Appeal No. UKEAT/0222/06/DA 

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 3 August 2006
Judgment delivered on 20 December 2006

Before
HIS HONOUR JUDGE SEROTA QC
MS J L P DRAKE CBE
DR B FITZGERALD MBE LLD FRSA

CRANSWICK COUNTRY FOODS PLC	APPELLANT

MS S BEALL AND OTHERS	RESPONDENTS

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR S DEVONSHIRE
(of Counsel)
Instructed by:
Messrs Rollits Solicitors
Wilberforce Court
High Street
Hull
East Yorkshire
HU1 1YJ	
For the Respondent	MR O SEGAL
(of Counsel)
Instructed by:
Messrs Thompsons Solicitors
The St. Nicholas Building
St Nicholas Street
Newcastle upon Tyne
NE1 1TH	

SUMMARY

Redundancy – Protective award

Employees who were faced with redundancy obtained protective awards because of lack of consultation on the part of the employer. They continued to work and to receive salary during the protected period. The Employer’s contention that that their earnings during this period went to diminish the amount payable under the protective award could not be justified under S190(4) of the Trade Union and Labour Relations (Consolidation) Act 1992.

HIS HONOUR JUDGE SEROTA QC

Introduction
1.	This is an appeal by the Respondent from the decision of the Employment Tribunal at Newcastle (Dr I J Watt, Chairman) entered onto the register on 23 January 2006.  The Tribunal concluded that the Respondent had failed to pay protective awards to some 60 former employees and made orders for payment.  The appeal was referred to a full hearing on 6 April 2006 by HHJ Clark.

2.	The case concerns the construction of ss 189 and 190 of The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).  The particular issue raised in the case is whether an employee who remains employed during a protected period and who was not under notice is entitled to receive a protective award and whether his earnings during that period go to diminish the amount receivable under the protective award.

The factual background
3.	There is no real dispute as to the factual background and we shall deal with it shortly.  The Respondent manufactures sausages.  It had plants at Thornaby and Cottingham and ultimately transferred production to a facility in Hull.  Between 12 April and 19 November 2004 approximately 90 employees, including the present Claimants, were made redundant in two stages.    The Claimants in these proceedings were made redundant towards the end of the period; some employees were made redundant at an earlier date.  The Respondent’s union, the GMB, brought a claim under s189 of TULRCA, claiming that the Respondent was in breach of its duty to consult.  The claim was upheld by the Employment Tribunal on 9 February 2005.  The Employment Tribunal ordered the Respondent to pay 70 days’ pay to each employee.  The Respondent appealed against the finding that there had been inadequate consultation.  It did not appeal against the finding that the present Claimants were relevant employees.   An appeal to the EAT was dismissed.  The Claimants then brought proceedings before the Employment Tribunal for their awards to be ascertained. At the hearing of these proceedings before the Employment Tribunal in November 2005, the Respondent argued that the present Claimants should not be paid any protective award.  The Employment Tribunal found in favour of the employees.  

Discussion of the legal background
4.	The background to the provision with which we are concerned relates to duties placed on employers to consult Trades Unions and employees when they propose significant redundancies. The obligations now contained in TULRCA originate in EC directives.  United Kingdom legislation has provided a sanction against employers who fail to comply with their obligations to consult, by the provision of protective awards. The current provisions replace earlier legislation. As we shall shortly explain, there have been amendments made to the relevant provisions of the Act.  We start by referring to ss 188, 189 and 190 of TULRCA and we now set out the relevant parts of those sections:
“188 
Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer shall consult about the dismissals all the persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals

189 
[(1)     Where an employer has failed to comply with a requirement of section 188 ……… a complaint may be presented to an employment tribunal on that ground— 
(c)     in the case of failure relating to representatives of a trade union, by the trade union, and
(d)     ………………. by any of the affected employees or by any of the employees who have been dismissed as redundant.]
(2)     If the tribunal finds the complaint well-founded it shall make a declaration to that effect and may also make a protective award.
(3)     A protective award is an award in respect of one or more descriptions of employees—
(a)     who have been dismissed as redundant, or whom it is proposed to dismiss as redundant, and
(b)     in respect of whose dismissal or proposed dismissal the employer has failed to comply with a requirement of section 188,  
ordering the employer to pay remuneration for the protected period.
(4)     The protected period—
(a)     begins with the date on which the first of the dismissals to which the complaint relates takes effect, or the date of the award, whichever is the earlier, and
(b)     is of such length as the tribunal determines to be just and equitable in all the circumstances having regard to the seriousness of the employer's default in complying with any requirement of section 188;
but shall not exceed 90 days  ...........................

190 	Entitlement under protective award
(1)     Where an [employment tribunal] has made a protective award, every employee of a description to which the award relates is entitled, subject to the following provisions and to section 191, to be paid remuneration by his employer for the protected period.
(2)     The rate of remuneration payable is a week's pay for each week of the period; and remuneration in respect of a period less than one week shall be calculated by reducing proportionately the amount of a week's pay.
(3)     . . .
(4)     An employee is not entitled to remuneration under a protective award in respect of a period during which he is employed by the employer unless he would be entitled to be paid by the employer in respect of that period—
(a)     by virtue of his contract of employment, or
(b)  by virtue of [sections 87 to 91 of the Employment Rights Act 1996] (rights of employee in period of notice),
if that period fell within the period of notice required to be given by [section 86(1)] of that Act.
(5)     [Chapter II of Part XIV of the Employment Rights Act 1996] applies with respect to the calculation of a week's pay for the purposes of this section.
The calculation date for the purposes of [that Chapter] is the date on which the protective award was made or, in the case of an employee who was dismissed before the date on which the protective award was made, the date which by virtue of [section 226(5)] is the calculation date for the purpose of computing the amount of a redundancy payment in relation to that dismissal (whether or not the employee concerned is entitled to any such payment).
(6)	If an employee of a description to which a protective award relates dies during the protected period, the award has effect in his case as if the protected period ended on his death.”

5.	There was originally what amounted to a claw-back provision in s190 of TULRCA in the following terms:
“S190 (3) [original and now repealed]     
  
(3) 	Any payment made to an employee by an employer in respect of a period falling within a protected period- 
(a) under the employee's contract of employment, or 
(b) by way of damages for breach of that contract, 
 shall go towards discharging the employer's liability to pay remuneration under the protective award in respect of that first mentioned period. Conversely, any payment of remuneration under a protective award in respect of any period shall go towards discharging any liability of the employer under, or in respect of any breach of, the contract of employment in respect of that period.”

At the time of its enactment, the other material parts of s190 were in terms substantially identical to their present terms.

6.	The provisions in TULRCA relating to protective awards were designed to give effect to the United Kingdom’s obligations under Council Directive 77/187/EEC 14 February 1977, which provided for the approximation of the laws of member states relating to the safeguarding of employees’ rights in the events of transfers of undertakings, businesses, or parts of businesses.

7.	The European Commission considered that the United Kingdom was in breach of its obligations in that it had failed to transpose into national law a number of provisions set out in the Directive.  In particular, and insofar as is relevant to the present appeal, the European Commission considered that the claw-back provision (then to be found in the Employment Protection Act 1975) did not provide a sufficient deterrent or effective sanction against employers who failed to consult the trades unions before redundancies to which the Act applied.  It was considered that the claw-back rendered the legislation toothless.   The European Commission accordingly commenced proceedings against the United Kingdom; see Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland [1994] ICR 664, in relation to a number of perceived failures on the part of the United Kingdom to implement the Directive and in particular so far as concerns this appeal in relation to the claw-back provisions.

8.	The United Kingdom conceded that its legislation was at variance with Treaty requirements because the claw-back provision in particular prevented there being a sufficient deterrent for failure on the part of an employer to comply with his obligations to consult and inform the workers’ representatives of any proposed redundancy.  The European Court of Justice had this to say at paragraph 42:

“42 	By providing that a "protective award" may be set off in full or in part against any amounts otherwise payable by an employer to an employee under the latter's contract of employment or in respect of breach of that contract, the United Kingdom legislation largely deprives that sanction of its practical effect and its deterrent value. Moreover, an employer will not be penalized even moderately or lightly by the sanction except and only to the extent to which the amount of the "protective award" which he is ordered to make exceeds the sums which he is otherwise required to pay to the person concerned.”

We consider this reasoning to be of considerable assistance to us when it comes to the construction of s190(4) of TULRCA upon which the Respondent relies.  

9.	There are obiter dicta of Burton J in Securicor Omega Express Ltd v GMB [2004] IRLR 9 which have some relevance.  The case concerned, inter alia, a claim that employees threatened with redundancy, but not in the event made redundant, could “cash in” the benefit of a protective award made in their favour.  Burton J had this to say at paragraphs 57 and 58:

“57.	It does not rest there, however, because Mr Hogarth further points out that when, as we have put it, encashing the protective award, in taking one’s protective award further to section 190, which relates to where an Employment Tribunal have made a protective award and every employee to which the award relates is entitled, (subject to the following provisions, and to section 191) to be paid remuneration by the employer, there are exceptions to those who can encash their protective award, and those exceptions are clear from section 190(4) and section 191.  Save in respect of an employee who receives notice, which is, of course, notice pay, which is covered by, and consequently disregarded as a result of, the decision in Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland [1994] IRLR 412, if an employee receives remuneration, and continues to receive remuneration, as a result of continuing to be employed by his employer, then he is not entitled to encash his protective award as a result of section 190(4).  Conversely, if, during the protected period, as a result of section 191, alternative employment is offered, and that alternative employment is, in accordance with the section, reasonably refused by the employee, he remains entitled to encash his protective award. The inevitable result of that is, if he does accept the alternative employment, he is no longer entitled to encash his protective award.
58.	It is plain to us, therefore, that those who remain in employment of the employer do not qualify for a protective award.”  

10.	We would also refer to views of the learned editors of Harvey on industrial relations at paragraph E 2633:09:

“The Act says that a protective award may be made in respect of employees 'who have been dismissed or whom it is proposed to dismiss' (s 189(3)). The intention is to cater for two situations: a claim for a protective award may be made either after the event (where the employer has dismissed without proper consultation) or in anticipation of the event (where the employer is threatening to dismiss without proper consultation); the Act, however, is not intended to cover, and does not cover, a third class of employee: those whom the employer originally proposed to dismiss but subsequently decided to keep on (as a result of consultations or otherwise): they may be 'employees whom it was proposed to dismiss', but they are not 'employees whom it is proposed to dismiss'; they cannot therefore claim the benefit of a protective award.”

11.	Before we turn to the decision of the Employment Tribunal and the parties’ submissions, it is helpful to remind ourselves of the approach to be taken in construction of statutes designed to give effect to Community Directives.  In this regard we refer to the speech of Lord Hope of Craighead in Rhys-Harper v Relaxion Group plc [2003] ICR 867 at paragraph 104:

“104.     In Mrs Rhys-Harper's case it is necessary, as I said earlier (see para 23), to take account of the fact that the Sex Discrimination Act 1975 gave effect in domestic law to Council Directive 76/207/EEC ("the Equal Treatment Directive"). The conclusion which one draws from this exercise may have implications for all the other cases too, as I shall explain later. The Directive does not, of course, have direct effect on the relationship between a woman and her employer. The third paragraph of article 249 of the EC Treaty (formerly article 189 EEC) provides that a directive shall be binding, as to the result to be achieved, upon each member state to which it is addressed but that it shall leave to the national authorities the choice of form and method. So a directive works its way into our domestic system by means of the legislation which is designed to give effect to it. It is then for the courts to interpret that legislation, as far as possible, in a way that gives effect to this country's obligations under the treaty. 
105.      In Litster v Forth Dry Dock and Engineering Co Ltd [1990] 1 AC 546, 559E-F Lord Oliver of Aylmerton said that the approach to the construction of primary and subordinate legislation enacted to give effect to the United Kingdom's obligations under the EEC treaty was not in doubt: 
‘If the legislation can reasonably be construed so as to conform with those obligations - obligations which are to be ascertained not only from the wording of the relevant directive but from the interpretation placed on it by the European Court of Justice at Luxembourg - such a purposive construction will be applied even though, perhaps, it may involve some departure from the strict and literal application of the words which the legislature has elected to use.’

In Webb v Emo Air Cargo (UK) Ltd [1983] ICR 175, 186 Lord Keith of Kinkel said:
‘… it is for a United Kingdom court to construe domestic legislation in any field covered by a Community Directive so as to accord with the interpretation of the Directive as laid down by the European Court of Justice, if that can be done without distorting the meaning of the domestic legislation …’
At p 187 he referred to the way in which the European Court in Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C-106/89) [1990] ECR I-4135 expressed the obligation which is binding on the courts in applying national law, whether the provisions in question were adopted before or after the directive:

‘As the European Court of Justice said, a national court must construe a domestic law to accord with the terms of a directive in the same field only if it is possible to do so. That means that the domestic law must be open to an interpretation consistent with the directive whether or not it is also open to an interpretation inconsistent with it.’

The European Court took the opportunity in Coote v Granada Hospitality Ltd (Case C-185/97) [1999] ICR100, 111-112, para 18 to re-state this point:
‘As follows from Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C-106/89) [1990] ECR I-4135, 4159, para 8 and Wagner Miret v Fondo de Garantia Salarial (Case C-334/92) [1993] ECR I-6911, 6932, paras 20 and 21, in applying national law, in particular legislative provisions which, as in the present case, were specially introduced in order to implement the Directive, the national court is required to interpret its national law, so far as possible, in the light of the wording and the purpose of the Directive in order to achieve the result pursued by the third paragraph of article 189 of the EC Treaty.’”

12.	We would also note that the procedure for seeking a protective award is essentially a two-stage process.  Firstly, application is made for an award under s189.  If an award is made the various persons affected and who have the benefit of the award may in due course apply to the Employment Tribunal to enforce the award under s190 and for their entitlement to be ascertained.  Those employees who are not in fact released will not be entitled to an award.  

The Decision of the Employment Tribunal
13.	It was submitted to the Employment Tribunal by the Respondent, as has been submitted before us, that the present Claimants had continued in employment after the date on which the Employment Tribunal had determined the first of the dismissals took place, 12 April 2004.  They had continued in employment throughout the 70 day protected period and thus by virtue of s190(4) were not entitled to compensation.

14.	The Employment Tribunal considered this submission in the light of the dicta of Burton J to which we have referred, and the paragraph from Harvey at Division E16, paragraph 2633:09 which we have also set out.  The Employment Tribunal concluded:

“10.	What we have in this case is a group of employees whom at the time the Tribunal made its award had all been dismissed.  There was no prospective dismissal before the Tribunal there was no uncertainty as to whether that employment would come to an end.  All of the claimants had lost their jobs and their employment had ended.  In these circumstances it appears to be beyond dispute that they are entitled to that award.  There is nothing in section 190 to deprive them of their entitlement to the protective award.”

The Respondent’s submissions
15.	Mr Devonshire submitted to us, as he submitted to the Employment Tribunal, that the present Claimants were not entitled to remuneration in respect of any period when they remained in employment unless they were under notice and then only to the extent of the notice.  He took us through s191(3) and s191(4) of TULRCA.  He submitted that s191(3) (now repealed) dealt with set-off whereas s191(4) dealt with entitlement.   The rider to s190(4) needed to be given effect.  The statute was dealing with the position where employees had continued in employment during the period of a protective award.  The statute could simply have said (but did not) that an employee was not entitled to the benefit of a protective award while he was still employed.  

16.	 Mr Devonshire recognised that his construction of s190(4) would limit the rights of a person made redundant but who had the benefit of a protective award to receiving compensation for the period of his contractual notice period or, if none, the statutory minimum.  Any other construction would permit the rights of employees to an award to “float” over until the date of dismissal. 

17.	Mr Devonshire relied upon the dicta of Burton J as applying in the case of persons who had continued to work after being declared entitled to a protective award but were eventually made redundant.

18.	He recognised that his submissions, if correct, would be surprising in the light of the decision of the European Court of Justice in Commission of the European Communities v UK and the repeal of s191(3).  He submitted that the EAT must give effect to the statutory language and it was impossible to construe s190(4) otherwise than as removing the Claimant’s right to compensation.

19.	He floated the possibility that Parliament intended to encourage employers to continue to employ for as long as possible a person threatened with redundancy and that it may have intended that the deterrent effect of a protective award should operate more fiercely in favour of employees who did not enjoy the benefit of employment during the protected period as compared to those who did.

The Claimant’s submissions
20.	Mr Segal, who appeared on behalf of the Claimant, submitted that the Employment Tribunal’s decision as set out at paragraph 10 was correct.  He submitted that it was inconceivable that as a result of a specific recasting of legislation to comply with the Community Directive, the legislation would have been left in the same state as previously and in breach of the Directive.  The Respondent was in effect saying that s190(4) meant exactly what s190(3) had said.  The Respondent’s submission involved the suggestion that Parliament had made a complete “dog’s dinner” of the relationship between the two sub-sections.  It was permissible in construing s190(4) to have regard to that which was originally enacted.

21.	Mr Segal pointed out that if the Respondent was correct not only did the United Kingdom government not understand its own legislation but neither did the European Commission, nor the European Court of Justice.  This seems to us to be a good jury point, but one with which we agreed.

22.	Mr Segal suggested that the purpose of the original s190(3) was to provide a set-off in favour of employers if the employee worked or was otherwise compensated during a protected period.  One would not, he submitted, expect to find a further provision dealing with the effect of payment made by the employer to employees during that period.  Mr Segal submitted that on analysis, s190(4) dealt with the position of employees who were never dismissed but for some reason were not being paid; for example (1) where an employer was in financial difficulties; (2) where an employee was on long-term sick leave and sick pay had been exhausted; (3) where an employee was on a long unpaid leave of absence, and (possibly) (4) in the case of a strike.  In those circumstances, s190(4) provides that persons in those positions would not be entitled to remuneration unless they “would be entitled” to be paid within the period in question.  The entitlement was notional.  Thus employees who had not been paid would be entitled to payment, those who were long-term sick would be entitled to be paid the notice pay required by statute, and those on unpaid long leave of absence and possibly those on strike would not be paid.  

23.	Mr Segal went on to say that the “period” referred to in s190(4) must be same as “that period” referred to later in the section.  The Respondent’s construction would make no sense as one could not have, as in the present case, a 70 day period falling within “the period of notice”.  What the Respondent was seeking to do was to replace the words “unless he would be entitled” by words such as “except insofar as he was entitled”.  So on the Respondent’s construction, the s190(4) would read “an employee is not entitled to remuneration under a protective award in respect of a period during which he is employed by an employer except insofar as he was entitled to be paid by the employer in respect of such part of that period (a) by virtue of his contract of employment, or (b) by virtue of ss87-91 of the Employment Rights Act 1996 (rights of employee and periods of notice) as fell within the period of notice required to be given by s86(1) of that Act.

24.	Mr Segal addressed the decision of Burton J in Securicor Omega Express Ltd.  If what Burton J had to say in paragraphs 55-57 related to persons who were not dismissed at all, Burton J was plainly right.  If, however, Burton J intended to refer to the cases of persons who would obtain the benefit of a protective award and worked for a period prior to their eventual dismissal, then Burton J was in error, and what he said was obiter, because the employees in that case had not been dismissed.

Conclusions
25.	Generally speaking we prefer the Claimant’s submissions.  We find it extremely difficult to accept that the European Court of Justice, the European Commission, and Parliament all misconstrued s190(4) of TULRCA and failed to realise it had exactly the same effect as s190(3) which was repealed.

26.	In our opinion it is necessary to give the purpose of construction to s190(4) if possible and construe it in a manner which is consistent with compliance by the United Kingdom with its obligations under the Directive; that is clear from the passage we have quoted from Rhys- Harper.

27.	We consider that the construction put forward by the Claimant is the correct one.  Section 190(4) is dealing with the position of persons who do not receive pay because, for example, they are on long-term sick leave or long-term leave of absence and possibly those where an employer is in financial difficulties.  We are uncertain as to whether it would apply to employees on strike because this might raise different issues and the point has not been fully argued.

28.	We do not understand Burton J to have intended to refer to employees who have been released but had worked during the protected period.  He was referring to those employees who received the benefit of a protective award, had continued working and in the event were not released but remained in employment. As we have said, we do not ourselves consider that Burton J was referring to employees who were in due course dismissed, but, were his comments to be directed to such employees, they would be both obiter and contrary to the law as we understand it after the decision of the European Court of Justice in Commission of the European Communities v UK.

29.	In the circumstances, therefore, the decision of the Employment Tribunal was correct and the appeal must be dismissed.