submitted that in this case it may suffice to look at the plain meaning of the words of the TUPE Regulations.
The Law
41. There is no cross-appeal against the finding that there was a relevant service provision change within the meaning of Regulation 3(1)(b)(ii), so the only issue for us is whether immediately before the service provision change there was an organised grouping as defined in Regulation 3(3)(a)(i), contrary to the finding of the Employment Tribunal.
42. We bear in mind that the service provision change provisions in TUPE are entirely homegrown and not derived from the Acquired Rights Directive, unlike the balance of TUPE, dealing with transfers of undertakings from one employer to another. There are decisions of the CJEU that a temporary cessation of activities does not necessarily mean that the economic entity which is the subject of the transfer has ceased to exist for the purposes of the Acquired Rights Directive. By way of example, we draw attention to the Landsorganisationen case, in which the CJEU held the fact that the undertaking in question was, at the time of the transfer, temporarily closed and did not have any employees certainly constitutes one factor to be taken into consideration for the purpose of determining whether an economic entity still in existence has been transferred. However, the temporary closure of the undertaking and the consequential absence of staff at the time of the transfer are not in themselves alone sufficient to preclude the existence of a transfer of an undertaking within the meaning of Article 1(1) of the Directive. This conclusion is inescapable particularly in a situation such as that forming the subject matter of the disputes in the main proceedings, in which the undertaking ceased its operations only for a short period which also coincided with the end-of-the-year holidays.
43. It is helpful also to note that the CJEU specifically had regard to the purpose of the Directive. As the court had already stated, in particular in its Judgment of 11 July 1985 in case 105/84 Foreningen Af Arbejdsledere I Danmark v Danmols Inventar [1985] ECR 2639, the purpose of the Directive is to ensure, as far as possible, that the contract of employment or employment relationship continues unchanged with the transferee, in order to prevent the workers concerned from being placed in a less favourable position solely as a result of the transfer. It is therefore consistent with the scheme of the Directive to interpret it as meaning that unless otherwise expressly provided it may be relied on solely by workers whose contract of employment or employment relationship is in existence at the time of the transfer, subject, however, to compliance with the mandatory provisions of the Directive concerning protection of employees from dismissal as a result of the matter.
44. The CJEU returned to the point in P Bork International A/S v Foreningen Af Arbejdsledere I Danmark [1989] IRLR 41. This was a case in which Bork had leased a veneer factory from OTF. Bork gave notice of termination of the lease and dismissed all the workers in the undertaking, having given them due notice. The undertaking ceased operating on 22 December but on 30 December 1981, the Respondents bought the undertaking from OTF, took on more than half of Bork’s staff and subsequently purchased the stock, spare parts, auxiliary material and furniture from Bork’s liquidator. The issue in the case was whether Bork’s obligation towards the workers employed in the undertaking were transferred to the First Respondent as a new employer:
“… The fact that the undertaking was temporarily closed and did not have any employees at the time of the transfer was a factor to be taken into consideration for the purpose of determining whether an economic entity which was still in existence had been transferred. However, it was not in itself sufficient to preclude the existence of a transfer within the meaning of Article 1(1), particularly in a situation such as the present case in which the undertaking ceased its operations for only a short period which also coincided with the end-of-the-year holidays.”
The issue was whether the undertaking in question retained its identity.
45. The CJEU also had regard to the purpose of the directive:
“In regard to this it should be recalled that, according to established case law, confirmed most recently by the judgment of 5.5.88 (Berg And Busschers, 144 and 145/87, not yet published), the objective of Directive 77/187 is to ensure that employees’ rights are safeguarded in the event of a change of employer and to allow them to remain in the employment of the new employer on the same conditions as those agreed with the transferor. The Directive therefore applies whenever within the framework of contractual relations there is any change of the natural or legal person responsible for operating the undertaking who enters into contractual obligations as an employer with the employees of the undertaking.” (paragraph 13)
46. We consider that these cases provide a helpful analogy, notwithstanding the different genesis of the service provision change provisions in TUPE and the remaining parts. These cases, in our opinion, provide a helpful analogy which may be applied in the case of service provision changes having regard to the purpose of TUPE and its use of similar language to the remainder of the Regulations. Domestic courts have followed the principles deriving from the CJEU in a number of acquired rights cases such as Wood v Caledon Social Club Ltd (debarred) UKEAT/0528/09 (HHJ Clark) and the Court of Appeal in Fairhurst Ward Abbotts Ltd v Botes Building Ltd [2004] ICR 919. These cases make clear that a temporary cessation of work at the relevant transfer date does not prevent a TUPE transfer.
47. HHJ Burke QC considered the construction of the provisions relating to service provision changes in Metropolitan Resources Ltd v Churchill Dulwich Ltd [2009] ICR 1380. The headnote in the IRLR ([2009], page 700) gives an accurate and helpful precis of the Judgment:
“(1) In a reg. 3(1)(b) case, there is no need for a formal list of factors which the tribunal must consider before it can make a decision as to whether there was or was not a relevant transfer, in contrast to the position in a reg. 3(1)(a) case where the Cheeseman approach is required.
“Service provision change” is a wholly new statutory concept. It is not defined in terms of economic entity or other concepts which have developed under TUPE 1981 or by the EC decisions prior to April 2006 when TUPE 2006 took effect. The circumstances in which service provision change is established are comprehensively and clearly set out in reg. 3(1)(b) itself and reg. 3(3). In contrast to the words used to define transfer in TUPE 1981 the new provisions appear to be straightforward, and their application to an individual case is essentially one of fact.
There is no need for an employment tribunal to adopt a purposive construction, as opposed to a straightforward and commonsense application of the relevant statutory words to the individual circumstances before it. Equally and for the same reasons there is no need for a multi-factorial approach. In a case in which reg. 3(1)(b) is relied upon, the employment tribunal should ask itself simply whether, on the facts, one of the three situations set out in reg. 3(1)(b) existed and whether the conditions set out in reg. 3(3) are satisfied.
The statutory words require the employment tribunal to concentrate upon relevant activities, and tribunals will inevitably be faced with arguments that the activities carried on by the alleged transferee are not identical to the activities carried on by the alleged transferor because there are detailed differences between what the former does and what the latter did or in the manner in which the former performs and the latter performed the relevant tasks. It cannot, however, have been the intention that the new concept of service provision change should not apply because of some minor differences between the nature of the tasks carried on, or in the way in which they are performed. A commonsense and pragmatic approach is required.”
48. We note that the application of the service change provisions to any particular situation is essentially one of fact and that a straightforward and commonsense application of the relevant statutory words to the individual circumstances before the Employment Tribunal is required. In Argyll Coastal Services Ltd v Stirling & Ors UKEATS/0012/11 Lady Smith gave helpful guidance on Regulation 3, insofar as it concerned the concepts of “organised grouping”, “principal purpose” and “activities”. This was an unusual case. The Claimants were crew members of a vessel, St Brandan, and were employed by Guernsey Ship Management, which provided a crew to a company, JAG, which had chartered a vessel to the Ministry of Defence for work in the Falklands. Following a tendering process, the contract was lost to a Dutch company, Winjgaarden Marine Services BV, which chartered another vessel, Tamar, from Argyll to carry out the work previously carried out by the St Brandan. The issue that arose was whether there had been a service provision change, as the Employment Tribunal found, with the consequence that the employment of those working on the St Brandan had been transferred. Lady Smith noted what the Claimants needed to prove, in order to establish a service provision change:
● an organised grouping of employees situated in Britain
● Which had “as its principal purpose”
● The carrying out of “the activities concerned” that is, the activities required under the contract between the transferor and the client “on behalf of the client”.
…
18. … “organised grouping of employees” connotes a number of employees which is less than the whole of the transferor’s entire workforce, deliberately organised for the purpose of carrying out the activities required by the particular client contract and who work together as a team. The reference to “situated in Great Britain” clearly requires that group to be based in Great Britain. Whilst regulation 3(4)(c) makes it clear that, of itself, the fact that a person or persons who are part of that organised grouping of employees work outside the United Kingdom does not prevent the provisions of regulation 3(3)(a)(i) being satisfied, it does not, to my mind, in any way detract from it being a fundamental pre-requisite of a “service provision change” transfer that there be an organised grouping of employees situated in Great Britain.
19. Turning to “principal purpose” there seems to be no reason why the words should not bear their ordinary meaning. Thus, the organised grouping of employees need not have as its sole purpose the carrying out of the relevant client activities, that must be its principal purpose.
20. Regarding “activities” it seems plain from the terms of both regulation 3(1)(b) and 3(3)(a)(i) that Parliament, by using the word “activities” had in mind considering what it was that the client required of the transferor or employer. What exactly was the service that was contracted for?
…
52. … It seems plain to me that Parliament envisaged a situation where a group of an employers’ employees is put together by that employer to carry out some particular work that a contract with a particular client requires and does so. …”
49. There is nothing in the reasoning of Lady Smith to suggest that the activities had actually to be carried on at the time of the service provision change for the organised grouping to remain in being.
50. We now return to Eddie Stobart Ltd v Moreman [2012] IRLR 356. Underhill J was concerned with the question whether there could be an organised grouping of employees when the employees carrying out the activity prior to the service provision change were what might be regarded as a shifting population.
51. Underhill J recorded a submission by counsel for the Respondent that the question was whether it was sufficient for the Respondent employer to show that there was a group of employees who did as a matter of fact mostly work on tasks required by the contract in question or whether, as the Employment Judge had held, it was necessary that the employees in question be organised as in effect members of “Vion” (a company to which services were provided). Counsel submitted it was sufficient to show a group of employees who did, as a matter of fact, mostly work on the tasks required by the Vion contract; Underhill J rejected that submission. We refer to what Underhill J said at paragraph 18:
52. He continued at paragraph 19:
53. We do not consider that HHJ Burke or Underhill J intended to exclude the well-recognised canons of statutory interpretation developed by English law. No specific authorities were cited to us, but two references from Halsbury’s Laws of England. To distil paragraphs 1172 and 1177, the principles that should be applied are that there should be a presumption in favour of the literal meaning of the statute:
“1172. Presumption favouring literal meaning
Prima facie, the legal meaning of an enactment as it applies to particular facts is presumed to be that which corresponds to the literal meaning of the enactment in relation to those facts.
The literal meaning of an enactment in relation to particular facts is determined as follows. The starting point is the grammatical meaning of the enactment taken in isolation, that is the meaning it bears in relation to those facts when, as a piece of English prose, it is construed, without reference to any other text, according to the rules and usage of grammar, syntax and punctuation, including the accepted linguistic canons of construction. This grammatical meaning may be clear or ambiguous or obscure. If the enactment is found to be obscure, it is first necessary for the court to work out if possible what is the intended grammatical version, which may be referred to as the corrected version. When found, the corrected version may be clear or ambiguous.”
54. At paragraph 1177 one finds the principle that, where an enactment is to remedy a particular mischief, it is presumed that the courts are expected by Parliament to find a construction which applies the remedy provided in such a way as to suppress that mischief. This is a long established principle:
“1177. Presumption favouring purposive construction
It is presumed that the legislature intends that the court, when considering, in relation to the facts of the instant case, which of the opposing constructions of an enactment corresponds to its legal meaning, should find a construction which furthers every aspect of the legislative purpose (a purposive construction). It may thus be necessary to give the enactment, particularly where it is not grammatically ambiguous, a strained construction. An important category of cases where a purposive and strained construction may be required is that where the potency of defined term overrides the literal meaning of the definition.”
55. In the present case there is no need for any strained construction. The purpose of TUPE is apparent from its title: Transfer of Undertakings (Protection of Employment) Regulations 2006 (our underlining). The recent decision of Gormanley v London Borough of Hillingdon UKEAT/0169/14 (Slade J) is of interest for two reasons. Firstly, it was submitted in that case that in order for there to be an organised grouping with the appropriate purpose, some planning and intention as to what should be done by the organised grouping was sufficient for it to be an organised grouping; Slade J did not reject that submission but made no specific reference to it.
56. The case is also of interest because Slade J applied principles derived from CJEU jurisprudence on the Acquired Rights Directive in relation to a service provision change, in particular the decision in Botzen v Rotterdamsche Droogdok Maatschappij BV [1986] 2 CMLR 50 on the meaning of “assigned to” a part of an undertaking:
“36. … The judgment of the CJEU in Botzen v Rotterdamsche Droogdok Maatschappij BV [1985] ECR 519 remains the source of European Law guidance on the meaning of ‘assigned to’ a part of an understanding or now to an organised grouping of employees for the purposes of TUPE. Maatschappij BV claimed that
“13. …only employees working full-time or substantially full-time in the transferred part of the understanding are covered by the transfer of employment relationships …
14. On the other hand, the Commission considers that the only decisive criterion regarding the transfer of employees’ rights and obligations is whether or not a transfer takes place of the department to which they were assigned and which formed the organizational framework within which their employment relationship took effect.”
The CJEU held that the Commission’s view must be upheld. It is therefore material to consider the way in which an organisation is structured and the Claimant’s role within it in order to determine whether for the purposes of TUPE he or she is assigned to the organised grouping of employees carrying out relevant activities.”
Discussion and Conclusions
57. We do not consider this to be an appeal on a question of fact but of the application of the Regulation to the particular facts. The essential question was whether a temporary cessation of work, because there was no work for the grouping to do so that the activity had ceased, was capable in itself of dissolving the organised grouping. That is a question of law.
58. There is nothing in the language of Regulation 3 or in any of the authorities as to whether or not the organised grouping of employees having as its principal purpose the carrying out of the relevant activities must be actually engaged in the activity “immediately before the service provision change”. There is nothing to suggest that a temporary cessation of activities at that time precludes the continued existence of the organised grouping. Indeed, the wording of Regulation 3(1)(b)(ii) requires that “activities cease to be carried out by a contractor” and whilst it is required that the activities “are carried out instead by another person” there is nothing to suggest that there cannot be a lapse of time between cessation and resumption.
59. As there is a dispute as to the correct application of the Regulation, we take the view that it is essential to have regard to the purpose of the Regulations. We must have regard to the fact that the Regulations are “Transfer of Undertakings (Protection of Employment) Regulations 2006” (our underlining). The purpose cannot be clearer, and applying the canons of construction which are referred to in the passages we have culled from Halsbury, nothing, in our opinion, could be clearer. If a temporary cessation in work would disqualify those engaged in it from being considered to be an organised grouping etc., their employment in many (if not most) cases would not be protected at all even if they may have some financial remedies against their original employer.
60. Common sense suggests that a temporary cessation of employment including for the purpose of holidays, sickness, or expressed to be a temporary lay off should not of themselves deprive employees of their employment if there is a service provision change during the period of temporary cessation.
61. Every case will be dependent on its own facts as to whether the organised grouping of employees, having as its principal purpose the carrying out of the relevant activities (even in the event of a temporary suspension of work), has retained its identity as such. We recognise that there may conceivably be cases where, on their particular facts, even a temporary lay off caused by absence of work might be sufficient to dissolve the grouping, but a temporary cessation of work by a grouping in a similar or analogous situation could not in itself be a bar to the grouping retaining its identity and its members transferring employment pursuant to a service provision change.
62. We consider there is a very close analogy with the approach taken by the European Court of Justice in straightforward transfer cases, and it is wholly appropriate to apply those principles to cases of service provision change, as did Slade J in Gormanley.
63. In our opinion a temporary cessation of work in the case of a service provision change immediately prior to the transfer does not necessarily prevent a TUPE transfer taking place. The purpose, nature and length of the cessation are of course relevant in determining whether or not the organised grouping continued in existence.
64. In each case the Employment Tribunal must decide the matter on all the facts to determine whether the organised grouping retained its identity as such.
65. We do not intend to set out a checklist of factors that need to be taken into account in all cases. As the authorities make clear, the Employment Tribunal must simply determine on the facts whether or not the Claimants, despite the temporary suspension of work, retained their identity as the organised grouping etc. In this particular case the Employment Tribunal must obviously take into account the cessation of activity as a relevant factor but may wish to consider matters such as the length of cessation, the purpose or reason for the cessation in determining the question, which as we have said is a straight issue of fact as to whether at the date of the service provision change the Claimants retained their identity as an organised grouping of employees having as its principal purpose working on the Sandwell contract.
66. We have already dealt with the argument that employees are not prejudiced by not having their employment transferred because they will still have a remedy against their original employer, Inex, either for redundancy or possibly for unfair dismissal. We have already expressed the view that this is not a substitute for continued employment. We have also expressed the view that the protection extends primarily to protect employment and avoid redundancy rather than offering some protection to employees short of preserving their employment. We take the view that, in addition to the circumstances of the lay off, the Employment Tribunal will wish to consider the effect of the CIJC Joint Secretaries’ Guidance Notes, and the express representations made by Inex to the Claimants that they would be re-employed as soon as work became available, and that it was anticipated that work would become available very shortly.
67. It is also relevant to bear in mind that the reasoning of the Employment Tribunal in the present case, if applied generally, would mean that in all cases where there has been a temporary cessation of work, including temporary lay offs, the organised grouping would lose its identity and this would cut across TUPE protection and also negate the effect of a national agreement.
68. If every time a group is laid off, it loses its cohesion as an organised grouping, there will be wide implications wherever a similar situation arises in cases of lay off under the CIJC, which is industry-wide and approved by employers and trade unions and is of national application.
69. As Mr Bleiman pointed out during the course of submissions, we do not need to find that a lay off can never dissolve the organised grouping of employees. Every case will depend on its own facts. There is no real dispute about the facts in the present case, as we have already said. The only issue is whether the Employment Tribunal was correct in holding that a temporary lay off precluded the continued existence of the Claimants as an organised grouping.
70. The Employment Tribunal (at paragraph 41) clearly failed to appreciate that cessation of activities by an organised grouping is an integral and necessary part of the statutory definition of the circumstances in which a service provision change takes place and that the facts of this case are typical features of cessation of activities and resumption by another contractor. The factors that go toward defining a service provision change cannot properly be relied upon as defeating such a change amounting to a relevant transfer. Something more than a temporary lay off caused by a temporary absence of work is required to dissolve the organised grouping. This question of whether or not there were other factors that pointed to the dissolution of the grouping is a matter that will have to be considered at the final hearing in the Employment Tribunal. We simply do not know what had become of the grouping at the relevant time. We do not know, for example, whether members of the grouping had obtained new employment or whether there was still a cohesive grouping available to resume work on the Sandwell contract. These matters were not considered by the Employment Judge who only looked at the matter on the basis of the activity having ceased by reason of the absence of work and consequent lay off. So on the plain meaning of the Regulation, a cessation cannot of itself have the effect of the dissolution of the organised grouping of workers.
71. We accept the Appellant’s submission that the Employment Judge misconstrued Regulation 3(3)(a)(i) and that this is a provision relating to the allocation of personnel to a particular activity as opposed to providing that only those personnel who were actually physically undertaking the activity immediately prior to the service provision change taking effect should be regarded as the relevant organised grouping.
72. We accept the submission that an organised grouping of employees can have a purpose of carrying out activities even during a period of temporary cessation. The phrase “carrying out those activities” is used to define the required purpose of the grouping and, as we have said, is not a requirement that the protection only applies to those physically carrying out those activities at the relevant time.
73. It is a matter for the Employment Tribunal to determine, even after the lay off, whether the Claimants, who remained employed by Inex, continued as an organised grouping of employees etc. The fact is the lay off did not of itself strip them of that necessary characteristic. The cessation or reduction of activities led to the lay off, but the fact that they were laid off did not mean that section 3(3)(a)(i) was not applicable. The Employment Judge did not engage sufficiently with the meaning of “purpose” in the Regulations. Unfortunately paragraph 41 of the Judgment treats the lay off as simply terminating the existence of the organised grouping and therefore leaves unanswered the remaining questions raised by Regulation 3(3)(a)(i).
74. We agree with the submission that the fact of the lay off rather supports the proposition that the Claimants’ purpose was the carrying out of the relevant activities as it was the cessation of those activities that had led to them being laid off. If they had been doing other activities, they could have continued with them.
Decision and Disposal
75. For these reasons, the appeal will be allowed and the case remitted to the Employment Tribunal for rehearing. We have of course considered whether or not to remit the matter to another Employment Judge, but concluded that it is wholly appropriate to remit the matter for rehearing before Employment Judge Kearsley at a further Preliminary Hearing. He must consider in the light of this Judgment whether immediately before the service provision change the grouping retained its status as “an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client”. The case must be remitted because the Employment Appeal tribunal cannot determine these factual issues: see Jafri v Lincoln College [2014] ICR 920 and Burrell v Micheldever Tyre Services Ltd [2014] ICR 935.
76. It only remains for us to thank counsel for their helpful submissions, both oral and in writing.
77. I wish to record that I have had the greatest assistance from the industrial experience of the lay members who sat with me: Mr Bleiman and Ms Sutcliffe.