[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Kerry Foods Ltd v Creber & Ors [1999] UKEAT 1379_97_1110 (11 October 1999) URL: http://www.bailii.org/uk/cases/UKEAT/1999/1379_97_1110.html Cite as: [2000] IRLR 10, [1999] UKEAT 1379_97_1110, [2000] ICR 556

[New search] [Printable RTF version] [Buy ICLR report: [2000] ICR 556] [Help]

APPEARANCES

 

For the Appellants	MR P ROSE (of Counsel) Messrs Blake Lapthorn Solicitors 1 Barnes Wallis Road Segensworth Fareham Hampshire PO15 5UA
For the Respondents	MISS TETHER (of Counsel) Messrs Michelmores Solicitors 18 Cathedral Yard Exeter Devon EX1 1HE


 


MR JUSTICE MORISON (PRESIDENT): This is an unusually difficult appeal.

1. We start with the facts which we take from the Tribunal's decisions as corrected and amplified by the parties during the argument. The decisions contain a number of factual errors.
2. The appellants were employed by a family owned sausage-making company called WH Luke & Sons Ltd [ 'Lukes' ]. The factory was located in Oreston on the outskirts of Plymouth. The business was sold in 1995. The new owners had undertaken substantial borrowing and the business got into financial difficulties. The lender appointed receivers pursuant to their rights under a debenture and the staff were dismissed shortly before the business was sold to the Respondent company [ 'Kerry' ]. The receivers were appointed on Friday 24 January. At their request, the directors, over the weekend, prepared a list of those who they regarded as non-essential and they were dismissed forthwith on the Monday. The receivers wished to sell the business as a going concern provided that the sale could be achieved within 14 days. Beyond that deadline he was not prepared to go. He knew that there was sufficient stock to carry on trading during the 14-day period.
3. On 31 January, a further 10 employees were dismissed and on the same date the company ceased to produce frozen sausages. The receivers had prepared a sale prospectus. Kerry had heard of the appointment of the receiver and enquired about possible purchase and was sent the information pack. By 30 January there was considerable interest in the company from prospective purchasers, although no offers had by then been made. Of the three serious contenders, one was prepared to trade from Oreston, but Kerry's price was higher and it was their offer which the receiver accepted. It was Kerry's objective to acquire the company's brand name [Luke's] and goodwill and to manufacture.
4. The disputed conclusions of the Employment Tribunal are these:-

(1) There was a transfer of Luke's business to Kerry within the meaning of TUPE Regulations.

(2) Responsibility for the applicants' contracts of employment transferred to Kerry.

(3) The dismissals were in connection with the transfer.

(4) The dismissals were for an economic technical or organisational reason entailing changes in the workforce [for shorthand, an ETO reason].

(5) The applicants were dismissed by reason of redundancy and Kerry were obliged to make the statutory payments.

(6) The dismissals were unfair because Kerry did not afford the applicants the possibility of alternative employment.

(7) The applicants were entitled to a protective award of four weeks pay due to a failure to consult, such amount was to be paid by Kerry.

5. In a nutshell, Mr Rose of counsel, on behalf of Kerry, submits that:-

(1) There was no transfer.

(2) If there was a transfer, the applicants were not employed in the undertaking immediately before the transfer, as they had all been dismissed by the receiver prior thereto; and, therefore, their contracts of employment could not have transferred to Kerry.

(3) It was illogical for the tribunal to take the reason for the dismissal as the receiver's reason but then decide the issue of fairness by reference to what Kerry did or did not do.

(4) The dismissals were not by reason of or in connection with the transfer.

(5) The tribunal were wrong to conclude that the liability for a protective award was a liability which transferred across to Kerry.

(6) The tribunal erred in concluding that a protective award should be made and in any case awarded more than was fair.

6. For the applicants, Miss Tether argued that

(1) The tribunal were entitled to conclude that there was a transfer of a business within the meaning of the regulations.

(2) The transfer was the primary or an effective cause of the dismissals as the tribunal effectively found in their first decision and, therefore, were automatically unfair.

(3) On the facts, the dismissals were by reason of the transfer rather than for an ETO reason.

(4) The tribunal correctly approached the question of fairness.

(5) The protective award was properly made and the liability for it passed to Kerry.

7. In the course of their excellent submissions, we were referred to a number of decisions of the European Court and the Court of Appeal. We shall not refer to all of them in this judgment. Some of the issues were easier to resolve than others. We recognise that the appeal raises an important point as to the relationship between Regulations 8(1) and 8(2) and as to the link between the decision in Litster and Regulation 8(2). More precisely, can a dismissal be both for a reason connected with the transfer and for an ETO reason? If the dismissal is for an ETO reason, does the contract of employment go across to the transferee? If the dismissal is for an ETO reason, but is unfair, can the former employee recover compensation from the transferee? The issue as to whether liability for a protected award transfers to the transferee, or whether it is a liability which lies only against the transferor and Secretary of State, is also important.
8. We shall deal with each of the issues in turn, referring to the arguments on each, and giving our conclusions.
9. Transfer?

Mr Rose's arguments on the transfer issue were, we thought, unconvincing. He stressed the fact that no employees transferred and referred us to the decision of the ECJ in Süzen. That decision has recently been examined by the Court of Appeal in ECM Vehicle Delivery Services Ltd: Transcript of judgment handed down dated 22 July 1999. They held that the importance of the Süzen decision had been overstated as it expressly embraced the earlier decisions of the ECJ and emphasised the need for a consideration of all the material factors suggested in Spijkers. The fact that Kerry did not continue sausage making at the factory in Oreston or recruit any of Luke's employees were two factors which Mr Rose stressed. He said that Luke's business had not been acquired; rather the sausage making activities remained the same. Miss Tether submitted that there was a seamless transfer of a business. Kerry continued to make sausages previously manufactured by Lukes, without a break. They sold the sausages to the same outlets. They protected the brand which they had purchases by buying and removing from the factory at Oreston the computer and other furniture and equipment so that no competitor could set up a rival business from the old factory. In other words, they were protecting the goodwill of the acquired business. Kerry acquired and sold the last day's production of the Oreston factory.

10. In our judgment, the decision of the tribunal on this issue which is contained in paragraphs 54 – 56 inclusive of their first decision cannot be faulted. Had this been the sole issue on the appeal, we would not have regarded it as raising any arguable point of law.
11. Were the applicants employed in the undertaking immediately before the transfer?

The answer to this question depends, it seems to us, upon the proper interpretation of the decision in Litster, and a correct analysis of Article 4 of the Acquired Rights Directive and of the Regulations. The problem is caused by the language of the Regulations themselves. Regulation 8(1) renders automatically unfair a dismissal of a person in connection with a transfer where the transfer is the principal or a reason for the dismissal. In other words, on their face, the Regulations contemplate that a transfer may be the sole or an effective cause of the dismissal. Regulation 8(1) is disapplied by Regulation 8(2) which provides for a lawful dismissal where an ETO reason is the principal or a reason for the dismissal. On their face, the Regulations appear to contemplate that if the transfer is an effective cause of the dismissal but the ETO reason was the principal reason, the ETO defence would not apply because the dismissal would be automatically unfair under Regulation 8(1). Thus, only in cases where the transfer was neither the main nor an effective cause would the dismissal be potentially fair. It seems to us that that would be the natural interpretation of the words of the Regulations themselves.

12. However, in Whitehouse v Charles A Blatchford in a judgment delivered on 23 April 1999, the Court of Appeal accepted, we think, the proposition that, if the main reason for the dismissal was the transfer, the decision to dismiss was automatically unfair. And, but for their dismissal, the employees would have been employed in the undertaking immediately before the transfer and, consequently, may exercise their rights against the transferee under Regulation 5. But that if the transfer was a reason but that an ETO reason was the main reason then the dismissal would not be automatically unfair. That judgment is, we would respectfully suggest, entirely consistent with what was said by the ECJ in Jules Dethier Equipement SA v Dassy [1998] IRLR 266 at page 279, paragraph 36. Either the transferor or transferee may dismiss an employee fairly if the principal reason is an ETO one. Either the dismissal was by reason of the transfer or it was not. If it was not, then there may have been an ETO reason. This decision is binding on this court, although we can see an argument for saying that the Regulations have given more extensive protection to employees on a transfer than is required by the wording of Article 4 of the Directive. The dismissal must either be for a transfer-related reason or not.
13. In the light of the foregoing, it seems to us that the following principles of law may be formulated:

(1) Every dismissal is effective to terminate the employment relationship – see Wilson v St Helen's Borough Council [1998] IRLR 706.

(2) A dismissal by the transferor by reason of the impending transfer will be automatically unfair.

(3) The employees concerned will enforce their remedies in relation to that dismissal against the transferee, in accordance with the Litster principle.

(4) If the main reason for the dismissal by the transferor is an ETO reason, neither Regulation 8(1) nor the Litster principle will apply.

(5) If the reason for the dismissal is an ETO reason but the dismissal is nonetheless unfair, then the principle in the previous point [4.] remains true. It seems to us clear that the Litster principle is not directed at the fairness of the dismissal, but rather at the reason for it. Thus, if an ETO reason is the main reason for the dismissal by the transferor but the dismissal is unfair the employee may recover only from the transferor. It seems to us that it is only when Regulation 8(1) applies that the Litster principle operates.

(6) If the dismissal is effected by the transferee then the employee's remedy lies against the transferee. A transferee may dismiss by reason of the transfer or for an ETO reason.

14. We must now apply these principles to the present appeal. In their first decision the tribunal concluded that those employees who were dismissed on the day of the transfer were obviously dismissed by reason of the transfer. We agree. Kerry had said that they would not take any of the employees at that time. The heads of agreement said that responsibility for the employees remained with Lukes. The reason for the dismissals was the closure of the Lukes factory. The factory closed because Lukes business had been transferred to Kerry who decided not to take on the staff. The point at issue was dealt with by the ECJ in Merckx v Ford Motors (Belgium) [1997] ICR 352 at page 368 where the Court said:

"Secondly, the plaintiffs claimed that there could not be a transfer for the purposes of [the Acquired Rights Directive] when an undertaking definitely ceased trading and was put into liquidation …..In such circumstances, the economic entity had ceased to exist and could not retain its identity.

In that regard, if the Directive's aim of protecting workers is not to be undermined, its application cannot be excluded merely because the transferor discontinues its activities when the transfer is made and is then put into liquidation. If the business of that undertaking is carried on by another undertaking, those facts tend to confirm, rather, that there has been a transfer for the purposes of the Directive."

15. Here, the transferor sold its business and then went into liquidation. There was no more work for the employees to do. But they lost their jobs by reason of the failure of the Receivers and Kerry to observe the requirements of the Directive to protect the employees in the business which is being transferred.
16. As to the two other batches of dismissals, which occurred earlier, it seems to us that the employment tribunal had to weight the evidence with care. On the one hand it could be said that some of the employees were being dismissed because of the re-arrangement of the business prior to transfer; for example, the ceasing of the production of frozen sausages. On the other hand the receivers had always intended to sell the business, if they could. Were these employees dismissed for a business reason or by reason of the transfer? As we read the tribunal's first decision, paragraph 59 shows the tribunal's consideration of these issues. In relation to the first batch, the tribunal recognised that by dismissing the employees, the receivers gave themselves an opportunity to sell the business. It could, therefore, be said that this was a business-related reason. But the tribunal went on to hold that the transfer was the principal reason for the dismissal and gave their reasons. This was an issue of fact for them and we should not interfere with their conclusions, especially since we would have reached the same conclusion ourselves on the material before them. In relation to the second batch of dismissal, again the tribunal found that the transfer was the principal reason. Again, whilst another tribunal might have reached a different conclusion, it was open to this tribunal to reach the conclusion they did.
17. Having reached this point, the tribunal should then have concluded that the Litster principle applied and that all the employees were employed in the undertaking immediately before the transfer. The employees were, thus, to be treated as though they had been employed by Kerry but dismissed by them by reason of the transfer. By Regulation 8(1) they were all entitled to compensation, and other remedies, for unfair dismissal against Kerry. That appears to be the tribunal's approach but they went on to consider whether there was an ETO reason for the dismissal and concluded that there was, in relation to all the employees. In our view that was not correct. Having concluded that the transfer was the principal reason for the dismissal the tribunal should have moved straight to remedy. The issue as to whether the dismissal was fair or unfair did not arise. As this was a dismissal by reason of the transfer, there can also be no question of a redundancy payment. If the transferor had been able to say that the principal reason for dismissal was not the transfer but an ETO reason, we unhesitatingly accept Mr Rose's submission that the tribunal erred in law in looking at what Kerry did or did not do when assessing the fairness of the dismissals.
18. We turn finally to the question of the duty to consult. This is a duty which mat arise under the Regulations themselves and under statute. As Mr Rose said in argument, the trigger for the two are different but there are similarities between the obligations once they arise. When a receiver is appointed with a view to a sale of the business, if possible, the obligation to consult arises on his appointment however many employees might be involved. This is an obligation under the Regulations. If, in the event that he fails to sell the business and cannot keep it going, he is proposing to dismiss a sufficient number so as to attract the statutory obligation to consult, then his duty is two-fold. In this case it was, we think, of cardinal importance that the receivers consulted the staff at the earliest opportunity after their appointment. As there was no trade union then staff representatives should have been appointed with whom the consultations could have taken place. There is a clear difference between passing on information, on the one hand, and consultation, on the other. Here, the receivers should have been anxious to find out what proposals the staff could make about the immediate and long-term future of Lukes. In the immediate short-term, the staff may have been prepared to forego their wages for a short period to keep the production running so as to keep the business in tact. For the longer term, the staff should have been given the opportunity to make representations about the choice of purchaser. One of the front runners was prepared to carry on the business from Oreston and, no doubt, would have been prepared to keep on many of the existing work force. There was no good reason why that should not have been done. As the tribunal found "no consultation of any sort took place". We agree with Mr Rose that some of the findings in paragraph 72 are somewhat confusing. They were entitled to find that the receivers were proposing to dismiss 20 or more people within 90 days because the receiver had resolved to close the business down if no buyer could be found within 14 days. They were entitled to find that it was reasonably practicable to carry out the consultations. We do not, with respect, understand the reference to Kerry in that paragraph save that the tribunal held that the liability for the failure to consult passed to Kerry under Regulation 5.
19. Despite Mr Rose's submissions we were not inclined to accept that their conclusion that it was practicable to consult was perverse. As to the seriousness of the breach, represented by a maximum award of 4 weeks, we do not consider that it is arguable that the tribunal have erred in law. This was a bad case where consultation might, we think, have made a difference. We have noted in the EAT that all too frequently in receiverships the interests of the employees tend to be left on one side. Although receivers are looking for the best financial outcome, statute and the regulations make it clear that the employees have rights, which should be respected.
20. Is a liability for failure to consult a liability which passes across to the transferee?
21. There is a decision of the EAT on this issue in 1985: Angus Jowett & Co Ltd v National Union of Tailors and Garment Workers [1985] 646. At page 658 the Court said:

"Even if all the other requirements of the regulations were in a given case fulfilled, we would not think it right to describe the employers' duties and liabilities under [section 189] as a duty or liability under or in connection with any such contract as is referred to in Regulation 5. It is true that the words "in connection with" are extremely wide; but it seems to us that the employers' duties or liabilities which lead to the making of a declaration and protective award arise under the Act and arise in connection not with any contract with an individual employee but by reason of a failure to consult recognised trade unions, which is a duty imposed by [section 189]; and it arises from a proposal to dismiss certain employees as redundant."

22. That case was decided at a time when the obligations to consult under the statute and the Regulations were to consult with trade unions on a collective basis. In 1994, in infraction proceedings against the United Kingdom, the ECJ made it clear that the EC Directive relating to collective Redundancies [No75/129] was designed to protect the rights of workers as individuals. Thus, where there was no recognised trade union there was still an obligation to consult through worker representatives. Hence, the amendments made to bring the statute and Regulations into conformity. Accordingly, Miss Tether submits that the distinction between liabilities arising in connection with individual contracts of employment on the one hand and liabilities arising in connection with a failure to consult on a collective basis on the other, cannot stand. Mr Rose drew attention to the fact that under section 184(2)(d) of the 1996 Act, a protective award counts as arrears of pay and falls to be paid by the Secretary of State on an insolvency. The protection to employees in a transfer situation comes from this provision rather than from a transfer of a liability to the transferee.
23. Miss Tether points out that monies paid under a protective award are treated as "a sum payable to [a] worker in connection with his employment." In any event, even if liability does not fall within the words of Regulation 5(2)(a) the words in Regulation 5(2)(b) are wide enough to cause the liability to transfer. The words "anything done before the transfer is completed" are wide enough to cover a failure to consult.
24. The arguments are nicely balanced. Were it not for the infraction proceedings, which clarified the nature of the obligations to consult, we would have wished to follow the previous decision of the EAT. However, we are persuaded by Miss Tether's arguments. It seems to us that it is not possible to say that a liability for failure to consult does not arise in connection with an individual worker's contract of employment. It seems to us that the duty to consult, whether or not there is a recognised trade union, is a right which arises from the individual contracts between each worker and his employer. This is emphasised by the nature of the remedy which belongs to the individual and is regarded as part of his contractual entitlement. We would say that this was a liability in connection with a contract of employment within Regulation 5(2)(a). But we also agree with Miss Tether that it would be apt to fall within 5(2)(b) as well. As to Mr Rose's point, there will, of course, be many cases where, for a whole variety of reasons, a transfer does not take place and where the breach of the duty to consult will rest upon an insolvent company. The statutory provision to which he refers is not indicative, we think, of a Parliamentary intention that a transferor should be liable for what he has done or not done in connection with individual contracts of employment of those who were employed in the undertaking immediately before the transfer, and whose contracts of employment transferred to the transferee under Regulation 5.
25. On this issue we agree with the conclusion of the employment tribunal that liability for the protective awards fall upon Kerry.
26. Ultimately, therefore, albeit for different reasons, we accept that the employees were unfairly dismissed; that the liability for compensation falls upon Kerry; that a protective award of 4 weeks was fair and is a liability falling upon Kerry.
27. Essentially the appeal is dismissed and the cross-appeal is allowed, although we would welcome the parties' agreement as to the precise terms of the orders that should now be made.