Appeal No. EAT/0305/03 ILB

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 31 July 2003

Before
THE HONOURABLE MR JUSTICE ELIAS
MR P GAMMON MBE
MRS M T PROSSER

SOLECTRON SCOTLAND LTD	APPELLANT

MS G N ROPER & OTHERS	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR T CROXFORD
(of Counsel)
Instructed by:
Messrs Eversheds Solicitors
1 Callaghan Square
Cardiff CF10 5BT	
For the Respondent	MR D READE
(of Counsel)
Instructed by:
Messrs Clyde & Co Solicitors
Beaufort House
Chertsey Street
Guildford
Surrey GU1 4HA	

THE HONOURABLE MR JUSTICE ELIAS

1	This is an appeal against the decision of the Cardiff Employment Tribunal promulgated on 14 February 2003 in which it held that the Respondents in this case (the Applicants before the Tribunal) were entitled, as a term of their contracts of employment, to enhanced redundancy terms over and above those which had been paid to them on their dismissal by reason of redundancy.  Those enhanced redundancy terms were those which these employees had conferred upon them by their employers, BT.  The question was whether these terms had transferred through two transfers of undertakings.

2	There are in total some 110 or so individuals involved.  All of them, save for a small handful, have been represented most ably by Mr David Reade.  Six of the individuals concerned accepted a compromise agreement.  That is also the subject of this appeal and we return to that point below.

3	The background to the appeal is broadly as follows.  The Applicants were originally employed by BT at its factory in Cwmcarn in South Wales.  The BT redundancy compensation terms were, it is common ground, terms of their contracts of employment.

4	There was a transfer of undertakings in October 1990 when BT transferred its factory to STC/Nortel.  At that stage Nortel gave an undertaking that the existing BT terms would continue until 26 October 1991.  The unions were at all times contending that the BT terms were contractual terms which their members were entitled to take advantage of, even after that date.

5	There was a redundancy exercise between 1992 and 1994 when different terms, reached as a result of an agreement with the trade unions, were on offer.  That followed lengthy negotiations.  One of the issues in this case before the Industrial Tribunal was whether there had been a variation of the BT terms as a result of negotiation with the unions.  The Tribunal found, after an extensive analysis of the evidence, that there had not, and that is not the subject of an appeal before us.

6	There were three other occasions in the 1990s when there were redundancy exercises.  The terms on offer in respect of each of those three exercises varied slightly, although it is right to say that they were very similar.  One exercise was in 1997, one in 1998 and one in 1999.  In each case the company offered a redundancy package which would apply to individuals accepting that package by a certain date.  In each of those cases those being made redundant were volunteers who chose to accept the terms in those packages.

7	In 2000 there was another TUPE transfer, this time from STC/Nortel to the Appellants in this case, Solectron Scotland Ltd.  About a year after the transfer, redundancies were effected and it is in that context that this dispute as to the redundancy terms has arisen.

8	Before the Tribunal the Appellant submitted that the original BT terms had changed in two ways: one, as we have indicated, was as a consequence of an agreement with the trade unions, but that was rejected; second, it was submitted that custom and practice had in some way removed the terms.  In addition, the Appellants alleged that those who had signed full and final settlements, or had entered into compromise agreements, had thereby also given up their BT redundancy rights, even if they had otherwise existed.

The Decision of the Tribunal

9	The Tribunal analysed the evidence about the alleged agreement to vary terms with the unions in some detail, as we have indicated, and rejected that ground of appeal.  It also found that those who had entered into full and final settlement agreements had done so on the unambiguous acceptance by management that that would not prejudice their BT rights.  The company had accepted that they would honour the BT terms, if indeed those were their contractual rights.  Again, there is no appeal against that finding.

10	The Tribunal made no express findings with respect to the custom and practice argument.  What it did say was this at paragraph 46 of its Decision:

46	“For the reasons set out in the Applicant’s Skeleton Argument on the other sub-issues we reject the Respondents’ contentions.”

Accordingly, they have, to that extent, incorporated that Skeleton Argument into the judgment.

11	One of the Appellant’s complaints in this case is that that is a grossly inadequate explanation of their reasons and fails to meet the test laid down in such cases as Meek v City of Birmingham District Council [1987] IRLR 250.

12	With respect to the compromise agreement, paragraph 43 of the Decision says this:

43	“As to the issue of volunteers the Respondent relies entirely on the evidence of Mr Harris and the document which appears on page 445 which has already been referred to as in respect of the signing of the redundancy letters with the waiver.  All of this was without prejudice to the contractual entitlement, if any, to the BT terms.  Likewise, the same applies in respect of the comprise agreements which clearly would have been in relation to the BT terms which clearly would obtain the protection of as being in relation to the transfer because the operative transfer would have been in 1990 from BT to Solectron, which is prohibited by Regulation 12.”

(The paragraph in fact says Regulation 10 but plainly must mean Regulation 12).

13	It must be said that it is not entirely clear what that paragraph is saying.  First, it is not obvious that it is stating a conclusion of the Tribunal as opposed to recounting the arguments.  But in any event, the use of the word “likewise” in the paragraph leaves considerable ambiguity.  It is not plain whether that is intended to indicate that the compromise agreements cannot be relied upon by the company for two reasons, namely because of the effect of Regulation 12 of TUPE and because it was always understood that the compromise agreements would be without prejudice to any BT contractual entitlement, or whether the Tribunal is simply saying that the BT terms will continue to apply to those who have signed the compromise agreement because that agreement is rendered void as a result of Regulation 12.

14	Not surprisingly, Mr Reade submitted that the paragraph was intending to say that the compromise agreements were void under Regulation 12 and in any event was not intended to prejudice the contractual entitlement; and Mr Croxford, for the Appellant submitted the converse.

15	We have to say that, as far as this is concerned, we think that the paragraph is so lacking in clarity that it is impossible to say what the Tribunal’s conclusion is on that particular matter.

The Grounds of Appeal

16	Essentially the grounds of appeal, therefore, are these.  First, it is said that the Tribunal failed properly to deal with the custom and practice issue.  In his Skeleton Argument Mr Croxford submitted that it is plain that had they done so, they would have been bound to have found that the BT terms were no longer applicable.  But in his submissions to us he took a rather more muted stance and submitted that in any event the evidence was such as to raise a real issue as to whether custom and practice had modified any express terms, and that in those circumstances the matter should be remitted either to this Tribunal, or preferably a fresh Tribunal, in order to look at this issue again.

17	This aspect of the case is tied in with a procedural complaint which, as we have indicated, is that the reasoning is simply inadequate.  The other substantive ground of appeal is that the Tribunal erred in saying that Regulation 12 has any application to this particular compromise agreement.

18	We will take the two substantive issues separately.

Custom and Practice

19	Mr Croxford pointed out certain features of the history (to which we have already referred) and submitted that they demonstrated that the BT terms could no longer be relied upon.  He referred to the fact that they were the set of terms agreed with the unions in the 1992-4 redundancy exercise; to the fact that there had been the three separate redundancy exercises since with terms other than BT terms imposed; and he made the observation that at no time, at least since 1993, had the union ever suggested that the BT terms were still, to put it colloquially, in the picture.

20	He submitted that these matters taken together show that the terms had been varied.  The contention was that here was a custom and practice established which had in some way changed the contracts of those individuals who otherwise would have had the right to the BT compensation terms.
21	We reject this argument and consider that it is based on a misconception of the effect of custom and practice.  A custom or established practice applied with sufficient regularity may eventually become the source of an implied contractual term.  That occurs where the point is reached when the courts are able to infer from the regular application of the practice that the parties must be taken to have accepted that the practice has crystallised into contractual rights.  

22	The parties must be shown to be applying the term because there is a sense of legal obligation to do so.  That will often be a difficult matter to prove.  For example, if a practice is adopted because a party does so as a matter of policy rather than out of a sense of legal obligation, then it will not confer contractual rights: see Young v Canadian Northern Railway Company [1931] AC 32 (P.C.).  Again the practice must be “reasonable, notorious and certain”: see Devonald v Rosser & Sons [1916] 2 KB 728 at 743, per Farwell LJ.  In that case the employers contended that they could close their works where there was a lack of orders without making any payment to the employees.  It was said that there was an established practice to that effect.  The Court of Appeal rejected the argument.  It met none of the criteria for a custom and practice.  Farwell LJ said that:

“It is neither reasonable nor certain because it is precarious depending on the will of the master.”

23	In this case there is in truth no custom at all.  The employers have not considered themselves to be bound by any specific term.  Had they done so they could not have set different terms for each redundancy exercise, albeit only varying in part.  Nor could the term be limited by the redundancies being effected within a specific time frame.  Nor could it be within the employer’s power to determine and vary the terms.

24	The custom and practice relied upon is neither certain (since the terms vary), nor reasonable (since it depends upon the will of the employer), nor notorious (since there is no consistent application of any of these terms).  The Appellants are not in fact seeking to rely upon custom to define terms; rather, they are relying upon the relatively short practice of fixing terms for volunteers by reference to payments other than those in accordance with the BT terms, purely in order to defeat a contractual claim to those BT terms.

25	In our view the Respondents were also right to say that in any event the terms have only ever applied to volunteers.  That is of course consistent with the employees voluntarily accepting the terms not because they feel obliged to do so, or because they recognise that is the extent of their legal rights, but rather because it suits them to do so in relation to any particular redundancy exercise.

26	We accept the Appellant’s argument that a custom can apply even though a term has never affected an employee.  It is plainly right, for example, that there may be terms arising from a custom fixing retiring age, such as in Duke v Reliance Systems [1982] IRLR 347 or establishing redundancy terms, such as in Quinn v Calder Industrial Materials Ltd [1996] IRLR 126.  Employees who join an organisation may be bound by an established customary term, even if they do not know of it at the time of recruitment: see Sagar v H Ridehalgh & Son Ltd [1931] 1 Ch 310.

27	However, as Mr Reade points out, the argument here is that the alleged custom has varied existing contractual rights.  We doubt whether a custom can ever have that effect.  Even if it can, in our view it would need very long-established practice indeed before it could be inferred that a party had, by implication, accepted the rights conferred by custom at the expense of more favourable rights.
28	In the course of argument, Mr Croxford developed a rather different submission.  He argued that in this case the employees must be taken to have accepted the new terms stipulated by the employers because they have worked under these new terms without any complaint and without raising any objection.  Indeed, as we have indicated, the trade union too has not apparently made any reference to the terms for some seven years or so.  Accordingly, he says that the employees must be taken to have accepted by conduct these terms.

29	There seem to us to be two fundamental difficulties with this.  First, the redundancy terms were never in fact offered as new established redundancy terms in substitution for any former rights.  Rather, as we have indicated, they were specific terms which were offered in relation to particular redundancy exercises.  They would only bite if and when an employee accepted those terms and was made redundant accordingly.  Second (and perhaps more significantly) an employee cannot be taken to have consented to a variation in the contract simply by continuing to work in such circumstances as arose here.

30	The fundamental question is this: is the employee’s conduct, by continuing to work, only referable to his having accepted the new terms imposed by the employer?  That may sometimes be the case.  For example, if an employer varies the contractual terms by, for example, changing the wage or perhaps altering job duties and the employees go along with that without protest, then in those circumstances it may be possible to infer that they have by their conduct after a period of time accepted the change in terms and conditions.  If they reject the change they must either refuse to implement it or make it plain that by acceding to it, they are doing so without prejudice to their contractual rights.  But sometimes the alleged variation does not require any response from the employee at all.  In such a case if the employee does nothing, his conduct is entirely consistent with the original contract containing; it is not only referable to his having accepted the new terms.  Accordingly, he cannot be taken to have accepted the variation by conduct.

31	So, where the employer purports unilaterally to change terms of the contract which do not immediately impinge on the employee at all – and changes in redundancy terms will be an example because they do not impinge until an employee is in fact made redundant – then the fact that the employee continues to work knowing that the employer is asserting that that is the term for compensation on redundancies, does not mean that the employee can be taken to have accepted that variation in the contract.

32	The point was put by Brown-Wilkinson J in this Tribunal in the case of Jones v Associated Tunnelling Co Ltd [1981] IRLR 477.  It is not necessary to set out the facts of that case, save to say that it was a case where the employers were asserting in the statutory statement of terms that the terms of the contract contained a wider mobility clause than that which the employee considered to be the case.  One of the arguments was that the employee had continued to work with knowledge that this was the term being asserted by the employer and therefore he must have been taken to have accepted it.  This Tribunal said this:

22	“In our view, to imply an agreement to vary or to raise an estoppel against the employee on the grounds that he has not objected to a false record by the employers of the terms actually agreed is a course which should be adopted with great caution.  If the variation relates to a matter which has immediate practical application (e.g. the rate of pay) and the employee continues to work without objection after effect had been given to the variation (e.g. his pay packet has been reduced) then obviously he may well be taken to have impliedly agreed.  But where, as in the present case, the variation has no immediate practical effect the position is not the same.  It is the view of both members of this Tribunal with experience in industrial relations (with which the Chairman, without such experience, agrees) that it is asking too much of the ordinary employee to require him either to object to an erroneous statement of his terms of employment having no immediate practical impact on him or be taken to have assented to the variation.  So to hold would involve an unrealistic view of the inclination and ability of the ordinary employee to read and fully understand such statements.
23	Even if he does read the statements and can understatement and can understand it, it would be unrealistic of the law to require him to risk a confrontation with his employer on a matter which has no immediate practical impact on the employee.  For those reasons, as at present advised, we would not be inclined to imply any assent to a variation for a mere failure by the employee to object to the unilateral alteration by the employer of the terms of employment contained in the statutory statement.”
33	That case related to an assertion of a new term by the employer in a statutory statement of terms of employment, but the same principle applies, it seems to us, here.

34	In our view, there is no basis at all for saying either that there was any new custom and practice nor for contending that in the circumstances of this case the employees could be taken to have accepted that there was a new term replacing the BT term as a result of their continuing to work in the organisation with knowledge that the employers were offering these different terms in redundancy packages.

35	Accordingly, notwithstanding the defects in the reasoning of the Tribunal on this matter, we are confident that this argument could not possibly succeed and therefore we dismiss this ground of appeal.

Compromise Agreement

36	That takes us to the second ground.  This relates to the compromise agreement.  It is in relatively standard terms and purports in return for the payment of a specific sum to prevent the employee from pursuing a whole variety of claims before the courts or tribunals, including claims for breach of contract.  It is not disputed that if the compromise agreement is valid, it will prevent the employees concerned from claiming the benefit of the BT contractual terms.

37	As we have indicated, it was argued before the Employment Tribunal that the compromise agreement would not be effective in this case for two reasons.  The first was that in any event it infringed Regulation 12 of TUPE; and the second was that it had to be read in the context of this particular redundancy exercise against a background where the employers have made it plain that if the contractual rights did include the BT terms, then they could still be enforced notwithstanding the compromise agreement.

38	As to the former, Regulation 12 of TUPE is as follows:

12	“Restriction on Contracting Out
Any provision of any agreement (whether a contract of employment or not) shall be void in so far as it purports to exclude or limit the operation of Regulation 5…”

39	Mr Croxford submitted that this did not affect agreements where employees retained their rights but simply give up the right to enforce those rights in the courts.  He drew an analogy with section 203 of the Employment Rights Act 1996 which, in a domestic context, draws a distinction between excluding or limiting the operation of any provisions of the Act, and precluding a person from bringing any proceedings under the Act.

40	We do not accept that particular submission.  We have no doubt, given the purposive approach adopted by the European Court to matters of this kind, that it would take the view that if a party is precluded from giving effect to the rights then that is plainly a limitation or exclusion.  In truth, the rights are of no value at all if they cannot be enforced in a court of law.  We do, however, appreciate that there are many circumstances in which it is highly desirable, both from the point of view of employers and employees, that compromise agreements ought to be capable of enforcement.

41	The problem where agreements are made following a TUPE transfer goes back to the case of the European Court in Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S [1988] ECR 739 which has been interpreted and applied subsequently in various cases including by the House of Lords in Wilson v St. Helens Borough Council [1999] 2 AC 52 and by the Employment Appeal Tribunal in Ralton v Havering College of Further & Higher Education [2001] IRLR 738.

42	What these cases establish is that an employer cannot, after a transfer, vary the terms of an employee’s contract if that variation is solely by reason of the transfer.  It may indeed be that the principle applies not only where the variation is solely by reason of the transfer but also where it is mainly by reason of the transfer: see the Opinion of the Advocate-General in Martin v South Bank University (17 June 2003).

43	The Tribunal appears to have taken the view that this compromise agreement was solely by reason of the transfer.  Their decision is a little confusing on the point and suggests that it was by reason of the transfer in 1990, but plainly that could not be right.  Mr Reade indicated that his argument was that it was by reason of the transfer in 2000.  Effectively the argument was that the redundancies were effected within 12 months or so of the transfer, that they were by reason of the transfer and, accordingly, so were the compromise agreements which compromised claims arising out of those redundancies.

44	It is, however, to be noted in this case that the effect of the compromise agreement is solely to compromise a financial claim that the employee has on the termination of his employment contract.  The employer is not purporting to vary the contract but merely to compromise a dispute as to its value.  Moreover, there is no change in the terms and conditions for the future by reason of the obvious fact that the contract has come to an end.
45	Accordingly, if one looks at the policy lying behind Daddy’s Dance Hall and related cases it is not infringed, it seems to us, by a compromise agreement made in such circumstances as arise here.  We think that, properly analysed, it cannot be said that these particular compromise agreements arise solely or even mainly by reason of the transfer.

46	The dispute here results from a difference in view as to what rights were transferred and, more specifically, whether the BT terms came across ultimately to the Appellants or not.  The redundancies could, no doubt, be said to have arisen solely because of the transfer.  That is strictly a matter of fact which would have to be determined by the Tribunal (and it is not altogether plain that they reached clear findings on that matter); but in principle they could, it seems to us, have reached that conclusion.  However, the agreement relates to a dispute about the terms transferred.  The same problem would have arisen if the redundancies had occurred at a much later stage and in circumstances which were plainly wholly unconnected with the transfer.

47	The dispute here is about the sums due on termination of the contract.  The fact that that dispute arises because of uncertainty as to the precise nature and scope of the terms transferred does not, in our view, make the agreement one which has given rise to a variation of terms solely by reason of the transfer. 

48	Accordingly, we think there is no reason of principle or policy which should prevent these compromise agreements being enforceable.  As we have said, in general there will be very good reasons both for the benefit of employees as well as employers why in appropriate circumstances, compromise agreements should be capable of enforcement.  There is no justification, in circumstances of this kind, to force the parties to litigate in order to establish precisely what are the compensation terms.  It does not seem to us that it defeats the principles underlying the Acquired Rights Directive to permit compromise agreements of this kind to be enforceable.

49	That leaves the question of whether these compromise agreements were made against a backcloth where it was fully understood that they were not to be applied so as to defeat a claim that these employees may have to the BT terms.

50	Mr Croxford has referred us to various matters which he says make it plain that the employees would fully have understood that they were giving up any right to the BT terms if they accepted the compromise agreement.

51	We accept, for what it is worth, that the evidence looks strong on that point; but we have not been taken to all the material, we do not have the Chairman’s notes on this matter and there is plainly no clear determination by the Tribunal on this issue.  Accordingly, it remains a live issue, but not one that we feel we can properly resolve.

52	In these circumstances, the question arises as to what we should do.  We were referred to two recent decisions of this Tribunal, Prebon Marshall Yamane (UK) Ltd v Rose (3 December 2002) and Adebowale v Peninsula Business Services Ltd (20 January 2003) in which this Tribunal (but in each case at a Preliminary Hearing) sent decisions back to the Employment Tribunal for further reasons to be given.  There is some interesting jurisprudence as to when that might be an appropriate course to take.

53	It is perhaps sufficient to say here that neither Counsel thought that would be a proper course in this case, given that there has been no real reasoning by the Tribunal at all on this matter.
54	Accordingly, we are satisfied that the matter must be remitted to be heard afresh, and it seems to us that the interests of justice require that it should be heard by a separate Tribunal.  We do this with a somewhat heavy heart because there are six employees affected by the compromise agreement and it will inevitably add further cost and expense to go down that route.  Nevertheless, that ultimately is what justice requires and it may be that the parties will be able to reach some accommodation without troubling the Tribunal any further.