Loughborough Solicitors


Loughborough Solicitors

CAB Automotive Ltd v Blake and others

The third respondent company manufactured interiors for motor vehicles. The first and second respondents represented groups of dismissed employees. Over 50% of the third respondent’s business was with MG Rover. On 8 April 2005, MG Rover went into administration. On that day, the third respondent released all temporary staff and laid off full-time employees who were working on the MG Rover production lines. The third respondent went into administration one month later. The administrator nominated M to handle the administration. On 5 may, M visited the third respondent and spoke to G, a consultant responsible for its day-to-day management. He informed G that ‘his role was to tidy up the business to sell to somebody else,’ and instructed him to arrange a meeting with senior managers for the following day. At that meeting, M told the mangers that they needed to cut the business ‘back to the bone and that, save for those employees who were involved in the operational needs of the sustainable business, all other employees should be dismissed on grounds of redundancy’. Seventy-two employees were selected for redundancy, and meetings were held with the group to be made redundant that morning. The directors of the third respondent were not involved in the meetings between M and the management. On 3 May, shortly before the third respondent went into administration, a company involved in designing interiors for motor vehicles, A Ltd, went into administration. There was an overlap between the management of A Ltd and that of the third respondent. Subsequently, both the businesses of A Ltd and the third respondent were transferred to a company purchased by the mutual directors of the two companies and M and G. That company became the appellant. The dismissed employees presented a claim before the employment tribunal, alleging that they had been unfairly dismissed, either by the third respondent or by the appellant. The tribunal held that the dismissals were automatically unfair by virtue of r 8(1) of theTransfer of Undertakings (Protection of Employment) Regulations 1981, SI 1981/1794 on the basis, inter alia, that the dismissals had been ‘connected with the transfer’. The appellant challenged that decision.

It submitted, inter alia, that the tribunal had erred in treating the provisions of r 8(1) and (2) of the regulations as being mutually exclusive. Moreover, the tribunal had failed adequately to consider the question necessitated by the terms of r 8(1) of the regulations.

The appeal would be allowed.

A determination of a claim under r 8(1) of the Transfer of Undertakings (Protection of Employment) Regulations 1981, SI 1981/1794 required the identification of the reason for dismissal.

In the instant case, the tribunal had failed properly to address that question. In concluding that the claim had been made out on the basis that the dismissals had been ‘connected with a transfer,’ it had erred in law. Moreover, it was apparent from the tribunal’s reasoning that it had erroneously thought that rr 8(1) and (2) of the regulations were alternatives.

Accordingly, the matter would be remitted to the same tribunal for fresh consideration.

British Fuels Ltd v Baxendale and another; Wilson and others v St Helens Borough Council.

Employment—Continuity—Transfer of trade, business or undertaking—Whether, following transfer, employees entitled to retain benefit of previous terms and conditions—Transfer of Undertakings(Protection of Employment) Regulations 1981, regs 5, 8, 12—Council Directive (EEC) 77/187.
The two appeals raised important issues under the Transfer of Undertakings (Protection of Employment) Regulations 1981 which were made to give effect to Council Directive (EEC) 77/187. Regulation 5 provided that ‘a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee’. Regulation 8 provided that the dismissal of an employee by the transferor or transferee, either before or after the transfer, was automatically unfair if the transfer or a reason connected with it was the reason or principal reason for the dismissal; however, the principle of automatic unfair dismissal did not apply where the reason or principal reason for dismissal was ‘an economic, technical or organisational reason entailing changes in the workforce’. Regulation 12 provided that ‘Any provision of any agreement (whether a contract of employment or not) shall be void in so far as it purports to exclude or limit the operation of Regulation 5, 8 or 10’.

(1) The overriding emphasis in the European Court’s judgments was that the existing rights of employees were to be safeguarded if there was a transfer. That meant no more and no less than that the employee could look to the transferee to perform those obligations which the employee could have enforced against the transferor. The employer, be he transferor or transferee, could not use the transfer as a justification for dismissal; however, if he did, it was a question for national law as to what those rights were. In English law, there would as a general rule be no order for specific performance. The claim would be for damages for wrongful dismissal or for statutory rights including reinstatement or re-engagement. Neither the regulations nor the Directive nor the jurisprudence of the Court created a community law right to continue in employment which did not exist under national law. Although some employees did not have statutory rights, eg those in the United Kingdom who had not been employed for a qualifying period, that was inherent in the differences between the national laws and seemed to derive from the wording and limited purpose of the Directive. Thus, where there was a transfer of undertaking and the transferee actually took on the employee, the contract of employment was automatically transferred so that, in absence of a permissible variation, the terms of the initial contract went with the employee, who though he might refuse to go, could not as a matter of public policy waive the rights of the Directive and the regulations conferred on him. Where the transferee did not take on the employees who were dismissed on transfer the dismissal was not a nullity though the contractual rights formerly available against the transferor remained intact against the transferee. For the latter purpose, an employee dismissed prior to transfer contrary to art 4(1) of the Directive was to be treated as still in the employment of the transferor at the date of transfer. Moreover, if a dismissal was unfair, it could be effective as to terminating the working relationship so there was nothing of that to pass onto the transferee. The contract of employment was kept alive only for the purpose of enforcing rights for breach of it or enforcing statutory rights dependent on the contract of employment and not for creating an obligation which did not exist under domestic law to continue the working relationship to the transferee. In the cases of both M and B, the men received substantial payments on the basis that the dismissal had been effective, ie that their employment had been terminated. That was not only realistic but legally the result. It followed that the regulations gave effect and were consistent with the Directive. Further, it was not necessary for their Lordships to refer the issue to the European Court pursuant to art 177.
(2) Although on a transfer the employees’ rights previously existing against the transferor were enforceable against the transferee and could not be amended by the transfer itself, it did not follow that there could not be a variation of the terms of the contract for reasons which were not due to the transfer either on or after the transfer of undertaking. It might be difficult to decide whether the variation was due to the transfer or attributable to some separate cause. If, however, the variation was not due to the transfer made, it could validly be made.

Credit Suisse First Boston (Europe) Ltd v Lister.

Employment—Continuity—Transfer of trade, business or undertaking—Covenant not to engage in any competitive activity for three months following termination of employment—Whether covenant unenforceable—Transfer of Undertakings (Protection of Employment) Regulations 1981, reg 5.
In 1997 the plaintiff, CSFB, entered into negotiations to purchase various undertakings of BZW. At the time the defendant was employed by BZW as head of its European equities business. The plaintiff was anxious to retain as many of BZW’s key employees as possible and accordingly entered into negotiations with a view to agreeing terms on which they would undertake to stay with the business. On 10 November the defendant signed a retention letter which set out the terms offered to him. Clause 6(1) of the offer provided: ‘In consideration of payment of £2,000 … it is also agreed that: (A) In the event of your termination of this agreement or the termination of your employment with CFSB as a result of your voluntary resignation or termination for cause, for a period of three months following such event you will not engage in (a) any competitive activity …’ The transfer of business from BZW to the plaintiff was completed on 3 May 1998. The defendant resigned on 19 June and his employment terminated on 18 September. The plaintiff applied for an interlocutory injunction restraining the defendant from working for a competitor for three months. The judge held that the covenant in cl 6(1) was unenforceable by virtue of reg 5 of the Transfer of Undertakings(Protection of Employment) Regulations 1981 and refused to grant the injunction. It was common ground that the 1981 regulations were enacted in order to give effect to Council Directive (EEC) 77/187 (the Acquired Rights Directive). The plaintiff appealed. It accepted that the directive and the regulations prohibited a variation of the terms of a contract of employment which was detrimental to an employee if the variation was by reason of the transfer of the relevant business, but contended that the alterations to the defendant’s contract of employment were valid, since they were not detrimental and that when deciding whether the variation was detrimental or not it was necessary to consider and balance all the variations effected by reason of the transfer and not merely the particular variation which was said to be void.
The appeal would be dismissed.
The effect of the directive and the regulations was to prohibit an employee from waiving any right conferred on him by the directive, namely the rights conferred upon him by the terms of his contract with the transferor even if the benefit of such a right was set-off by a favourable amendment so as to leave the employee no worse off overall. Since the directive and the regulations had the effect that all the defendant’s rights against BZW became exercisable against the plaintiff, it followed that just as BZW could not have prevented the defendant from working for a competitor, the plaintiff could not do so either. Accordingly, the appeal against the judge’s refusal to grant an interlocutory injunction restraining the defendant from working for a competitor until 18 December failed.

Europièces SA (in liq) v Sanders Case C-399/96.

The defendant Belgian company went into voluntary liquidation and S, who had been its sales representative in Erpent for 21 years, was dismissed with 22 months’ notice. Subsequently, however, S was informed that part of his employer’s business had been transferred to a second company, AIH, and that he would have to carry on his activities on behalf of the liquidation in the Brussels office, principally by realising the best price for the stock of the insolvent company. A draft employment contract was also submitted to him by the transferee, which he rejected. S, who objected to working in Brussels and would not consent to a change in his duties claimed that his employment contract had been unilaterally breached, or, in the very least, terminated. He brought an action in the Brussels Labour Court against both the defendant and AIH for the payment of compensation under various heads including compensation in lieu of notice. With regard to the action against AIH, the Higher Labour Court stayed the proceedings and referred to the Court of Justice of the European Communities the questions whether Council Directive (EEC) 77/187 on the approximation of the laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses, applied to a company in voluntary liquidation (i) applied where a company in voluntary liquidation transferred all or part of its assets to another company from which the worker then took his orders which the company in liquidation stated had to be carried out, and (ii) precluded a worker employed by the transferor of the undertaking from objecting to the transfer of his employment contract or relationship to the transferee.
The court ruled:
(1) In determining whether the directive applied to the transfer of an undertaking subject to an administrative or judicial procedure, the determining factor was the purpose of the procedure in question. Account also had to be taken of the form of the procedure in question, in particular in so far as it meant that the undertaking ceased or continued trading, and of the directive’s objectives. Taking those factors into account, it had already been established that the directive applied in the event of the transfer of an undertaking which was being wound up by the court if that undertaking continued to trade, since continuity of business was assured when the business was transferred. A voluntary liquidation was essentially similar to winding up by the court and it followed that the directive applied equally where the transferred undertaking was being wound up voluntarily; Spano v Fiat Geotech SpA Case C-472/93 [1995] ECR I-4321 and Jules Dethier Équipement SA v Dassy Case C-319/94 [1998] All ER (EC) 346, [1998] ECR I-1061 applied.
(2) Where the employee concerned decided not to continue the employment relationship with the new employer after such a transfer, the protection afforded by the directive was redundant. In that situation, the directive did not apply and it was for the member states to determine the fate of the employment contract or relationship. Furthermore, art 4(2) of the directive provided that if the employment contract or relationship was terminated because the transfer involved a substantial change in working conditions to the detriment of the employee, the employer was to be regarded as having been responsible for the termination. In the instant case, therefore, it was for the national court to examine the reasons why S refused the contract of employment offered to him and to determine whether that contract involved a substantial change in working conditions to his detriment.

Coutinho v Vision Information Services (UK) Ltd and another

The employee joined the employer as an IT project leader and was subsequently made redundant on 30 March 2004. He commenced proceedings on 30 June, alleging that he had been unfairly dismissed and discriminated against on the grounds of his race. A transfer under the Transfer of Undertakings (Protection of Employment) Regulations 1981, SI 1981/1794 (TUPE) took place in July, whereby the business of the employer was transferred to D Ltd. At the hearing before the employment tribunal the employee complained, inter alia, of the refusal by the employer to provide an open reference. The employee had not specifically asked D Ltd to provide him with a reference. The employer ceased trading. On 27 June 2006, the tribunal upheld the employee’s claim that he had been unfairly dismissed and discriminated against. The dismissal was held to be by reason of the transfer, and accordingly, by virtue of TUPE, the employer was liable on the basis that although it was entitled to be suspicious, a proper investigation would have shown that the allegations made against the employee had no substance. At a remedies hearing, the tribunal held that, but for his unfair dismissal by the employer, the employee would, on the balance of probabilities, have been dismissed by reason of redundancy on 31 July 2005, and would have been entitled to compensation upon termination of his employment, and would have been given a good reference. In the event, the employee received an award of £72,000. On 18 October, the employee issued a second claim, in which he claimed that he had been victimised, and had suffered further discrimination. He submitted, inter alia, that the allegations brought against him for gross misconduct amounted to an aggressive mitigation of his claim, and he complained about the failure of the employer and D Ltd to provide a reference. The employer and D Ltd submitted that the alleged act of victimisation would not have transferred to D Ltd, and relied on reg 4(2) of TUPE. They also stated that the TUPE transfer occurred in July 2004, whereas the alleged act of victimisation relied on by the employee occurred in August 2006. The claims against D Ltd were struck out. The chairman found that whilst it was possible that a claim could be brought against a transferee for failure to provide a fair reference on the basis that there had been a transfer of a duty to provide a fair reference, in reality it was plain that the request was one made of the employer and not of D Ltd. It also found that it was impossible how that could be said to be a failure of duty on the part of D Ltd, after the TUPE transfer. The employee appealed against that decision.

He submitted that the decision to strike out the claim against the employer had been wrong on the facts; that the chairman had been wrong in law; and that the duty to provide a reference passed to D Ltd as a result of the TUPE transfer. He also submitted that if he had been in error in applying to the employer for a reference as opposed to D Ltd that mistake counted for nothing.

The appeal would be dismissed.

If the material duty arose after the transfer, the transferee could not be liable by virtue of reg 4(2). It would place an impossible burden on the transferee. Victimisation occurred when the claimant suffered the detriment. What was taken over as a result of TUPE were existing liabilities. If victimisation occurred after that, it was not a transferred obligation that had been broken.

Prior to the tort of victimisation arising in the circumstances of the instant case, it was necessary for a reference to be sought. On the instant facts, the chairman had been correct to find that no request had been made of D Ltd for a reference. The employee had only sought a reference from the employer, and the terms of the reference that he himself had been considering were for a reference provided by the employer. The failure post transfer of the transferor to provide a reference as an act of victimisation, or the provision of a defective reference as an act of victimisation in respect of a person who was never in fact or in law the employee of D Ltd could not amount to an act of victimisation by D Ltd as transferee.

Amicus and others v Dynamex Friction Ltd and another

The critical question was whether there was an economic reason rather than a reason connected with the transfer of the undertaking.  The issues were: (i) by reference to whose decision the employment tribunal had to ascertain whether the reason for the dismissals was the transfer of the undertaking or an economic reason; and (ii) if the reason was that which had operated on the administrator’s mind unaffected by the actions of S, whether S’s Machiavellian machinations, taking all of them as proved and all of them at their highest, were such that an employment tribunal, properly directing itself, could conclude that the reason for the dismissal was not an economic reason but one related to the transfer of the undertaking. The defendant submitted that if all of the disputed or undecided facts were resolved in its favour, any employment tribunal was and would be bound to find that the reason for the dismissal of the employees was economic. Consideration was given to art 4 of Council Directive (EEC) 77/187, which provided that it should not stand in the way of dismissals that might take place for economical, technical or organisational reasons entailing changes in the workforce.

The appeal would be allowed (Lawrence Collins LJ dissenting).

On the authorities, it was necessary to be vigilant to uphold the purpose of the directive, which was to safeguard the employee’s rights; and ensure that the remedies were effective rather than symbolic or illusory. One had to be astute to spot the transparent device to avoid the operation of the directive. However, in deciding whether the reason for dismissal was economic or transfer-related, it was necessary to identify whose thought process was the subject of the analysis. It had to be the one who had taken the decision. Whilst TUPE had to be construed purposefully, the directive expressly permitted the transferor to justify the dismissals if they took place for economic reasons.

Had the employment tribunal made all findings of fact of matters which were in dispute but were unresolved, that would have made no difference to its findings. It might not expressly have found the facts in favour of the claimants but it had had them all well in mind. It had been fully aware of all aspects of the claimants’ case. The tribunal had clearly taken the view that those matters could not have relevance because they did not impinge upon the decision-making by R which was not complicit in any of S’s machinations at all. He had acted properly. In the instant case, the one who had taken the decision was R. The tribunal had found as a fact that he had had no option but to dismiss the employees because he had no money with which to pay them. That was an economic reason. Whilst it was true that at the time when that decision was taken, there had been a need to sell the business and there was the possibility that a sale could be achieved, no purchaser had been identified until a week later. There was nothing to suggest that the administrator had taken the view that he had to dismiss the staff in order to have a better prospect of selling the business; or that the dismissal was engineered specifically to avoid liabilities to those employees; or that it had been a calculated disregard of the obligations imposed by TUPE. It was not a device, transparent or otherwise, on R’s part to escape the legitimate claims of the workforce. He had not been acting at the behest or in collusion with either S or the first defendant. As the tribunal had found, the administrator had dismissed the employees in spite of any transfer rather than with a view to effecting it. That finding destroyed any argument that the dismissal had had anything to do with the transfer. In all the circumstances, the reason for the change in the workforce was economic. That was an inevitable conclusion from the facts. Once it was held that the decision to dismiss was the administrator’s decision, nothing done by S before or after it could have had any bearing on the reasons why the administrator had acted as he had.

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