United Kingdom Employment Appeal Tribunal

Appeal No. UKEAT/0349/15/DA

 

 

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8AE

 

 

                                                                                                             At the Tribunal

                                                                                                             On 2 September 2016

 

 

 

Before

HIS HONOUR JUDGE DAVID RICHARDSON

(SITTING ALONE)

 

 

 

 

 

 

ALNO (UK) LTD                                                                                          APPELLANT

 

 

 

 

(1) MRS C TURNER

(2) SJM KITCHENS AND BATHROOMS LTD                                     RESPONDENTS

 

 

Transcript of Proceedings

 

JUDGMENT

 

 

 

 

 

 

 

 

 

APPEARANCES

 

 

 

 

 

For the Appellant	MS LAURA GOULD (of Counsel) Instructed by: Squire Patton Boggs (UK) LLP Trinity Court 16 John Dalton Street Manchester M60 8HS
For the First Respondent	MR ROBERT GOLIN (of Counsel) Instructed by: DLG Legal Services PO Box 1195 Churchill Court Westmoreland Road Kent BR1 9YG
For the Second Respondent	No appearance or representation by or on behalf of Second Respondent

 

 

SUMMARY

TRANSFER OF UNDERTAKINGS - Transfer

 

The Employment Judge erred in law in finding that a transfer had taken place following the termination of a franchise by the franchisee.  The parties had initially intended that the franchisor would take over the showroom concerned and employ the Claimant.  The Employment Judge found, essentially because of this intention, that there was a TUPE transfer when the franchise terminated.  However she did not apply the correct, multi-factorial, approach to the question whether a transfer had actually taken place.  Reasoning in P Bork International A/S v Foreningen af Arbejdsledere I Danmark [1989] IRLR 41 and Cheesman v R Brewer Contracts Ltd [2001] IRLR 144 applied; Wood v Caledon Social Club Ltd UKEAT/0528/09 considered.

 

HIS HONOUR JUDGE DAVID RICHARDSON

 

Introduction

1.               This is an appeal by ALNO (UK) Ltd (hereafter “ALNO”) against a Judgment of Employment Judge Hyde sitting at the London (South) Employment Tribunal dated 28 October 2015.  By her Judgment she declared that the employment of Mrs Christine Turner (“the Claimant”) transferred from SJM Kitchens and Bathrooms Ltd (“SJM”) to ALNO by virtue of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).

 

The Background Facts

2.               ALNO is part of a group of companies that produces a range of kitchens under the name and style “In-Toto”.  For the most part it promotes its range of products by entering into franchise agreements with third parties.  It operates only a small number of outlets itself.

 

3.               SJM was the leasehold owner of premises at 119-120 Western Road, Hove (“the Brighton showroom”).  Its owner and managing director was Mr Steven Mant.  It had been a franchisee of ALNO for many years.  SJM used the Brighton showroom in order to display In-Toto kitchens and also bathrooms of other makes.  It designed and installed both kitchens and bathrooms.  Its business was about 60 per cent In-Toto kitchens and about 40 per cent bathrooms.  The Claimant was employed by SJM at the Brighton showroom.  In broad terms, she managed the showroom while Mr Mant installed the kitchens and bathrooms.  SJM and ALNO were both complementary about her abilities.  She was good at her job.

 

4.               Early in 2014 Mr Mant decided that he would give up the business and return to working as a self-employed fitter.  In the middle of 2014 he told ALNO that SJM would not seek a renewal or extension of the franchise when it expired in late December.  The Claimant began maternity leave on 14 July 2014.  Mr Mant had told her of his intentions.  Indeed, he initially intended to work from elsewhere making use of her services. 

 

5.               ALNO decided that it wished to keep on the showroom as an outlet which it would operate itself.  It approached Mr Mant to see if he would be its store manager, assisted by the Claimant.  The intention was that the store would be closed for complete refurbishment and then opened with Mr Mant and the Claimant as employees.  For a while it appeared that this would be the outcome.  Mr Mant vacated the premises in October or November 2014 at a time when the parties expected that they would soon be refurbished.

 

6.               Then, however, two things happened to change what was proposed.  First, Mr Mant and ALNO were unable to reach terms.  So, Mr Mant dropped out of the picture.  Eventually, he surrendered the lease of the showroom in April 2015.  Secondly, ALNO discovered that there was a significant structural defect in the premises where the showroom was located.  ALNO had been in negotiation with the landlord to take on the premises, but the negotiations stalled when the survey identified the defect.  ALNO entered into an agreement for a lease with the freeholder subject to the structural repairs being satisfactorily completed, but by the time of the Employment Tribunal hearing in October 2015 this had still not occurred.  While ALNO still intended to operate the showroom itself, it was unclear when this would begin.

 

7.               Meanwhile, in February 2015 the Claimant’s maternity leave had been coming to an end.  She began to enquire about her position.  SJM and ALNO were unable to agree whether her employment transferred under TUPE.  She found work elsewhere and brought Employment Tribunal proceedings against them both.

8.               I have said that ALNO was unable to open a showroom even by October 2015.  I am told today that ALNO was eventually able to open its showroom in May 2016 - some 18 months after SJM vacated it and nearly 18 months after the termination of the transfer.

 

The Employment Tribunal Hearing and Reasons

9.               The Employment Judge heard the case on 21 October 2015.  All parties were legally represented.  Mr Mant, ALNO’s managing director and the Claimant all gave evidence; but there was very little dispute as to the facts.  The question was whether on the facts there was a TUPE transfer. 

 

10.            The Claimant’s case was put under Regulation 3(1)(a) of TUPE.  It was not suggested that Regulation 3(1)(b), dealing with service provision change, was relevant.  By the end of the case, it was SJM’s position that the TUPE transfer took place at the end of December 2014 when the franchise expired.  It was this case that the Employment Judge accepted.  SJM did not argue that there was a two-stage transfer.

 

11.            The Employment Judge stated her decision and gave her reasons orally.  She produced Written Reasons shortly afterwards.  After summarising the issue and quoting at some length from the franchise agreement, she set out findings of fact, on which I have already drawn in this Judgment.  The Employment Judge turned to state her own conclusions in paragraph 24 of her Reasons.  She said:

“24. It appeared to me taking into account the purpose of the TUPE Regulations, that the circumstances of this case were covered by the Regulations.  At the time the First Respondent stopped operating the In-toto kitchen business when the franchise expired on 24 December 2014, the statutory elements of a TUPE transfer were met in that it was the intention that there should be a transfer of an undertaking or part of an undertaking situated immediately before the transfer in the United Kingdom to another person namely Alno and that it would retain its identity after the transfer and that the economic entity was the business of selling In-Toto Kitchens.

25. As things turned out the timeframes which everyone anticipated namely that the new showroom and studio would be up and running by the latest in March 2015 which was still part of the peak period for kitchen sales did not happen.  However it appeared to me that as at the point when the franchise expired, albeit the legal requirements of the Second respondent re-opening in the premises had not been completed, the plans were well underway.  At that point, albeit it was fully anticipated by all parties that there would be a temporary cessation of the business which happily coincided with the Claimant’s absence on maternity leave, had she been working then it appears likely that arrangements would have been made for her to be occupied elsewhere with a view to coming back and resuming her duties once the studio re-opened.

26. I considered that it should not be lost in the middle of all this that both Respondents had been extremely complementary about the Claimant’s capabilities as a Store Manager and indeed this was consistent with Alno’s intention to retain her services as store manager when negotiating the post franchise arrangements with Mr Mant in the second half of 2014.

…

28. In all the circumstances I concluded that there was indeed a TUPE transfer and it took place on 24 December 2014 and the Claimant’s employment transferred at that stage to Alno.”

 

12.            The Employment Judge’s Reasons were structured in a somewhat unorthodox manner.  After stating her conclusions, the Employment Judge went on in paragraphs 29 and 30 to summarise what had been said in correspondence between the parties in April 2015.  Then, finally, she recorded the submissions of the parties as to the law.  She said:

“31. The Tribunal considered the cases of Wood v Caledon Social Club Ltd UKEAT/0528/09 and P Bork International A/S v Junckers Industrier A/S [1989] IRLR 41 in particular.  The Respondent [sic] relied on the latter authority primarily and submitted, in brief, that as there had been no lease signed yet by the Second Respondent, the Claimant’s employment could not have transferred to them as they had not taken over the lease at any stage; that they had not operated as a business from the premises at any stage; and that there was no transfer of goodwill since the Second Respondent retained the goodwill at all stages under the agreement.  Mrs Daniels’ submissions were helpfully set out in a written skeleton.  She also cited the case of Celtec Ltd v Astley [2005] IRLR 647.

32. The Claimant relied on the Wood case in support of the contention that where there was an intention to take over the business albeit after a short interruption, the employment transferred, and that the relevant date was the date on which the franchise expired.”

 

TUPE

13.            The provisions of TUPE central to this appeal are Regulation 3(1)(a), Regulation 3(2) and Regulation 3(6):

“(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;

…

(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.

…

(6) A relevant transfer -

(a) may be effected by a series of two or more transactions; and

(b) may take place whether or not any property is transferred to the transferee by the transferor.”

 

14.            These provisions of TUPE were passed in order to implement the Acquired Rights Directive, Council Directive 2001/23/EC.  It is well established that they are to be interpreted in accordance with jurisprudence developed under that Directive and its predecessor, Directive 77/187/EC.

 

Submissions

15.            I have received full skeletons and excellent, focused oral submissions from Ms Laura Gould on behalf of ALNO and Mr Robert Golin on behalf of the Claimant.  SJM has written to say that it does not intend to take part in this hearing; it supports the Judgment of the Employment Tribunal.

 

16.            The submissions of Ms Gould can, I think, be summarised in the following way:

(1)         In deciding whether there was a transfer of an undertaking, the Employment Judge was required to undertake a multi-factorial assessment (see in particular P Bork International A/S v Foreningen af Arbejdsledere I Danmark [1989] IRLR 41 and Cheesman v R Brewer Contracts Ltd [2001] IRLR 144).  The Employment Judge did not undertake an assessment of this kind.

(2)         The Employment Judge singled out and treated as decisive the intention of the parties that a transfer should take place.  Insofar as the Employment Judge relied on Wood v Caledon Social Club Ltd UKEAT/0528/09, she was wrong to do so.  The facts were highly specific to that case and did not mandate that a transfer should be found in the very different circumstances of this case.

(3)         The Employment Judge at one point in her Reasons misunderstood the position as regards goodwill, saying that any goodwill reverted to ALNO.  The true position under clauses 16 and 20 of the franchise agreement was that goodwill was always vested in ALNO.

(4)         At the very least, the Employment Judge’s Judgment was inadequately reasoned.

 

17.            Ms Gould also submits that the decision in this case, if upheld on appeal, would have a chilling effect on commercial negotiations generally.  If intentions as revealed by discussions were relied on to find that employment transferred despite no concluded agreement being reached and despite the putative transferee being unable to continue the undertaking, it would be very difficult to enter into serious negotiations.

 

18.            In support of her argument Ms Gould has taken me to factors that in her submission negate the existence of a transfer.  These include the following: the cessation of operations at the showroom was of lengthy and unknown duration, the terms of a lease had to be agreed and work done by an independent leaseholder; in the meantime, ALNO had no right to occupy the premises; there was never any agreement for a transfer, rather, the termination of a franchise with no tangible assets transferring; ALNO in fact did not continue or resume operation of any element of SJM’s business even by the time of the Employment Tribunal hearing; SJM continued to pay the Claimant; and Mr Mant did not come to work for ALNO.

 

 

19.            The answer of Mr Golin, on behalf of the Claimant, may be summarised as follows:

(1)         The Employment Judge was indeed required to undertake a multi-factorial assessment.  On a proper analysis of her Reasons, this is what she did.  She took careful account of the franchise agreement, the issues concerning the showroom premises, the intention of the parties and the mechanism by which ALNO intended to reopen the showroom.  The fact that their property was to transfer was not decisive (see Regulation 3(6)(b)).

(2)         The Employment Judge did not commit any error of law relating to the intention of the parties.  The fact that the parties intended any cessation to be temporary was relevant and was proper authority for that proposition.

(3)         The Employment Judge was wrong to say that goodwill “reverted” to ALNO from SJM, but she did not really misunderstand the position, quoting as she did at paragraph 31 of her Reasons the Respondents’ submission that there was no transfer of goodwill.

(4)         The Employment Judge’s Reasons taken as a whole are sufficient.  They show why she reached her decision, and she was not required to deal with every factual or legal issue.

 

20.            Mr Golin also took me through the findings of the Employment Judge, mainly within her earlier findings of fact, in order to demonstrate that her approach was multi-factorial and adequately reasoned.  He therefore sought to uphold the Employment Judge’s reasoning.

 

Discussion and Conclusions

21.            Regulation 3(1)(a) of TUPE, implementing Article 1 of the Acquired Rights Directive, requires a transfer.  It may be of the whole or part of a business or undertaking so long as there is a transfer of an economic entity that retains its identity; but an intention to transfer is not sufficient, nor is an unsuccessful attempt to transfer. 

 

22.            The first task for an Employment Tribunal in deciding whether there is a transfer is to identify the economic entity under consideration.  Then, assuming it accepts that this economic entity existed, it must apply a multi-factorial test in order to decide whether that economic entity transferred.  It is not conclusive that the economic entity ceased to operate for a time or that there was no direct transfer of a lease.   These are relevant factors, no more.  Thus in Bork the European Court of Justice said:

“14. It follows that, when the lessee in his capacity as employer loses this capacity at the end of the lease and a third party subsequently acquires this capacity under a contract of sale concluded with the owner, the resulting transaction could fall within the scope of the Directive, as defined in Article 1(1).  The fact that, in such a case, the transfer takes place in two stages inasmuch as the undertaking is initially re-transferred by the lessee to the owner, who then transfers it to the new owner, does not preclude the application of the Directive, provided that the undertaking in question retains its identity, which is the case where there is an economic entity still in existence, the operation of which is in fact continued or resumed by the new employer carrying on the same or a similar business.

15. In order to determine whether these conditions all exist, it is appropriate to take account of all the factual circumstances surrounding the transaction, which may include in particular whether the tangible and intangible assets have been transferred, as well as the major part of the staff of the undertaking, the degree of similarity between its activities before and after the transfer and the duration of any period of stoppage connected with the transfer.

16. Concerning the last criterion in particular, it should be emphasised, as the court already decided in its judgment of 17.12.87 (Ny Molle Kro, 287/86 [1989] IRLR 37), that the fact that the undertaking in question was, at the time of the transfer, temporarily closed and did not have any employees certainly constitutes a 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.”

 

23.            Bork would now be regarded as a straightforward case.  It concerned a beechwood veneer factory.  Just before Christmas the lessee of the factory dismissed its workers and terminated the lease.  The owner of the factory sold it immediately, and the purchaser started to operate the factory again at the beginning of January, recruiting exclusively from existing staff and purchasing stock and existing equipment from the previous lessee of the factory.

24.            To similar effect is Wood.  This concerned the club area of a community centre where there were bars, a kitchen and a beer cellar.  The licence for the bars was lost.  The club surrendered its possession of the club area to the parish council.  The parish council arranged for a licence to be granted and reopened the club area after a couple of months.  The Employment Appeal Tribunal held that this temporary cessation of activities did not itself negate the existence of a transfer.  It declared that a TUPE transfer had taken place.  It is important to appreciate that in Wood the bar area had reopened after a short time and had been operated in the same way as before.  It was only because of the temporary loss of the licence that the majority of the Employment Tribunal had rejected the proposition that the transfer had continued.  In other respects, it had applied the law correctly.  In particular, it had applied the leading domestic case on this question, Cheesman. 

 

25.            In Cheesman the Employment Appeal Tribunal, Lindsay P presiding, gave important guidance as to the multi-factorial approach to be applied in deciding whether there was an economic entity and if so whether it transferred.  The factors he set out are commonly known as the Cheesman factors (see as to transfer paragraph 11(1)-(12) of the Judgment).  Not all of the factors will be relevant in every case, and they do not purport to be an exclusive list of factors, but they could not indicate more clearly that a multi-factorial approach is required.

 

26.            Making as much allowance as I can for the fact that the Employment Judge gave her reasons extempore at the hearing, I cannot detect in them any application of a multi-factorial approach.  Her decision rests on the expressed intention of the parties that the showroom would reopen and the Claimant would be employed in it.  She was entitled to take into account the intention of the parties that the showroom should reopen and that the Claimant should be employed in it, but this could not be a conclusive factor on its own.  As we have seen, an intention to transfer is not a transfer.  She had to take into account a much wider range of factors in deciding whether a transfer had actually taken place. 

 

27.            The starting point would be to identify the economic entity.  The Employment Judge appears to have identified this as “the In-Toto kitchen business” and “the business of selling In-Toto Kitchens”.  This business was not selling retail from a showroom; it involved the design and installation of the kitchens.  But Mr Mant, the prime mover in the franchise and the person responsible for installation, was not being taken on by ALNO.  This is a factor that the Employment Judge did not address at all.  He presumably had tools, equipment and a vehicle.  These were not taken on by ALNO.  Again, this factor does not appear to have been taken into account.

 

28.            Moreover, while the Employment Judge was entitled to place reliance on Wood for the proposition that a temporary cessation of work would not of itself negate a transfer, there is no sign that she weighed in the balance the very different circumstances of this case.  Here, ALNO could not occupy the premises at all, because of a structural defect that had not been dealt with by the time of the Employment Tribunal hearing.  It had never by that time got started on any use of the showroom.  The duration of any stoppage is a highly material factor (see Bork, quoted above). 

 

29.            I therefore consider that the Employment Judge erred in law.  She did not apply a multi-factorial approach.  She placed reliance on the decision in Wood to an extent which was impermissible.

 

30.            It is common ground that there is an error at the beginning of paragraph 21 of the Employment Judge’s Reasons.  The franchise agreement dealt with goodwill in the In-Toto trade name and in ALNO’s intellectual property by providing that it always remained vested in ALNO.  Of course, there are other kinds of goodwill - for example, the quality of SJM’s service and installation might attract goodwill - but this was not dealt with by the franchise agreement and did not revert to ALNO by virtue of it.  It is quite difficult to judge whether this mistake in the Employment Judge’s Reasons had any material influence on her conclusion.  I rather suspect that she grounded her conclusion entirely on the intention of the parties.  But it is difficult to see what else might support an actual transfer in December 2014 apart from goodwill.  There was no transfer of any assets, of the services of Mr Mant or, at that stage, of the services of the Claimant.

 

31.            It follows that the appeal must be allowed, and the question then arises: how should I dispose of the appeal?  Neither party present here today encourages me to remit the matter.  ALNO says that only one result is possible.  The Claimant, of course, has a potential remedy against SJM in any event and does not encourage a remission for rehearing.  I must of course apply the law set out in Jafri v Lincoln College [2014] ICR 920 CA, and I must keep in mind that SJM, which has not appeared, might wish the matter to be remitted. 

 

32.            Ms Gould submits that once it is appreciated that the Employment Judge erred in law in the weight she placed on the intention of the parties, the evidence is really all one way: only one result is possible.  Mr Golin points out that the showroom has now reopened.  He accepts that the cessation is a long one but says this is a matter that an Employment Tribunal on remission would be entitled to take into account.

 

33.            The case put forward by SJM and accepted by the Employment Tribunal was fairly and squarely that a transfer took place in December 2014 on cessation of the franchise.  It was not put forward on the basis of a two-stage transfer or on the basis of any later date than December 2014.  In my judgment, once it is appreciated that the intention of the parties alone could not create a transfer and that no goodwill was transferred by operation of the franchise agreement, there is really only one answer: no transfer took place in December 2014.  It would not now be right to allow the case to be remitted for a quite different argument to be put forward.  It follows that the appeal will be allowed and it will be declared that the Claimant’s employment did not transfer to ALNO on 24 December 2014 under TUPE.

 

Following an application for recovery of fees -

 

Costs

34.            In this case the appeal has been successful.  An application has been made that the fees for lodging the appeal (£400) and pursuing it to a Full Hearing (£1,200) should be allowed under Rule 34A(2)(a) of the Employment Appeal Tribunal Rules 1993.  Ms Gould makes the application against SJM and the Claimant, suggesting that the Order should be joint and several.  Rule 34A(2)(a) allows a discretion in this respect (see, for the operation of that discretion, Horizon v Ndeze UKEAT/0071/14 and Look Ahead Housing v Chetty UKEAT/0037/14).  In this case, it seems to me that there ought to be an Order for the fees to be paid to the successful Appellant, but it seems to me that the Order should be made against SJM.  The prime mover in alleging a transfer of undertaking and a transfer of the Claimant’s employment was SJM.  The Claimant, as so often happens in these cases, was very much in the middle, and, while it is true that the Claimant has resisted the appeal, bearing in mind my overall discretion I think justice is served by an Order being made against SJM but not against the Claimant.  SJM has written in support of the judgment; it has not appeared at this hearing, but it has a right to apply for reconsideration if it is aggrieved by this Order.