Dines & Ors v Initial Healthcare Services & Anor [1993] UKEAT 126_93_0807

EAT
Dines & Ors v Initial Healthcare Services & Anor
[1993] UKEAT 126_93_0807 · 1993-07-09
MR JUSTICE WOOD (PRESIDENT) This is one of a group of appeals recently before us concerning rights of individuals arising out of the restructuring of businesses and change in employers. In this, as in other cases, we have been asked to diverge from the strict legal approach to the particular appeal and to give guidance or to make comments which may help those involved in this field of employment. There are literally hundreds of cases yet to be heard; the broad circumstances in which the problems are arising may be in some respects similar, nevertheless each case is almost certain to depend on its own facts.

The background

The Local Government Act 1988 provides that Local Authorities must put certain of their services out to competitive tendering, although internal - in-house tenders - may also be considered. Likewise, Health Authorities or Trusts have for some time put services out to tender and will no doubt continue to do so. Somewhat similar problems may also arise from the opting-out provisions for schools, though they are unlikely to be identical.Behind these provisions lies the philosophy that such bodies are under a duty to seek to obtain the best method and the best value for money in carrying out their responsibilities to the taxpayer, and that this is best achieved by competition. Sometimes referred to as the "market economy".The results which may arise - but not necessarily so - are that the employee who finds himself or herself with a new contract of employment, may also find that the new terms and conditions, whether as to pay or otherwise, are less favourable than those which formerly pertained and which in many cases have been accomplished as the result of collective bargaining and agreement across a whole industry or indeed the whole of a national sector. It may also follow that a trade union is de-recognised, certainly involving loss of power and status, and possibly involving loss of members. The practice of "check-off" may cease. It is thus regarded by trade unions as an attack on collectivism and upon the foundation and existence of trade unionism.The requirement for compulsory competitive tendering exposes an absolutely fundamental clash of philosophies, and gives rise to a battle between the big battalions in the field of employment. However, we in this jurisdiction, are dealing with the fair treatment of individuals in various aspects of employment and are concerned that the interests of the individual foot-soldier should not be overlooked in the fog of war, in the smoke, noise and blood of the maelstrom of battle.Mr Elias stresses the importance of this case by pointing out that before agreements of sale or merger are made (whether or not insolvency is involved), or tenders presented, those involved, including those within an Authority, must be able to know where they stand in law - how certain activities or sets of facts will be interpreted in law. They will then be able to have appropriate regard to them in their arrangements when inviting tenders. This we readily understand, as we also understand that a Trade Union likewise will wish to be able to know where it stands. Questions of pricing, payment for redundancy and other legal considerations can be regarded as essential factors. As much detailed information as is reasonably practicable should, where possible, be available to all concerned.The legal provisions with which we are concerned are Directive No.77/187 of the Council of the EEC (the Directive) and the Transfer of Undertakings (Protection of Employment) Regulation 1981 (S.I.1981 No.1794) (the Regulations).

The Employment Appeal Tribunal - EAT

Should we accede to the request made by the parties before us in this and other recent appeals, to address ourselves to various aspects and considerations arising out of the situation which are wider than are strictly necessary for the decision of the particular appeal? It is always dangerous for a court to do so, as one can never anticipate every situation which may arise, and comments may be seized upon by interested parties and treated as statements of legal principle. As against this, we are conscious that enormous sums of money are being expended on litigation in this field, which could far better be used for other purposes and that there is a duty in the EAT to seek to encourage fair and responsible industrial practices. We would include in this a duty to seek to encourage a responsible approach from all sides to problems which are currently prevalent within the employment field.However, it is vital that we should not trespass into the realms and responsibilities of the legislature, nor should we comment on the desirability of policy. We merely seek to assist in an understanding of the law and its application.Having cautioned ourselves in this way and with considerable hesitation, we have concluded that in the exceptional position in which the EAT operates, as explained in East Berkshire Health Authority v. Matadeen [1992] IRLR 336, we should, if pressed - as we have been - offer such help as we are able. With the encouragement and the trust placed upon us by so many parties, we hope that we will not betray that trust nor regret our decision.

The proceedings

On 1st May 1991 they started a fresh employment with the second Respondents, Pall Mall Services Group Ltd (PALL MALL). They have each brought proceedings before an Industrial Tribunal alleging unfair dismissal by Initial and relying upon Regulation 8(1) of the Regulations. By Regulation 5 this liability will pass to Pall Mall. As against Pall Mall they allege that their conditions of service are less favourable than they were in the contract of employment with Initial. It was suggested during submissions that the claim against Pall Mall might be under S.11 of the Employment Protection (Consolidation) Act 1978, but it seems to us that there may be problems over that. It is much more likely that proceedings would be brought in the County Court for a declaration as to the terms and conditions applicable. For the claim against Initial under the Regulations and the 1978 Act the time-limit, is agreed to be the same as for a 1978 Act application. As against Pall Mall however, the time-limit, if proceedings were taken in the County Court, would be six years. Of the staff employed by Initial totalling 107 - 98 cleaners and 8 supervisors - 7 were offered fresh employment but did not accept, and no offer was made to one of them. Thus, 99 cleaners and 8 supervisors accepted fresh employment with Pall Mall. Although there was no evidence of the re-organisation, we were told that the nature of the supervision changed. Of the 12 Applicants, 9 still remain in the employment of Pall Mall, 3 have left. None of the other 95 formerly employed by Initial have indicated any wish to make claims.

The facts

These were not in dispute. Orsett Hospital is a National Health Hospital administered by the Basildon & Thurrock Health Authority (the Authority). Health Authorities for some years had been obliged to invite private contractors to tender to undertake certain ancillary work carried out in hospitals. That ancillary work included general cleaning of the hospital. The Authority awarded cleaning contracts on a periodic basis. When a term ends the contract will again be put out to tender. Both Respondents were in the business of providing a general cleaning service for hospitals. They are wholly unconnected companies and indeed are in competition with each other. Initial had held a three year contract which was extended so that it terminated ultimately on 30th April 1991. In January 1991 the Authority invited tenders for the cleaning of Orsett Hospital from 1st May of that year. Both Respondents submitted tenders. We do not know whether there were others. The tender of Pall Mall was accepted and it was awarded the contract for the cleaning of the Hospital for a period of three years commencing on 1st May 1991.All the Applicants were notified that the contract was going for tender and when Initial did not succeed, it declared them to be redundant. Their employment was terminated on 30th April 1991. The employment of all the others employed by Initial was also terminated on the grounds of redundancy. All those who qualified were given redundancy payment and we understand that in fact everybody was included.Initial supplied the equipment, the stock and the cleaning material to enable its employees to clean the Hospital. All that was withdrawn at the end of their contract on 30th April 1991. Under the new contract Pall Mall introduced its own management, equipment, stock and supplies. All the Applicants were offered new employment at the Hospital with Pall Mall which started as we have said, on 1st May. They were not given continuity of employment and thus, unless there was a transfer within the meaning of the Regulations there is no continuity and they cannot succeed in their claim for unfair dismissal under Regulation 8(1) nor does continuity of employment for purposes other than redundancy, continue if they should subsequently be dismissed by Pall Mall.

The Decision

The reasoning of the Industrial Tribunal is to be found in paragraphs 9 and 10 of the Decision which read as follows:
"9. We find that the cleaning of the Orsett Hospital was a service which was self-contained in that it was carried out by contractors who had no other obligations to the hospital, prior to the hospital having to put the cleaning service out to tender their own equipment and staff could be said to be a separate economic entity.
10. In this case when the Second Respondent undertook the cleaning services they provided their own management, their own equipment, their own materials and anything else that was required for the Applicants to clean. They did not purchase or takeover the equipment and other materials necessary for the cleaning to be done from the First Respondents. They did engage the services of the Applicants who had previously worked for the First Respondents. The Authority, if either the First Respondents or the Second Respondents failed to carry out the contractual obligations, could terminate the contract or bring an action for breach of contract. The Authority is under a statutory obligation to see that the hospital is kept clean to a certain standard. However, the necessary equipment, materials and the work force were a matter of choice for the contractors. Further, there was no agreement between the First and Second Respondents, there was no contractual relationship. The contractual relationship existed first between the First Respondent and the Authority and thereafter when the cleaning service had been put to competitive tender in January 1991 from the 1 May 1991 between the Second Respondents and the Authority. The fact that there was no contractual relationship between the First and Second Respondents is not of itself (the) decisive to whether there was a transfer, however, looking at all the circumstances in this case we are satisfied there was no transfer of equipment, materials or goodwill from the First Respondents to the Second Respondents and that there was not a transfer of an undertaking or as Mr Smith prefers to call it, an "economic unit" to which the Regulations apply. The Respondents, when they had the cleaning contract, carried on their business at the hospital premises. That business ceased when their contract expired and the Authority permitted a new business to provide the services when they contracted with Pall Mall. We appreciate that it is immaterial having regard to the provisions of paragraph 3(2) of the Regulations, whether a business is sold. The fact a business is not sold does not mean there cannot be a transfer within the meaning of the Regulations. However when one company enters into competition with a number of other companies to obtain a contract as happened in this case and a different company wins the contract from the company that was previously providing the services then this is a cessation of the business of the first contractors on the hospital premises, and the commencement of a new business by the Second Respondents when they are awarded the contract. The fact that the Second Respondents employed the same workforce at the same workplace is not in this case a factor giving rise to a transfer under the regulations for the reasons given in this decision."

EEC Directive 77/187 and the Transfer Regulations

EEC Directives are brought into effect through the machinery of legislation at Brussels. The Commission of the European Community have recently considered the United Kingdom implementation of Directive 77/187 of 14th February 1977. The Regulations have been scrutinised in the light of the terms of that Directive. In its Report of 2nd June 1992, the Commission made a number of criticisms. We quote from page 135:

" UNITED KINGDOM

United Kingdom legislation does not conform adequately with the Directive. The main problems are as follows:- The system for appointing workers' representatives is not compatible with the aims of the Directive: the employer has enormous scope for avoiding the duty to inform and consult the workers by refusing to recognise the union as their representative. There is also no legal provision for cases where there is no "institutional" representation.- United Kingdom legislation does not state that consultation must take place "with a view to seeking agreement" (Article 6(2)).- The British courts have ruled that the transferor must be the owner of the undertaking to be transferred.- Any undertaking or part thereof "which is not in the nature of a commercial venture" is excluded from the scope of the Directive.- The sanctions provided for in order to ensure that the provisions of the Directive are implemented do not appear to conform with the principles of effective application laid down by the Court of Justice of the European Communities.In 1989 the Commission sent the UK authorities a formal notice of complaint concerning the above-mentioned points. In March 1990, the Government replied acknowledging that the aim of consultation should be to reach an agreement (Article 6(2)), but rejecting the Commission's other criticisms. In April 1991, the Commission sent the UK authorities a reasoned opinion. In July 1991, they accepted all the above-mentioned points raised by the Commission with the exception of the question of workers' representation."Save for those matters the wording of Regulations 1 to 8 is not criticised.The proceedings brought by the Commission to seek to enforce implementation of the Directive were dated 21st August 1992 (Case - C382/92 - (92/C-306/11)). These proceedings seem to substantiate the view taken above.The most significant amendments made by S.33 of the Trade Union Reform and Employment Rights Act 1993 and which are relevant to this type of case are to Regulation 2(1) - the definition of undertaking - to Regulation 3(4), and to Regulation 5.Regulation 2(1) the definition of "undertaking" is now "includes any trade or business". Regulation 3(4) will read
" It is hereby declared that a transfer of an undertaking or part of one (a) may be affected 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."
Regulation 5 will allow an employee to "object" to the automatic transfer of his contract of employment.These amendments are not retrospective.In cases - such as the present - there is no direct effect of the Directive, because neither Initial nor Pall Mall are emanations of the State and it is the Regulations which must be applied.However, let us start with the Directive. The full title is itself important. It relates "To the safeguarding of employees' rights" - "In the event of transfers of undertakings, businesses or parts of businesses". It is the latter, "the transfer", which triggers or gives rise to the safeguarding of rights. The recitals give added emphasis to this when read as a whole.The essential provision of the Directive which defines the "trigger" is Article 1(1) which reads:
"This Directive shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger."
In the light of recent ECJ decisions "legal" must mean "not illegal". This is recognised by Regulation 3(2) of the Regulations.The concentration on this approach is also stressed by the wording of Article 2:"by reason of a transfer within the meaning of Article 1(1)",and "the employer in respect of the undertaking, business or part of the business".In Litster & Ors v. Forth Dry Dock and Engineering Co Ltd [1989] ICR 341 at p.357E Lord Oliver of Aylmerton puts the situation thus:It will be seen that, as is to be expected, the scope and purpose of both the Directive and the Regulations are the same, that is, to ensure that on any transfer of an undertaking or part of an undertaking, the employment of the existing workers in the undertaking is preserved or, if their employment terminates solely by reason of the transfer, that their rights arising out of that determination are effectively safeguarded...."It is the transfer that gives a right to the protection.By Regulation 2(1) of the Regulations the definition of "undertaking" is wider than "trade or business" and after the amendment provided for in the 1993 Act comes into force, an educational establishment or a charity could be included.Under UK law there is no implied term in a contract of employment that an employer shall not dispose of its business Newnes v. British Airways [1992] IRLR 575. The position at common law and under the Regulations was made very clear in Secretary of State for Employment v. Spence [1986] ICR 651 and Litster (supra). In the former Balcombe LJ explained the situation thus at p.660G:
"... Before I turn specifically to paragraph (1) of regulation 5, I must state the basic principle under English law, which is that a man cannot be transferred from one employer to another without his consent. Hence comes the rule that the sale or transfer of an undertaking determines the contract of employment of employees. If authority be needed for that proposition, it is to be found in the House of Lords case of Nokes v. Doncaster Amalgamated Collieries Ltd [1940] AC 1014, which was concerned with the application of a section of the Companies Act 1929 to this basic rule. I need refer only to one or two passages from the speeches. Viscount Simon LC said at p.1020:
"It will be readily conceded that the result contended for by the respondents in this case would be at complete variance with a fundamental principle of our common law - the principle, namely, that a free citizen, in the exercise of his freedom, is entitled to choose the employer whom he promises to serve, so that the right to his services cannot be transferred from one employer to another without his assent."
To the like effect Lord Atkin said, at p.1026:
"My Lords, I confess it appears to me astonishing that apart from overriding questions of public welfare power should be given to a court or anyone else to transfer a man without his knowledge and possibly against his will from the service of one person to the service of another. I had fancied that ingrained in the personal status of a citizen under our laws was the right to choose for himself whom he would serve; and that this right to choice constituted the main difference between a servant and a serf. But if Parliament has so enacted the result must be accepted."
Again, without reading it, to the like effect is Lord Romer, at p.1041.Against that background, namely that without some statutory novation of the contract the transfer of an undertaking from one employer to another automatically determines contracts of service, I go back to regulation 5(1)"In Litster (supra) Lord Oliver of Aylmerton explains it thus at p.362H:
"... The reason why a contract of employment is said to "terminate" on a transfer of the employer's business is simply that such a transfer operates as a unilateral repudiation by the employer of his obligations under the contract and thus as a dismissal of the employee from his service. Because the relationship between employer and employee is of an essentially personal nature, the repudiation severs the factual relationship resulting from the contract, since the primary obligations on both sides are no longer capable of being performed. The contract itself, however, is not, strictly speaking, terminated but remains in being and undischarged so far as the enforcement of secondary obligations are concerned. This may seem a truism but it has, I believe, an importance in the analysis, in particular in relation to the meaning to be ascribed to the words "terminates by the transfer" in regulation 5(3). ..."
Article 4(1) of the Directive reads:
"1. The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organizational reasons entailing changes in the work force."
The second sentence quoted provides an exception to the circumstances in the first sentence. This is reflected in Regulation 8. Thus the position is that unless an employer (the transferor) or the transferee (who by Regulation 5 is rendered liable) can establish that the reason for dismissal is economic, technical or organisational, it will be presumed to be the transfer or a reason connected with the transfer which was the basis of the dismissal.That this is clear appears from a passage in the speech of Lord Oliver of Aylmerton in Litster at p.372E where he says:
"The respondents had the opportunity before the industrial tribunal of demonstrating, if they could, that there were some economic, technical or organisational reasons for the appellants' dismissals and it was therefore reasonable. They did not do so and I see no grounds now for allowing that question to be re-opened."
We would also refer in this connection to those passages in the speech of the same learned Lord at p.364E-F where he considers the case of Wendelboe v. L J Music apS (Case 19/83) [1985] ECR 457. Later in that passage Lord Oliver cites the opinion of the advocate General, Sir Gordon Slynn, in that case and also in the later case of Foreningen A F Arbejdsledere I Danmark v. Daddy's Dance Hall A/S [1988] 315 (Daddy's Dance Hall) .

A purposive construction

Our guidance is to be found in the words of Lord Keith of Kinkel in Webb v. Emo Air Cargo Ltd [1993] ICR 175 , 186D , where he says:
"The Directive ... does not have direct effect upon the relationship between a worker and an employer who is not the state or an emanation of the state, but nevertheless 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 in the European Court of Justice, if that can be done without distorting the meaning of the domestic legislation ..."
It is important to remember that in Litster the transfer was not in issue and it was in order to give effect to the intention of safeguarding of rights after the establishment of a transfer that the House of Lords were prepared to insert words into the Regulations. Lord Oliver of Aylmerton explained the position at p.354D in saying:
"The approach to the construction of primary and subordinate legislation enacted to give effect to the United Kingdom's obligations under the EEC Treaty have been the subject matter of recent authority in this House (see Pickstone v. Freemans Plc [1988] ICR 697 ) and is 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 upon 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."
The provision of the Regulations which an Industrial Tribunal must apply is "a transfer from one person to another of an undertaking". "Undertaking" includes any trade or business and assistance can be achieved not only from the wording of Article 1(1) of the Directive, "as the result of a legal transfer or merger" but also to Regulations 3 (2) and (4) which as amended read:
"(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.

(4) It is hereby declared that a transfer of an undertaking or part of one

(a) may be affected 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."Both in the Directive and in the Regulations we are bidden to consider "transfers" or "transactions".We look therefore to see what help can be derived from EEC Law and UK Law.

EEC Law

It is accepted by both parties that the leading case is Spijkers v. Benedick & Ors [1986] 3 ECR 1119 . It merits careful consideration. It has been followed in the European Courts of Justice. Mr Spijkers was an assistant manager employed by "Colaris" at their premises in Worms, at which premises it operated a slaughterhouse. On 27th December 1982 the entire slaughterhouse with various rooms and offices, together with the land and specified goods, was sold to Benedick CV. All the employees at Colaris were taken over by Benedick CV, except Mr Spijkers and another who was ill and unfit for work. From early 1983 the business activity of Benedick CV had been to operate the slaughterhouse at Worms, with all that that entailed, on behalf of itself and Benedick BV on a joint account. The Dutch court had found that at the time of the sale Colaris had entirely ceased its business activities so that there was no longer any goodwill in the business.Mr Spijkers alleged that the Benedick companies should have provided him with work and paid his wages or should have paid him compensation.The questions asked at the European Court of

Justice were:

"1. Is there a transfer within the meaning of Article 1(1) of the Council Directive No.77/187/EEC where buildings and stock are taken over and the transferee is merely enable to continue the business activities of the transferor and does in fact subsequently carry on business activities of the same kind in the buildings in question?
2. Does the fact that at the time when the buildings and stock were sold the business activities of the vendor had entirely ceased and that in particular there was no longer any goodwill in the business prevent their being a "transfer" as defined in question 1?3. Does the fact that the circle of customers is not taken over prevent there being such a transfer?" (Our emphasis)We set out the opinion of the Advocate-General - Sir Gordon Slynn - in full:
"It is clear that the overriding objective of the Directive is to protect workers in a business which is transferred . In my opinion, as the Netherlands Government, the United Kingdom Government and the Commission in its oral, though not its written submissions, contends, in deciding whether there has been a transfer within the meaning of Article 1(1) of the Directive all the circumstances have to be looked at. Technical rules are to be avoided and the substance matters more than the form. The essential question is whether the transferee has obtained a business or an undertaking (or part thereof) which he can continue to operate.
That at the time of transfer the business is still active, that machinery is being used, customers supplied, workers employed and that all the physical assets and goodwill are sold, are strong indications that a transfer within the meaning of the Article has taken place. But these are not all necessary prerequisites of a transfer in every case. A realistic and robust view must be taken and all the facts be considered.Thus the fact that at the date of transfer trading has ceased or has been substantially reduced does not prevent there being a transfer of a business if the wherewithal to carry on the business, such as plant, buildings and employees are available and are transferred . Nor is the fact that goodwill or existing contracts are not transferred conclusive against there being a transfer within the meaning of the Article. The transferee may well want to take over the activities of the business to supply his existing customers or to search out different types of customer such as wholesale rather than retail, foreign rather than domestic. Conversely, as the United Kingdom submits, there may be a transfer in some cases where goodwill or existing contracts or lists of customers are sold without there being a transfer of physical assets.That after the sale there is a gap before trading is resumed is a relevant fact but it is not conclusive against there being a transfer within the meaning of the Directive. A transferee may well want to spend time reorganising or renovating the premises or equipment. If the employees are kept on for that purpose and then trading is resumed, a national court is entitled to find that there has been a transfer. Similarly, the fact that the business is carried on in a different way is not conclusive against there being a transfer - new methods, new machinery, new types of customer, are relevant factors but they do not of themselves prevent there being in reality a transfer of a business or undertaking.Though it is plain that a sale may take place simply of the physical assets or parts of them with no intention in any real sense that the business should thereafter be carried on, care must be taken to ensure that such a sale is not a disguise to avoid obligations to the workers under the Directive.These are all issues of fact to be found, and their effect assessed, by the national court. " (Our emphasis).The approach of the Court itself in giving its judgment is indicated in paragraphs 6 and 7 which read as follows:
"6 In order to understand the purpose of those questions, it is necessary to consider them in the light of Directive No 77/187. That Directive, which was adopted on the basis, inter alia, of Article 100 of the Treaty, is intended, according to the terms of its preamble, `to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded`. For that purpose Article 3(1) of the directive provides for the transfer of the transferor's rights and obligations arising from a contract of employment or from am employment relationship, and Article 4(1) provides for the protection of the workers concerned against dismissal by the transferor or the transferee solely by reason of the transfer. Article 1(1), which the Court has been requested to interpret in this case, defines the scope of the directive; it provides that the directive `shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger`.
7 It therefore appears that by its questions the Hoge Raad seeks a ruling on the scope of and the criteria for applying the expression `transfer of an undertaking, business or part of a business to another employer` in Article 1(1) of the directive in relation to a case such as that described in the Hoge Raad's judgment. The questions must therefore be considered together."It seems to us that the European Court in those paragraphs - and particular paragraph 7 - is indicating that it is considering the triggering factor of the Directive and on that issue the scope and the criteria to be applied when considering the expression "transfer of an undertaking".The reasoning of the Court is to be found in paragraphs 9 onwards:
"9 The Netherlands and United Kingdom Governments and the Commission, on the other hand, consider that the question whether there is a transfer of an undertaking for the purposes of Article 1(1) must be considered in the light of all the circumstances characterizing the transaction, such as whether or not the tangible assets (buildings, movable property and stocks) and the intangible assets (know-how and goodwill) were transferred, the nature of the activities engaged in and whether or not those activities had ceased at the time of the transfer. However, none of those factors is in itself decisive."
"10 The United Kingdom Government and the Commission suggest that the essential criterion is whether the transferee is put in possession of a going concern and is able to continue its activities or at least activities of the same kind. The Netherlands Government emphasises that, having regard to the social objective of the directive, it is clear that the term `transfer' implies that the transferee actually carries on the activities of the transferor as part of the same business."
"11 That view must be accepted. It is clear from the scheme of Directive No 77/187 and from the terms of Article 1(1) thereof that the directive is intended to ensure the continuity of employment relationships existing within a business, irrespective of any change of ownership. It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the directive is whether the business in question retains its identity."
"12 Consequently, a transfer of an undertaking, business or part of a business does not occur merely because its assets are disposed of. Instead it is necessary to consider, in a case such as the present, whether the business was disposed of as a going concern, as would be indicated, inter alia, by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities."
"13 In order to determine whether those conditions are met, it is necessary to consider all the facts characterising the transaction in question, including the type of undertaking or business, whether or not the business's 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 and 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. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation."
"14 It is for the national court to make the necessary factual appraisal, in the light of the criteria for interpretation set out above, in order to establish whether or not there is a transfer in the sense indicated above."
"15 Consequently, in reply to the questions submitted it must be held that Article 1(1) of Directive No 77/187 of 14 February 1977 must be interpreted as meaning that the expression `transfer of an undertaking, business or part of a business to another employer` envisages the case in which the business in question retains its identity . In order to establish whether or not such a transfer has taken place in a case such as that before the national court, it is necessary to consider whether, having regard to all the facts characterizing the transaction, the business was disposed of as a going concern , as would be indicated inter alia by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities."
The ruling of the Court is given finally as follows:
"On those grounds,

THE COURT

in answer to the questions referred to it ... hereby rules:Article 1(1) of Directive No 77/187 of 14 February 1977 must be interpreted to the effect that the expression `transfer of an undertaking, business or part of a business to another employer` envisages the case in which the business in question retains its identity . In order to establish whether or not such a transfer has taken place in a case such as that before the national court, it is necessary to consider whether, having regard to all the facts characterizing the transaction, the business was disposed of as a going concern , as would be indicated inter alia by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities." (Our emphasis)The following comments can be made on this case and its assistance to us. First, the submission of the various governments in paragraphs 9 and 10 of the judgment of the Court are accepted. Secondly, one is looking to see whether -(a) the business in question retains its identity; and(b) whether it was disposed of as a going concern. Third, that no one factor is either definitive of a transfer or negates it. Fourthly, that there is a distinction between the "operation" and "activities" within it. Fifthly, that it was for the National Court to find the facts and having done so to "appraise" the situation in the light of all the relevant circumstances and to reach a conclusion. The National Court is the "court of appraisal". Sixth, certain relevant factors emerged "characterising the transaction" and they include - (a) the type of undertaking or business; (b) whether or not the business its tangible assets, such as buildings, movable property and stock are transferred;(c) the value of its intangible assets at the time of transfer (eg know-how and goodwill);(d) whether or not the majority of its employees are taken over by the new employer;(e) whether or not its customers are transferred; and(f) the degree and similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended.Seventh, it is stressed repeatedly that no single factor can be considered in isolation and all the circumstances must be taken into consideration in the appraisal exercise by which the value to be placed on the different factors in a particular situation will be weighed and determined.We were referred to a number of cases not all of which we need consider in detail. They were:

Landsorganisationen i Danmark v. NY Mòlle Kro [1989] ICR 330 (Mòlle Kro)

Foreningen AF Arbejdsledere I Danmark v. Daddy's Dance Hall A/S [1988] 315

(Daddy's Dance Hall)

P Bork International A/S v. Foreningen AF Arbejdsledere I Danmark (Bork)

Dr Sophie Redmond Stichting v. Bartol & Ors [1992] IRLR 366 (Sophie Redmond)

Rask & Anr v. ISS Kantineservice A/S [1993] IRLR 133 (Rask).We believe it to be common ground between the parties that those authorities maintain the principles laid down in Spijkers and also maintain the broad approach on the relevant factors and that no one factor is definitive. In fact, in each of those cases the question was asked whether a particular factor defeated the claim that a transfer had taken place. We list the relevant paragraphs. Mòlle Kro , paragraphs 17 to 19; Daddy's Dance Hall , paragraphs 9 and 10; Bork , paragraphs 13 to 15; Sophie Redmond , paragraphs 22 to 25; Rask , paragraphs 17 to 20. We do not know the ultimate outcome of these cases, but nowhere is it suggested that any set of facts themselves necessarily constituted a transfer. That was a decision for the National Court - the court of appraisal.So far as the factual approach and the relevant criteria or factors are involved, Mòlle Kro indicated that a legal transfer by the forfeiture of a lease, and the granting of a new lease to an employer who carried on the same business, could amount to a transfer providing that the undertaking retained its identity and was transferred as a going concern. It mattered not that the business was closed out of season. In Bork the question was whether a transfer could occur where the lessor of buildings installations and machinery used to operate a factory, had, after the forfeiture or termination of the lease and an interruption in the operation of the undertaking, taken over its main elements and ultimately transferred them to a third party, who brought the undertaking back into operation without recruiting new staff. This was answered in the affirmative. It depended simply on the facts of that case. Sophie Redmond was a case where a charity was being funded by a Local Authority. It was not a business entity in the sense that it sought profit. However, its funding was stopped as the result of which it ceased business. Funding was then granted by the Local Authority to another concern which also seems to have been a charity. The patients of Sophie Redmond were transferred to the new Foundation, the Sigma Foundation. The two Foundations pursued the same or similar aims; the Sigma Foundation partially absorbed the Redmond Foundation; the two Foundations collaborated to set up the transfer transaction; the transfer of Redmonds knowledge and resources had been agreed and the building leased by Redmond had been leased to Sigma. Sigma offered new contracts of employment to some former employees of Redmond. Here again, the criteria or factors were held to be relevant but not determinative.Finally, in Rask it was decided that the provisions of services could constitute the activity within the definition of an undertaking. The evidence of transfer was strong. The plaintiffs were employed successively by Phillips A/S in one of the four canteens of that Company and then with effect from 1st January 1989 by ISS which took over the running of those four canteens under an agreement made with Phillips in December 1988. The agreement between Phillips and ISS provided that ISS would assume full responsibility for the running of the Phillips canteens, and, in particular, for menu planning, purchasing, preparation, transport and all general administrative tasks as well as the recruitment and training of staff. ISS also undertook to take over the staff permanently employed by Phillips in its canteens on the same conditions relating to salary and seniority. It was in fulfilling that obligation that ISS employed the plaintiffs.In return Phillips undertook to pay to ISS on the one hand a fixed monthly sum covering all expenses relating to the day-to-day running of the canteen such as pay (both direct and indirect) insurance, work-clothes, management and costs linked to supervision and to administration, and on the other hand, the total costs attributable to various products such as disposable place settings and wrapping, table linen or cleaning products. Furthermore, Phillips placed at ISS disposal, free of charge, the premises which ISS had agreed to use for sale and production, the equipment needed for running of the canteen, electricity, hot-water and telephones and undertook to provide for the general maintenance of the premises and the equipment as well as for refuse collection.The plaintiffs brought proceedings due to the unilateral variation by ISS of their terms and conditions of service.The facts are very strong, the transfer is clear and the identity of the economic unit is also clear. It seems that the only issue was whether the provision of services fall within the definition of an activity of an undertaking - the product of an undertaking.What has been called the "Third Party element" was present in Mòlle Kro and Bork , but not in Rask or Spijkers or Sophie Redmond. In Mòlle Kro and Bork forfeiture of leases and the right to occupy were involved. In Sophie Redmond there was direct contact and transfer between the two foundations. In Rask an agreement existed and there was no Third Party element.

UK Law

We are not satisfied that the approach of the English authorities is very different from those in Europe save on the insistence in this country on the presence of goodwill. We refer to such cases as, McLeod v. John Rostron & Sons Ltd (1972) 7 ITR 144; Lloyd v. Brassie [1969] 2QB 98; Kenmere Ltd v. Frizzel [1968] 1 WLR 329; Rastill v. Automatic Refreshment Services Ltd [1978] ICR 289 and Ward v. Haines Watts [1983] ICR 231.We were also referred to Port Talbot Engineering Co Ltd v. Passmore [1975] ICR 234. That case seems to have turned to a large extent on the question of ownership, but it is of assistance in turning to a number of factors other than ownership which may be relevant. Sir Hugh Griffiths says at p.239E:
"It is true that the employers took on the maintenance staff, but all the other features associated with the conduct of a business, such as management, accounts, premises, supply of materials and so forth, were provided by the employers' own business."
This Court has followed the reasoning of the European Court of Justice in LMC Drains Ltd v. Waugh [1991] 3 CMLR 172 . We were also referred to Humphreys v. Coordinated Cleaning Ltd (an unreported decision of this Court Appeal No.EAT/197/91) , which decision seems to us to be entirely consistent with the EEC cases.Where ownership is involved it will be easier to decide these issues, but the problems seem mostly to be arising where services are provided by a Local Authority, by a hospital or trust or by an education authority.What can we therefore derive from the European cases? Two questions arise: first the identity of the economic entity, undertaking or business - a going concern - capable of operating as such. Secondly, has there been a transfer of that identified economic entity?Whether one is considering the first question "The identifiable economic unit" or the second, "The transfer of that entity" from the first employer to the second, it is clear that the court of appraisal will need to find the facts, identify the relevant factors against the background of all the circumstances and then to carry out a balancing exercise. Some guiding factors may not be present, their absence may well be relevant and indeed significant. Other factors which are present may be given great weight or may be considered of minimal importance. The mere counting of factors is unlikely to provide a logical answer.The weight to be given to any single factor is essentially one for the National Court carrying out its appraisal. There may be a wide spectrum affecting each and any factor or its absence. These are all questions for the court of appraisal and it is essentially a question of fact. We would give a caution that appellants must not tend to take the fine toothcomb to Decisions of Industrial Tribunals, just because every minor factor is not specifically mentioned and assessed.

The economic unit

It is the notion and the ability to identify which is important. The variation in language may or may not help - self-contained - free-standing - self-sufficient. It must be recognised as an identifiable undertaking, trade or business.Secondly, it will be useful in circumstances such as the present to examine those factors considered to be relevant in Spijkers :(a) Tangibles - (i) What is the capital involved?(ii) Is the capital of the existing unit?(iii) Has the first employer any interest in the building - is there a right to occupy?

(b) Intangibles - (i) Goodwill

(ii) Know-how and patents - copyright

(c) Staff (i) Are they working exclusively within this unit?(ii) Is it specialist work? What are the activities which are the end product of the operation?(iii) Are senior staff applied to this unit on a full time or part-time basis?(iv) How is the work arranged?(v) What are the obligations for the provision of the activity? (d) Finance - (i) What is the source of income?(ii) Are there separate accounts?

The transfer

This must be the transfer of that economic unit as found to exist. At this stage it is easier to find a starting point, if there are in existence a legal document or documents; in that case the task may not be difficult, but the further one moves away from this picture to nothing but a snapshot of the situation both before and after the alleged transfer, the more circumspect must be the approach to the balancing act of appraisal and decision. The weight given could in some cases be minimal. It will probably be wise to look at the existence or absence of other factors and to give such weight to each as seems fair.What is it which has been transferred or translated from the first employer to the second? Tangible assets? Intangible assets? Operating systems? The buildings or control of the building? Goodwill?During submissions it was agreed by Mr Hendy that an activity or end product carried out or produced at a given place by a regular - discreet - workforce cannot per se constitute an economic unit or entity - this is sometimes referred as the "snapshot" approach. Something more is needed. We agree. As Mr Elias put it - employing someone to do something does not of itself create an economic entity.It is also conceded by Mr Hendy that the facts that the same activity has been carried out by the same individual employees at the same place are not per se sufficient to constitute a transfer. More is needed. We agree.He relies in the present case on the facts that the source of income is the same and that the activity is carried out for the same Authority - it seems to us that these are two facets of the same factor. He also relied strongly upon the equivalent commercial contract, but there is no evidence of this and we were urged not to accept that as a fact. It is something into which we ourselves would have wished to delve as the contractual position may be quite different before and after the alleged transfer. The second employer may or may not be carrying out the same obligations.It would therefore be necessary to examine the other possible factors whether in considering the entity or the transfer and in particular what is present and what is absent.

The Third Party cases

Both the proving of the identification of a self contained economic unit and the assistance of a transfer is likely to be more difficult in these cases. It is necessary to remind ourselves at all times where lies the burden of proof and that we are seeking to interpret and give effect to words or phrases in the Directive or Regulations which if satisfied will give rise to rights. It is the "trigger mechanism" which we are testing not the resulting effects. The trigger mechanism, the wording or phrases, must not be ignored in order to achieve a consequential result which is of itself thought to be desirable. So to do is to ignore any precept of legal interpretation. There is a danger in looking at the "snapshot" after the second contractor has set up business, and in saying that because of the snapshot there has therefore been a transfer. An applicant must prove that the snapshot is the result of a transfer - by reason of a transfer -. During submissions the importance of this was recognized by all.On the first question, the identifiable economic entity, a number of subsidiary queries enter our minds. Has the first contractor (employer) done anything or failed to do something which can be said to involve the third party and therefore can form any part of a nexus between the first contractor and the second contractor through the Third Party? An example of this can be seen in the cases involving leases. Indeed the question might be asked, has the first contractor done or failed to do anything which could be considered relevant to a transfer? Is the employer the owner of the premises or equipment? What is the nature and type of the unit? Are there any tangible assets such as buildings, movable property or stocks? What is the value, if any, of intangible assets such as know-how or goodwill? Is the activity performed a simple one or technical or highly skilful? How are the finances organised? How is the business organised? Is the supervision local or is it merely on the fringe of a larger organisation? Can it be properly regarded as discrete, an identifiable unit with its own structure? Is it a cost-centre? Is there a centralised personnel department or accounting department or administrative department? Do the staff work on other sites for the employer? Are they interchangeable within a wider business? What are the obligations under the existing contract?Let us look at this case. No capital assets have passed on. There is no goodwill. There is no question of specialist know-how or expertise. Is the business now being run by Pall Mall recognisable as the same business unit as that operated by Initial? Is the organisation the same in terms of management, accounting and financial terms?In turning to the second question very much the same queries occur to us to be relevant and indeed, here again, the weight to be given to each fact is entirely a matter for the court of appraisal. For instance, if there is a legal transfer very considerable weight will be given to that factor, but where there is no legal transfer or merger, then very much less weight will be given to evidence of transfer itself, it might be minimal.Standing back - has there been a transfer or translation, whether directly or as in the EEC circumstances indirectly, from A to B - "one person to another" - of "an undertaking or business or part of the business" - Article 1(1) or "of an undertaking including any trade or business" - the Regulations 1(1) or 3(1), (2), (4)? Has Initial done or failed to do anything at all?In addressing the second question, there is one factor that is not relevant to the first and that is the number of employees taken over by the new proposed employer. It warrants special consideration. We would hope that the attitude of any prospective contractor is to seek to keep and employ as many of the existing staff as is compatible with the operation which he is offering in his tender and in particular to the financial aspects.If the second employer provided in the contract to take over the staff then it might be a potent factor, but in the absence of such a term the problems created by this factor become clearer.It may well be that all concerned want the former staff to take fresh employment, but if this factor becomes central to the appraisal of the existence of a transfer, it will undoubtedly lead to a loss of employment.In the present case, and indeed in many others, the transfer of staff may be argued to be a vital factor, but only some 10% of those transferred are apparently discontented. The costs incurred and to be incurred by the present Respondents are undoubtedly substantial - we do not know the figure. If this figure is to be accentuated then there will be needless loss of employment, because the second contractor - prospective employer - will seek to limit liability and arrange for the first employer to dismiss existing employees. In a tripartite situation there would not even be room for such an arrangement. The second contractor would simply decline to re-employ.

Submission on the present case

The Appellants attack the decision of this Industrial Tribunal in two ways. First, it is said that in last nine lines of paragraph 10 of the Decision the Tribunal is relying on one factor alone as being decisive that the first and second businesses are in direct competition and that is an error of law.Secondly, if that is not accepted, then the finding of the Tribunal that there has been no transfer is perverse.Reading the decision as a whole we do not accept the first criticism. If the Industrial Tribunal had relied on one factor alone it would have been quite unnecessary to assess and weigh up all the matters which it took into consideration. The reasoning here seems to us to be unassailable. The Tribunal looked at a large number of factors, took them all into account, weighed them and decided that in this situation as it states at the end of its reasoning, there was no transfer. There was evidence upon which it could properly so find bearing in mind the guidance given by the European cases and the UK Law. This was a question of appraisal for the Tribunal provided that it did not misdirect itself in law. The only alleged misdirection is that suggested by the Appellants and this is not one which we accept.Although there is no cross-appeal nevertheless, it is argued by Mr Elias for the Respondents - without objection from Mr Hendy in the circumstances in which this case has been argued - that the Tribunal erred in finding that there was an economic entity and that they did not in paragraph 9 in fact so decide. Whether or not the cleaning department of the Hospital when it was employed in-house was an economic entity is of no relevance and Mr Elias submits that the Tribunal failed to assess the relevant factors on that issue. There was no `going concern', no identifiable `economic entity'. It is important not to confuse the `operation' with its `product or activity'. It is unnecessary for us to decide this matter.What of the future?Bearing in mind the present state of the law in the UK, bearing in mind such assistance as is available from ECJ on those factors which can be considered relevant but not decisive, it seems to us that there can be no certainty, upon any given facts, that the court of appraisal will not decide the issues of identity or transfer one way or the other. This lack of certainty which arises largely from the decisions of the European Court of Justice, is, in our judgment, detrimental to sound industrial relations. It is detrimental to sound employment planning. It is likely to cause increased loss of jobs.From the point of view of the new prospective employer, if there is a transfer, then unless the old employer dismisses all existing employees, there is a risk that the transferee, up to six years after the relevant date of transfer, will be faced with claims in the County Court for declarations with possible consequential liability for damages. If dismissal occurs within two years of transfer, then there will be very likely be continuity of employment for the purposes of the 1978 Act, and continuity of employment, for jurisdictional purposes only, we would consider desirable in any event. The cost to the transferee contractor involved with a number of County Court or other proceedings could be very considerable, not only in legal costs but in administrative costs and time. Thus, a contractor transferee is likely to ask the transferor to dismiss for redundancy and limit his liability. Even this is inapplicable in a tripartite situation where the transferee will simply refuse to re-employ. On the issue of compensation there are likely to be questions of mitigation where fresh employment has been offered.From the point of view of the employee in those circumstances, he or she will be faced with loss of employment and this is more likely in those employments such as cleaning and kitchen assistants where replacements from the open labour market are readily available. It could be that the new contracts on offer contain provisions, some of which were less favourable (eg pay) and others more favourable (eg hours of work or holiday arrangements or pensions). There may be hope or expectation that the terms will improve. Thus an employee may wish to enter into the new contract. There is also the option to object to transfer.We put some of these problems to Mr Hendy who appears for the Appellants but who through them is, in essence, putting the Trade Union case. He stressed the advantages that the existence of a transfer gives to an employee in the following ways. First, there is the right to information, consultation, continuity and collective agreement. Secondly, that there is always danger of dismissal for redundancy and it is better that there should be a transfer with its advantages. Thirdly, if there is a transfer then all competing tenderers face the same risks. Fourthly, that if there is a transfer the employees are given a choice whether or not to continue in employment. If the new terms are unacceptable or the new employer unacceptable, the employee can object.In his overall comment Mr Hendy stressed the importance of "choice". We agree that this seems to be a core factor. We would also hope and expect that in any case where redundancy is imminent, appropriate information would have been given and consultation involved.How can a reasonable degree of choice for both existing employees and prospective employers be preserved? And how can each side be made secure in future relationships? We think that this can be achieved through specific contractual conditions. It is clear that an employee can decline the fresh employment and this is preserved in the Directive and Regulations. We also note that the second question put in Daddy's Dance Hall was this, "Whether a worker may waive the rights conferred upon him by the Directive if the disadvantages to him of such a course of action are offset by advantages so that overall he is not left in a worse position." The ECJ answered this in the negative, but added that the Directive does not preclude an alteration in the working relationship agreed with a new proprietor of the undertaking insofar as such alteration is permitted by the applicable national law in cases other than transfers of undertakings.It is common ground between the parties that the ordinary law of contract applies to the situation where an employee of the first contractor enters into a fresh contract with the transferee and in so doing to abandon his rights under the previous contract of employment. This aspect seems to us to be of importance, but of far greater importance is that before entering into a fresh contract containing such clauses an employee should be made aware specifically of the provisions and if possible, should have been in a position to receive or to have received independent advice. There may be advantages to each side. We would also refer to S.39 of the 1993 Act. This was never an easy area of employment law, but as the result of the dominance of EEC law it is now a mine field of technicalities and uncertainties.We fully appreciate that in approaching these problems as we have been asked to do it could be said that we are in danger of telling employers or trade unions how to conduct their affairs. This we do not intend, nor we have any right to do so. However, in seeking to bring the interest of the individual to the forefront of our minds, we would emphasise that `choice' freely made after advice (possibly from ACAS) may be the key.I would like to acknowledge the most helpful advice and assistance which I have received from the lay members in the drafting of this judgment.This appeal must be dismissed.Leave to appeal.