THE HONOURABLE MRS JUSTICE COX
Introduction
1.
In this matter Pressure Coolers Limited (PCL), the First Respondent
below, is appealing against three separate judgments of the Ashford Employment
Tribunal, as follows. The first appeal is against the original remedy
judgment, promulgated with reasons on 4 March 2010, ordering PCL to compensate
the Claimant for unfair dismissal and age discrimination. The second and third
appeals are brought against the two judgments given on review, relating to both
liability and remedy, following a review hearing held on 8 June 2010.
Following that hearing the Tribunal decided to review both their original
judgments in this case. These review judgments, which were ordered to stand in
substitution for the original judgments, were both promulgated with reasons on
9 July 2010.
2.
The issue at the heart of these appeals is who is liable for the
Claimant employee’s claims under the “relevant statutory schemes” referred to
in regulation 8(4) of the Transfer of Undertakings (Protection of
Employments) Regulations 2006 (‘TUPE’). Who, in law, should pay the Claimant’s
basic award and notice pay where he is unfairly and wrongfully dismissed by the
transferee (PLC) after a “pre-pack” TUPE transfer of a business in
administration? Is it PCL, as the Tribunal decided on review, or is it the
Secretary of State (now for Business, Innovation and Skills), who was joined as
the Third Respondent below? The point is of some importance in practice.
3.
The Claimant, although a party in these appeals and appearing in person
at the hearing before us, confirmed that he did not wish to advance any
arguments of his own on this point. The transferor, Maestro International
Limited (Maestro), the Second Respondent below, is now in liquidation and the
liquidator has indicated in writing his intention not to take any part in these
proceedings.
4.
The issues raised have therefore been the subject of submissions from Mr
Solomon, appearing for PCL, and Mr Heppinstall, for the Secretary of State, and
we are grateful to them both for their assistance.
5.
The point is essentially one of statutory construction, although its
inherent complexities have not been assisted by the procedural complications
below, of which more later on. There is, however, no appeal against any of the
Tribunal’s findings of fact, which did not form any part of the review process.
We therefore start with them, so far as they are relevant to this appeal.
The Background Facts
6.
The Claimant, who was born in 1948, had been employed by Maestro as a
bench fitter for some 20 years, commencing his employment in January 1989.
Until 2007 he worked mainly on the manufacture of safety equipment but, from
time to time, he also worked on the other part of Maestro’s business, namely
the manufacture of water coolers and drinking fountains. The two other
employees engaged in manufacturing, Mr Wright and Mr Foster, were some 20 years
younger than the Claimant and had been employed there only since 2003.
7.
In 2006 Maestro decided that the costs of labour and parts for its
manufacturing operations were excessive and that all manufacturing in the UK would therefore come to an end. In 2007 Maestro sold its safety equipment business and
thereafter the Claimant worked mostly on drinking fountains, with occasional
spells on the production line and water coolers.
8.
By the end of 2008 Maestro had around 50 employees, who were mostly area
managers, drivers and service engineers. By then it had become clear that the
company was in financial difficulties and, in May 2008, it had entered into a
creditors’ voluntary arrangement under the supervision of an insolvency
practitioner, Mr Lord. This, however, did not solve the company’s problems.
In early January 2009 Mr Lord, together with Maestro’s directors and
shareholders, entered into negotiations with the managing director of PCL, Mr
Mitchison, with a view to PCL’s purchase of Maestro’s assets. At this time PCL
had approximately 10 employees.
9.
Maestro and PCL reached agreement in principle that PCL would acquire
the business and an Administration “pre-pack” was created for that purpose.
10.
On 7 January 2009 the High Court was given formal notice of the
intention to appoint Mr Lord as Maestro’s Administrator.
11.
At about this time Mr Mitchison had discussions with Mr Williams and Mr
Strom, directors of Maestro, regarding the company’s business. He took the
view that the business was over-staffed and that redundancies should be made.
He thought it unnecessary for there to be three manufacturing staff and he
wanted one redundancy. He accepted the advice of Mr Williams and Mr Strom that
the Claimant should be selected. Mr Williams gave evidence that this was
because of the Claimant’s skills, absence and disciplinary records.
12.
The Tribunal found on the evidence that there was no consultation at all
by Maestro with the Claimant or his colleagues concerning the proposed sale of
the business to PCL.
13.
At 6:43pm on 12 January 2009 Mr Mitchison sent an email to Mr Lord in
which he set out a list of intended redundancies by reference to the names and
addresses of a total of seven members of staff, of which the Claimant was one.
He concluded with these words: “Hopefully you can send out letters to them
tonight. I will notify them all tomorrow in any case.”
14.
Mr Lord forwarded that email to an employee of the Administrator, Mr
Wilkinson, at 10:12am the following morning, 13 January, with a request that he
should “make these letters up and send them out today please, assuming we get
appointed.”
15.
The sale of Maestro’s assets to PCL was the subject of a formal
agreement, dated 13 January 2009. It was not in dispute that that agreement
was entered into simultaneously with Mr Lord’s appointment as Administrator.
The express terms of that agreement included the following:
“2.1 Subject to the terms and conditions of this Agreement the
Seller shall sell and the Buyer shall buy the Business and whatever right,
title and interest (if any) the Seller may have in: -
(a) The debts
(b) Goodwill
(c) The intellectual property
(d) The plant and machinery
(e) The stock
(f) The telephone number
(g) The work in progress
to the intent that the Buyer shall from the transfer date carry
on the business as a going concern.
10.1 The parties agree that this agreement constitutes the sale
of a business as a going concern (in respect of the Business) to which the
Transfer Regulations shall apply and that in accordance with the Transfer
Regulations the Buyer shall with effect from the Transfer Date take over from
the Seller the contracts of employment of the Employees and each of them.”
16.
At 11 am on 13 January Mr Mitchison, who was in Maestro’s offices with
Mr Williams, received a telephone call from Mr Lord to inform him that the sale
agreement had been completed. Mr Mitchison then asked Mr Williams whether the
identified employees had been made redundant by the liquidators, to which Mr
Williams replied “no”.
17.
Later on that day, in the mid afternoon, Mr Mitchison held a brief
meeting with each of the seven members of staff he intended to make redundant.
He told them that they were now redundant and they were each handed a form
“RP1”. As at that date the Claimant was owed wages and he was also entitled to
accrued but untaken holiday. He received no notice of dismissal and no pay in
lieu.
18.
At some point after the completion of the sale agreement Mr Wilkinson,
on the instructions of Mr Lord, caused letters to be sent on behalf of the
Administrators to each of those made redundant to inform them of this fact and
to assert that this had been the act of Mr Lord.
19.
As was intended by the sale agreement, upon completion some fifty of
Maestro’s staff transferred to become employees of PCL, which acquired all
Maestro’s meaningful business assets. The Tribunal found that PCL had then
continued to trade with the use of those staff and assets since that date, but
that the company had ceased all manufacturing operations in the UK. Mr Wright and Mr Foster had remained as employees of PCL.
Proceedings before the Tribunal
20.
On 9 April 2009, and subsequently on 3 June 2009, after complying with
the statutory grievance procedure then in place, the Claimant presented claims
to the Employment Tribunal against both PCL and Maestro, complaining of unfair
dismissal, age discrimination, failure to consult pursuant to the requirements
of TUPE, unauthorised deductions from wages and a failure to give him notice
pay or payment for his accrued but untaken holiday.
21.
He also complained of disability discrimination, as a sufferer of
rheumatoid arthritis, but the Tribunal dismissed that claim on the basis that
he was not suffering a disability as defined by the legislation. His claim for
entitlement to a redundancy payment was also dismissed. No issue arises on
those findings in this appeal and we therefore say no more about them.
22.
Maestro failed to enter a response to either claim and PCL entered a
response only to the first claim. The Secretary of State was joined to the
proceedings and entered responses to both claims.
23.
After hearing the evidence and finding the facts, as set out above, the
Tribunal’s first liability judgment was promulgated with reasons on 23 December
2009.
24.
The important point, so far as this appeal is concerned, is that clear
and unchallenged findings were made by the Tribunal as to the order of events
that occurred on 13 January 2009. At 11 a.m. on that day, Maestro went into
administration; there was a TUPE transfer of Maestro’s business to PCL; and the
Claimant’s employment transferred from Maestro to PCL. Subsequently, at about
3 pm that day, the Claimant was dismissed by PCL.
25.
On the basis of the evidence and their findings of fact, the Tribunal
found that there had been no consultation with the Claimant by Maestro, in
accordance with the requirements of TUPE; that the Claimant’s dismissal by PCL
had been on the grounds of age, contrary to the Employment Equality (Age)
Regulations 2006; and, further, that his dismissal was unfair under both
section 98A Employment Rights Act 1996 (automatic unfairness in failing
to follow any procedure) and section 98 (objectively unfair redundancy and
dismissal in circumstances which the Tribunal regarded as “lamentable”).
26.
Before the Tribunal PCL argued that the Claimant’s employment had not in
fact transferred from Maestro to PCL, by virtue of the provisions of regulation
8(7) of TUPE and the Employment Appeal Tribunal’s decision in Oakland v.
Wellswood (Yorkshire) Limited [2009] IRLR 250. Regulation 8(7)
provides:
“Regulations 4 and 7 do not apply to any relevant transfer where
the transferor is the subject of bankruptcy proceedings or any analogous
insolvency proceedings which have been instituted with a view to the liquidation
of the assets of the transferor and are under the supervision of an insolvency
practitioner.”
Regulations 4 and 7 deal with the effect of a relevant transfer
on contracts of employment, and with dismissal of employees because of a
relevant transfer.
27.
The Tribunal rejected this submission. They held that neither the
decision of the Employment Appeal Tribunal, nor the subsequent decision of the
Court of Appeal, in Oakland were relevant to the present case
because it was clear that this Claimant was not dismissed by the Administrator
at a time when Maestro was in administration. He was dismissed by Mr Mitchison
of PCL, the transferee, after a TUPE transfer had taken place.
28.
Further, in relation to regulation 8(7), the Tribunal said that that
regulation did not apply where the transfer arose from a “pre-pack” sale
agreement entered into by an Administrator, who clearly intended, by the terms
of that agreement, to transfer the business as a going concern. The Tribunal
concluded on the evidence that the transfer was not done with a view to the
“liquidation of the assets” of Maestro, but with a view to the preservation of
the business as a going concern.
29.
Thus, the Tribunal found that regulations 8(1) to (6) applied; that
Maestro was subject to “relevant insolvency proceedings” as defined in
regulation 8(6); and that the Claimant was a “relevant employee” within
regulation 8(2)(a). The argument relating to regulation 8(7) has not been
resurrected in this appeal.
30.
In the original liability judgment, the Secretary of State was found to
be liable to the Claimant for payment in lieu of notice; unauthorised
deductions from wages; payment for accrued but unpaid holiday; and payment of
13 weeks pay for Maestro’s failure to consult pursuant to regulations 15 and 16
of TUPE.
31.
Subsequently, after sitting in chambers on 9 February 2010, the Tribunal
promulgated their reasoned remedy judgment on 4 March 2010. In the Judgment
itself, on the first two pages of this document, the Tribunal made the
following awards to the Claimant.
32.
The Secretary of State was ordered to make the following payments:
(1) £3,534.84
in respect of pay in lieu of notice
(2) £224.56
for accrued and unpaid holiday pay
(3) £505.26
for unauthorised deductions
(4) £3,649.36
as being 13 weeks pay pursuant to regulation 15 of TUPE.
33.
PCL was ordered to pay £10,000 with interest, in respect of injury to
feelings for unlawful age discrimination. Further, at paragraph 7, PCL was
ordered to pay compensation to the Claimant for unfair dismissal in the sum of
£9,975 for the basic award and £31,468.86 for the compensatory award.
34.
However, in their Reasons the Tribunal said this at paragraph 14:
“In light of our finding that the Claimant was unfairly
dismissed he is entitled to a basic award equal to 28.5 weeks pay. That pay is
subject to the statutory cap and is therefore calculated at £9,975. For the
reasons set out above we consider the Secretary of State to be liable for that
payment.”
35.
On 5 March 2010 Mr Mitchison wrote to the Tribunal suggesting that there
was an error in the remedy judgment and asking for it to be corrected.
Referring to the inconsistency between paragraph 7 of the Judgment and
paragraph 14 of the Reasons, he stated that the basic award should be ordered
to be paid by the Secretary of State.
36.
The Tribunal’s response, on 18 March, was as follows:
“The Judgment is correct, and paragraph 14 is in error. The
dismissal took place after the transfer. Employment Judge Kurrein intends to
review this error of his own motion and invites submissions from the parties
within 14 days of the date of this letter …”
37.
Unfortunately the procedural picture then becomes somewhat confusing,
and we need to refer to this briefly.
Review Proceedings
38.
In his written submissions in response to this invitation, presented to
the Tribunal on behalf of the Secretary of State, Mr Heppinstall took the
opportunity to invite the Tribunal to conduct a more comprehensive review of
both their liability and remedy judgments. By that stage, the Secretary of
State had lodged Notices of Appeal at the Employment Appeal Tribunal against
both judgments. The Tribunal was therefore invited to review both judgments in
the interests of justice, so as to obviate the need for, and costs of, these
appeals.
39.
The procedure adopted was then as follows. In the Secretary of State’s
submissions the Tribunal was asked both to extend time for such a review and to
issue a rule 36(2)(a) notice to the other parties. It appears that, in error,
the Tribunal issued only a Notice of Review Hearing. At that hearing, on 8
June 2010, the Tribunal raised the failure to issue the requisite notice, but we
are told that all parties, including Mr Mitchison then appearing in person for
PCL, agreed to waive any procedural defect and to proceed with the review. The
review hearing therefore went ahead.
40.
No further evidence was adduced. At the end of submissions the parties
withdrew and the Tribunal subsequently announced their decision and gave short,
oral reasons for deciding, in the interests of justice, to review both their earlier
judgments. The Employment Judge indicated that they accepted the submissions
of the Secretary of State. He then explained how they proposed to vary their
original judgments to reflect that. The Review Judgments were then both
promulgated with reasons on 9 July 2010, effectively being substituted for each
of the original judgments.
41.
We have set out this procedural history because Mr Solomon, appearing
before us on behalf of PCL, raised in his skeleton argument a number of
alleged, procedural irregularities in respect of this review process, which
were said to vitiate the Tribunal’s decision to conduct a review. These were
new points, not raised in PCL’s Notices of Appeal, and Mr Solomon has since
clarified that he does not seek leave to amend the Notices of Appeal, in order
to advance these arguments as part of PCL’s appeal.
42.
However, he draws attention to the unsatisfactory nature of the
procedure adopted below in this case which, he submits, resulted in the Review
Judgments simply being substituted for the original Judgments, without it being
made clear what exactly was being reviewed, and why. The fact of the 8 June
hearing is not even referred to in the Review Judgments.
43.
It is possible, on a careful comparison between the original judgments
and the judgments on review, to understand the Tribunal’s decisions on review
and the reasons for them, albeit briefly expressed. However, we consider that
there is some force in the criticisms made by Mr Solomon. Further, the
situation was not helped by the fact that the Employment Judge had apparently
indicated orally, at the original hearing, that the Secretary of State would be
liable for the basic award, leading Mr Mitchison to consider that there had
been an error on the face of the subsequent order, and to write to the Tribunal
on 5 March to seek to put it right.
44.
There is a wide, general power given to Tribunals, by rule 34(3) of the
2004 Regulations, to review their judgments if the interests of justice require
such a review; and to do so either on application by a party, or by the
Tribunal or Employment Judge acting on their own initiative. Further, the
hearing of an application for a review can continue, notwithstanding the fact
that the Tribunal’s decision is under appeal to the Employment Appeal Tribunal
(see Blackpole Furniture Limited v. Sullivan [1978] ICR 558). On
review a Tribunal can confirm, vary or revoke the original judgment; and the
power to vary the judgment is sufficiently wide to enable a Tribunal to reverse
the original decision completely, if appropriate.
45.
In this case, however, whilst we can understand the approach the
Tribunal took at the review hearing, suffice it to say that the confusion that
ensued has not assisted the progress of this litigation. In our view, it would
have been preferable for the Tribunal to promulgate entirely fresh judgments on
review, explaining clearly which aspects of the original judgments and of their
reasoning were being varied on review, and why.
46.
Since what happened here is not being pursued as a specific ground of
appeal in this case we do not feel it necessary to comment further, save to say
that, in our view, the procedure adopted here by the Tribunal was unhelpful
and, as a matter of practice, should not be followed.
47.
In the circumstances, since the Review Judgments effectively substitute
those which were originally promulgated, PCL’s appeal against the original
remedy judgment should now be dismissed, and Mr Solomon fairly accepts that.
The substantive points on appeal can properly be dealt with in the two appeals
now pursued against the substituted Review Judgments.
48.
We return, then, to the substantive issues.
49.
In his submissions to the Tribunal, for the purposes of the review
hearing, the Secretary of State’s case was essentially as follows:
(i)
The Secretary of State was not liable to make any payments in respect of a
dismissal occurring after a relevant transfer, and PCL should be liable for all
such payments. Paragraph 14 of the original remedy judgment reasons was in
error and, further, the judgment was not correct in ordering the Secretary of
State to make payment in lieu of notice.
(ii)
The Secretary of State could not be liable for payment pursuant to regulation
15 of TUPE because it is not a payment to which the statutory guarantee in
section 184 Employment Rights Act 1996 (ERA) applies.
(iii)
The Tribunal should also reflect the fact that the Secretary of State had now
made payments to the Claimant in respect of his pay arrears and accrued holiday
pay, for which the Secretary of State was liable, and that therefore all valid
claims against the Secretary of State had been satisfied.
50.
Following the Review Hearing the Tribunal accepted all these
submissions, so that PCL were ordered to pay the remaining awards to the
Claimant, and the claims against the Secretary of State were described as being
“dismissed”. In fact, a better description would have been that all the claims
for which the Secretary of State accepted liability had been discharged and
were therefore no longer live claims before the Tribunal.
51.
The Tribunal held, for the reasons set out at paragraphs 46 - 48 of
their reviewed liability judgment, that the Secretary of State was only liable
for sums, payable pursuant to Parts XI and XII of the ERA, that were due on or
before the transfer date. In so deciding, they accepted Mr Heppinstall’s
submissions as to the correct interpretation of regulation 8(3) of TUPE,
supported by the terms of Article 5 of Council Directive 2001/23/EC.
52.
As a result of those findings, both the appeals lodged at the Employment
Appeal Tribunal by the Secretary of State have now been dismissed upon
withdrawal.
The Appeal
53.
We shall first set out the relevant legal framework.
54.
Regulation 8 of TUPE provides as follows:
“Insolvency
(1) If at the time of a relevant transfer the transferor is
subject to relevant insolvency proceedings paragraphs (2) to (6) apply.
(2) In this regulation 'relevant employee' means an employee of
the transferor -
(a) whose contract of employment
transfers to the transferee by virtue of the operation of these Regulations; or
(b) whose employment with the
transferor is terminated before the time of the relevant transfer in the
circumstances described in regulation 7(1).
(3) The relevant statutory scheme specified in paragraph (4)(b) (including
that sub-paragraph as applied by paragraph 5 of Schedule 1) shall apply in the
case of a relevant employee irrespective of the fact that the qualifying
requirement that the employee's employment has been terminated is not met and
for those purposes the date of the transfer shall be treated as the date of the
termination and the transferor shall be treated as the employer.
(4) In this regulation the 'relevant statutory schemes' are –
(a) Chapter VI of Part XI of the 1996 Act;
(b) Part XII of the 1996 Act.
(5) Regulation 4 shall not operate to transfer liability for the
sums payable to the relevant employee under the relevant statutory schemes.
(6) In this regulation 'relevant insolvency proceedings' means
insolvency proceedings which have been opened in relation to the transferor not
with a view to the liquidation of the assets of the transferor and which are
under the supervision of an insolvency practitioner.
(7) Regulations 4 and 7 do not apply to any relevant transfer
where the transferor is the subject of bankruptcy proceedings or any analogous
insolvency proceedings which have been instituted with a view to the
liquidation of the assets of the transferor and are under the supervision of an
insolvency practitioner.”
55.
As Elias J. explained in Secretary of State for Trade and Industry
v. Slater [2007] IRLR 928, regulation 8 envisages the operation of two
different sets of rules, depending upon whether regulation 8(6) or (7) is the
applicable insolvency procedure. It is not in dispute in this case that we are
concerned with regulation 8(6). As we indicated earlier, Mr Solomon has not
sought to resurrect the argument he advanced below that regulation 8(7) applied
here.
56.
The “relevant statutory scheme” in this case is Part XII of ERA which,
so far as is relevant, provides as follows:
“182 Employee's rights on insolvency of employer
If, on an application made to him in writing by an employee, the
Secretary of State is satisfied that –
(a) the employee's employer has become insolvent,
(b) the employee's employment has been terminated, and
(c) on the
appropriate date the employee was entitled to be paid the whole or part of any
debt to which this Part applies,
the Secretary of State shall, subject to section 186, pay the
employee out of the National Insurance Fund the amount to which, in the opinion
of the Secretary of State, the employee is entitled in respect of the debt.
…
184 Debts to which Part applies
(1) This Part applies to the following debts-
(a) any arrears of pay in respect of
one or more (but not more than eight) weeks,
(b) any amount which the employer is
liable to pay the employee for the period of notice required by section 86(1)
of (2) or for any failure of the employer to give the period of notice required
by section 86(1),
(c) any holiday pay-
(i) in respect of
a period or periods of holiday not exceeding six weeks in all, and
(ii) to which the employee became
entitled during the twelve months ending with the appropriate date,
(d) any basic award of compensation
for unfair dismissal or so much of an award under a designated dismissal
procedures agreement as does not exceed any basic award of compensation for
unfair dismissal to which the employee would be entitled but for the agreement,
and
(e) any reasonable sum by way of reimbursement
of the whole or part of any fee or premium paid by an apprentice or articled
clerk.
(2) For the purposes of subsection (1)(a) the following amounts
shall be treated as arrears of pay-
(a) a guarantee payment,
(b) any payment for time off under
Part VI of this Act or section 169 of the Trade Union and Labour Relations
(Consolidation) Act 1992 (payment for time off for carrying out trade union
duties etc),
(c) remuneration on suspension on
medical grounds under section 64 of this Act and remuneration on suspension on
maternity grounds under section 68 of this Act, and
(d) remuneration under a protective
award under section 189 of the Trade Union and Labour Relations (Consolidation)
Act 1992.
(3) In subsection (1)(c) "holiday pay", in relation
to an employee, means-
(a) pay in respect of a holiday
actually taken by the employee, or
(b) any accrued holiday pay which,
under the employee's contract of employment, would in the ordinary course have
become payable to him in respect of the period of a holiday if his employment
with the employer had continued until he became entitled to a holiday.
…
185 The appropriate date
In this Part ‘the appropriate date’-
(a) in relation to arrears of pay
(not being remuneration under a protective award made under section 189 of the
Trade Union and Labour Relations (Consolidation) Act 1992) and to holiday pay,
means the date on which the employer became insolvent,
(b) in relation to a basic award of
compensation for unfair dismissal and to remuneration under a protective award
so made, means whichever is the latest of-
(i) the date on
which the employer became insolvent,
(ii) the date of
the termination of the employee’s employment, and
(iii) the date on
which the award was made, and
(c) in relation to any other debt to
which this Part applies, means whichever is the later of-
(i) the date on
which the employer became insolvent, and
(ii) the date of
the termination of the employee’s employment.”
Section 186 makes provision for limits to be set on the amounts
payable under section 182.
57.
Thus in general terms the Part XII regime bestows various rights on an
employee should his or her employer become formally insolvent. One of these
rights is that the employee may obtain payment of certain “guaranteed debts”
from the National Insurance Fund, i.e. the Secretary of State. In general, the
scheme applies only to certain, identified debts as set out in the relevant
sections. There is no right to protection in respect of claims which have not
been made at the date of the insolvency and which therefore have not given rise
to a debt of the relevant kind.
58.
In Slater Elias P explained the rationale behind
regulation 8 in the following paragraphs, with which we all agree:
“13. The rationale behind reg. 8
The scheme of the TUPE regulations broadly is this. Typically
where there is a transfer of an undertaking, reg. 4 provides that the employees
are automatically transferred to the transferee with the latter taking over
all the liabilities of the transferor.
14. Regulation 7 provides that any dismissal will be automatically
unfair unless it is for an economic, technical or organisational reason
connected with the transfer. However, it is recognised that to apply these
principles to insolvent businesses would discourage potential purchasers of
the business from acquiring the business. That would be to the detriment of
the employees.
15. Regulation 8 therefore aims to relieve transferees of the
burdens which would otherwise apply in certain defined circumstances.
16. Essentially this is done in two quite distinct ways. The
most extensive exception from the effect of TUPE is created by reg. 8(7)
(which is intended to reflect the provisions of Article 5(1) of the
Directive). This provides that where the insolvency proceedings are analogous
to bankruptcy proceedings and have been instituted with a view to liquidation
of the assets, then neither reg. 4 nor 7 apply at all. There is no transfer of
staff to the transferee and no claim for unfair dismissal against him (although
other provisions of TUPE, such as the information and consultation regulations,
continue to operate).
17. A narrower exception is carved out where reg. 8(6) applies.
This applies to insolvency proceedings where the purpose is not with a view to
liquidation of assets. This does not altogether exclude, but it does modify,
the effects of regs. 4 and 7. It means that the transferee does not pick up
all of the liabilities which would otherwise transfer to him.
18. Regulation 8(3) has the effect of making the Secretary of
State liable for the obligations still outstanding at the date of transfer
which are caught by Part XII of the 1996 Act. There is a deemed dismissal at
that stage for purposes of fixing those liabilities even although there has
been no actual dismissal. However, to the extent that the liabilities exceed
the statutory limits, liability transfers to the transferee.
19. Regulation 8(5) has the effect of making the insolvency fund
rather than the transferee liable to meet any redundancy liabilities. (These
will typically arise where there are dismissals for redundancy which are not
for economic, technical or organisational reasons).”
59.
More recently, further helpful observations on the meaning and effect of
regulation 8 have been made by the Employment Appeal Tribunal (Underhill J
presiding) in OTG Limited v. Barke and Others UKEAT/0320/09/RN
(unreported, BAILII: [2011] UKEAT 0320_09_1602, 16 February 2011). The primary issue in that case was whether
administration proceedings under Schedule B1 of the Insolvency Act 1986
can ever constitute “bankruptcy or analogous proceedings … instituted with a
view to the liquidation of the assets of the transferor”. The EAT were
therefore not directly concerned with the issue arising in the present appeal.
However, in the case of the Claimant Mr Barke, it was common ground that he was
not given notice of dismissal until the day following the transfer. He was
therefore in a position analogous to that of the Claimant in the present case.
60.
Having set out regulation 8 in full the President commented, at
paragraph 31, that, “The effect of those provisions hardly leaps from the
page”, an observation with which we entirely agree. Assuming, however, that
regulation 8(7) did not apply, he described the way in which the provisions at
paragraphs (1) to (6) work in general terms as follows:
“(1) The first question is whether the claimant is a ‘relevant
employee’, as defined by para. (2).
There are two kinds of relevant employee:
(a) those who have not been
dismissed pre-transfer and whose employment has accordingly transferred under
reg. 4 in the ordinary way (remember, this is not, ex hypothesi, a case
where reg. 4 has been disapplied by reg. 8 (7));
(b) those who have been dismissed
pre-transfer “in the circumstances described in regulation 7 (1)” - that is, in
the usual shorthand, who have been dismissed for a transfer-related non-ETO reason
and whose dismissal is accordingly automatically unfair.
(2) As regards (a) - those who have transferred - the broad
result is that the Part XII guarantee (that being “the relevant statutory
scheme specified in paragraph (4) (b)”) applies, and the transferee is relieved
of the corresponding liabilities: that is the effect of paras. (3) and (5)
respectively. But it is important to understand how that is achieved. In this
regard, para. (3) effects three specific modifications to the provisions of
Part XII:
(i) The “qualifying condition that
the employee's employment has been terminated” - i.e. section 182 (b) (see
para. 2 above) - is disapplied: in other words, the employee is entitled to be
paid any sums due at “the appropriate date” even though he is in fact, by
virtue of reg. 4, still employed.
(ii) The date of transfer is treated
as the date of termination. The reason why the date of termination matters is
that it is part of the mechanism for calculating “the appropriate date”.
(iii) The transferor is treated as
the employer notwithstanding the transfer. That matters because it is the
employer's obligations that the Secretary of State guarantees.
Thus the transferee acquires the employee without the baggage of
past liabilities; but it is necessary to look to the detail to see exactly
which liabilities count as past. It should be noted that para. (3) says
nothing about the redundancy payments guarantee.
(3) As regards (b) - those who have been dismissed pre-transfer
but for a non-ETO transfer-related reason (and thus unfairly) - the Secretary
of State is of course prima facie liable under the Chapter XII
guarantee; but the effect of para. (5) is that he is not relieved of liability
by the effect of reg. 4.”
61.
The EAT found that Mr Barke came under head (a), as does the Claimant in
the present appeal. They then said this at paragraph 32:
“32. … Reg. 8 plainly has no application to his claim for a redundancy
payment: it was, as we have said, OTG who dismissed him and there is nothing in
reg. 8 to affect its liability for the consequent redundancy payment. But nor
does it affect his other two claims - for pay in lieu of notice and in respect
of untaken holiday. The question as regards those is whether they were due on
the appropriate date: see section 182 (c) (para. 2 above). The appropriate
date is, by section 185 (c), the later of the date of the employer’s insolvency
and the date of the termination of the employment. However, as explained at
para. 31 (2) (ii) above, in Mr Barke's case the date of termination is deemed
to be the date of transfer: on that basis the two dates are in fact the same.
As at that date neither of the obligations for which Mr. Barke claims had
arisen, since, as noted above, these only accrued on termination: that is of
course actual termination, since the deeming provisions in para. (3) do not
apply to the accrual of the obligations themselves. Accordingly OTG remains
liable for the full amount awarded by the Tribunal, albeit on a different
basis.”
The Parties’ Submissions
62.
On behalf of PCL Mr Solomon does not seek to challenge any of the
Tribunal’s findings of fact. Nor does he challenge their conclusion that
paragraphs (1) to (6) of regulation 8 apply. He does not appeal against the
finding that the Claimant was dismissed after his employment was transferred.
63.
Mr Solomon focuses instead on regulation 8(3), advancing his arguments
essentially as follows.
64.
He points out, first, that this is not a case in which the Claimant is
adversely affected by either outcome. His rights, as an individual worker,
have therefore been safeguarded, whether PCL or the Secretary of State is
liable for the amounts claimed.
65.
The issue therefore falls to be determined on the correct interpretation
of regulation 8 and that requires effect to be given to the purpose of that
regulation. Whilst the general purpose of TUPE is to protect the rights of
employees, regulation 8 is concerned, primarily, with promoting a “rescue
culture”, under which potential purchasers of insolvent businesses are not
deterred from taking them on by the prospect of inheriting the entire workforce
on its previous terms.
66.
Mr Solomon submits that this dual purpose, of promoting a rescue culture
and protecting the rights of employees, is best achieved by the Secretary of
State having liability for the claims which are the subject matter of this
appeal.
67.
In this case the Tribunal found that the “pre-pack” sale agreement was
not entered into with a view to liquidation of the assets. Regulation 4 does
not therefore apply to those sums that would otherwise be payable by the
Secretary of State when an employer becomes insolvent (under regulation 8(5)).
Applying regulation 8(3), he submits that the Secretary of State remains liable
for all those payments listed in Part XII of the ERA. That includes all those
debts set out in section 184, including arrears of pay, notice pay, accrued
holiday pay and the basic award. In holding that the Secretary of State was
liable only for sums, payable pursuant to Part XII, that were due on or before
the transfer date, the Tribunal erred in law, apparently restricting the
application of the provisions to cases where there is an express dismissal
prior to a transfer.
68.
Thus the focus of Mr Solomon’s submissions is Regulation 8(3) and the
deeming provisions it contains. Their effect, he submits, is that the relevant
statutory scheme specified in paragraph 4(b), that is Part XII ERA, shall apply
in the case of a relevant employee, as this Claimant was found to be,
irrespective of the fact that the Claimant’s employment has not in fact been
terminated. Thus, whether or not the Claimant was (a) dismissed before the
transfer and is therefore a relevant employee for the purposes of regulation
8(2)(b); or (b) was transferred and then dismissed after the transfer, making
him a relevant employee for the purposes of regulation 8(2)(a), Part XII ERA
applies; and the Secretary of State remains liable for the basic award and indeed
for all the other debts listed in section 184.
69.
By virtue of this “statutory fiction”, created by the deeming provisions,
the date of the transfer shall be treated as the date of the termination and
the transferor shall be treated as the employer. Liability therefore falls on
the Secretary of State whenever there is a transfer from an insolvent
employer. Since the effect of regulation 8(3) is that there is always a deemed
dismissal at the date of transfer, all Part XII “debts” crystallise at that date,
even if there has been no actual dismissal prior to transfer. It is wrong to
say that the debts for which the Secretary of State is liable have to arise
before the transfer and the Tribunal erred in coming to that conclusion.
70.
Further, he submits that the observations of Underhill J at paragraph 32
of his judgment in OTG v Barke, to the effect that the deeming
provisions do not apply to the accrual of the obligations themselves, are
wrong. The only reason that there is an obligation to pay is because of the
operation of the deemed dismissal provisions. The fact that regulation 8(3)
deems the date of transfer to be the date of termination and the transferor to
be the employer means that, whether or not the dismissal took place after the
transfer, it is deemed to have taken place as at the date of transfer. He
submits, therefore, that we should not follow the reasoning of the EAT in that
case; and that the construction of these provisions for which he contends
accords more readily with the intention of Parliament to implement a rescue
culture and to minimise the burden on acquiring employers of transferring
employees.
71.
Mr Heppinstall submits that this is to misunderstand entirely the
purpose of regulation 8(3). The Tribunal directed themselves correctly on review
and the EAT should not interfere with their decision. Regulation 8(3) is part
of the implementation of Directive 2001/23/EC. The debts of the transferor
which come within the scope of the State guarantee, as listed in section 184,
are frozen at transfer and paid, within certain limits, by the Secretary of
State. However, the debts have to arise before the transfer. Any debt or
liability arising after transfer is beyond the scope of the guarantee. Without
modification to section 182 transferring employees would be unable to take
advantage of the guarantee since there would have been no termination.
Regulation 8(3) therefore supplies the necessary deeming modification, so that
actual termination is not required to qualify for payments under the Part XII
scheme. The EAT’s observations in OTG v Barke are correct, as
are those of Elias J in Slater in referring to the regulation
making the Secretary of State liable for those obligations which are “still
outstanding” at the date of transfer. In the circumstances, both the basic
award and notice pay in this case fall to be paid by PCL, who unfairly and
wrongfully dismissed the Claimant after the transfer.
Discussion and Conclusion
72.
Both counsel ranged far and wide in their submissions before us, in
addressing the different results which might flow from their respective
contentions. In the event we have formed a clear view that the submissions of
Mr Heppinstall are correct. Our reasoning is as follows.
73.
It is important to keep in mind that the TUPE Regulations were
implemented in order to give effect to Council Directive 2001/23/EC, the
“Acquired Rights Directive”. Chapter 1, comprising articles 1 and 2, defines
the scope of the Directive and, specifically, the transfers to which it
applies. The main provisions in chapter 2, articles 3 and 4, provide for the
contracts of employment of employees in a transferred undertaking to go with
the transfer (art. 3) and for dismissals in connection with the transfer to be
unlawful, subject to certain exceptions.
74.
Article 5 provides for a two-fold exception to the primary protection
afforded by articles 3 and 4. So far as is relevant to this case, article 5.1
and 5.2(a) provide as follows:
"1. Unless Member States provide otherwise, Articles 3 and
4 shall not apply to any transfer of an undertaking, business or part of an
undertaking or business where the transferor is the subject of bankruptcy
proceedings or any analogous insolvency proceedings which have been instituted
with a view to the liquidation of the assets of the transferor and are under
the supervision of a competent public authority (which may be an insolvency
practitioner authorised by a competent public authority).
2. Where Articles 3 and 4 apply to a transfer during insolvency
proceedings which have been opened in relation to a transferor (whether or not
those proceedings have been instituted with a view to the liquidation of the
assets of the transferor) and provided that such proceedings are under the
supervision of a competent public authority (which may be an insolvency
practitioner determined by national law) a Member State may provide that-
(a) notwithstanding Article 3(1), the
transferor's debts arising from any contracts of employment or employment
relationships and payable before the transfer or before the opening of the
insolvency proceedings shall not be transferred to the transferee, provided
that such proceedings give rise, under the law of that Member State, to
protection at least equivalent to that provided for in situations covered by Council
Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the
Member States relating to the protection of employees in the event of the
insolvency of their employer …”
75.
Thus by article 5.2, as Underhill J pointed out in OTG v. Barke,
where a transfer takes place in any form of insolvency situation the Member
State may provide that debts of the transferor arising from the contract of
employment or employment relationship and payable before the transfer shall not
be transferred to the transferee, and may instead provide that those debts are
paid by the State. Regulations 8(2) – (6) give effect to article 5.2(a).
76.
The effect of article 5.2 (a) and TUPE is that the debts of the
transferor which are within the scope of the State guarantee (i.e. those listed
in section 184) are therefore frozen at transfer and paid by the Secretary of
State.
77.
As Mr Heppinstall points out, if a business is transferred in what he
terms a “non-liquidation insolvency situation”, and that commonly means
administration, the Secretary of State shoulders the burden of some of the
transferor’s debts arising from contracts of employment or employment
relationships at the point of transfer (subject to certain limits), which do
not then pass to the transferee. In this way the State is effectively
subsidising the rescue of an insolvent employer, so that acquiring employers
receive the transferring employees without certain debts, thereby promoting the
rescue culture which underpins these provisions.
78.
However, the key words in article 5.2(a), for the purposes of the
present case, seem to us to be those providing that the contractual or other
debts that shall not be transferred to the transferee are those which are
“payable before the transfer”.
79.
We therefore agree with Mr Heppinstall that the relevant debts have to
arise before the transfer in order to come within the State guarantee provided
for in section 184. This, in our judgment, is what the EAT were saying, both in
Slater and then in OTG v. Barke, in the passages we
have referred to above. We find ourselves entirely in agreement with the
reasoning of the EAT in those cases. Notwithstanding the fact that the cases
concerned different facts, the EAT’s observations, in appeals presided over by
two Presidents of the EAT, as to the nature and effect of regulation 8 were
clearly of general application and, in our judgment, they are correct.
80.
As set out above, payments made pursuant to the State guarantee are
normally made in the circumstances set out in section 182. These include
requirements that, as at the date when a claim in writing is made to the
Secretary of State, the employer must be insolvent; that qualifying debts are
due on “the appropriate date” as defined; and that “the employee’s employment
has been terminated”.
81.
In the present case the Claimant’s contract of employment was found to
have been terminated only after transfer on 13 January. He was therefore a
relevant employee of the transferor, as defined in regulation 8(2)(a).
82.
As Mr Heppinstall submits, in our view correctly, without some
modification to the terms of section 182, employees transferring in such
circumstances would be unable to avail themselves of the guarantee provided by
that section because, as at the date of transfer, there would have been no
termination of their employment.
83.
The difficulty is resolved by means of regulation 8(3), which treats the
date of transfer as the date of termination and treats the transferor as the
employer, thereby adapting Chapter XII so as to give effect to the aim of
article 5.2, modifying both section 182 and the calculation of the “appropriate
date” defined by section 185, to take into account the fact that the debts are
frozen as at the date of transfer. In our view, the wording of regulation 8(3)
itself suggests that the deeming provisions it contains have effect only “for
those purposes”, namely for the purpose of adapting Part XII to achieve the
purpose of article 5.2.
84.
It follows that we do not accept as correct the construction of
regulation 8(3) advanced by Mr Solomon. This seems to us to be inconsistent
with the policy underpinning the Directive and in particular article 5.2. The
construction for which he contends would not, in our view, accord with the
intention of the legislation to minimise the burden on acquiring employers of
the liabilities of transferring employees. Since this Claimant was unfairly
dismissed by the acquiring employer after transfer, PCL’s liability to pay the
basic award and notice pay cannot sensibly be said to constitute a liability of
a transferring employee. As at the time he is being transferred there is no
such liability.
85.
Nor can we see any pressing need for regulation 8(3) to be construed in
the way that Mr Solomon suggests, so as to provide incentives for a “pre-pack”
administration, in addition to those which are already provided by the article
5.2 derogation. As Underhill J pointed out in OTG v. Barke there
is a clear distinction in the Directive between liquidation, where safeguarding
the interests of individual workers is paramount, and administration, where he
observed:
“Disincentives to rescue are only mitigated by the derogations
permitted by article 5.2 … Those derogations as implemented in the UK –
specifically the picking up of accrued liabilities by the Secretary of State
(regulation 8(1) – (6) … do in fact go a considerable way to diminishing the
disincentive to rescue.”
86.
In our judgment the Tribunal were right to conclude as they did on
review in this case. PCL is liable for payment of the basic award and notice pay
arising from the First Respondent’s unfair dismissal. We therefore dismiss both
PCL’s appeals.
