LMC Drains Ltd & Anor v Waugh [1991] UKEAT 182_90_1903

EAT
LMC Drains Ltd & Anor v Waugh
[1991] UKEAT 182_90_1903 · 1991-03-19
MR JUSTICE WOOD (PRESIDENT ): On 10th April 1989 it was common ground that the Applicant, Mr Waugh, was dismissed from his employment as a service engineer by the first respondent on 10th April 1989. It was the case for that Respondent that he had only been employed since 6th March 1989 hence he did not have two years' continuous employment to found jurisdiction against them. It was the case for the second Respondent that it had never employed the Applicant.The Applicant contended that from February 1987 he had been successively employed in the same business and that by reason of the provisions of the 1978 Act or under the Transfer of Undertakings (Protection of Employment) Regulations 1981 he had the relevant continuity of service.The Tribunal found in favour of the Applicant and both LMC Drains Ltd (LMC) and Metro-Rod Services Ltd (Metro) now appeal.Metro, through a subsidiary company, developed prior to 22nd July 1985 a service and a system for conducting the business of high pressure water jetting, complete drain maintenance, drain pipework clearance, tank descaling, electrical and mechanical winching, hygiene service and floor cleaning, high pressure lancing, masonry cleaning and fanned/shot blasting, mobile steam cleaning, chemical descaling, skilled labour, hire TV surveys, drain tracing, pressure testing, plumbing, drain excavations and acquired knowledge and skill from those services and systems which are set out verbatim in various agreements. These agreements describe the business as "the Metro- Rod business".On 22nd July 1985 Geoffrey Frederick White trading as Tyne Rod acquired from Metro a right and licence to operate the "Metro Rod business in an area which was defined in the agreement and called "the territory". It consisted in the main of the North East of England as far as Berwick in the North, Peterlee in the South and Haltwhistle in the West. The invoices for work done were headed "Metro Rod" and underneath were named "Tyne Rod".The Applicant was first employed by Mr White in February 1987.On 12th June 1987 Metro entered into an agreement with Stuart Graham Carr trading as Tees Rod in terms which were very similar to the agreement with Mr White save that the territory was on Teesside.In about June 1988 Mr White told the Applicant that he was transferring the business he was operating to Mr Carr. Mr Carr approached the Applicant and said that he wished him to continue in the employment in the territory and Mr White sent a P45 to the Applicant who thereafter received his wages from Mr Carr. He worked from home, accounted to Mr Carr for all monies received but otherwise continued to do precisely the same work on a regular basis as he had done whilst with Mr White.On 6th March 1989 Metro entered into agreement with David Bruce Chambers and Leonard Michael Chambers on very similar terms to those referred to earlier. This agreement related to the Tyne area.At about this time Mr Carr introduced the Applicant to Mr Leonard Michael Chambers and on that same day the Applicant met Mr John Leonard Harris and Mr Swift respectively the managing director and training manager of Metro. It was explained to him that the Metro-Rod business in the territory was to be taken over by Mr Chambers through LMC in which he was a shareholder and it is common ground between the parties that that Company is the first Respondent which then proceeded to employ Mr Waugh. He received a P45 from Mr Carr. He carried out thereafter the same duties for LMC on exactly the same basis as he had with Mr White and Mr Carr until he was dismissed on 6th April 1989.The Applicant gave evidence before the Industrial Tribunal and a full note of his evidence is before us. The Tribunal also had before them the two P45s which were put in as evidence for the Respondents and also three agreements namely those between Metro and Mr White, Mr Carr and LMC respectively. The Tribunal did not indicate that Mr Waugh's evidence was in any way unacceptable nor was it submitted so by the solicitor acting for the Respondents.The continuity of employment can be assessed in two different ways. The first is pursuant to Paragraph 17(2) of Schedule 13 of the Employment Protection Consolidation Act 1978 and S.151. This reads -
"If a trade or business or an undertaking (whether or not it be an undertaking established by or under an Act of Parliament) is transferred from one person to another, the period of employment of an employee in the trade or business or undertaking at the time of the transfer shall count as a period of employment with the transferee and the transfer shall not break the continuity of the period of employment."

Secondly, the relevant Regulations of the 1981 Regulations are Regulations -

"3-(1) Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated.
(2) Subject as aforesaid, these Regulations so apply whether the transfer is effected by sale or by some other disposition or by operation of law.(3) ...(4) It is hereby declared that a transfer of an undertaking or part of one may be effected by a series of two or more transactions between the same parties, but in determining whether or not such a series constitutes a single transfer regard shall be had to the extent to which the undertaking or part was controlled by the transferor and transferee respectively before the last transaction, to the lapse of time between each of the transactions, to the intention of the parties and to all the other circumstances.5 ..."
"5-(1) A relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee.
(2) ...(3) Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions.(4) ...

(5) ..."

"8-(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part V of the 1978 Act and Articles 20 to 41 of the 1976 Order (unfair dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal."
Each of the agreements referred to are what are known as franchise agreements. It is not disputed that the undertaking carried on by Mr White, Mr Carr and LMC was an undertaking within the meaning of the Schedule or Regulations.In considering the Regulations it is common ground that the issue is whether there has been a transfer of the undertaking from Mr White to Mr Carr to LMC. In each case the dismissal of the applicant, if there was a dismissal, would have been of no account as the termination of his employment would have followed from the necessity to transfer and hence the continuity would have been preserved, see LITSTER and ORS v. FORTH DRY DOCK & ENGINEERING CO LTD (IN RECEIVERSHIP) and ANOR [1989] ICR 341 .The reasoning of the Industrial Tribunal appears from paragraph 5 of the Decision.
"The Tribunal has taken time to consider its decision in view of the apparent novelty of the issues involved. The Tribunal has had no difficulty whatsoever in deciding that the business carried on at all material times is an undertaking within the meaning of the Regulations. Indeed the franchise agreements to which reference has been made in this decision describe the services and equipment that are franchised by the second respondent as the Metro-Rod business. The business is clearly a commercial venture. On any view the applicant was between February 1987 and April 1989 employed in that business. He carried out exactly the same duties throughout. He was a service engineer driving a van and calling upon customers in the same territory. The Yellow Pages advertisement and the van described the business as "Metro-Rod". Any person, firm or company using the services which were carried out by the applicant for his employers would not in the view of the Tribunal pause to consider whether or not they were dealing with separate franchisees. So far as the applicant was concerned throughout the relevant period his wages came from 3 separate sources, his vans changed from time to time, he accounted to 3 different employers but apart from that his conditions of employment at the end thereof were absolutely identical to those which obtained at the commencement. The remaining question for the Tribunal is whether there had been 2 relevant transfers of the undertaking between February 1987 and April 1989. The Tribunal concluded that the facts of the instant case reveal that the first of the franchise agreements was terminated in June 1988 and the second in March 1989. On each occasion the second respondent entered into an agreement with a new franchisee and on each occasion the new franchisee continued to run the business without any interruption employing (whether with another or others matters not) the applicant who had previously been dismissed upon the expiry of each of the franchises. At all times the economic unit retained its identity. ..."
The criticisms of Mr Horlock for the Appellants are four-fold. First, that in general terms the Tribunal did not investigate the problem sufficiently, find sufficient facts or face the issues with sufficient clarity; secondly, that they failed to find sufficient facts in connection with the alleged transfer in June 1988; thirdly, a like criticism in respect of the transfer in March 1989; fourthly, that when considering the issues of the transfers and the continuity of the undertaking this Industrial Tribunal failed to take into account specific matters which as indicated in the authorities are relevant namely,(a) What was the contractual position between licensor and licensee?(b) Has there been a temporary cessation of work?(c) Was the applicant dismissed before the transfer?It is not suggested that the three agreements are materially different. It seems that with experience they grow in size from 23 to 29 to 48 pages. We only refer to them in broad terms.The terms of the agreements are stringent. In the recitals the "Metro-Rod" business is described as we have already described it. There is also reference to the Metro-Rod trade name and the third paragraph reads -
"The licensee wishes to acquire from the licensor the right and licence to operate the Metro-Rod business with the tooling equipment appliances accessories methods of advertising and publicity and insurance arrangements and wishes to use the Metro-Rod trade name to benefit from the goodwill attached thereto within the Territory."

The Grant of the Licence is

"...the right to promote and operate the Metro-Rod Business within the Territory on the terms and conditions of this Agreement"
The Licensee pays an initial licence fee and thereafter 25% of the Licensee gross receipts which are defined. Returns have to be made on forms approved by the Licensor. So far as the running of the business is concerned there are strict limitations on advertising which must be in the Yellow Pages and under the name of Metro-Rod; the Licensor itself may insert advertisement as it sees fit and the Licensee must pay; the Licencee shall only use such promotional brochures and sales literature as supplied by the Licensor; the Licensee shall not make any advertisements or signs unless submitted and approved by the Licensor. In respect of the telephone there are detailed requirements as to the use of the Metro-Rod business name in connection with telephone numbers. Equipment is supplied by the Licensor at the expense of the Licensee; vehicles are marked externally; equipment is provided by the Licensor from whom the Licensee is bound to purchase the principal items of equipment.The obligations of the Licensor include to permit the Licensee to operate the Metro-Rod business and to use the trade name "Metro-Rod; to give advice about Metro-Rod business office procedures; to provide uniform suitably marked at the expense of the Licensee; to provide stationery to be used; to maintain in full force and effect a public liability insurance together with such insurance cover for the Licensee as the Licensor may deem desirable and to train suitably qualified full time employees of the Licensee.At his own expense the Licensee's obligations include to provide an efficient organisation so that the Metro-Rod business is fully operational and the services available 24 hours a day, 7 days a week; to adhere to the Licensor's rules, regulations and standards and operation procedures; only to use the equipment, accessories and stationery supplied; to offer Metro-Rod customers a written guarantee in terms approved by the Licensor; not to allow any other person to operate the Metro-Rod business within the Territory; not to divulge information concerning the Metro-Rod business; to ensure that uniforms are kept clean and worn at all times; to be responsible for all operating expenses; to co-operate with the Licensor in promoting and developing the Metro-Rod business; to implement any suggestions for improvement; to keep full and proper books of account which will be subject to audit by the Licensor and in particular Clause 15, "To obtain a signed employment agreement in the Licensor's standard form from all employees prior to the commencement of their employment and not permit any person to act or assist in the conduct of Metro-Rod business unless such person has entered into such a contract of employment or has signed an undertaking as to secrecy in all matters relating to the Metro-Rod business in the form approved by the Licensor from time to time."The franchise agreement may be terminated on certain notices and in that event either the business being operated by the Licensee is sold back to Metro-Rod or with their leave is assigned to a third party. There are covenants on termination and there is covenant against competition for one year after termination.In the two later agreements there are provisions that any goodwill generated in the Territory during the term of the agreement is vested exclusively in the Licensor and any goodwill generated by the Licensee shall be held by that Licensee as bare trustee for the Licensor.Although the actual vehicles and actual equipment may have changed from time to time it is clear from the findings of the Industrial Tribunal that from February 1987 onwards Mr Waugh was carrying out his duties in precisely the same way with identical systems and identical vehicles and identical equipment throughout the period from February 1987 until March 1989. And this is clearly so found by the Industrial Tribunal in paragraph 5 of the Decision.In looking to see whether a transfer of a relevant undertaking within the meaning of the 1981 Regulations took place; it is necessary these days to look at decisions from the ECJ. The 1981 Regulations were intended to give effect to Council Directive 77/187/EEC. We were referred to three cases.The first is LANDSORGANISATIONEN I DANMARK V. NY MOLLE KRO [1989] ICR 330 . In that case the owner of a tavern which was only opened during the summer months granted a lease of the premises to 'L' who had given an undertaking to the employees' association to abide by the terms of a collective agreement in respect of employees who were members of that association. In January 1981 while the Tavern was closed the owner rescinded the lease for breach of covenant and in March of that year opened for the summer season and continued to run the business each season thereafter during the summer months. A waitress employed during the 1983 season left in August of 1983 before the end of that season and sought to recover the difference between the wages paid by the owner and those payable under the collective agreement by which 'L' had been bound. The ECJ held that there was a transfer within Article 1(1) of Directive 77/187 despite the rescission of the lease on the grounds of breach of covenant; despite the fact that the undertaking was temporarily closed at the time of transfer and employed no staff during the closed season; and despite the fact that the undertaking was regularly closed each year.The second case is FORENINGEN AF ARBEJDSLEDERE I DANMARK V. DADDY'S DANCE HALL A/S [1988] IRLR 315 . In this case Irma Catering held a non-transferrable lease on the Restaurant and Bars owned by Palads Teatret. Mr Tellerup was employed as manager by Irma Catering. In January 1983 the lease was determined with effect from 25th February and Mr Tellerup was dismissed with notice expiring on 30th April. On 25th February a new lease was concluded between Palads Teatret and Daddy's Dance Hall, who immediately re-employed the staff of the former lessee including Mr Tellerup. Mr Tellerup's new contract differed from that which he had previously held in a number of respects. His period of notice was shorter and it was argued that he was entitled to the same length of notice as he had been previously. The ratio of the decision is to be found in paragraph 10 of the judgment which reads -
"It follows that when the lessee who has the capacity of proprietor of the undertaking at the termination of the lease loses this capacity and a third person acquires it under a new lease concluded with the owner, the resulting operation is capable of falling within the scope of application of the Directive, as defined in Article 1(1). The fact that in such a case the transfer takes place in two phases, in the sense that as a first step the undertaking is transferred back from the original lessee to the owner who then transfers it to the new lessee, does not exclude the applicability of the Directive as long as the economic unit retains its identity. This is the case in particular when, as in the instant case, the business continues to be run without interruption by the new lessee with the same staff that was employed in the undertaking before the transfer."
The second question was immaterial.The third authority was P BORK INTERNATIONAL A/S (IN LIQUIDATION) V. FORENINGEN AF ARBEJDSLEDERE I DANMARK [1989] IRLR 41. In this case Bork leased a beechwood veneer factory in 1980 from a company referred to as OTF. In the autumn of 1981 Bork gave notice of termination of the lease with effect from 22nd December 1981. During December Bork dismissed all the workers employed in the undertaking having given them due notice and the undertaking ceased operation on 22nd December. On 30th December a company known by the abbreviation of JI bought the undertaking from OTF and took effective possession on 4th January 1982. It took on more than half the staff previously employed by Bork but without any negotiations with Bork. JI did not recruit any new staff. JI bought Bork's stocks, spare parts, tools, auxiliary material and furniture. Bork was in liquidation. The case concerned claims by workers of Bork who were transferred to JI in particular in connection with arrears of wages and paid holidays. Directive 77/187 was again being examined. It was held that there was a transfer and the principle set out in paragraph 14 -
"It follows that, when the lessee in his capacity as employer loses this capacity at the end of the lease and a third party subsequently acquires this capacity under a contract of sale concluded with the owner, the resulting transaction could fall within the scope of the Directive, as defined in Article 1(1). The fact that, in such a case, the transfer takes place in two stages inasmuch as the undertaking is initially re-transferred by the lessee to the owner, who then transfers it to the new owner, does not preclude the application of the Directive, provided that the undertaking in question retains its identity, which is the case where there is an economic entity still in existence, the operation of which is in fact continued or resumed by the new employer carrying on the same or similar business."
The question in the present case is whether the Industrial Tribunal was entitled to infer a transfer from the circumstances known to it. It is quite apparent from the agreements that there were detailed provisions of what should happen on the termination of the licence and there was no evidence to suggest that those procedures were not carried through. Therefore either there was a transfer back to Metro-Rod and thereafter a transfer afresh to the new licensee or, with the leave of Metro-Rod there was an assignment of the business being carried on by Mr White or Mr Carr as the case may be to the successor. Bearing in mind the approach of the ECJ to facts which are not wholly dissimilar and to the wording of Regulation 3 of the 1981 Regulations in particular the words "or by some other disposition" in Reg.3(2), it seems to us that this Industrial Tribunal was perfectly entitled to draw the conclusion that there was a relevant transfer in each case from Mr White to Mr Carr and then to LMC. It follows therefore that the Tribunal had jurisdiction to consider Mr Waugh's claim.Before leaving this appeal however, it seems to us that a possible interpretation of the reasoning of the Industrial Tribunal was that the business was throughout that of Metro-Rod and that the licensees were carrying on the business on behalf of Metro-Rod under the closest supervision and in every way it could be said to be a Metro-Rod operation. Such a finding would produce an unusual situation in that there would be a finding of fact that throughout the relevant period the one business or undertaking existed but that there were a number of individual employers employing the Applicant within that umbrella. It seems to us that in this situation it would clearly be the intention of the legislation that there should be continuity for the purposes of the 1978 Act and yet when looking at paragraph 17 there seems to be a lacuna and no provision for this situation. This is something that might well be examined by those contemplating amendments in the future.For the reasons which we have given this appeal must be dismissed.