Appeal No.	 EAT/411/01

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 13 June 2002

Before
HIS HONOUR JUDGE D M LEVY QC
MR D J HODGKINS CB
MR G H WRIGHT MBE

PINNACLE AIC LTD	APPELLANT

(1) MR A HONEYMAN & OTHERS  
(2) CAPE INDUSTRIAL SERVICES LTD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR C BREEN
(of Counsel)
Instructed By:
Lockett Loveday McMahon
Solicitors
Arkwright House
Parsonage Gardens
Manchester
M3 2LF	
For the 2nd Respondent

For the 1st Respondents

	MR A CHOUDHURY
(of Counsel)
Instructed By:
Dibb Lupton Alsop
Solicitors
177 Headrow
Leeds
LS1 5JX

NO APPEARANCE OR
REPRESENTATION
BY OR ON BEHALF OF
THE 1ST RESPONDENTS

JUDGE D M LEVY QC:

1	Between 3 December 1999 and 6 September 1999 nine applications to an Employment Tribunal were made by employees who had, at one time, been in the employ of Cape Industrial Services Ltd (“Cape”).  

2	An issue arose with the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”).  The nine employees had been part of a scaffolding team employed by Cape.  Looking at the IT1 of one of the employees, Mr Clarkson, at page 20 of our bundle, the relief he claimed was for unfair dismissal and no redundancy payment.  He said:

“Whilst working on Fine Organics for Cape Scaffolding they lost the maintenance contract and Pinnacle Scaffolding took over the contract.  Cape Scaffolding are saying TUPE Regulations apply and Pinnacle should take on my ten years’ service with the same pay and conditions.  Pinnacle are paying less money and are not willing to take on my ten years’ service and have said TUPE does not apply to this site.  Cape have wrote and said ‘you should start for Pinnacle on 6.12.99’.  Pinnacle have wrote back saying they have no job for me on the 6.12.99 as all these jobs are filled by their own men.  On the 1.12.99 Cape was asked to the site and I was told there was no job for me.  Cape have not given me my ten weeks in lieu or my redundancy money because they believe Pinnacle are at fault.  Basically the two companies cannot decide whether it is a TUPE site.  Therefore I have not received my entitlements.”

To his application was attached a letter dated 24 November, from Cape to him, which reads:

“Following our letter dated 16th November 1999 regarding the completion of our contract at Fine Organics Ltd and the transfer date of your contract under the TUPE Agreement, we would wish to inform you of a change to our anticipated completion date.
Due to inclement weather and delays caused by the dismantling of long term scaffolds your contract with Cape Industrial Services Ltd will cease on Friday, 3rd December 1999, and your contract transferred to Pinnacle AIC Ltd on Monday, 6th December 1999.”

We will refer in this judgment to the last-mentioned company as “Pinnacle”.

3	Pinnacle wrote on 24 November 1999 to Mr Clarkson:

“Your employer, Cape Industrial Services Limited, has sent us a copy of the letter written to you on 16th November 1999 informing you that your contract with Cape will cease on 26th November 1999.  We have today 24th November 1999 received a fax from your employer stating the date has been moved to 3rd December 1999.
We write to you because that letter suggests that your employment will transfer to this company with effect from 3rd December 1999.  We want you to be aware that this is incorrect.
It has been suggested by Cape that the Transfer of Undertakings (Protection of Employment) Regulations 1981 apply to the loss of Cape’s scaffolding contract with Laporte.
You should be aware that this is not the case.  Pinnacle believes that regulations do not apply and therefore you should look to Cape for any contractual and statutory entitlement you may have.
Even if the loss of the contract by Cape does constitute a transfer for the purposes of the Regulations (which this company does not accept) you should be aware that at present, having reviewed over the last few days our staffing requirements, we have no vacancies for scaffolders.  From an economical point of view, it is not permissible for further men to be employed on site, however, if you wish to confirm your interest in working for Pinnacle in the future, please let us know in writing and we will happily hold your name on file in case any opportunity becomes available in the future.”

4	The IT1 of Mr Honeyman (another of the nine scaffolders) was perhaps more elegantly expressed because in box 1, he referred to “TUPE transfer complaint and/or non-payment of redundancy, breach of contract and unfair dismissal”.  Clearly, there was an issue which had to be resolved by an Employment Tribunal, as to whether TUPE applied or not.  Following interlocutory proceedings, about which we were not informed, a preliminary issue came before an Employment Tribunal sitting at Thornaby on 3 November 2000, to decide whether or not there had been a transfer from the First Respondent, Cape, of an undertaking, in which the Applicants were engaged, to the Second Respondents, Pinnacle.

5	Further to a hearing on 3 November 2000, there were deliberations amongst the members on 15 December 2000 and the decision was promulgated on 17 January 2001.  The decision of the Tribunal was that there had been a transfer from Cape to Pinnacle.  From that decision Pinnacle appealed.  The grounds of appeal were fairly lengthy.  There was a preliminary hearing of Pinnacle’s appeal before an Employment Appeal Tribunal headed by Mr Recorder Langstaff QC in which the Tribunal said this:

“2	We propose to give permission for the grounds of appeal to be argued at a hearing at which the Respondents will be represented.  Essentially, we note that in paragraph 14 the Employment Tribunal state that they found the decision in Willer v ADI very persuasive on the basis that the facts were similar.  The report available to the Employment Tribunal was of that case once it had passed through the Employment Appeal Tribunal.  Subsequently, it has been considered by the Court of Appeal and at 2001 EWCA 971, the Court of Appeal reversed the decision which this Tribunal had come to.
3	We consider that it will be necessary to review the decision reached by this Tribunal in the light of the guidance given by the Willer case, amongst others, and secondly, we note that it is arguable that there was here neither an economic entity or, if there was, it is arguable that nothing was transferred that might be said to constitute the entity, apart from the transfer of a contract. … “

In the final paragraph of the Employment Appeal Tribunal this reads:

5	The basis for this Tribunal’s giving leave is contained in the reasons we have given.  It will be sufficient if the skeleton argument addresses those reasons.  Any formal amendment of the Notice of Appeal may await the decision of the full inter-partes hearing.

6	Counsel, who appeared before us today, have very wisely and helpfully agreed that the Notice of Appeal should read as encapsulated in the judgment of Mr Recorder Langstaff and, in our judgment, it is inappropriate for an amendment to the Notice of Appeal to follow our decision.  The issues, therefore, which we are considering are those spelt out in that judgment.  

7	It is perhaps useful at this point to say that between the decision of the Employment Tribunal, Willer v ADI was, indeed, considered by the Court of Appeal and the decision was handed down on 22 June 2001.  Subsequent to that case, and before the hearing of the appeal, there was another helpful decision of the Court of Appeal to which we have been referred today:  RCO Support Services Ltd v Unison & Ors [2002] EWCA Civ 464 (12 April 2002).

8	Although it is not shown on the first page of the Extended Reasons, at the hearing below the Applicants were represented by Mr Morland of the AEU and Mr Michna of the Citizens Advice Bureau.  Cape was represented by Mr Baker and Pinnacle by Mr Breen.  Mr Breen appears before us today for Pinnacle, Mr Choudhury appears for Cape.  We would say in passing it is always helpful if appearances are shown on the first page of the Extended Reasons, below the names of the members conducting the hearing. 
9	Mr Choudhury has submitted to us that the issues which are raised by Mr Recorder Langstaff, as arising on this appeal, should be resolved in his favour.  By contrast Mr Breen has taken us to certain of the passages and certain authorities and suggested that the decision is wrong.  We propose to consider the issues for appeal as identified in Mr Recorder Langstaff’s judgment in the order in which they are raised.  This is a judgment which might benefit if it was reserved but, if it were to be reserved, it would take even longer for the employees, who had not taken part in this appeal, to receive any money which they are clearly due from one or other of the parties to this appeal than would otherwise be the case.  We would not wish payment to them to be delayed for a moment longer than it need be.

10	The first ground of appeal is that the Applicants, by reason of the nature of their work and their organisation during the course of their employment with Cape, could not constitute an economic entity which was capable of being transferred to the Appellant.  On behalf of the Appellant it was submitted that the alleged economic entity consisted of various Applicants and was not a stable economic entity.  It was submitted that the same could not be described as an organised group of persons and assets enabling or facilitating the exercise of an economic activity which pursued a specific objective.  Mr Breen pointed us to evidence which came in the course of the hearing.  We should have added that Chairman’s notes were requested and we have in our bundle the Chairman’s notes of the two Applicants who gave evidence, namely Mr Honeyman and Mr Clarkson, the two gentlemen to whose IT1s we have referred.  Their evidence was:
(a)	they carried out scaffolding duties at various sites which were operated by Cape;
(b)	that the Seal Sands site was not their central base of operation; and
(c)	those two Applicants gave evidence that in their opinion neither was permanently assigned to the site or task in question.

11	However, the Employment Tribunal found, at paragraph 4 (c) of the Extended Reasons, that these Applicants were dedicated to the contract.  This was contrary to the evidence given by the Applicants.  We found within the notes that there was evidence that they would move from site to site at the behest of Cape principally because they had within their contract a mobility clause entitling Cape to request them to work at any of the sites.

12	Mr Choudhury submitted to us that the grounds of appeal on whether there was an entity was no more than a challenge to a legitimate finding of facts on the part of the Tribunal that the employees were dedicated to the site and that there was an identifiable economic entity.  It relied on the evidence that the Applicants were not dedicated to the site and such reliance was misplaced because the Tribunal had evidence to the contrary and that, as the sole arbiter of fact, it was fully entitled to choose between conflicting views.  He drew to our attention the evidence of Mr James Anderson and the notes showed that he said that “the scaffolders at Seal Sands were dedicated to the Fine Organics Scaffolding Contract”; that Mr Anderson for Cape gave evidence which was not challenged at the hearing, which was referred to in paragraph 4 (i) of the Extended Reasons which read:

“(i) In the present case Cape had made it clear to the applicants that their employment was in jeopardy in that the unchallenged evidence of Mr Anderson was that continued employment of the applicants depended upon Cape gaining renewal of the contract with Fine Organics.”

13	Mr Choudhury submitted that there was evidence before the Tribunal which entitled them to reach the conclusion which it did, that the Applicants’ base of operations was the site at which they were working when the contract terminated.  The reasons are given at page 14, paragraph 4(a) of our bundle:

“(a) The applicants worked from various start dates in the activity of scaffolding, specifically as scaffolders.  Mr Honeyman had worked for Cape for 13 years, transferring from site to site at various times.  He had worked for the last three years prior to February 2000 on Cape’s contract for Fine Organics at a site known as Seal Sands.  Although he did not expect to stay on one site (because in the past he had moved around the country), nonetheless he had been on the Final Organics Seal Sands site sands for three years prior to the loss of the contract by Cape and the gaining of a contract by Pinnacle.  During the past three years Seal Sands was his base of operations, even if occasionally he moved to other sites on specific days.  Because of his long service he assumed that if the contract were lost at Seal Sands he would be transferred to another site, but this did not happen.  In any event his base was Seal Sands.”

And in paragraph 4 (c) a finding of fact was made by the Tribunal:

“(c) Scaffolders at Fine Organics Seal Sands site were dedicated to that contract.  Mr Honeyman worked principally in the final three years of his contract at Seal Sands on the Fine Organics Contract.  Mr Clarkson had been employed since 1989 and had been moved to the Fine Organics site during the late summer of 1999.  From then on he worked principally on this particular contract, working only occasional days elsewhere.”

14	Mr Choudhury submitted that those findings of fact were not susceptible to challenge and thereafter other reasons having been given, the Tribunal went on to analyse whether there was in this case an economic remedy.  In paragraphs 7, 8, 9, 14 and 15 the Tribunal gave extensive considerations to this issue.  At paragraph 8 they held:

“8 … The contract at Seal Sands as a contract and in the way that it was fulfilled by Cape’s workforce, was a separate entity to other contracts and could therefore be regarded as a stable economic entity.”

He submitted that it is clear that the Tribunal had in mind the relevant factors, none of which is itself determinative in determining whether there was a stable economic entity.  In our judgment Mr Choudhury was right when he made the submission that there were findings of fact by the Tribunal which entitled them to reach the decision that there was, in this case, an economic entity.  

15	The next question which was to arise was did the entity retain its identity upon the transfer?  Mr Choudhury pointed out that the Notice of Appeal repeatedly asserted that the only basis of the Tribunal’s finding that there was a transfer was that the incoming contractor was providing the same service ie that of scaffolding work as providing Cape and/or that the Tribunal disregarded the different nature of the contract undertaken by Pinnacle.  He submitted that the Tribunal’s approach was not nearly as limited, or as simplistic, as was asserted in the Notice of Appeal.  He pointed to the reasons at paragraph 5 where the Tribunal referred to the test in Spijkers v Gebroeders Benedik Abbatoir CV and Another [1986] CMLR 4296.  He submitted that it was clear from the Reasons, particularly paragraphs 4(g), 4(h) 10 and 13, that the Tribunal identified and took account of the different nature of the Pinnacle contract.  He submitted that its legitimate conclusion was that this did not detract from the fact that the discrete economic entity in the hands of Cape formed “part of the undertaking of Pinnacle after the transfer”.  That is to say, the entity was still recognisable as such after the transfer.  He submitted that if, as Pinnacle suggests, the mere fact that the new contract was multidisciplinary could avoid a transfer, then it would be a simple matter for incoming contractors to avoid liability simply by changing their modus operandi.  He submitted that the Tribunal was entitled to and did look behind the change and find that the entity was still there.  He referred us to the decision of the judgment of the EAT in Cheeseman v R. Brewer Contracts [2001] IRLR 144, EAT, where the President, in paragraph 11, analysing as to whether there had been a transfer, identified a number of matters which should be identified.  He submitted that the Tribunal went through those applicable in this case, which the President identified.  

16	Mr Choudhury submitted that, in particular, it was wrong in the circumstances to give much weight to the fact that no assets were transferred and that the Tribunal properly took account of the fact that, for reasons of security, in the scaffolding industry assets are rarely transferred.  He pointed to the similarity of the service being provided which influenced the Tribunal in their Extended Reasons.  First of all, the similar number of staff involved.  He submitted this was significant because it tended to suggest that had it not been the case (fortuitously for Pinnacle) that Pinnacle had just lost a contract in another site, thereby providing it with a ready workforce for the site, Pinnacle would probably have recruited Cape’s employees.  In other words, the same service would have been provided by the same skilled workforce which would have unarguably been a relevant transfer.  He pointed to the identifiable entity in the hands of Pinnacle being the same, albeit it was part of a larger contract with a multidiscipline workforce.  He pointed to the fact that there was no suspension of activities and that the customers were the same.  In short, he submitted, that several of the factors stated by the authorities as being relevant pointed to the existence of a transfer.  More important, the Employment Tribunal, the industrial jury, found as a fact that the entity had retained its identity.  He drew our attention to a paragraph in the judgment of the Court of Appeal given by Mummery LJ, with which the other two Lord Justices agreed, where Mummery LJ said at paragraph 27

“The Employment Tribunal was entitled to characterise the facts found by it as involving retention of the identity of economic entities … .  The finding of a retention of identity was based on more than just a comparison of the similarity in the activities undertaken by the contractors before and after the move.  It was reached by a consideration of all the circumstances. …”

That case was a case involving hospitals in Liverpool.  There was a sentence in the middle of paragraph 27 which reads:

“There was significantly more to this case than Initial losing a contract and RCO winning a contract covering the same activities in a different location.”

17	Mr Breen submitted that that sentence meant there was far more difference to the assertion than was here.  That is as may be;  we consider that the Employment Tribunal was entitled to come to the conclusion it did on the findings which it made in this case.

18	In RCO, the Court of Appeal established first, that the case of Spijkers was still good law, the decisive criterion being retention of identity.  Secondly, that the correct approach to determine whether or not there has been a transfer is to consider all the facts.  Thirdly, whether or not employees have been taken on is but one of the factors to be considered, it is not determinative, even in labour-intensive industries.  Fourthly, it is necessary for the Tribunal to assess the significance of the employees being taken on, by considering the context in which the decision was made and, fifthly, the motive of the putative transfer to avoid TUPE by not taking on employees is not the real point.

19	It was submitted, in our judgment correctly, that the Tribunal in the present case, although it decided the matter in November 2000, approached its decision as if it had those principles before it.  It followed the Spijkers approach, and did not regard the non-transfer of employees as determinative, although taking that into account.  It assessed the significance of Pinnacles’ decision not to take on employees by considering the context of that decision.  Its conclusion that the decision does not negative a transfer in this case was entirely permissible in the circumstances of the case and was not one with which we could interfere.  It was submitted it did not make any specific finding as to Pinnacle’s motives in not taking on the employees but, as stated in RCO, motive is not the real point.  

20	The next point identified by the Tribunal was the position of ADI on our case, the fact that the decision in ADI had been reversed by the Court of Appeal.  In that connection we were taken to passages in the decision of the Court of Appeal, where May LJ, considering the judgment of the EAT in that case said:

“The EAT did not uphold the majority decision of the employment tribunal that there was no economic entity.  The EAT said that on the face of the findings of the employment tribunal, the entity supplying, in Darwin shopping centre, the security services, consisting of nine security officers, making use of the facilities provided and many miles away from the nearest similar operation run by ADI, looks very much like a qualifying entity.  In this court, there is no respondent’s notice seeking to challenge this finding of the EAT and Mr Randall, counsel for Firm Security Group Ltd, the effective respondents to this appeal, did not seek to do so.  For my part, I agree that the security services provided at the Darwin shopping centre constituted a discrete economic entity for the purpose of the Council Directive and the 1981 Regulations.”

21	Mr Choudhury submitted that, although the result might have been different in the Court of Appeal, at the end of the day the majority decided that the matter should go back for further determination by an Employment Tribunal, that paragraph showed that that does not affect the reliance which was placed on the decision below by the Employment Tribunal.

22	We have considerable sympathy for Pinnacle because there is evidence that many of their employees, to whom by this decision they may have to pay compensation, were long-term employees, but it does not appear to us that the Notice of Appeal raises the grounds which Mr Breen wanted to submit to us, namely that there was some sort of attempt by Cape, in the circumstances of the case, to avoid responsibility for their employees’ redundancy by losing the contract.  This is not something which appears to have been argued below; it does not appear in the Notice of Appeal.  It is not something, therefore, which we can properly consider now.

23	In the circumstances we dismiss this appeal.  We thank both advocates for their assistance.  No TUPE case is one which is easy to decide.  We are glad that, with their help, we have managed to encompass this in the course of today.