Mr A McAuley and Ms C Wilson v Class of Their Own Ltd and others: 2302230/2017 and 2302231/2017
JUDGMENT
The proceedings are dismissed under rule 52 of the Employment Tribunals Rules of Procedure 2013 as against the Second Respondent following a withdrawal of the claims by the Claimants as against that Respondent. The claims will continue against the First Respondent and the Third Respondent. JUDGMENT The proceedings against the first Respondent are dismissed following a withdrawal of the claim by the Claimants. The case will proceed to the hearing on 2 March 2018 JUDGMENT AND REASONS ON PRELIMINARY ISSUES[1]The tribunal notes that there were originally three respondents to this claim but the cases against the first two, Class of Their Own Limited (‘COTO’) and the Governors of Downs Junior School (‘the School’), have already been dismissed on withdrawal by the Claimants.[2]At the start of this Preliminary Hearing (‘PH’) the parties agreed that each Claimant brings a single claim for unauthorised deduction from wages which is based, they say, on a clause in their respective contracts of employment which entitles them to what is referred to as a Service Transfer Bonus. In essence, they say that this clause entitles them to a bonus payment calculated in accordance with a contractual formula in the event that their employment transferred from COTO to the Respondent pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’).[3]The Respondent accepts that both Claimants became employed by it in April 2017 having been employed up to that time by COTO. It also accepts that if there was a relevant transfer within the meaning of TUPE then(a) it was the transferee in relation to that transfer and(b) it is the appropriate respondent to these claims. However, it does not accept that there was a relevant transfer or, even if there was, that it is liable to pay a Service Transfer Bonus to either Claimant.[4]This PH was listed to deal with the following preliminary issues:4.1 Whether there was a relevant transfer within the meaning of TUPE from COTO to the Respondent in April 2017.4.2 If so, whether the employment of the Claimants transferred from COTO to the Respondent as a result of that relevant transfer.[5]As it transpired, the Respondent conceded during the course of the PH that if the first of the above preliminary issues was decided in the Claimants’ favour then the second would not be in issue, ie it accepts that if there was a relevant transfer then the employment of both Claimants transferred from COTO to the Respondent as a result of that transfer. That left one live issue to be determined by the tribunal at this PH, ie whether there was a relevant transfer.[6]The tribunal notes that, although the Respondent has accepted that it is the Claimants’ employer and was the transferee if there was a relevant transfer, the facts of these cases concern activities being undertaken at the School and the following discussion will in large part refer to the Respondent and the School interchangeably.[7]The tribunal was provided with an agreed bundle of documents. The tribunal also heard evidence from both Claimants on their own behalf and from Mr Giovanni Franceschi, the headteacher of the School, on behalf of the Respondent. Each witness gave evidence by reference to a written witness statement.[8]In light of all the evidence heard and read, the tribunal makes the following findings of fact:8.1 The School is a state junior school in Brighton. Mr Franceschi is its headteacher. There is also a state infant school on the other side of the road from the School. The School (and the neighbouring infant school) are within the Respondent’s area of responsibility.8.2 COTO is a company that operates breakfast, after school and holiday clubs for children, including in the Brighton area. Up to April 2017 it operated such clubs on the School’s premises for pupils of the School and of the neighbouring infant school.8.3 As their names suggest, the breakfast club is open before the start of the school day and includes provision of breakfast, the after school club is open after the end of the school day and the holiday club operates during the school holidays.8.4 When operated by COTO the clubs were based in the School’s canteen. The activities at the clubs involved free play and cooking. COTO provided toys and also some cooking equipment. The equipment was stored in two sheds on School premises, one metal and one wooden.8.5 As noted above, pupils from the School and the neighbouring infant school were eligible to take part in the clubs. In addition, a very few former pupils, in particular two former pupils with Downs’ Syndrome, and siblings of current pupils were also allowed to participate in the breakfast and after school clubs. The holiday club was open more widely to pupils of other schools in the area.8.6 The total number of children attending the clubs varied but was between about 44 and 60.8.7 Ms Wilson was at all material times up to April 2017 the Supervisor of the clubs and Mr McAuley was the Assistant Supervisor. There were also between 5 and 10 other staff working in the clubs, the number on each day depending on the number of children attending the clubs.8.8 Some of the staff working in the clubs also had separate contracts of employment with the Respondent to work in the School during the day. Both Claimants had such contracts, working as Teaching Assistants.8.9 When the clubs were run by COTO, most of the administration associated with their operation was done by COTO. Parents tended to book on a termly basis and they paid COTO direct.8.10 There was also a separate club operated on the School’s premises by a separate external company. That club provided more active things for those attending, essentially sports or related activities. That club, which will be referred to below as ‘the active club’ was run by different staff from those operating the breakfast, after school and holiday clubs for COTO.8.11 In January 2017 the active club was taken over by the School. The active club is still independent of the other clubs operating at the School; for example, it still has a separate register and separate staff and save on one day in 2018 as discussed further below there is no overlap between the activities of the active club on the one hand and the other clubs on the other.8.12 In about March 2016 it came to the Claimants’ attention that there was a possibility that the School may want to run all of the clubs, including those operated at that time by COTO. There were then various discussions between COTO and the School and also with COTO’s employees operating the clubs at the School.8.13 It was the understanding of both COTO and the School throughout the period from March 2016 to April 2017 that TUPE would apply if the School took over the operation of the clubs and both COTO and the School consistently told the staff as much. The staff elected employee representatives for the purposes of consultation as required by TUPE and the consultation and information provision requirements of TUPE were followed by COTO and the School.8.14 The School took over the operation of the breakfast, after school and holiday clubs in April 2017. COTO ran the holiday club during the Easter school holiday and then the School took over on the first day of the summer term. All agree that the change was seamless and there was no period of suspension of the clubs’ activities.8.15 COTO took away all of its equipment, ie the toys and cooking equipment, save for the metal shed. It is not clear what was the fate of the wooden shed, ie whether it was in such a state of disrepair that it was of no further use (as Ms Wilson has suggested) or whether COTO took it away for use elsewhere. In any event, the School provided a new wooden shed together with toys and cooking equipment. The metal and wooden sheds were thereafter used for storage as they had been before and also further storage was made available in the School’s canteen itself.8.16 Ms Wilson took on more of the administration needed to run the clubs from April 2017 onwards and to enable her to do so her hours as a Teaching Assistant were slightly reduced and her hours working in the clubs slightly increased. She was also given access to an office. Apart from that, and a change in job title for the two Claimants (to Manager and Deputy Manager from Supervisor and Assistant Supervisor), the operation of the clubs remained the same as it had been before April 2017.8.17 Of the 13 or so staff employed by COTO to operate the clubs immediately before the April 2017 change, all became employed by the Respondent immediately after the change. The School has also brought in additional staff, perhaps one or two at the time of the change and a few more since. Of the 13 employed at the time of the change a few of them have since left.8.18 The clubs have been open the same hours since the change, they operate in exactly the same place, the children do the same things, the clubs are open to the same children and are attended by much the same children. The School has offered more free places in the clubs than when they were operated by COTO but it seems that only a few of these have been taken up.8.19 Parents book places in the clubs in much the same way, albeit with the School rather than COTO, and they pay the School for those places. The clubs make a profit, as they had done for COTO in the period up to April 2017.8.20 The School has, and had as at April 2017, an aspiration to have some degree of crossover between the clubs previously operated by COTO and the active club. This would not involve any sort of merger, but rather children would attend part of a session with the active club and then the rest with one of the other clubs. However, to date that has only happened on one day in the February 2018 half term, ie some 10 months after the change of operation of the clubs from COTO to the School.[9]Once the evidence had been completed each party made closing submissions. Both parties provided the tribunal with detailed and helpful written submissions which were supplemented by brief oral submissions. It is unnecessary here to repeat those submissions but the main points raised will be discussed further below.[10]The tribunal has reminded itself of the relevant statutory provisions, including in particular regulation 3 of TUPE: ‘3 A relevant transfer(1) These Regulations apply to- (a) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity; (b) a service provision change, that is a situation in which- (i) activities cease to be carried out by a person ("a client") on his own behalf and are carried out instead by another person on the client's behalf ("a contractor"); (ii) activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person ("a subsequent contractor") on the client's behalf; or (iii) activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf, and in which the conditions set out in paragraph (3) are satisfied.(2) In this regulation "economic entity" means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary. (2A) References in paragraph (1)(b) to activities being carried out instead by another person (including the client) are to activities which are fundamentally the same as the activities carried out by the person who has ceased to carry them out.(3) The conditions referred to in paragraph (1)(b) are that- (a) immediately before the service provision change- (i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client; (ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and (b) the activities concerned do not consist wholly or mainly of the supply of goods for the client's use.(4) Subject to paragraph (1), these Regulations apply to- (a) public and private undertakings engaged in economic activities whether or not they are operating for gain; (b) a transfer or service provision change howsoever effected notwithstanding- (i) that the transfer of an undertaking, business or part of an undertaking or business is governed or effected by the law of a country or territory outside the United Kingdom or that the service provision change is governed or effected by the law of a country or territory outside Great Britain; (ii) that the employment of persons employed in the undertaking, business or part transferred or, in the case of a service provision change, persons employed in the organised grouping of employees, is governed by any such law; (c) a transfer of an undertaking, business or part of an undertaking or business (which may also be a service provision change) where persons employed in the undertaking, business or part transferred ordinarily work outside the United Kingdom. … (6) A relevant transfer- (a) may be effected by a series of two or more transactions; and (b) may take place whether or not any property is transferred to the transferee by the transferor. …’[11]Both parties addressed the issue on the basis of both regulation 3(1)(a) and 3(1)(b) of TUPE; the tribunal will first discuss whether there was a transfer under regulation 3(1)(a) before considering, if necessary, the question of whether there was a service provision change within the meaning of regulation 3(1)(b).[12]During the course of submissions the Respondent conceded, sensibly in the tribunal’s view, that the operation of the clubs at the School amounted, and continues to amount, to an economic entity for the purpose of regulation 3(1)(a) of TUPE.[13]The remaining question under regulation 3(1)(a) is, then, whether the economic entity, ie the clubs, retained its identity following the change from COTO to being operated by the School.[14]The parties agree that there is no single decisive factor and that the tribunal should consider all relevant circumstances when answering this question, albeit the weight to be put on each such factor will vary from case to case depending on the type of business under consideration.[15]The Respondent has referred the tribunal to the case of Francisco Hernandez Vidal SA v Gomez Perez ([1999] IRLR 132) in which the following guidance was given by the ECJ: ‘29 In order to determine whether the conditions for the transfer of an entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities were suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers and Süzen [1997] IRLR 255, paragraphs 13 and 14 respectively). … 31 As pointed out in paragraph 29 of this judgment, the national court, in assessing the facts characterising the transaction in question, must take into account among other things the type of undertaking or business concerned. It follows that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the Directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Where in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Süzen [1997] IRLR 255, cited above, paragraph 18).’[16]The Respondent also referred the tribunal to the well known domestic authority of Cheesman v R Brewer Contracts Limited ([2001] IRLR 144) in which the EAT gave the guidance based on a number of cases, including Vidal, as follows: ‘11 As for whether there has been a transfer:(i) As to whether there is any relevant sense a transfer, the decisive criterion for establishing the existence of a transfer is whether the entity in question retains its identity, as indicated, inter alia, by the fact that its operation is actually continued or resumed – Vidal [1999] IRLR 132 paragraph 22 and the case there cited; Spijkers v Gebroeders Benedik Abattoir CV [1986] ECR 1119 ECJ; Schmidt v Spar-und Leihkasse [1994] IRLR 302 ECJ paragraph 17; Sánchez Hidalgo [1999] IRLR 136 paragraph 21; Allen [2000] IRLR 119 paragraph 23.(ii) In a labour-intensive sector it is to be recognised that an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessors to that task. That follows from the fact that in certain labour-intensive sectors a group of workers engaged in the joint activity on a permanent basis may constitute an economic entity – Sánchez Hidalgo [1999] IRLR 136 paragraph 32.(iii) In considering whether the conditions for existence of a transfer are met it is necessary to consider all the factors characterising the transaction in question but each is a single factor and none is to be considered in isolation – Vidal [1999] IRLR 132 paragraph 29; Sánchez Hidalgo [1999] IRLR 136 paragraph 29; Allen [2000] IRLR 119 paragraph 26. However, whilst no authority so holds, it may, presumably, not be an error of law to consider 'the decisive criterion' in (i) above in isolation; that, surely, is an aspect of its being 'decisive', although, as one sees from the 'inter alia' in (i) above, 'the decisive criterion' is not itself said to depend on a single factor.(iv) Amongst the matters thus falling for consideration are the type of undertaking, whether or not its tangible assets are transferred, the value of its intangible assets at the time of transfer, whether or not the majority of its employees are taken over by the new company, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, in which they are suspended – Sánchez Hidalgo [1999] IRLR 136 paragraph 29; Allen [2000] IRLR 119 paragraph 26.(v) In determining whether or not there has been a transfer, account has to be taken, inter alia, of the type of undertaking or business in issue, and the degree of importance to be attached to the several criteria will necessarily vary according to the activity carried on – Vidal [1999] IRLR 132 paragraph 31; Sánchez Hidalgo [1999] IRLR 136 paragraph 31; Allen [2000] IRLR 119 paragraph 28.(vi) Where an economic entity is able to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction being examined cannot logically depend on the transfer of such assets – Vidal [1999] IRLR 132 paragraph 31; Sánchez Hidalgo [1999] IRLR 136 paragraph 31; Allen [2000] IRLR 119 paragraph 28.(vii) Even where assets are owned and are required to run the undertaking, the fact that they do not pass does not preclude a transfer – Allen [2000] IRLR 119 paragraph 30.(viii) Where maintenance work is carried out by a cleaning firm and then next by the owner of the premises concerned, that mere fact does not justify the conclusion that there has been a transfer – Vidal [1999] IRLR 132 paragraph 35.(ix) More broadly, the mere fact that the service provided by the old and new undertaking providing a contracted-out service or the old and new contract-holder are similar does not justify the conclusion that there has been a transfer of an economic entity between predecessor and successor – Sánchez Hidalgo [1999] IRLR 136 paragraph 30.(x) The absence of any contractual link between transferor and transferee may be evidence that there has been no relevant transfer but it is certainly not conclusive as there is no need for any such direct contractual relationship: Sánchez Hidalgo [1999] IRLR 136 paragraphs 22 and 23.(xi) When no employees are transferred, the reasons why that is the case can be relevant as to whether or not there was a transfer – ECM [1999] IRLR 559 p.561.(xii) The fact that the work is performed continuously with no interruption or change in the manner or performance is a normal feature of transfers of undertakings but there is no particular importance to be attached to a gap between the end of the work by one subcontractor and the start by the successor – Allen [2000] IRLR 119 paragraphs 32–33.’[17]Taking into account the above guidance, the tribunal turns to the particular facts of this case.17.1 The tribunal notes that only limited physical assets were passed from COTO to the School, ie the metal shed. The toys and cooking equipment used before the change were taken away by COTO and replaced by the School.17.2 However, intangible assets associated with the economic entity, such as good will, relationships with the pupils and parents and so on, did pass from COTO to the School.17.3 Further, all staff employed at the material time moved from COTO’s employment to employment by the Respondent. The fact that the School added further staff to work in the clubs does not, in the tribunal’s judgment, detract from this.17.4 More or less all ‘customers’, ie children and parents, stayed the same when the clubs moved from operation by COTO to the School.17.5 The activities undertaken in the clubs and the hours during which they were undertaken were identical before and after the change.17.6 The change from COTO to the School was seamless and there was no period of suspension of activity; COTO ceased one day and the School took over the following day.[18]The Respondent says that the operation of the clubs before and after the change from COTO to the School was significantly different in that COTO is a private company whereas the Respondent is a public authority, the senior management above the Claimants is now different, the Respondent pays the staff working in the clubs at a higher hourly rate and the School intended, and still intends, to have crossover between the clubs and the active club. However, in the tribunal’s judgment none of those matters affects the answer to the statutory question in any material way.[19]Taking all relevant circumstances into account the tribunal has no hesitation in finding that the economic entity in question did retain its identity within the meaning of regulation 3(1)(a) of TUPE when it ceased to be operated by COTO and started to be operated by the Respondent / the School. There was a relevant transfer within the meaning of TUPE in April 2017 when the operation of the clubs transferred from COTO to the Respondent / the School.[20]In light of the above finding it is unnecessary to consider the parties’ arguments on the question of service provision change within the meaning of regulation 3(1)(b) of TUPE.[21]As noted above, the Respondent has already conceded that if there was a relevant transfer within the meaning of TUPE then the Claimants’ employment transferred from COTO to the Respondent pursuant to that transfer.[22]Having given the above judgment and reasons orally to the parties at the PH, the tribunal proceeded to make case management orders for the further progress of this case. Those orders are set out in a separate document.[1]The Claimants’ claims for unlawful deductions from wages are not upheld. The Hearing and evidence[2]I was provided with 4 witness statements (2 by the claimants and 2 for the respondent), a bundle of documents, a joint bundle of authorities and written skeleton arguments by both parties. I read all the witness statements and read the authorities that I was taken or referred to by counsel. I only considered those documents in the bundle that I was referred to by witness statements which were very few. Counsel confirmed that they did not expect me to read anything else.[3]I heard from the two claimants who confirmed their witness statements and were asked brief supplementary questions and briefly cross-examined.[4]I did not hear from the respondent witnesses as the claimant’s representative stated that she accepted their evidence.[5]The Parties only attended and made submissions on the first day. I considered the matter in chambers thereafter. It was agreed that I should reserve the Judgment and send out my written reasons as opposed to delivering them orally. Issues[6]Following a preliminary hearing in March 2018 where it was found that there had been a relevant transfer for the purposes of the TUPE legislation, EJ Bryant and the parties had agreed the issues to be determined at today’s hearing. These were as follows.[7]Is clause 46 of the Claimants’ contract of employment is a valid term which is enforceable against the respondent? That clause is as follows: “Service Transfer - In the event that out of school hours After School Club care at Downs Primary School ceases to be carried out by the Transferor and is carried out instead by the Transferee you will be entitled to: A Service Transfer Bonus: A bonus equating to the sum of 1 x your gross hourly pay x the average hours worked by you per month x each complete year of your continuous employment (subject to the deduction of any tax or other statutory deductions the Transferee may be obliged by law to deduct). The average hours worked by you per month shall be calculated by reference to the last 3 complete months worked by you prior to the Service Transfer bonus becoming payable. In the event of a Service Transfer and the consequential automatic transfer of your employment by operation of TUPE from the Transferor to the Transferee, you shall be entitled to payment of a Service Transfer Bonus upon the earlier of:a. 3 months following the date of the Service Transfer, should you remain employed by the Transferee at that time; orb. The termination of your employment by the Transferee in circumstances other than where it terminates pursuant to:(i) Your resignation; or(ii) Where the Transferee is entitled to terminate your employment summarily without notice or payment in lieu of notice or gross misconduct. The Service Transfer Bonus shall be payable by the Transferee at the time you become entitled to the Service Transfer Bonus”[8]Does the effect of a relevant transfer, which took place on 7 April 2017 in accordance with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), require that, in accordance with Regulations 4(1) and (2) of TUPE, all the terms and acts or omissions of the Claimants’ contracts of employment are enforceable against the transferee/Respondent or only those terms and acts or omission which would have been enforceable against the transferor? Facts and Background The facts were largely agreed by the parties.[10]Downs Junior School (“the School”) is a state junior school in Brighton. Until April 2017 the breakfast and after school clubs run for the purposes of the children who attend the School, were run by a third party provider, Class of Their Own Ltd (‘COTO’). Ms Wilson was the Supervisor of the clubs and Mr McAuley the assistant supervisor. The School decided to move provision of those clubs in house. The change occurred on 8 April 2017 and EJ Bryant held at a preliminary hearing on 2 March that this change amounted to a relevant transfer for the purposes of the TUPE Regulations.[11]The respondent accepts that the claimants were employed by them from this date onwards.[12]Contained in the Claimants’ contracts with COTO was Clause 46 which is set out in full above. That clause ostensibly entitles them to a bonus if a transfer takes place (“Service Transfer Bonus” ‘STB’). The clause was added to their contracts in 2013 and both claimants accepted the variation or addition to their contract. It was agreed that at the time this clause was added no transfer or potential transfer was being considered by any party including COTO.[13]At a meeting on 8 March 2016 Mr Franceschi (the School’s headteacher) and the School’s business manager Ms Rice had a meeting with COTO. Their intention was to service notice to terminate the contract to bring the clubs in house. At that meeting the directors of COTO confirmed that this would result in a TUPE transfer and alerted the School to the presence of clause 46. They told the School that clause 46 would create liabilities to the transferring staff of approximately £35,000 to £40,000 on bonuses.[14]As a result of that information notice to terminate the contract was not given until October 2016 whilst the School and the respondent sought legal advice regarding Clause 46.[15]After the school had served notice to terminate its arrangement with COTO but before the transfer took place, the respondent and COTO consulted with the claimants and other staff who would be affected by the transfer. In the course of those consultations the School confirmed that it would not be paying the STB.[16]The claimant’s employment transferred to the respondent by way of a relevant transfer in April 2017.[17]The claimants believe that they are entitled to the bonus and that failure to pay them amounts to an unlawful deduction from their wages. Their individual bonuses amount to: Ms Wilson - £4,743.57 Mr McAuley - £3,704.64 Those figures are agreed between the parties.[18]Ms Wilson stated in evidence that the bonus payment was a factor in her continuing to be employed after the transfer to the school. She cited that moving the service to the school had created more work for her and concerns about whether the new employer would be as good as her old one, but had refrained from looking for alternative work at least partly because of the bonus.[19]Mr McAuley was less clear. He stated that the bonus was important to him but that realistically he would not have left his job had the bonus clause not existed. Nonetheless he confirmed that the possibility of the bonus was important to him.[20]I have no reason not to believe the claimants’ accounts of their current positions and accept their evidence.[21]Both claimants continue to be employed by the respondent at the School. Submissions[22]The claimants’ case was relatively simple. They stated that the clause was a binding clause in their contract that they had given consideration for by remaining employed and, in the case of Ms Wilson, by not looking for alternative employment or treating the contract as terminated at the point of transfer.[23]The addition of the clause or ‘variation’ was not related to the transfer and therefore not prevented from transferring under TUPE (regulation 4(4)). They say the clause had been added before any transfer was contemplated and certainly before this particular transfer was contemplated.[24]They stated that the obligation for payment clearly transferred under Regulation 4(1) and/or Regulation 4(2). The fact that the obligation fell on a hypothetical Transferee as opposed to COTO/the Transferor was not a barrier on the basis that the liability would have transferred in any event when the transfer took place.[25]The respondent’s submissions were more extensive and covered 4 key points which were headed as follows:(i) The obligation to pay the bonus was not a liability that passed to the respondent because: a) The clause was void and unenforceable under contract law because it contravenes the doctrine of privity. b) Regulation 4(2) transfers to the transferee the liabilities of the transferor only. As the obligation to pay the STB did not fall upon the transferor, it was not a liability that transferred to the transferee;(ii) In the alternative the addition of the STB was a variation of contract the sole or principal reason for which was the transfer, within the meaning of Regulation 4(4) of the TUPE Regulations. There was no ETO reason for the variation within the meaning of Regulation 4(5) of the TUPE Regulations and accordingly, the provision relied upon is void and therefore unenforceable;(iii) In the further alternative, the Service Transfer Bonus clause is void on public policy grounds and therefore unenforceable. A clause of this nature as the effect of: (i) stifling effective and competitive enterprise; and (ii) preventing effective public procurement; and/or(iv) In the further alternative, the claimants gave no consideration for the inclusion of the STB clause and it is therefore unenforceable.[26]Although I heard submissions on the third point (para 22(iii) above) it was agreed with the parties that I would not determine that point unless it proved necessary to do so. As I have concluded that the Respondent is correct in its other arguments I do not need to deal with this matter. The law and conclusions Contract Law[27]What has to be considered is whether A (COTO) can make a binding promise to B (the claimants) that they will be paid by C (a transferee and in this case the respondent) at some future date when C is not party to the contract and is not aware of the contract at the time. If there is no effective contractual obligation that is capable of transfer then there would be nothing that could transfer under TUPE. I therefore need to consider the matter under the common law and ask whether the clause creates any enforceable obligation and if so who could it be enforced against?[28]It seems to me that prior to the transfer taking place in one regard the position is quite clear. A’s promise by A to B that upon some event occurring B will be made a payment by C does not give rise to any contract at all between B and C. None of the essential elements of a contract are present between the claimants and the respondent (offer, acceptance consideration and certainty). In the present case the identity of C was, at the time of the agreement, entirely unknown as although the School is suggested as a possible transferee in the contract, it also states that it could be another provider on the premises so there was no certainty. I therefore do not believe that it could be enforced between B and C as C was not a party to the contract at the time it was entered into.[29]There was some discussion as to whether the effect of TUPE was to ‘perfect’ the contract. I took this to mean that the effect of TUPE would mean that the Transferee was, at the time of the transfer, identifiable, and that by agreeing to the Transfer, the Transferee also knew about clause 46 and therefore the obligation would crystallise at the point of transfer.[30]There is, in my view, some force in this argument. At the date of the transfer the claimants knew who the transferee would be and the respondent was fully aware of the clause and still agreed to take the contract. The respondent willingly took on the contract and therefore become a valid party to the contract by agreeing to the transfer. The conditional elements of clause 46 would fall away - it would all be clear at the time of the transfer and therefore a valid clause and enforceable.[31]However I do not believe that this acquired knowledge, present at the time of the transfer can, at common law, retrospectively ‘correct’ a clause that when entered into, lacked the essential elements of a contract between, in this case, the claimants and the respondent.[32]The more difficult question is whether there was any obligation imposed upon COTO? As I read the agreement COTO (A in my analogy above) will never have to pay the STB because the only way that the STB becomes payable is if COTO is no longer the employer by virtue of the TUPE Regulations which will transfer the claimants’ employment to the respondent. Even if the clause was silent on whether payment was to be made by the Transferee, the fact that it is conditional on a transfer of the employee’s contract under TUPE means that even without the specific mention of the Transferee in the clause, this clause never ‘bites’ COTO.[33]I asked respondent’s counsel if the case would have made it to tribunal if it had not made it clear that the payment was to be made by the Transferee to which she said no. She conceded that it would transfer under TUPE were the clause not to specifically state that payment is made by the Transferee. I disagree. The fact is that COTO is never going to have to pay this money because it is only triggered once they are no longer a party to the contract because of TUPE. However, in the present case that is an academic question as the contract clearly states that it is the transferee who will pay the bonus.[34]The difficult question is whether when A promises B that C will pay something that gives rise to any obligation on A to do anything at all. In some circumstances it might be possible to say that it is an implied term of the agreement between A and B that if C does not pay A will do so. However, the implication of such a term could only be justified by business efficacy/necessity. I see no basis for any such implication here.[35]That leads me to the conclusion that there was nothing in Clause 46 which created any legal obligation whatsoever on COTO either to make payment itself or to ensure that the payment was made at the time of a transfer. Regulations 4(1) and 4(2) TUPE and Article 3 Council Directive 2001/23/EC[36]Article 3 1. The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing at the date of a transfer shall, by reason of such transfer, be transferred to the transferee. TUPE - Regulation 4 – Effect of relevant transfer on contracts of employment 1. Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organized grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee. 2. Without prejudice to paragraph (1) but subject to paragraph (6) and regulations 8 and 15(9) on completion of a relevant transfer –(a) All the transferors’ rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee; and(b) Any act or omission before the transfer is completed, of or in relation to the transferor in respect of that contract or a person assigned to that organized grouping of resources of employees, shall be deemed to have been an act or omission of or in relation to the transferee.[37]There is no satisfactory conclusion to this case. Either I conclude that the clause can transfer in which case COTO has succeeded in ensuring that its position as provider is more competitive than any third party wishing to take on the service by effectively inserting a penalty clause into the employment contracts OR the conclusion is that the claimants cannot be paid a relatively large amount of money which they had reasonably expected. Neither, it seems to me is right particularly when COTO is put to none of the inconvenience and cost that the parties have been put to clarify the situation.[38]However having carefully considered the statute, case law and the arguments put before me I find that the clause cannot transfer under Regulations 4(1) or 4(2) and therefore the claimants’ claims for unlawful deductions are not upheld.[39]The Regulations are clear in stating that it is only the liabilities and duties of the Transferor that can transfer. In this situation it is clear that the STB is exclusively conditional on there being a transfer. The transfer itself means that the clause would never be the Transferor’s liability or duty.[40]The liability cannot transfer because it is not an obligation on the Transferor at the relevant time - because it is only actionable once there is a transfer. At which point the contract is the Transferee’s responsibility but without that clause.[41]The actual wording of the clause also makes it clear that the liability rests with the Transferee. However, even without that sentence I believe that the liability never lies with the Transferor. The fact that the liability can only be triggered if there is a transfer is what prevents it from ever being the responsibility of the Transferor. Even if the clause stated that a bonus would be payable once a transfer took place and was silent as to who the payment would be made by – the effect of TUPE would be that the Transferor is not liable to the employees as the contract will have transferred to the Transferee.[42]I consider that the effect of reg 4 (2)(a) is that unless the transferor is subject to an obligation than there is nothing capable of being an obligation transferring to the Transferee.[43]I have gone on to consider whether the deeming provisions of Reg 4 affect that conclusion. Reg 4(1) provides that the contract of employment shall take effect after the transfer as if made between the employee and the transferee. Reg 4(2)(b) deems the acts or omissions of the Transferor to have been done by the Transferee. I do not think that these provisions affect my conclusion. As set out above TUPE exists to preserve rights and not to create them. It must be interpreted with that in mind. I consider that those deeming provisions cannot be used to create an obligation retrospectively.[44]I have considered the case law that counsel took me to. In particular I have born in mind that the TUPE legislation is meant to protect employee’s rights not those of the employer. I have also considered the fact that the employee can rely upon a positive variation if it so chooses. However this is not analogous to this situation and does not, in my view, assist.[45]It is not within my gift to put a gloss on the wording of the statute so as to read it, even when applying the purposive approach to Article 3 of the Directive, that anything other than the Transferor’s obligations can transfer. TUPE cannot be used to improve an employee’s position. In Wilson v St Helens Borough Council/British Fuels Ltd v Baxendale [1998] IRLR 713, paragraph 71, Lord Slynn says, “In my opinion the overriding emphasis in the European Court’s judgments is that the existing rights of employees are to be safeguarded if there is a transfer. That means no more and no less than that the employee can look to the transferee to perform those obligations which the employed could have enforced against the transferor.”[46]The claimants in this case could not at any point either because of the wording of the clause or the fact that the liability is only triggered by a transfer, enforce the clause against COTO. They should therefore not be put in a position that is better than the one they were in before the transfer.[47]I accept that LJ Mummery the case of Power v Regent Security Services Ltd (CA) [2008] ICR states: “The aim was to safeguard the acquired rights of employees on the transfer of an undertaking. Safeguarding the acquired rights of employers was not the aim. Allowing a transferee employer to rely on the Regulations in order to prevent a transferred employee from taking the benefit of a varied term agreed by the employer by reason of the transfer is not required either by the aim of, or by the provisions of, the Directive and the Regulations.”[48]However Power can be distinguished from the current case. There the Transferee was seeking to rely on TUPE to defeat an express agreement it had reached directly with Mr Power because of the transfer. The Court of Appeal was safeguarding an employee’s right to choose to rely on more enhanced terms after a transfer where they had been expressly agreed with the Transferee. In this case the respondent or School had made no such express agreement with the claimants. In fact they made it clear that they did not accept Clause 46 in the contract at the time of the transfer.[49]At its highest, it seems to be that Regulation 4(2) would allow the transfer of the theoretical right to a bonus from the next Transferee at the time of another transfer. However the theoretical right is what transfers – the liability never bites a Transferor.[50]It is surprising that no other employers have tried to insert such clauses in their contracts, particularly in the current widespread use of outsourcing. The result of this finding is unsatisfactory in that I believe it could enable other similar clauses to be used to mislead employees that they will get a future entitlement in the full knowledge that a) that amount or benefit will never be payable by either employer under the contract and b) both Transferors and Transferees could use this to their advantage to try to obtain continuity of workforce with false promises that will not be enforceable on either with the employees ultimately suffering.[51]Regulation 4(4) TUPE “Subject to regulation 9, any purported variation of a contract of employment that is, or will be, transferred by paragraph (1) is void if the sole or principal reason for the variation is the transfer.”[52]For completeness, I have also considered whether Regulation 4(4) would prevent a transfer. I find that it would not.[53]It is clear that the variation i.e. the introduction of Clause 46 occurred a long time before the transfer between COTO and the respondent was even contemplated. It therefore cannot be said to be related to this particular transfer. No Economic, Technical or Organisational reason is relied upon by either party. The argument here was purely whether the introduction of this clause was related to the transfer or not.[54]The respondent argued that the variation to include Clause 46 was inherently related to a transfer because it was only triggered by a transfer. The case of Spaceright Europe Ltd v Baillavoine [2012] IRLR 11 makes it clear that the transfer does not have to have crystallised to be the transfer referred to in this clause but the possibility of a transfer can be sufficient. In that case the facts are such that a chief executive is dismissed by liquidators so that the sale of the business as a going concern is more attractive. It was found to be related to the transfer. That case can be distinguished on its facts. There the reference to a possible transfer was clearly in relation to a situation where the liquidators had already set about trying to sell the business and a transfer was imminent or at least anticipated. Here, to my knowledge, there was no transfer being contemplated when COTO varied the claimants’ contracts to include Clause 46. It is obvious that the clause envisages a transfer at some point but I think it would be stretching it to say that any clause which in some way referred to rights obligations around an entirely theoretical TUPE transfer can or should be defeated by this clause.[55]For example if a contract imposed enhanced periods of consultation prior to any theoretical TUPE transfer or specific contractual methods for that consultation, I do not think that this could or should be defeated by Regulation 4(4). Regulation 4(4) is there to prevent changes which occur because of or are related to a ‘real’ transfer such as a transferor giving employees a large pay rise just before a transfer in the knowledge that they will not be paying them. Or alternatively, cutting employees’ rights to ensure that the outsourcing deal is more attractive to potential transferees. Consideration[56]For completeness, I shall address the issue of consideration here as a lack of consideration could invalidate the clause as well. The respondent argued that as COTO neither gave nor received any benefit it could not be binding and in any event the claimants had not given proper consideration either.[57]I find that the claimants did give consideration. They continued to be employed, they chose not to resign and they remained employed during a time of relative uncertainty. Although this consideration was not given at the time that the clause was entered into, that is the case with numerous clauses in an employment contract. Many employees will not take advantage of, say, enhanced maternity leave (the claimant’s example), or paid sick pay allowances, but they are nonetheless binding clauses in the contract. Whilst Mr McAuley states that he may well have remained employed regardless of this clause, that does not mean that his continuing employment cannot amount to consideration. As stated above many clauses in employment contracts are never relied upon or ‘by employees but their presence, whilst not a ‘make or break’ factor in their continuing employment, no doubt influence a decision to remain employed and still amount to a valid clause that they are entitled to rely upon. Mr McAuley did state that the possibility of the bonus was important to him.[58]I also think it is clear that COTO were construed with a benefit by making this promise. They were providing an element of financial security and certainty to their staff should a transfer take place that could (and apparently did) mean that they had a relatively stable workforce. Ms Price used perhaps a bit of creative license to suggest that having the possibility of a more stable workforce at the time of a potential transfer even if you were the transferor, was a legitimate benefit for an employer. It is possible that a transfer may not actually take place but rumours about the possibility could be unsettling and lead to people leaving. COTO, as stated above say in their letters regarding this topic that they wanted to provide increased security for their staff. I believe that this is sufficient to show that they were conferred a benefit by including this clause in the contract and that there was consideration. Conclusion[59]For the reasons I have set out above I find that there has been no unlawful deduction from wages. Clause 46 contained no obligation capable of transferring to the Respondent.[60]Whilst the issue of public policy is stayed I did hear some submissions in relation to this point and would make the following observations. It appears, on the face of it, that the introduction of Clause 46 was a cynical attempt by COTO to ensure that provision of the clubs was more financially viable or profitable for them than any other provider. From the documents I have seen it appears that they have referred to it on other occasions where schools have attempted to take services back in house or find other providers. Their intention has been to dissuade competitors by effectively imposing a financial penalty via a contract with employees.[61]However I was not provided, in the course of the hearing, with any hard law that specifically bans such contractual terms. It seems to me that if such a practice is prohibited this clause would be void and therefore not transfer as per the respondent’s submissions. However commercial arrangements between parties in an outsourcing agreement could also, it seems to me, prevent amendments such as the addition of Clause 46 which either in theory or reality, create obligations on either party that were not part of the original deal. However in the light of my other conclusions I do not need to decide this matter.