Gutridge & Ors v Sodexo & Anor [2009] EWCA Civ 729 (14 July 2009)

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URL: http://www.bailii.org/ew/cases/EWCA/Civ/2009/729.html
Cite as: [2009] ICR 1486, [2009] IRLR 720, [2009] IRLR 721, [2009] EWCA Civ 729

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		Neutral Citation Number: [2009] EWCA Civ 729
		Case No: A2/2008/2373

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
MR JUSTICE ELIAS (PRESIDENT)
UKEAT002408RN

Royal Courts of Justice
Strand, London, WC2A 2LL

14/07/2009

B e f o r e :

LORD JUSTICE PILL
LADY JUSTICE SMITH
and
LORD JUSTICE WALL
____________________

Between:

	E A Gutridge & Ors	Appellant
	- and -
	Sodexo	1st Respondent
	North Tees & Hartlepool NHS Trust	2nd Respondent

____________________

(Transcript of the Handed Down Judgment of
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A Merrill Communications Company
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____________________

Miss Jane McNeill QC & Mr Ben Cooper (instructed by Messrs Thompsons) for the Appellant
Mr John Bowers QC & Mr Jeremy Lewis (instructed by Messrs Beachcroft) for the 1st Respondent and (instructed by Messrs Eversheds LLP) for the 2nd Respondent
Hearing date : 29 April 2009
____________________

HTML VERSION OF JUDGMENT
____________________

Lady Justice Smith:

Introduction

This appeal concerns the interaction of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) and the limitation provisions of the Equal Pay Act 1970. It is an appeal from the decision of Elias J President (as he then was) sitting in the Employment Appeal Tribunal (EAT) on 31 July 2008. Elias J allowed, in part, an appeal from the decision of an employment judge, Mr TM Garnon, sitting alone at the employment tribunal (ET) in Newcastle upon Tyne on 9 October 2007.

The facts

The case has been decided on the basis of agreed and assumed facts. The claimants, who are female domestic cleaners, were all employed by North Tees and Hartlepool NHS Trust (the Trust) prior to 1 July 2001. They worked at Hartlepool General Hospital. On 1 July 2001, under a privatisation or contracting out arrangement, all the claimants were transferred to work for Sodexo Limited (Sodexo). The claimants continued to work, as before, at Hartlepool General Hospital. In December 2006 (and on subsequent dates), the claimants brought equal pay proceedings in which they sought to compare themselves with male maintenance assistants who, at all material times both before and after 1 July 2001, worked at Hartlepool General Hospital. The male maintenance workers were not 'contracted out' and have been employed by the Trust at all times.

For the purposes of the application to the ET and the subsequent appeals, it has been assumed that the work of the domestic cleaners and the maintenance assistants was work of equal value, that the women cleaners were paid less than the male maintenance assistants and that there was no objective justification for that pay differential.

The Law

It is convenient at this stage to set out the relevant law and to outline where there is common ground in this appeal.

So far as relevant for present purposes, section 1 of the Equal Pay Act 1970 provides:

Requirement of equal treatment for men and women in the same employment

(1) If the terms of a contract under which a woman is employed at an establishment in Great Britain do not include (directly or be reference to a collective agreement or otherwise) an equality clause, they shall be deemed to include one.

(2) An equality clause is a provision which relates to terms (whether concerned with pay or not) of a contract under which a woman is employed (the woman's contract) and has the effect that –

….

(c) where a woman is employed on work which …is …of equal value to that of a man in the same employment –

(i) if (apart from the equality clause) any term of the woman's contract is or becomes less favourable to the women than a term of a similar kind in the contract under which that man is employed, that term of the women's contract shall be treated as so modified as not to be less favourable.

……

(6) Subject to the following subsections, for the purposes of this section -

(a) 'employed' means employed under a contract of service or of apprenticeship or a contract personally to execute any work or labour, and related expressions shall be construed accordingly;

and men shall be treated as in the same employment with a woman if they are men employed by her employer or any associated employer at the same establishment or at establishments in Great Britain which include that one and at which common terms and conditions of employment are observed either generally or for employees of the relevant classes.

Pausing there, it is common ground that, under the facts assumed to be true, the claimants were entitled to say that, in the period before they were transferred to Sodexo, their contracts had been modified so as to entitle them to be paid at the higher rate applicable to maintenance assistants.

The limitation provisions of the Equal Pay Act are in section 2 which is headed: 'Disputes as to and enforcement of equal treatment'. Section 2(1) provides that any claim in respect of the contravention of a term modified or included by virtue of an equality clause, including a claim for arrears of remuneration may be presented by way of complaint to an employment tribunal. However, section 2(4) provides that no determination may be made by an employment tribunal on a complaint under subsection (1) unless the proceedings are instituted on or before the qualifying date, as defined in section 2ZA. Section 2ZA provides:

(1) This section applies for the purpose of determining the qualifying date, in relation to proceedings in respect of a woman's employment for the purposes of section 2(4) above.

(2) …

(3) In a standard case the qualifying date is the date falling six months after the last day on which the woman was employed in the employment.

It is agreed that this is a 'standard case'.

Finally, the provision relating to the period for which arrears may be claimed is at section 2ZB which at subsection (3) provides that, in a standard case, the arrears date is the date falling six years before the day on which the proceedings were instituted.

The Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) have now been superseded by regulations made in 2006 but the 1981 regulations were in force at the time of the transfer in this case. It is common ground between the parties that the transfer which took place on 1 July 2001 was a transfer to which the TUPE regulations applied.

Under the heading: 'Effect of relevant transfer on contracts of employment etc', regulation 5 provides:

5(1) 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.

(2)Without prejudice to paragraph (1) above, on the completion of a relevant transfer –

(a) all the transferor's rights powers duties and liabilities under or in connection with any such contract, shall be transferred by virtue of this Regulation to the transferee; and

(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee.

Under the heading 'Exclusion of occupational pension schemes', regulation 7 provides that regulation 5 will not apply to so much of a contract of employment as relates to an occupational pension scheme. Thus the effect of regulation 5 and 7 combined is that, on a transfer to which the regulations apply, all the transferor's liabilities to the employee (including the liability to pay wages at the appropriate rate) are transferred to the transferee except the transferor's liability under an occupational pension scheme. Regulation 7 is relevant to this appeal not because the claimants are seeking to enforce pension rights but because it will be necessary to consider the House of Lords' decision in Preston and others v Wolverhampton Healthcare NHS Trust and others (No 3) [2006] ICR 606 also reported as Powerhouse Retail Limited v Burroughs and others [2006] IRLR 381. That case was concerned with a claim for pension rights. This case has become generally known as Powerhouse and I will adopt the same practice.

The case before the Employment Tribunal

The women sought equal pay for a period of six years prior to the date on which they lodged their claims. That period spanned the date of the transfer of their contracts of employment from the Trust to Sodexo. As I have said, it was assumed that, before the transfer, the claimants had been doing work of equal value to that of the male maintenance assistants who were in the same employment as them but were being paid at a lower rate. The women's case was that, under section 1 of the Equal Pay Act, the equality clause in their contracts took effect so that their contracts were modified so as to entitle them to the higher rate of pay received by the maintenance assistants. That right had crystallised before the transfer, although it had not been enforced by proceedings. The Trust was in breach of the modified contracts by continuing to pay them at the lower rate and became liable to the women for arrears of pay. On 1 July 2001, the women's contracts of employment, containing the modified pay clause, were transferred to Sodexo who then became liable to pay the women at the higher rate. Sodexo then continued to pay the women at the lower rate and was accordingly in breach of the modified term. It became liable for its own continuing post-transfer breach. It also became liable to the claimants for the Trust's pre-transfer breach, which was transferred to it under TUPE. Thus, when the claimants eventually lodged their claims against Sodexo in December 2006 (and later), they could recover for the arrears of pay over the full period of the six preceding years.

Before the ET, Sodexo submitted that the whole of the claimants' claims were time-barred by section 2(4) and 2ZA(3) of the Equal Pay Act because their claims had not been brought within 6 months after the last day on which the women were 'employed in the employment'. 'The employment' meant, it was submitted, the same employment as the male comparators. So, submitted Sodexo, as the women ceased to be employed by the male comparators' employer on 1 July 2001, their time for bringing an equal pay claim based on comparison with those men expired 6 months later, on 1 January 2002.

The women claimants countered this argument by contending that the effect of the TUPE Regulations was to deem that their employment was continuous for all purposes and that therefore they were still in 'the employment' for the purposes of section 2(4) and section 2ZA(3) when they lodged their claims. Thus time had not yet begun to run against them for limitation purposes.

The employment judge held in favour of the claimants. He concluded that the effect of section 1 of the Equal Pay Act was that the women's equality clause entitled them to a modification of their pay terms during their employment with the Trust. The Trust was fixed with liability to pay the women at the higher rate. The effect of TUPE was to transfer to Sodexo the Trust's liability to pay the women at that rate. The effect of TUPE was also to deem that the women had always been employed by Sodexo. So, as they were still employed by Sodexo at the time when they initiated their claims, time had not begun to run against them for limitation purposes.

The employment judge considered the House of Lords' decision in Powerhouse and that of the EAT in Unison v Allen [2007] IRLR 975 but held that there was nothing in those cases which was inconsistent with his conclusion.

The appeal to the Employment Appeal Tribunal

The EAT upheld the ET's decision in respect of the post-transfer period. Elias J held that the women's right to the higher rate of pay had crystallised before the transfer and their right to that rate had transferred to Sodexo under TUPE. That became Sodexo's 'personal' liability to the women. As the women's employment with Sodexo still continued, time had not begun to run against them in respect of Sodexo's personal liability. So, the women could recover the arrears of pay which had accrued since the transfer. However, the EAT allowed Sodexo's appeal in respect of the pre-transfer period. Elias J held that liability for acts done (or not done) by the transferor (the Trust) during the employment with it transferred to the transferee (Sodexo) at the time of transfer but that the time for enforcing those rights was limited to six months after the transfer. That, he considered was the effect of the House of Lords decision in Powerhouse. Thus, the women's claims in respect of the period before transfer were time-barred.

The appeal to this court

In the appeal to this court, the claimants, represented by Miss Jane McNeill QC and Mr Ben Cooper, appeal against the decision to limit their claim to the post-transfer period. Sodexo (represented by Mr John Bowers QC and Mr Jeremy Lewis) seeks to uphold the EAT in respect of the pre-transfer period and cross-appeals in respect of the post-transfer period.

Three issues arise for determination. The first, which arises under the appeal, is whether the claimants' claims in respect of the pre-transfer period were time-barred when they were initiated over five years later. The claimants submit that Elias J was wrong to hold that it was; the ET had been right to hold that the employment to which that claim related (for the purposes of sections 2(4) and 2ZA(3)) was the single period of employment which spanned their employment with the Trust and Sodexo. Sodexo submits that Elias J was right to hold those claims time-barred. The employment to which those claims related was the employment with the Trust so the claims had to be commenced within 6 months of the transfer.

The second issue, which arises under the cross-appeal, is whether, assuming that the women's right to higher pay survived the transfer, the women's claim for post-transfer back pay is time-barred. Sodexo's contention is that the claims for post-transfer pay should have been brought within 6 months after the transfer. That is because the post-transfer claims 'related' to the employment with the Trust before the transfer when the men and women were in the same employment. The claimants submit that, as their right to enhanced pay was transferred over to their employment with the transferee and the transferee is liable for its failure to pay the higher rate during the post-transfer period, employment with the transferee is the employment to which the claim relates. So time has not yet begun to run.

The third issue, which also arises under the cross-appeal, is whether or not the claimants' right to equal pay was capable of surviving the transfer. Sodexo contends that, once the women had ceased to be in the same employment as the men, they lost their right to equal pay. So, when the women were transferred to Sodexo, they did not bring with them any right to enhanced pay. So, there was no 'personal' liability on Sodexo at all. This issue had not been argued before the ET. It was raised for the first time in the EAT and roundly rejected by Elias J. It is a discrete issue, unrelated to the main issues in this case which are concerned with questions of limitation. If Sodexo is right on this issue, the other issues fall away and Sodexo wins in respect of both the pre- and post-transfer periods. For that reason, it seems sensible to deal with this issue first.

Did the claimants' right to enhanced pay survive the transfer?

It is common ground that, while the women were employed by the Trust, they were doing work of equal value to the maintenance assistants who were in the same employment and were therefore entitled to the same pay. Mr Bowers submits that, as soon as the women were not in the same employment as the men, the women were no longer entitled to equal pay. However, as Miss McNeill pointed out, if correct, the effect of this argument would be that a woman who had become entitled to equal pay with a particular male comparator would lose that right and would be returned to her former lower rate pay if the male comparator left the employment. It has long been accepted, she submitted, that once the right to equal pay has been triggered by the woman doing like work or work rated as equivalent or work of equal value to that of a man in the same employment, that right crystallised and remained in existence until lawfully varied or revoked. It mattered not that the comparator left the employment. For this proposition, she relied on Sorbie v Trust House Forte Hotels Ltd [1976] IRLR 371 EAT where Phillips J described the operation of section 1 as follows:

"…once the section is applied and the contract is modified, there is then a contract providing remuneration at (the modified) rate. It seems to us that the true way of looking at it is that that contract remains so modified until something else happens, such as a further agreement between the parties, a further collective agreement or a further statutory modification by reason of a further operation of the equality clause."

Although that authority is not binding on this court, it is worth noting that it appears not to have been successfully challenged in this Court in over 30 years. The same approach was taken by the EAT in Kells v Pilkington plc [2002] IRLR 693 EAT para 10 per Lindsay P and also in Armstrong & others v Newcastle upon Tyne NHS Trust UKEAT/1058/04 paragraphs 31 and 32. That case went to the Court of Appeal but not on that issue. Moreover, I think that Sorbie must have been applied by ETs in countless cases over the years.

Mr Bowers did not submit that Sorbie was incorrectly decided. Rather he submitted that the transfer of undertaking was the kind of event which the EAT had in mind when it said that the effect of the modification would continue until 'something else happens'. He accepted that the modification of the women's contracts would continue (even if all the maintenance assistants left employment with the Trust) until the transfer occurred. But then, he said, it ceased to have effect because the women were no longer in the same employment as the men. However, it seems to me that that submission flouts the purpose of the TUPE regulations which is to preserve the rights of employees whose contracts of employment are transferred and ignores the plain words of regulation 5 of the TUPE regulations.

The fact that Sorbie has not been successfully challenged in over 30 years does not necessarily mean that it must have been correctly decided. But if it is not correct (as I think it is), it would sit uneasily with the decision of the European Court of Justice in McCarthys v Smith [1981] QB 180, [1980] ICR 672. There, it was held that a woman was entitled to equal pay with the man who had occupied the position to which she was appointed after he had left the employment. The ECJ held that the principle in Article 119 of the EEC Treaty, that men and women should receive equal pay for equal work, was not confined to situations in which the men and women were contemporaneously doing equal work for the same employer.

Mr Bowers recognised the force of McCarthys but sought to distinguish it on the facts. In that case, he said, where the comparator left the employment before the woman began hers, the two could still be said to have been in the same employment. However, in the present case, where the woman moves to a new employment and the comparator is not and never has been in that employment, it cannot be said that the claimant is employed in the same employment.

I would reject that argument. I accept of course that a woman who is employed by Sodexo cannot compare herself with a man who is employed by the Trust. But in this case, the women compared themselves with the men while both were employed by the Trust. The women are not seeking to compare themselves with the men after they have transferred to Sodexo. They are seeking to rely on a right which has crystallised while they were in the same employment as the men and which they say continued to be their right until validly terminated or varied. That right, which was the counterpart of the transferor's liability to pay the higher rate, was not terminated on transfer; rather it was transferred to Sodexo under Regulation 5 of TUPE.

Mr Bowers submitted that the purpose of TUPE is to preserve the rights of affected employees on transfer but not to create new or improved rights: see Jackson v Computershare Investor Services Limited [2008] IRLR 70 (CA). That is right but I cannot see how it can be said that the claimants are claiming new or improved rights in this case. They are seeking only to preserve the right to enhanced pay which had accrued to them during their employment with the Trust.

Elias J rejected Sodexo's arguments on this issue as being wholly misconceived. I agree and for the reasons given above, I would reject this ground of Sodexo's cross-appeal.

The limitation issues

Having put that issue out of the way, I can now turn to consider the limitation issues on the basis that the women's modified pay term gave rise to a liability on the Trust to pay them at the enhanced rate, which the Trust failed to do, so that, by the date of transfer, arrears had accrued. At the moment of transfer, the liability of the Trust was transferred to Sodexo, both as to the current, ongoing, liability to pay and also as to such arrears as were claimable. Any claim brought after the date of transfer would have to be brought against Sodexo, as, in the absence of an indemnity agreement, the Trust had shed all its liabilities at the moment of transfer. The question for determination is for how long the women's rights could be enforced.

There are three possibilities. One possibility is that the women could enforce their rights for only 6 months after the transfer. That is what Sodexo contends. The claim would be a single claim for up to six years' arrears, a period which would necessarily span the transfer. Another possibility is that the women could enforce their rights at any time until 6 months after the termination of their employment with Sodexo. That is what the women contend. The claim would be a single claim for up to six years' arrears and might or might not relate to a period spanning the transfer date. If it were brought within 6 years of the transfer, the period covered would span the transfer; if it were brought more than 6 years after transfer, the period covered would be entirely post-transfer. The third possibility is the solution preferred by Elias J. He treated the claim as being divisible in that it related to two separate periods, pre- and post-transfer. The arrears relating to the pre-transfer period could only be enforced during the first 6 months after transfer; the post-transfer arrears could be enforced at any time up to 6 months after the termination of the employment with Sodexo.

As the arguments in support of the various contentions depend to a considerable extent on an understanding of the House of Lords' decision in Powerhouse and in the application of the principle there expounded to the facts of the present case, it will be convenient to set out the salient points of that decision before reciting the submissions before us.

The decision in Powerhouse

In Powerhouse, the women claimants brought an equal pay claim in respect of their pension entitlement. They had been excluded from the pension scheme of their initial employer because they were part-time workers. That was indirect sex discrimination and they should have been allowed to join the scheme. Their contracts of employment had then been transferred (TUPE applied) to another employer. The claims had to be brought against the transferor because the pension entitlement under the contract with the transferor had not been transferred to the transferee (regulation 7 exempted pension rights from the effect of regulation 5 which transferred all other contractual rights). The claims were brought several years after the transfer and the issue arose as to whether the claims were barred by the six month time limit in section 2(4) of the Equal Pay Act. That provided that no claim could be brought by a woman if she had not been 'employed in the employment' within the six months preceding the date of commencement of the proceedings.

The claimants' argument was that, although their claim was against the transferor by whom they had not been employed for several years and although they were seeking to enforce a liability which had not been transferred to the transferee, nonetheless, time had not yet begun to run for the purposes of section 2(4). That was because the effect of TUPE was that their contracts of employment had been transferred to the transferee and continued to run. Because of that, there was only one employment in issue; it was with the transferee. As they were still employed 'in the employment', time had not yet begun to run.

The House of Lords rejected that argument. The headnote to the report in the Industrial Cases Reports says:

"Held, dismissing the appeal, that the moment when time began to run was identified in section 2(4) of the Equal Pay act 1970 by the use of the word 'employment' without any reference to a contract; that the plain and natural meaning of section 2(4) when read as whole was that a claim in respect of an equality clause had to be brought within six months of the end of the employment to which the claim related; that since the applicants' claims related to the operation of an equality clause in regard to an occupational pension scheme provided by the transferor, the employment to which they related was the applicants' employment with the transferor and the six month time limit began to run from the end of that employment, which occurred when the transfer took place; … (emphasis added). "

The ratio of the decision was that 'employment' in section 2(4) (now to be read with Section 2ZA(3), a change which makes no real difference) means the 'employment to which the claim relates'. In Powerhouse itself, it was easy to see that the claim related to the employment with the transferor. The discriminatory inequality in pension entitlement arose during the employment with the transferor. The transferor was in breach and was liable to make good the claimants' entitlement. That liability did not transfer to the transferee at the time of transfer because of the exemption in regulation 7. Therefore liability to pay remained with the transferor. Also, the claim related to a period of time entirely within the employment with the transferor. All the three factors I have mentioned pointed to the conclusion that the claim related to the employment with the transferor. It seems to me (from the passage I have emphasised in the headnote) that the editor of the Industrial Cases Reports understood the decision to depend upon the fact that the case involved pension rights. It also seems to me that that suggests that the answer to the question 'to which employment does the claim relate?' might well be different where the claim related to rights and liabilities which had transferred under TUPE and which were therefore brought against the transferee.

The parties disagreed as to the effect of Powerhouse. Mr Bowers submitted that the case is authority for the proposition that, even where there is a TUPE transfer, the employment to which the claim relates is the employment during which the right to equal pay arose, namely that with the Trust. Miss McNeill, who originally argued that there was only one employment in play, namely the continuous employment with the Trust and Sodexo, recognised that that contention was difficult in the light of Powerhouse. She submitted in the alternative that, if the Powerhouse question were applied to the facts of this case, the answer was that the claim related to the employment with Sodexo.

It is necessary to examine the reasoning in Powerhouse. Lord Hope of Craighead gave the only opinion; Lord Scott of Foscote, Lord Rodger of Earlsferry, Lord Carswell and Lord Brown of Eaton-under-Heywood concurred. At paragraph 22, Lord Hope considered what is meant by 'the employment' in section 2(4). He said:

"22. …. As with any other issue of statutory construction the question begins and ends with the words of the statute. The first point that must be made is that the word 'contract' does not appear anywhere in section 2(4). …..

23.The second point is that the word that the subsection uses to identify the moment which starts the running of the time limit is the word 'employment'. The question which it asks is whether the woman was employed 'in the employment' within the six months preceding the reference of the claim to the tribunal. The claim to which the time limit is to be applied is, of course, the claim in respect of the operation of an equality clause relating to the woman's employment: see the opening words of the subsection. When the subsection is read as whole, its plain and natural meaning is that the claim must be brought within six months of the end of the employment to which the claim relates.

…

25. Why then should the subsection be given a different meaning when the time limit is invoked in the context of a claim relating to the operation of an equality clause which relates to the period of employment prior to the date of a TUPE transfer? It is true that section 2(4) of the 1970 Act was enacted before the coming into effect of the Acquired Rights Directive and, consequently, before the making of the TUPE Regulations which transferred all the transferor's rights, powers, duties and liabilities under or in connection with the contract of employment to the transferee but left any rights, powers, duties and liabilities under or in connection with an occupational pension scheme with the transferor, see regulations 5(2)(a) and 7(1)(b) of TUPE. But I do not think that the subsection can be taken to mean different things depending upon the part of the TUPE arrangements to which the claim relates.

26. It is often said that a statute is always speaking. This is so, and where the language permits there is this element of flexibility. It can be adapted to contexts that were not foreseen when it was enacted. But the metaphor must not be pressed too far. A statute cannot speak with two different voices at one and the same time. The rule that section 2(4) originally laid down was that a claim in respect of the operation of an equality clause must be brought within six months of the employment to which the claim related. It applied to each and every claim that might be made in respect of the contravention of a term modified or included by virtue of an equality clause: see Regulation 2(1). The same rule must be applied where there has been a TUPE transfer. The only question is: to which employment does the claim relate? The answer where the claim is in relation to the operation of an equality clause relating to an occupational pension scheme before the date of the transfer is that it relates to the woman's employment with the transferor (my emphasis).

Pausing there, it appears that Lord Hope was drawing a possible distinction between the answers to the question (to which employment does the claim relate?) when asked in relation to the operation of an equality clause relating to a pension scheme and when asked in relation to the operation of an equality clause relating to some other contractual term such as pay. If the answer was the same whatever the nature of the modified term, Lord Hope would surely have omitted the words I have emphasised in his paragraph 26 above. He would simply have said that the answer was that 'the employment' was always employment with the transferor. But he did not. He did not need to discuss how he would answer the question in respect of a claim relating to the operation of an equality clause which gave rise to a liability which (unlike the pension entitlement) had been transferred to the transferee at the time of the TUPE transfer. But the fact that he inserted the words I have italicised suggests that the answer to the question would or at least might be different where the rights or liabilities in question have been transferred under TUPE.

Lord Hope then went on to discuss the effect of his holding that, where pension rights were in issue, the employment to which the claim related was employment with the transferor. At paragraph 27 he said:

"27. Mr Jeans for the respondents submitted that this interpretation of section 2(4) had the advantage of certainty. Why, he said, should time begin to run from a date that had nothing to do with the claim in question? It was to be assumed that the rule was intended to enable potential respondents to know exactly when it was that time had run out for the making of claims against them. The effect of the appellants' argument was that a transferor would be exposed to claims relating to its occupational pension scheme indefinitely. (Note that the argument was directed only to pension scheme claims) The problems that it would face in maintaining the necessary records long after the business had been transferred should not be underestimated. One of the aims of TUPE was to achieve a smooth and orderly transfer. This would be inhibited if the transferor's liability in respect of occupational pension schemes was subject to a time limit which had nothing to do with the transferor, but was linked instead to the woman's employment with a transferee who was excluded by regulation 7 from any share in the liability."

Pausing there, Mr Jeans' submissions suggested that the employment to which the claim related was the employment with the employer who would have to bear the liability. Lord Hope continued:

"28. Mr Cavanagh said that some lack of legal certainty was inevitable, given that the time limit ran not from the date of the breach or from the loss sustained as a result of it but from the end of the employment. He gave various examples of how uncertainty could arise even on the respondent's interpretation of section 2(4). I think that on balance greater uncertainty is likely to be produced by the appellants' interpretation of it. But there is much more force in Mr Jeans' point that the best way of achieving the purpose of the time limit is to link it as closely as possible to the liability which is the subject of the claim. This is achieved if the period of six months within which the claim relating to the operation of an equality clause with regard to an occupational pension scheme provided by the transferor must be brought runs from the end of the claimant's employment with the transferor to whom the liability belongs rather than the end of the employment with the transferee. (my emphasis) "

Pausing there, it will be noted from the italicised passage, that, once again, Lord Hope has expressly limited his holding to pension cases where the liability is with the transferor. He has not said that the claim relates to the employment in which the right first arose. That is Mr Bowers' case. If Lord Hope had meant that, he could very easily and briefly have said so. Instead Lord Hope is always careful to insert the words limiting his holding to pension cases. Again that leaves open the possibility that the answer would be different in a case where liability transfers to the transferee. Indeed, the discussion in paragraphs 27 and 28 (and in particular the passage I have highlighted in bold) strongly suggests that Lord Hope thought that the limitation provision should be linked to liability.

Discussion

Powerhouse is an authority binding on this court. Its ratio decidendi is that, in the context of a case in which there has been a TUPE transfer, the expression 'the employment' in section 2(4) means 'the employment to which the claim relates'. It is also clear that, contrary to Miss McNeill's primary submission, TUPE does not have the effect that there is only one employment to which section 2(4) could apply. Although a transferred employee's contract of employment is deemed to have been made originally between the employee and transferee (and although that situation creates a fiction) the fiction does not extend to the point that the employee has never been employed by the transferor but only by the transferee. The two employments are separate although the contract is deemed to have been made originally with the transferor.

Lord Hope clearly stated that section 2(4) of the Equal Pay Act must mean the same after the TUPE regulations came into force as it meant before. There can be flexibility to deal with situations which were not anticipated at the time of drafting but this must not be carried too far so that the section speaks with two different voices.

Before 1981, that is before complication of TUPE could arise, it would have been clear that the employment referred to in section 2(4) was the employment which the woman and her comparator had at one time shared. The term 'the employment' is first used in section 1 in the context of the woman showing that she was doing like work (etc) as a man in the same employment. The term 'the employment' in section 2 would naturally mean the same employment as was referred to in section 1. That would be obvious because there was no other employment to consider. If, before 1981, a woman had been transferred to another employer under a takeover or the sale of business, in the absence of any express agreement, her contract of employment with her first employer would have been terminated for redundancy and she would have had a new contract with her new employer. If, during the first employment, she had had the benefit of a modified pay term resulting from the operation of an equality clause, she would have been able to enforce that right only against her old employer and she would clearly have had only 6 months in which to do so. The effect of section 2(4) would have been obvious.

What is the impact of TUPE on the operation of section 2(4)? Once TUPE is in force, is it possible to apply section 2(4) in the same way as before 1981? Or would doing so deprive TUPE of its intended effect of preserving the rights of transferred employees? If it would, what is the degree of flexibility which can be properly applied to the words of section 2(4) so that it operates in accordance with TUPE and yet does not 'speak with two voices' at the same time?

Before considering how section 2(4) works in a TUPE case, I must state my conclusions as to the effect TUPE has on the transferred employee's rights. Take these claimants who, while employed by the Trust, have a right to be paid at an enhanced rate; they have not been so paid so that, before transfer, the Trust has a current liability to pay the enhanced rate and a liability for accrued arrears. Under regulation 5(1), the claimants' contracts of employment are not terminated at transfer but have effect after the transfer as though they were originally made between the claimants and Sodexo. I envisage a notional written contract in which the date of commencement is the date on which the employment with the Trust began and with the name of the Trust deleted and the name Sodexo inserted in its place. That notional written contract includes the modified pay term. So far as their contractual rights are concerned, it is as if the claimants have never been employed by the Trust. Of course this is a fiction. But the effect of this provision must be that Sodexo is liable to pay the women at the enhanced rate. The fact that the male comparators were never employed by Sodexo cannot mean that the right to enhanced pay is lost on transfer; so to hold would means that TUPE had completely failed to do what it must do, namely preserve existing contractual rights.

Under regulation 5(2) all the Trust's existing liabilities are transferred to Sodexo. That must include the accrued liability for back pay which has not yet been enforced.

Under regulation 5(3), anything done by the Trust before the transfer in relation to either the claimants' contracts or the claimants themselves is deemed to have been done by Sodexo. That must include paying the women less than a male comparator in the same employment. It follows that the actions of the Trust which created the circumstances giving rise to the modified pay clause are deemed to be the actions of Sodexo.

If that is the legal effect of TUPE, how does section 2(4) apply? Under Powerhouse, the claim for arrears of pay cannot be brought more than six months after the last day on which the woman was employed in the employment to which the claim relates. Those last words 'to which the claim relates' have to be added as a gloss on section 2(4) to take account of the fact that in a TUPE case, there are two potential 'employments' to consider.

In the present case, if the question is asked, to which employment does this claim relate, the answer in my view is not clear as it was in Powerhouse. The claim arises out of facts and circumstances which prevailed during the employment with the Trust in that it was then that the women were doing work of equal value to that of men in the same employment so as to satisfy section 1 of the Equal Pay Act. I will call that factor the 'original comparative circumstances'. Sodexo submits that that is the factor which determines to which employment the whole claim (in respect of both the pre-and post-transfer periods) relates.

The claimants submit that the claim relates to the employment with the employer who shoulders the liability to pay. In this case, liability to pay both the arrears accumulating in the pre-transfer period and the arrears accumulated since transfer are the liability of Sodexo; the Trust has no liability at all. So, the claim for the whole period can be said to 'relate' to employment with Sodexo. However, there is an artificiality in saying that the claim for the pre-transfer arrears relates to 'employment' with Sodexo. The arrears accrued during the employment with the Trust but they became Sodexo's liability.

Elias J considered that there were in law two claims covering different periods. For the pre-transfer period, the claim related to the employment with the Trust so was time-barred six months after transfer. For post-transfer period, the claim related to the employment with Sodexo and time had not yet begun to run.

As Lord Hope said, this is simply a matter of statutory construction. Moreover, the statutory question is apparently simple, to which employment does the claim relate? But I do not find it at all easy to apply the facts of this case to the statutory question. By reference to which of the factors should the question be answered where (unlike the position in Powerhouse) the different factors point to different conclusions. I can see merit in Sodexo's argument that the claim relates to the employment in which the comparative circumstances arose. That is the foundation of the claim. However, as I have already pointed out, Lord Hope could so easily have said that in Powerhouse if he wished to say that that was the law.

I can also see merit in the claimants' contention that the claim relates to their employment with Sodexo because Sodexo is liable for whatever liability there is. The usual purpose of a limitation period is to protect from liability a party who would otherwise be liable to pay if such a period of time has passed that it would be unfair to expect him to defend himself against it.

Elias J's solution also appears to have a logical basis if it is right to treat the two claims as separate claims relating to two different employments for the first of which the Trust ought to be liable but (artificially) is not because TUPE has transferred the liability. Elias J's view was founded on his understanding that Lord Hope's conclusion, in Powerhouse, applied to all types of claim where the period to which the claim related was pre-transfer, whether or not the liability in respect of that right and that period transferred under TUPE. I am not sure that that is right and indeed I note that Elias J himself had some difficulty in reaching that conclusion. The problem is that Lord Hope had no need to think about the situation which arises in this case. He was careful to limit the effect of his conclusion to cases about pension rights which did not transfer under TUPE and where the claim had to be brought against the transferor, leaving completely open what the position would be in a claim involving rights and liabilities which did transfer under TUPE and where the claim (if it was to be brought at all) had to be brought against the transferee. In any event, in so far as Lord Hope connected the claim with one of the three factors I have mentioned, he appeared to think it should be connected by liability to pay.

Although it should ideally be possible to construe and apply a statute without consideration of the purpose (or apparent purpose) of the provision or the implications and ramifications of the various alternative answers to the statutory question, I find myself compelled to undertake that process.

What was the purpose of this limitation provision? Usually, the purpose of a limitation provision is to protect the person potentially liable from facing a claim which is so stale that he cannot have a fair chance of investigating it and defending himself. I can see that it might be difficult for an employer to investigate issues of like work or work of equal value years after the circumstances giving rise to the claim have ceased to exist. It might also be difficult to prove the material factor defence. The usual form of limitation provision would impose a time limit running from the time when the cause of action arose, namely when the comparative circumstances first occurred and the employer failed to pay the enhanced rate. But, section 2(4) is a very unusual limitation provision. It does not impose a limit related to the date of breach of the modified term but to the cessation of the employment. Thus, in its operation in an ordinary non-TUPE case, it potentially leaves employers exposed to claims brought many years after the comparative circumstances have ceased to exist. For as long as the woman's employment continues, the employer remains liable even though the comparator may have left the employment years ago and the reasons why they were paid differently were lost in the mists of time. For that reason, I do not think that the intention of Parliament can have been to relate limitation to the original comparative circumstances.

I find it quite difficult to fathom what must have been the intention of Parliament in enacting this most unusual limitation provision. I can only think that, by relating the limitation period to the end of the employment, the objective must have been to protect the employer from having to pay out on a claim brought by a former employee with whom he has lost touch or whose employment records he might not have kept. But it may be that the provision was not so much intended to provide protection for the employer (which is usual) as to provide a compromise between giving a little protection to the employer and providing the employee with a large measure of flexibility as to when she brings her claim. Why Parliament wanted to do that, if it did, I cannot say, save that it might have been concerned that an employee might find it difficult to discover the facts on which her claim was based or that she might feel inhibited from bringing the claim during the employment for fear of damaging her relationship with the employer. Although I am unsure as to what the thinking was behind this unusual provision, it seems to me that the apparent objective of section 2(4) would be satisfied by holding that the employment to which these claims relate is the employment with Sodexo. I can see that this construction could impose real difficulty on Sodexo in that it could be even more difficult for a transferee employer to investigate the original comparative circumstances than it would be for the transferor, difficult though even that might be. But, as I have said, Parliament does not appear to have been concerned to protect the employer from difficulties of investigation and proof.

If Mr Bowers is right and the six month limitation period runs from the date of transfer, the effect on the claimants is that they lose their right to enforce their right to enhanced pay much more quickly than they would lose it if they had remained in the employment of the Trust. Miss McNeill submits that that means that they have not been protected by TUPE as they should have been. But I am not sure that that is right. The women would not have lost their right to enhanced pay as the result of the transfer; their right would be transferred and, if it were enforced in time, it would carry forward indefinitely into the new employment. What the transferred employees had lost was their right to defer its enforcement. It is well established that the imposition of a limitation period does not deprive an employee of his or her rights so long as the period allowed for enforcement is reasonable and does not make enforcement unduly difficult. Here I do not think it can properly be said that the period is unreasonable. This is a standard case and not one in which the running of time has been deferred on account of any concealment of the facts. It is to be assumed that the employee was at all times aware of the facts giving rise to her claim or could with reasonable diligence have made herself aware of them.

Elias J thought that the limitation period operated differently in respect of the pre- and post-transfer periods. That solution has its attractions. However, it leads to such bizarre results that I do not think it can be right. It would mean that section 2(4) would provide Sodexo with a varying degree of protection as time goes by and the variation does not seem to me to accord with logic or justice.

Consider the following. If the claim were lodged just within six months after transfer, Sodexo would be liable for the full six years' arrears (assuming that such were claimable), liability for which would have been transferred to it under TUPE. It would be liable for 5 years and 6 months of the Trust's former liability and six months of its own personal liability. But, once the six month period had passed, Sodexo would suddenly face a greatly reduced liability. If the claim were brought just one month later (7 months after transfer), Sodexo would escape all liability for the pre-transfer period and would be liable only for its 7 months' personal liability. That would be its best position and the claimants' worst. Thereafter, as time passed, Sodexo's position would worsen (it would have increasing personal liability) and the claimants' position would improve until, 6 years after transfer, Sodexo would once again be liable for a full six years' arrears (all its own personal liability). I have never come across a limitation provision that puts a claimant in a (theoretically at least) better position if he delays than if he acts promptly. I say theoretically because the actual amount of arrears owing might reduce as time passes, depending on what changes were made to the woman's pay during the employment with the transferee. After transfer, the woman would not be entitled to keep pace with the comparator in the employment with the transferor; she would be only be entitled to maintain the enhanced wage to which she was entitled before transfer. The gap between what she should have been earning at the time of transfer and what she actually earns will presumably diminish as time goes by, as her post-transfer wages are increased. Indeed, it is quite possible that, six years post-transfer, the differential will have disappeared. But if the gap is big enough and her post-transfer increases are small, there might remain a differential for many years.

I can see no logic in protecting the transferee from liability for the pre-transfer arrears if they are not brought within 6 months of transfer and yet leaving him exposed to liability for his personal liability to honour the modified term for the indefinite future when both liabilities depend at source on the comparative circumstances which occurred during the employment with the transferor. As a matter of logic, I think that either the transferee must be protected altogether from liability unless the claim is brought within six months of transfer or else he is not to be protected by reference to the transfer at all but is to be protected only by reference to the period in which he continues to employ the claimant.

For those reasons, I would reject Elias J's solution and am left to choose between the all or nothing contentions of the two parties.

It seems to me that when Parliament enacted the TUPE Regulations it did not think about how they would impact on section 2(4) of the Equal Pay Act. In a case like Powerhouse, it is easy enough to see how the one impacts on the other. In a case like the present it is not at all easy. Faced with the choice between holding either that the whole claim fails if is not brought within 6 months after transfer or that the whole claim remains viable until 6 months after the termination of employment with the transferee, I have, with some hesitation come down in favour of the latter solution. I have done so for two reasons. First because it appears to me that the House of Lords in Powerhouse was inclined to link limitation with liability. If Lord Hope had been of the view that the limitation provision was intended to relate back to the circumstances in which the comparison arose, he could so easily have said so. I am inclined to think that because he so obviously avoided saying that, that factor cannot have been the one which he regarded as most important. On the contrary, he seems to have regarded liability to pay as important. My second reason is that it appears to me that this most unusual limitation provision was not designed to provide the usual form of protection for employers, namely protection from a claim which they cannot properly investigate and defend themselves from. Rather it was intended to be linked to the association between the employer who would be liable and the employee. That means it should be linked to the employment between the claimants and Sodexo.

For these reasons, I would allow the appeal and dismiss the cross appeal.

Lord Justice Wall :

The critical issue in this appeal

I disagree with Smith LJ on any point of employment law with equal measures of diffidence, reluctance and hesitation, recognising, as I do, her infinitely greater experience and knowledge of the subject. However, having had the great advantage of reading and considering her judgment in this case, I find myself unable to agree with her in relation to the appeal.

In my judgment, the analysis provided by Elias J in the EAT reaches the right conclusions, and I would, speaking for myself, dismiss both the appeal and cross appeal. However, as Smith LJ would allow the appeal, whilst dismissing the cross-appeal, I will endeavour to explain why I part company with her in relation to the former. I gratefully adopt her recital of the facts and the relevant statutory material. I need, however, to begin with a short analysis of my understanding of TUPE and the thinking behind it.

The Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) implemented Council Directive 77/187/ EEC of 14 February 1977 "on the approximation of the laws of the Member States relating to the safeguarding of employees' right in the event of transfers of undertakings, businesses or parts of businesses" , which, for ease of reference, I will call "the TUPE Directive". The latter's admirable purpose is summarised in part of the preamble in the following words: "Whereas it is necessary for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded".

The idea is simple enough. Thus if the entity for which you work (the transferor) is transferred to another person or entity (the transferee) not only are you entitled to keep your job, but, by Article 3.1 of the TUPE Directive: -

The transferor's rights and liabilities arising from a contract of employment relationship existing on the date of a transfer …… shall, by reason of such transfer, be transferred to the transferee.

Article 3 of the TUPE Directive found its domestic counterpart in Regulation 5 of TUPE, which, where material, reads as follows: -

(1) 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 it originally made between the person so employed and the transferee.

(2) Without prejudice to paragraph (1) above, on the completion of a relevant transfer -

(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract, shall be transferred by virtue of this Regulation to the transferee; and

(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract, shall be transferred by virtue of this Regulation to the transferee.

(3) Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including where ……the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions.

This appeal arises on assumed facts in the field of equal pay under the Equal Pay Act 1970 (EPA 1970). The critical question of law for this court goes to the extent and effect of TUPE in this context. To assist the analysis, I find it easier to put the point in concrete, albeit simplified terms. In their employment with the transferor, women claimants are paid, hypothetically, £8 an hour. Their relevant comparators in the transferor's employment are paid £10 per hour. The women thus have a claim under EPA 1970 against the transferor for the additional £2 per hour. There is then a TUPE transfer, although the comparators in the transferor's employment remain employed by the transferor and do not transfer to the transferee. It is common ground that the women's claims have to be made (or continued) against the transferee. But what is the extent of the transferee's liability?

Under regulation 4 of the Equal Pay Act 1970 (Amendment) Regulations 2003 (the EPA Regulations) no determination may be made by an Employment Tribunal (ET) on a complaint under EPA 1970 "unless the proceedings are instituted on or before the qualifying date (determined in accordance with section 2ZA below". Section 2ZA(3), which applies here, identifies the qualifying date as "the date falling six months after the last day on which the woman was employed in the employment."

We thus reach the point which we have to resolve. In a claim under EPA 1970 to which TUPE applies, and in which the woman concerned remains in the transferee's employment, is the transferee's liability (as the appellant argues) unlimited in time (provided she remains employed by the transferee), so that the claim identified in paragraph 72 above can be brought against the transferee at any point up to six months after the last day in which the claimant is employed by the transferee; or (as the judge found and the respondent to this appeal contends) must the claim relating to the transferor's breach of EPA 1970 – albeit brought against the transferee – be brought within six months of the date of the TUPE transfer?

The point, in my judgment, is ultimately one of statutory construction, but it is immediately apparent that on the appellant's case, the consequences are startling. On that case, the time in which to bring the claim has not yet begun to run. The women are still in the employment of the transferee, and on the hypothesis advanced by the appellant the consequence, from which leading counsel for the appellant did not shrink, was that a claim under EPA 1970 could be brought many years hence against the transferee in relation to acts done, many years earlier, by the transferor, about which the transferee may know nothing, and which, evidentially, he she or it may well have no evidential or other means of challenging. This is, of course, on the proviso that the women remain in the transferee's employment. All this, counsel submitted, was a direct consequence of TUPE, and if the transferee wished to avoid any such indefinite liability, he, she or it could take out indemnity insurance.

The views of the Judge in the ET

In what are manifestly careful and thoughtful reasons, the judge in the ET, Mr TM Garnon, held that the women's claims were neither out of time nor misconceived. The assumed facts upon which he based that conclusion were the following: -

(1) the claimants' employment transferred from the North Tees and Hartlepool NHS Trust (the Trust) on a date in July 2001 under (TUPE);

(2) the claimants' comparators did not transfer but remained in employment with the Trust in respect of the period after the date of the transfer;

(3) in consequence the claimant and her comparator have not been in common employment since before the date of transfer;

(4) the claimant(s) did not commence these proceedings within six months of the date of the transfer, the first in time of such claim(s) not having been presented until 20 December 2006.

In paragraphs 3.3 and 3.5 of his reasons, Mr Garnon said: -

3.3. The policy considerations in this case are finely balanced. So much so that I have anchored my conclusion on my literal reading of TUPE and the EPA as best I can. The core of my decision lies in my acceptance of Miss Tether's submission in Armstrong, Phillips J's words in Sorbie and Lord Bingham's remarks in Celtic v Astley. The EPA is a complex piece of legislation. Right thinking people are unanimous that discrimination on grounds of gender in pay is as intolerable in a civilised society as any other form of discrimination. But instead of legislation which enables it to be proved like any other form of discrimination, we have a statute which requires a claimant to "find" a "real" comparator. If and when she does, the legislation treats (or "deems") her contract as modified to show a pay rate of £x right back to the "arrears date" even though neither she, nor anyone else, could have known what "x" was at the time payment of wages was actually being made………

3.5 Two "deemings" or "fictions" per Lord Bingham then converge. They lead me inexorably to my conclusion. To reach a different one would involve reading words into sections 1 and 2 of EPA to produce the result that unless the claimant proves the breach by the transferor in an action commenced within six months of the transfer, her pay term is not treated as modified by the equality clause which is deemed to be in her contract. I would have to depart from Sorbie and fly in the face of Armstrong in the EAT on the point which was not raised on appeal.…

Mr. Garnon was unimpressed with the argument that transferee might have to meet a claim years after the event for which it was not responsible and which it might lack the evidential means to contest. This was, in his view, no different to the position occupied by the purchaser of a majority shareholding in a company "who may be called to account years later for acts of the previous "owners"". The speech of Lord Hope in Powerhouse was to be read as relating strictly to a case concerned with an occupational pension scheme.

The views of Elias J in the Employment Appeal Tribunal (EAT)

In the EAT, Elias J summarised the ET's judgment, and conducted a thorough analysis of the authorities, before reaching his conclusion, most succinctly expressed in my judgment in paragraphs 55 and 58 of his, where he says: -

55. In my judgment, the true position after the transfer is that the claimant is enforcing a contractual right which is derived from the equality clause operating with respect to the transferor. She could enforce against the transferee such terms as were enforceable against the transferee. The issue is, therefore, what is the time limit for enforcing his particular contractual right…….

58. In short, in my judgment, regulation 5(2) transfers two kinds of relevant liabilities with respect to the equality clause. First, there is the liability for what was done (or not done) by the transferor prior to the transfer. Liability for such acts is transferred under TUPE regulation 5(2). However, the time limit for enforcing that claim is, following Powerhouse, six months from the date of the transfer. The transferee stands in the shoes of the transferor, but this does not alter the time limits applicable to those claims. Accordingly, the claimants are too late to enforce that aspect of their claims.

Discussion

On this question, I find myself in complete agreement with Elias J. It seems to me that the employee cannot have any greater rights against the transferee than she had against the transferor. TUPE ensures that she has the same rights. Her rights against the transferor were limited in time. She had to make a claim within six months of the termination of her employment with the transferor. In my judgment, it is that right which transfers. In other words, although the right to bring proceedings is against the transferee, the right is time limited to six months after the termination of her employment with the transferor, that is six months after the date of the TUPE transfer.

In my judgment, this result accords with justice and with common sense. It means that a claimant has rights against the transferor in relation to the period when she was employed by the transferor (albeit in the instant case exercisable against the transferee): she will also have rights against the transferee, for any discrimination which occurs during the course of her transferred employment.

Is this view consistent with the terms of TUPE itself and the relevant authorities?

The critical decision seems to me Powerhouse Retail Limited v Burroughs and others [2004] EWCA Civ 1281 in this court and in the House of Lords [2006] UKHL 13 (Powerhouse). In this court, the leading judgment was given by Pill LJ, with whom Jonathan Parker LJ and Laddie J agreed.

The case concerned equal pay claims brought by part-time workers, mainly women, in relation to denial of access to occupational pension schemes. Pill LJ identified the single issue arising for determination in the case in the following words: "Does time begin to run in a claim against a TUPE transferor from the date of the transfer, or does time not run until the end of an employee's employment with the transferee?" That, of course, is precisely the issue which arises in the instant case.

It was accepted in Powerhouse that the claim lay against the transferor. This was for the simple reason that by virtue of regulation 7 of TUPE, regulation 5 did not apply to so much of a contract of employment as related to an occupational pension scheme. It was also common ground, as Pill LJ put it: -

…… that, while at common law a change in the identity of an employer automatically terminates a contract of employment (Nokes v Doncaster Amalgamated Collieries [1940] AC 1014), the effect of Regulation 5(1) is that a relevant transfer does not terminate the contract of employment but, as put by Mr Paines QC for the Secretary of State, creates the statutory fiction that the contracts of employment have always existed between the employees and the transferee, who is both required to observe the conditions of the contracts of employment in the future and is liable, subject to the effect of Regulation 7, for breaches of contract by the transferor. It is common ground that, by virtue of Regulation 7, the employee has no rights against the transferee with respect to pension rights existing at the time of transfer.

Pill LJ, having summarised the arguments accepted the following as the correct analysis: -

Mr Jeans QC, for the appellants, and Mr Paines QC, for the Secretary of State, submit that the present claims relate to that part of the contract of employment kept behind by Regulation 7. That employment does not continue for the relevant purpose, that is for the purpose of these claims. The claimants seek to rely on Regulation 7 to preserve the claim against the transferor while at the same time ignoring it when considering the time limit. It is submitted that the specific contract of employment on which the claimants rely is the contract between them and the transferor but that contract only subsists until the transfer. Upon transfer, and by virtue of regulation 5, it is replaced by a contract between the employee and the transferee, the contract being deemed always to have subsisted between the employee and the transferee. All parts of the contract between the employee and the transferor are either transferred or terminate so that there can be no employment relationship for the purposes of Section 2(4) between the transferor and the employee after the transfer.

He then added: -

24……Regulation 5 does not deem the contract of employment with the transferor never to have happened; it deems that what happened was between the employee and transferee. By virtue of Regulation 7, the pension terms fall out of the contract of employment with the transferee and no further pension rights can be acquired against the transferor though, at the time of transfer, there is a cause of action against the transferor with respect to pension rights.

25. The continuing contract of employment is deemed always to have been with the transferee but it must be acknowledged that the pension rights have been removed from it and it cannot be treated as if they have not. It cannot be regarded as the specific contract of employment, giving rise to the claim for pension rights, which existed between the transferor and the employee before the transfer took place. The employment under a contract of employment about which complaint is made is the contract between transferor and employee, with its equality clause providing pension rights, and the post-transfer contract of employment, shorn as it is by statute of existing pension rights, is not the specific contract of employment for the purposes of Section 2(4). The claim is based on the previous contract and, in so far as its terms have not been transferred, it terminated upon the transfer and time began to run. The existence, in each of the contracts, of an equality clause does not mean that they can be treated as the same contract.

This court's decision was upheld in the House of Lords, where the leading speech was given by Lord Hope of Craighead. The critical question, it seems to me – and this is where I part company with Smith LJ - is whether or not Lord Hope's speech (and the decision of the House) is to be restricted to occupational pension cases, or whether his speech is of more general application. Mr Garnon plainly thought it was the former: Elias J thought it was the latter.

Speaking for myself, I do not think it necessary to consider the distinction in the reasoning between the decision of this court and of Lord Hope in the House of Lords which Elias J identifies. That said, however, I am in no doubt that Elias J is correct when he states that Lord Hope's speech is not limited to the single fact that the case involved an occupational pension scheme.

Were Powerhouse limited in its application solely to occupational pension cases, much of Lord Hope's speech would, in my judgment, be unnecessary. As I have already pointed out, it was common ground that occupational pension rights did not transfer under TUPE. It would therefore follow, I think, that on this narrow basis, the answer was obvious. If the rights did not transfer, and if they accrued whilst the employee was employed by the transferor, her right of action had both to be against the transferor and to relate to the period of her employment with the transferor.

In my judgment, therefore, Lord Hope in paragraph 2 of his speech is simply identifying the context; and the word "and" upon which Mr. Garnon places such emphasis is, as I read it, simply descriptive of what the particular case happens to be about. It is, I think, to be noted that Lord Hope goes on to describe the issue as one of "general public importance". That, in my judgment, militates against a narrow construction of the speech. I also note that Lord Hope begins his speech with the words: "The issue in this appeal is confined to a single point of statutory construction". Such a point, in my judgment, does not arise on a narrow reading of the speech.

In my judgment, the question for the House of Lords was the same as that asked by Pill LJ and set out above. All of the claims related to periods prior to the TUPE transfer. The question, accordingly, was: what was the period within which such claims had to be brought. Was it within six months of the TUPE transfer, or was it within six months of the termination of the employees' contracts with the transferee?

The House of Lords answered the question in the same way as this court and dismissed the appeal. Having cited the passage from paragraph 25 of Pill LJ's judgment which I have set out, Lord Hope goes on to reject the arguments advanced by the appellants. I think it necessary to set out this part of his speech in full: -

18. Discussion

19. Mr Cavanagh QC for the appellants said that the Court of Appeal were wrong to separate out the contract containing the equality clause relating to the pension rights from the contract with the transferee. He said that the effect of regulation 5(1) of TUPE was that the contract with the transferor was not brought to an end on the transfer. The same contract continued in existence after that date as a contract with the transferee. Regulation 7 had two consequences only: first, the terms of the transferor's contract relating to the pension rights were not transferred to the transferee; and second, the transferee had no responsibility to provide a pension for any period before the date of the transfer. The liability for claims as to the operation of an equality clause relating to periods before the transfer remained with the transferor. But it was going too far to say that, as a side-effect of these provisions, time started to run against the claimant on the date of the transfer. It was the contract itself that was transferred. So it was the contract itself which identified the claimant's "employment" within the meaning of section 2(4) for the purposes of the time limit.

20. He sought to find support for this argument in a passage in the speech of Lord Slynn of Hadley in Preston and others v Wolverhampton Healthcare NHS Trust and others [1998] ICR 227 (HL), 237G-H, where, having noted that there was no provision in the 1970 Act that different contracts of employment are to be treated as continuous employment, Lord Slynn said:

"… section 2(4), as amended, refers to a claim in respect of the operation of 'an equality clause relating to a woman's employment.' That equality clause is a clause in a contract of employment which as I see it can only be the specific contract in respect of which the claim is made and which for the purposes of the industrial tribunal's jurisdiction must cover employment which has ended within six months of the claim before the industrial tribunal."

21. Mr Cavanagh also submitted that his argument was supported by the fact that the provision in the contract that was relied on in appellants' claims was the equality clause. This was a term that was introduced into every contract of employment by section 1(1) of the 1970 Act, and it sat above all the other terms of the contract. It was this clause, which he described in his written case as an umbrella equality clause and which plainly did transfer over to the transferee, rather than any specific terms about the right to participate in a pension scheme, on which the claims were based. This, he said, reinforced his argument that, as it was wrong to see the equality clause relating to the pension rights as part of a separate contract from that which the claimant had with the transferee, the time limit in section 2(4) was not affected by the transfer.

22. I am unable to accept these arguments. As with any other issue of statutory construction, the question begins and ends with the words of the statute. The first point that must be made is that the word "contract" does not appear anywhere in section 2(4). It was used by Lord Slynn in the passage from his speech in the first Preston case, but that was in a different context. The question which he was addressing in that case was how the word "employment" was to be applied to a situation where the woman was employed by the same employer but under a succession of different contracts. For the reason that he gave, the argument that a succession of contracts could be treated as a single contract for the purposes of the time limit had to be rejected. Where there was a succession of contracts with the same employer, the contract in respect of which the claim was made in respect of the operation of the equality clause was the relevant contract of employment for the purposes of the time limit. But in my opinion his analysis does not provide the answer to the quite different question that has been raised in this case about the operation of the time limit where there has been a TUPE transfer.

Lord Hope then goes on to make an important second point: -

23. The second point is that the word that the subsection uses to identify the moment which starts the running of the time limit is the word "employment". The question which it asks is whether the woman was employed "in the employment" within the six months preceding the reference of the claim to the tribunal. The claim to which the time limit is to be applied is, of course, the claim in respect of the operation of an equality clause relating to the woman's employment: see the opening words of the subsection. When the subsection is read as whole, its

He goes on to note, without surprise, that, in this context, both the House of Lord and the European Court of Justice had used the phrase "the employment to which the claim relates" on an earlier reference as to the lawfulness of the time limit, and asks rhetorically why sub-section 2(4) of EPA should be given a different meaning when the time limit was invoked in the context of a claim relating to the operation of an equality clause which related to a period of employment prior to the date of a TUPE transfer. A statute, he opines, cannot speak with two different voices at one and the same time. He adds: -

26. …….. The rule that section 2(4) originally laid down was that a claim in respect of the operation of an equality clause must be brought within six months of the end of the employment to which the claim related. It applied to each and every claim that might be made in respect of the contravention of a term modified or included by virtue of an equality clause: see regulation 2(1). The same rule must be applied where there has been a TUPE transfer. The only question is: to which employment does the claim relate? The answer, where the claim is in relation to the operation of an equality clause relating to an occupational pension scheme before the date of the transfer, is that it relates to the woman's employment with the transferor.

27. Mr Jeans QC for the respondents submitted that this interpretation of section 2(4) had the advantage of certainty. Why, he said, should time begin to run from a date that had nothing to do with the claim in question? It was to be assumed that the rule was intended to enable potential defendants to know exactly when it was that time had run out for the making of claims against them. The effect of the appellants' argument was that a transferor would be exposed to claims relating to its occupational pension scheme indefinitely. The problems that it would face in maintaining the necessary records long after the business had been transferred should not be underestimated. One of aims of TUPE was to achieve a smooth and orderly transfer. This would be inhibited if the transferor's liability in respect of occupational pension schemes was subject to a time limit which had nothing to do with the transferor, but was linked instead to the woman's employment with a transferee who was excluded by regulation 7 from any share in the liability.

28. Mr Cavanagh said that some lack of legal certainty was inevitable, given that the time limit ran not from the date of the breach or from loss sustained as a result of it but from the end of the employment. He gave various examples of how uncertainty could arise even on the respondents' interpretation of section 2(4). I think that on balance greater uncertainty is likely to be produced by the appellants' interpretation of it. But there is much more force in Mr Jeans' point that the best way of achieving the purpose of the time limit is to link it as closely as possible to the liability which is the subject of the claim. This is achieved if the period of six months within which the claim relating to the operation of an equality clause with regard to an occupational pension scheme provided by the transferor must be brought runs from the end of the claimant's employment with the transferor, to whom the liability belongs, rather than the end of her employment with the transferee. The fact that, where disputes arise, it is the link between the employee and the employer whose rights and obligations are in issue that matters is demonstrated by section 2(1A) of the 1970 Act, which enables an employer to apply to an employment tribunal for an order declaring the rights of the employer and the employee where a dispute arises in relation to the effect of the operation of an equality clause. There is an element of symmetry here which supports the meaning that is conveyed by the words of the subsection. It is reassuring too that it was this interpretation of the subsection that the European Court of Justice had in mind when it ruled that the limitation period was compatible with the fundamental principle of legal certainty and did not make the exercise of rights conferred by Community law virtually impossible or excessively difficult.

In my judgment, Lord Hope's speech, properly read, is contrary to the submissions made by the appellants in this case, and I am quite satisfied that Elias J was right to hold, as he did, that the ratio of Powerhouse was not limited to pension rights.

I also agree with Elias J that in paragraphs 25 and 26 of his speech, Lord Hope is rejecting the notion that TUPE has in any way altered the construction of section 2(4) of EPA 1970, and that he is also making the point that TUPE does not affect the nature of the liability; it merely shifts the burden of the party which ultimately has to bear the cost. This, in my judgment makes good practical sense. The liability of the transferee – pace TUPE - is limited by the provision which requires a claimant to bring proceedings relating to the discrimination by the transferor within six months of the transfer. This strikes me as fair to the parties, and not detrimental to the claimant, who should in any event act with diligence.

Unison v Allen [2007] IRLR 975 (Unison)

It follows from my agreement with Elias J's analysis of Powerhouse that I think Unison was correctly decided. This was another occupational pensions case. In that case, various claimants contended that they had been discriminated against because they had been unable to join the NUPE occupational pension scheme. All of the claims were brought more than six months after the formation of Unison, and were made on the basis that the claimants were formerly clerical support and administrative staff employed by NUPE (and were largely women) who had been excluded from the pension scheme, whereas officers of NUPE had been allowed to join.

In that case also, Elias J conducts a full analysis of the authorities, including Powerhouse. Based on that analysis, the EAT upheld Unison's argument that the claims were out of time. Elias J expressed the conclusion of the EAT in the following terms: -

55. Read fairly, we think that Lord Hope was treating the employment with the transferor and the transferee as separate and distinct employments, as of course they would have been prior to TUPE. The fact that TUPE affected the contractual position of the parties has not affected the analysis of what amounts to employment within the meaning of s2(4). The concept of employment is the same whichever aspect of the contract is engaged, and whether the liability transfers under TUPE or not. It is an error in this context to focus on the contract. In each case, at least where the alleged breach relates solely to employment with the transferor, the relevant employment is that with the transferor.

56. It follows that even if we are wrong on the first point, and the contracts did transfer, in our judgment the claims had to be brought within six months from the termination of the employment with the transferor. In this case that means from the time when the employment with NUPE came to an end. Since the claims were made many years after that, they are out of time.

It follows that I would dismiss the appeal. It equally follows, I think, that it is unnecessary to address the alternative argument raised by the appellants, which is premised on the basis that the scope of Powerhouse is limited, save to say that, once again, I agree with Elias J's analysis in paragraphs 45 to 59 of the EAT's judgment.

The cross- appeal

The respondents cross-appeal on the basis that the equality clause operates only during the period in which the claimant and her chosen comparator are in the same employment. In the instant case, the comparators did not transfer. It follows, according to this argument, that the equality clause is not triggered, and the claimants have no remedy against either transferor (they are out of time) or transferee.

I agree with Elias J that this analysis is misconceived. Indeed, in my judgment, it would drive a coach and horses through TUPE and defeat its object. Once again, I find myself in complete agreement with the EAT on the point, and thus see no purpose in expressing my own views in different words.

I would, accordingly, dismiss both the appeals and the cross appeal.

Lord Justice Pill:

I too have come to the conclusion that both the appeal and the cross-appeal should be dismissed.

In her valuable analysis, Smith LJ refers to sections 1 and 2 of the Equal Pay Act 1970 ("the 1970 Act") and states, at paragraph 45, that the effect of section 2(4) would have been obvious but for the TUPE complication. I agree. The issue, as Smith LJ states, is as to the impact of TUPE on the operation of section 2(4). I agree with Smith LJ in rejecting (in agreement with Elias J) the alternative submissions of the respondents. My respectful disagreement stems from the last sentence of paragraph 28, where Smith LJ finds that the appellants are seeking only to preserve the right to enhanced pay which accrued to them during their employment with the Trust, that is the transferor.

The right which has accrued is that under the 1970 Act. TUPE does not enlarge that right. The right created in relation to the transferor was limited in time. It was a right, now to be enforced against the transferee under TUPE, which, if it is to be enforced, has to be enforced within 6 months of the termination of her employment with the transferor. That, in my view, is the effect of section 2(4) and section 2ZA of the 1970 Act. TUPE has done what it must do, namely it has preserved contractual rights, and provided a right of action, with respect to those rights, against the transferee.

I agree with paragraphs 55 and 58 of the judgment of Elias J. I also agree with paragraphs (80) and (81) of the judgment of Wall LJ and will not attempt to restate them in what would be less felicitous terms. To permit enforcement of the transferor's former obligation after that date would be to enlarge the scope of the right granted by the 1970 Act and that was not, in my judgment, the intention or the effect of TUPE. While section 2(4) of the 1970 Act undoubtedly includes a limitation as to time, and may be described as a limitation provision, it is, in my judgment, better described as a provision defining the scope of the right created by the statute.

In Powerhouse, regulation 7 of TUPE loomed large in argument and in the decisions, both in the House of Lords and in this Court, because the dispute was about an occupational pension scheme, as defined in the regulation. The headnote, in the report of the House of Lords decision in the Industrial Cases Reports, cited by Smith LJ at paragraph 35, cannot be criticised. While I do not disagree with Smith LJ's finding (at paragraph 42) that Lord Hope's speech does leave open as a possibility that a different result could be achieved in a case not involving an occupational pension, analysis of his speech in my judgment demonstrates that Lord Hope took a broader view of the issue before him than its application to occupational pensions. It is a view with which the judgments of Wall LJ and Elias J are consistent.

Lord Hope considered the issue in the appeal to be confined to a single point of statutory construction but it was one of "general public importance". That finding does not suggest it was limited to occupational pension schemes and the effect of regulation 7. The question begins and ends, stated Lord Hope at paragraph 22, with the words of the statute, the 1970 Act.

The word "contract" does not appear in section 2(4) and it is the word "employment" which requires analysis. (In the Court of Appeal, I had used the word "contract", following Lord Slynn of Hadley in Preston, and did so too freely, but the essential reasoning in the paragraphs from my judgment cited by Wall LJ is essentially the same whether it is the "contract of employment" or the "employment" which is analysed. It was the employment with the transferor that provided the relevant right (my paragraph 25)).

Whether or not my analysis was rejected by Lord Hope, and whether or not, in House or Court, the need to concentrate on regulation 7 clouded (with respect to the House) the essential reasoning, Lord Hope appears to me, at paragraphs 25 and 26, to reject the notion that TUPE has extended the rights conferred in the 1970 Act, including the time limit within which those rights are to be enforced. Smith LJ has cited both paragraphs in full, at her paragraph 38. The answer given by Lord Hope in the last sentence of paragraph 26 was required to be given because the case was about an occupational pension scheme; that limited and specific answer does not, in my view, detract from the general reasoning in the paragraphs.

The appellants' attempted reliance on the desirability of a link between time limit and liability (Lord Hope paragraph 28) is in my judgment misplaced. It begs the question what the liability is. The transferee's admitted liability depends on the scope of the right established. If the scope of that right is limited, as I think it is, to what has accrued under the 1970 Act during employment with the transferor, the liability goes with the time limit specified in the 1970 Act. I agree with the views expressed by Wall LJ at paragraph (96). As from the date of transfer, rights can of course be acquired against the transferee.

Having reached that conclusion by way of statutory interpretation, I do not consider it necessary to consider in detail the consequences of a finding one way or the other. They are not, in my judgment, crucial to the outcome. My only comment is in relation to Smith LJ's paragraph 62. I do not agree that the effect of my conclusion is to put a claimant in a better position if he delays than if he acts promptly. If he acts promptly, the fault will be rectified and for the balance of the 6 year period employed, he will receive the fruits of having had the fault rectified.

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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Gutridge & Ors v Sodexo & Anor [2009] EWCA Civ 729 (14 July 2009) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2009/729.html Cite as: [2009] ICR 1486, [2009] IRLR 720, [2009] IRLR 721, [2009] EWCA Civ 729