Justfern Ltd v D'Ingerthorpe & Ors [1993] UKEAT 671_92_0511

EAT

Justfern Ltd v D'Ingerthorpe & Ors

[1993] UKEAT 671_92_0511 · 1993-11-05

MR JUSTICE KNOX : Justfern Ltd. ("the Company") appeals from the decision of the Industrial Tribunal sitting at London South on 24th June 1992 when it held that Mr M. J. S. D'Ingerthorpe was unfairly dismissed by the Company and made a basic award in his favour of £925 and a compensatory award of £3,784.28.

Mr D'Ingerthorpe was originally employed by Edwin Mendoza and Associates as a lecturer at one or more of several schools or colleges including the Hotel and Travel Training College conducted at 287 Oxford Street, London, ("the premises"), from 1986 until the proprietor Mr Mendoza ceased to run the business in October 1988. Later that month Dr Samarakoon entered into an agreement with Mr Mendoza for the sale to the Company of the business of the Hotel and Travel Training College. It will be necessary later to examine the details of that transaction and its effect upon Mr D'Ingerthorpe's employment but for the present it will suffice to say that it is common ground that as from 24 October Mr D'Ingerthorpe was employed by the Company until his employment ended on 6 July 1990.

The following points were argued before us by Counsel Mr Hossain for the Company in support of the appeal:

(a) whether the Industrial Tribunal erred in law in refusing an adjournment to Dr Samarakoon who appeared for the Company and was himself a respondent to Mr D'Ingerthorpe's application. The basis for the argument that an adjournment should have been granted was that there were proceedings on foot in the Chancery Division of the High Court between Mr Mendoza and (inter alios) the Company regarding the premises used by the Company in its business;

(b) whether the Industrial Tribunal erred in law in finding that Mr D'Ingerthorpe had the requisite two years' continuity of service before his dismissal. This turns entirely upon the effect of the events in October 1988 and in particular whether they caused a break between Mr D'Ingerthorpe's service with Mr Mendoza and Associates and his service with the Company;

Upon the first issue, whether there was an error in law in refusing an adjournment, we have no doubt that there was none. The proceedings in the Chancery Division referred to consisted of cross-proceedings, one, instituted by Mr Mendoza against (inter alios) the Company claiming possession of the premises and the other initiated by (inter alios) the Company claiming specific performance of an agreement by Mr Mendoza to sell to the Company the business and assets of Edwin Mendoza Associates. It was however common ground between the parties to these proceedings that between the 24th October 1988 and at the earliest the 31st March 1991 the Company was entitled as licensee to occupy the premises and conduct the business upon them. Mr Mendoza claimed that the licence was revoked by a notice dated the 24th May 1991. The Company's case was that it had the benefit of an agreement to sell the business to it and the right to occupy the premises for that purpose at all material times. No party to the proceedings contended that the Company was not entitled to possession of the premises upon which to conduct the business between the 24th October 1988 and May 1991 which is long after the termination of Mr D'Ingerthorpe's employment. It follows that even if Mr Mendoza succeeded in establishing his pleaded case it would not detract from the Company's position as Mr D'Ingerthorpe's employer when his employment terminated. There is therefore no basis upon which the Industrial Tribunal can be said to have been under an obligation to stay the proceedings before it in order to await the outcome of the Chancery proceedings. There are other obstacles to the argument that it was an error of law to refuse the requested adjournment, notably that it was a matter for the Industrial Tribunal's discretion which is not shown to have been exercised unlawfully. However since the above considerations regarding the pleadings in the Chancery proceedings show that the Industrial Tribunal was indisputably right not to stay the proceedings before it, it is unnecessary to go into that aspect further.

The second issue is much more complex and difficult and raises the familiar problem of continuity of employment notwithstanding a transfer of the employee's service. The Industrial Tribunal dealt with this aspect in its decision very summarily indeed saying:

"The Respondents by their Notice of Appearance initially denied that there was jurisdiction for the Tribunal to hear the application. The Tribunal dealt with this preliminary issue and were satisfied from the evidence that they heard that the Applicant was employed by Edwin Mendoza Associates from 1986 and that in October 1988 the first employer transferred the business of the Hotel and Travel Training College to the first respondents Justfern Limited."

We have had the advantage of reading the Chairman's Notes of Evidence and argument from Mr Hossain upon the preliminary issue from which it appears to us clear that there is rather more to the point than appears in the above quoted extract.

The facts regarding the transfer of the business from Edwin Mendoza Associates to the Company appear, subject to one matter mentioned below, not to have been in significant dispute . The Notes of Evidence reveal the following. The Industrial Tribunal had no lawyer before it. On one side Mr D'Ingerthorpe appeared in person, on the other Dr Samarakoon appeared in person on his own behalf and on behalf of the other respondents other than Edwin Mendoza Associates who were not represented. Neither Mr D'Ingerthorpe nor Dr Samarakoon is legally qualified. At the outset the Chairman explained there was a preliminary issue relating to transfer of undertakings which involved European law but, naturally, no legal argument was addressed to the Industrial Tribunal. Evidence about the events in and before October 1988 was heard from Mr D'Ingerthorpe on his side and from Dr Samarakoon and Mr Basnayake for the Respondents and that took up the first morning's hearing until 12.30 p.m. when the Tribunal announced the unanimous decision that it had jurisdiction. There is no record of any reason having been given at that stage so the reasons are, we take it, to be found in the passage quoted above from the Industrial Tribunal's decision.

The facts which can be extracted from the Notes of Evidence are as follows. Mr D'Ingerthorpe's employment by Edwin Mendoza Associates started in August 1986. On Monday the 10th October 1988 at the end of the working day Mr Basnayake, who was employed as a book-keeper, announced the closure of the business which I will call "the College", Mr Edwin Mendoza having left the country due to financial embarrassment. There was some discussion that evening among staff regarding the possibility of reopening the College. Dr Samarakoon was aware the same day, although he was then in Sri Lanka, that the College was closing and he came to this country on Thursday 14th October. The premises were closed, but not very effectively closed, because Mr D'Ingerthorpe and others came and went over the next ten days or so and, although not conducting classes, did such things as putting up on notice boards the results of tests.

On Tuesday the 11th October Mr D'Ingerthorpe put in a claim for unemployment benefit. He described it in evidence to the Industrial Tribunal as the obvious thing to do. He drew unemployment benefit for over one week and less than two weeks. He was not paid for work at the College after the week ending Friday 7th October for which he was paid by Edwin Mendoza Associates on that day. On Monday 17th October one week after the closure of the College Mr Basnayake got in touch with Mr D'Ingerthorpe with a view to arranging a meeting to discuss a possible reopening of the College. It was on that day that Dr Samarakoon was approached on the phone by Mr Mendoza and given the option to purchase the College for £10,000 on the basis that he took over the liabilities to students and creditors. On the 18th October Dr Samarakoon's solicitors were written to by Mr Mendoza's solicitors by a letter which included the following:

"I am prepared to release the keys to your Clients provided: (a)they deposit the sum of £10,000 with this firm to be held as stakeholder....... (b)your clients will enter as Licensees only (c)your clients will reopen the school.....

your clients will honour all present students, suppliers, invoices.......

I will submit a draft invoice for the sale later this week...."

The £10,000 was paid and the College was reopened on Monday 24th October by the Company with Mr D'Ingerthorpe as one of five teachers re-employed from the old courses. There had in the meanwhile on Thursday 20th or Friday 21st October been a meeting of teachers pursuant to Mr Basnayake's approach to Mr D'Ingerthorpe at which the re-opening on the next Monday 24 October was announced.

The only point upon which the evidence of the various witnesses recorded in the Notes of Evidence is not entirely consistent concerns Mr D'Ingerthorpe's P.45. A P.45U form giving 22nd October 1988 as the "date of leaving" was produced in evidence. That clearly was in respect of the short period when Mr D'Ingerthorpe was in receipt of unemployment benefit, and the date of leaving refers to the cessation of unemployment. Another P45 was it appears obtained, Mr D'Ingerthorpe said at the request of the Unemployment Benefit Office, to cover a termination of Mr D'Ingerthorpe's employment by Edwin Mendoza Associates. There is an apparent conflict of evidence about when this was done. Mr Basnayake's evidence was recorded as follows in answer to a member of the Industrial Tribunal "The P45 given by the Department of Employment was dated 22nd October 1988 - I did PAYE - on the 10th October - I issued P45 - some claimed unemployment benefit - the P45 produced was issued by the UBO. "On the other hand Mr D'Ingerthorpe's evidence in re-examination is recorded as follows "October 1988 we were not given P45s - I told unemployment office I was resuming my employment and I was told it would best (sic) administratively if I had one - so I got a P45 from Basnayake when I resumed - that went to the UBO to tidy up the paper work and Mr Basnayake said he had done the same thing himself". It seems to us that the exact date when the P45 was issued in relation to Mr D'Ingerthorpe's leaving the College is of secondary importance to the facts that he drew unemployment benefit on the basis, it must be assumed, that his previous employment had ceased, and that the benefit continued for over a work terminating on Saturday 22nd October. That conflict of evidence can for practical purposes be ignored.

Upon those facts the question arises whether the Industrial Tribunal's decision that it had jurisdiction contains an error of law. That in turn depends solely on whether or not there was continuity of Mr D'Ingerthorpe's employment over and despite the transfer from Edwin Mendoza Associates to the Company. No other ground for a break in his continuity of employment was suggested.

Continuity of employment notwithstanding a transfer of the employer's business from one employer to another is dealt with by para. 17(2) of Sch 13 to the Employment Protection (Consolidation) Act 1978 ("the 1978 Act") which reads so far as relevant:

"If a trade or business or an undertaking ... 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."

Where that paragraph applies it has two results. First, service with the transferor counts, in assessing the employee's period of employment by the transferee, as though it had been service with the transferee of the business. Secondly, the common law rule that a transfer of a business by the employer to a third party operates as a repudiation of the contracts of employment of the employees of the business is disapplied. Somewhat similar conclusions were reached by Balcombe L J in Secretary of State for Employment v Spence [1986] I.C.R. 651 at 661 regarding the effect of regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the Transfer Regulations").

If para 17(2) of the 13th Sch to the 1978 Act applies, it is clear that Mr D'Ingerthorpe did have the requisite continuity of employment. The issue is therefore whether that para 17(2) did apply. Upon that it is to be noted that as the Industrial Tribunal decision, for all its brevity, did state, there was indeed such a transfer. Although the point was not conceded before, we have doubt that this was a correct conclusion. The letter of the 18th October 1988 quoted above, pursuant to which the Company operated the College from 24th October 1988 onwards, renders the contrary really unarguable. Mr Hossain concentrated rather upon the words "at the time of the transfer" in his submission that para 17(2) did not apply in favour of Mr D'Ingerthorpe.

Mr Hossain very properly drew our attention to Macer v Abafast Ltd

[1990] ICR 234

, a decision of this Tribunal in which it was held that a gap of 12 days between the end of employment by the transferor of a business and the start of employment by the transferee was not a fatal obstacle to the applicability of para. 17(2). Upon the question of the proper approach to the construction of that paragraph, Wood J said at p 242 "In approaching the proper construction to be given to the words of the Act of 1978, a court should lean in favour of that interpretation which best gives effect to the preservation of continuity of service and hence to the preservation of rights of the employee, and to obviate and discourage a tactical manoeuvre which seeks to avoid the clear intention of Parliament". Mr Hossain quite correctly submitted that there was a factual distinction between Macer v Abafast , supra, where there had been a deliberate attempt to organise the dates of the applicant's dismissal and re-employment so as to break his continuity of employment, and the case before us, in which there was no evidence of any such deliberate attempt. In particular there was no evidence that the dismissal of employees at the close of the day's work on Monday 10th October 1988 on behalf of Mr Edwin Mendoza was done in concert with Dr Samarakoon or with a view to an intended transfer to the Company. The Industrial Tribunal drew no such inference nor was there any direct evidence of any such scheme. However, we are not persuaded that the width of interpretation referred to by Wood J., which is amply justified on the authorities, is limited to frustration of deliberate avoidance schemes. Continuity of employment is intrinsically intended to be preserved and, although courts or tribunals may be particularly astute to adopt a construction that frustrates deliberate avoidance schemes, it does not follow from that that a generous construction is inappropriate where no such scheme is present. On the contrary, there can in logic only be one interpretation of a statutory provision and if a wide construction is appropriate to prevent deliberate avoidance schemes, it nonetheless remains the only appropriate construction when other sequences of events come to be considered.

In the judgment in Macer v Abafast , supra, at p 243 Wood J. rejected the argument addressed to that Tribunal that the words "at the time of the transfer" in para.17(2) of the 13th Sch to the 1978 Act required are to identify the particular point of time when the transfer in question took effect. We respectfully agree with that conclusion which Mr Hossain did not challenge before us. The arguments adduced by Stephenson L.J. in Teesside Times Ltd v Drury [1980] I.C.R. 338 at 351 and 352 seem to us very compelling. They are shortly stated first that "the time" of something must take its meaning from what that thing is, and if the transfer of a trade or business is something which takes time "the time of the transfer" more naturally means a period of time than a moment of time. The second argument was that a liberal interpretation enables a tribunal to consider the de facto, and not the de jure, position, and find a transfer at the time when the new employer is in actual occupation and control of the old business. The third and most important argument was that the liberal construction accorded with the evident policy of the legislation in preserving continuity of employment. That last consideration has subsequently received powerful support in the House of Lords in Litster v Forth Dry Dock & Engineering Co Ltd

[1989] ICR 341

in relation to the construction of the Transfer Regulations but it can be supported from internal indications in the 1978 Act itself such as para 1(3) of the 13th Sch. which reads "A person's employment during any period shall, unless the contrary is shown, be presumed to have been continuous".

Mr Hossain's argument before us was not so much directed at the question whether a narrow or liberal construction of para 17(2) was appropriate. He did not challenge, rightly as it seems to us, that in the light of Macer v Abafast supra, and the cases referred to therein, the more liberal construction of the words "at the time of the transfer" was appropriate. His submission was that on the facts of Mr D'Ingerthorpe's case and in particular in the light of his having applied for and received employment benefit there was an interruption in his employment such as to make it impossible to treat his employment by Edwin Mendoza Associates as continuous with his employment by the Company. He also relied upon the fact that the termination of employment by Edwin Mendoza Associates was for commercial reasons of insolvency rather than as a step in a transfer of the business. This latter reason does not seem to us compelling because the question which needs to be addressed is whether there is a transfer of a trade business or undertaking in relation to which an employee's employment can be regarded as also transferred. The motivation for the termination of employment by the transferee employer is not in our view of direct significance. It is a necessary implication, no doubt, of para. 17(2) that the business, trade or undertaking and the employment of the relevant employee should survive sufficiently to be susceptible of transfer to the transferee employer. Thus if the old employer closes the business, trade or undertaking down so completely that the new employer was effectively starting a new business that necessary implication would not be satisfied. That was not what the Industrial Tribunal considered had happened to the business of the College and we can see no basis for challenging that view.

We revert therefore to what seems to us the most difficult aspect of the present case, namely Mr D'Ingerthorpe's application for and receipt of unemployment benefit over a period exceeding a week. Mr Hossain we should mention in passing accepted that because Mr D'Ingerthorpe worked on Monday 10th October, the week ending Saturday 15th October was properly to be included as part of Mr D'Ingerthorpe's employment by Edwin Mendoza Associates. See paras 4 and 21 of Sch 13 to the 1978 Act. That leaves the next week ending Saturday 22nd October as a gap before the week ending Saturday 29th October, which was a week of unemployment by the Company and during that gap there was period during which Mr D'Ingerthorpe was in receipt of unemployment benefit.

We have reached the conclusion that that period of receipt of unemployment benefit did not constitute a gap so wide as to be unbridgeable by para. 17(2). Our reasons are as follows:

First, the receipt of unemployment benefit is not inconsistent with availability for employment in the trade, business or undertaking in which the employee had lately been employed. There is a major distinction between on the one hand applying for and receiving unemployment benefit as a result of wages or salary under an employment ceasing, and, on the other, taking on another job. The latter would be far more likely effectively to sever the link between the employee and the trade business or undertaking by which he had been employed. It is not necessary for us so to hold because that situation is not before us.

Secondly, once it is accepted that para. 17(2) is capable of operating across an interval greater than a week, it follows in our view it is capable of bridging a similar period of uncertainty whether or not the employee will be re-employed by a purchaser of the trade, business or undertaking. The receipt of unemployment benefit does no more than create such an uncertainty. It does not eliminate the possibility even on a short term basis of such re-employment.

For those reasons we consider that the conclusion reached by the Industrial Tribunal upon this aspect involved no error of law.

Finally, the quantum of the basic and compensatory awards was challenged. The calculation of the basic award by the Industrial Tribunal was stated as follows in para. 21 of its decision. "At the date of the termination of his employment the Applicant was aged 45 years. He had worked for the Respondent for four years. His basic salary was £185 per week. The Tribunal make a basic award of £925".

On those findings the result of applying s.73(3)(a) of the 1978 Act should have been 4 x 1½ x 185 which is £1,010 and not £925. Unfortunately there are two errors in the way in which s.73(3)(a) has been applied quite apart from the error in computation. First, the number of years of continuous employment is three and not four. The Industrial Tribunal found that the employment started on 18th August 1986 (para 1 of the decision) and terminated when Mr D'Ingerthorpe resigned on 28th June 1990 when he was constructively dismissed by the Company (paras 18 and 19 of the decision). He himself in his Originating Application gave the 6th July 1990 as the date when his employment terminated; but whether one takes the 6th July or the 28th June 1990 there are only three and not four complete years if one starts from the effective date of termination and reckons backwards through the period of his employment. So the multiplier is 3 x 1½ i.e. 4.5. The multiplicand should be £184, the ceiling imposed by Sch 14 para 8(1)(b) as amended by the Employment Protection (Variation of Limits) Order 1990. The proper figure on the Industrial Tribunals own findings was in our view 3 x 1.5 x 184 = £828. The Notice of Appeal does not however mention the basic award at all, although the matter was raised in the skeleton argument submitted on behalf of the Company. But the point raised in the skeleton argument was itself misconceived namely that the Industrial Tribunal should have used net pay rather that the figure which it took of basic salary by which it meant gross salary. What the 1978 Act requires is that week's pay as defined in the 14th Schedule should be used and this clearly means gross rather than net pay, so the appellant's argument is misconceived. In these circumstances it does not seem right for us to allow an appeal regarding the basic award which although miscalculated is in fact only £97 out.

The compensatory award of 26 x £139.78, correctly calculated at £3,634,28, was challenged on two grounds. First, it was submitted that a reduction should have been made for Mr D'Ingerthorpe's part time earnings and, secondly, that the Industrial Tribunal erred in not reducing the compensatory award in respect of a £4,000 educational grant which Mr D'Ingerthorpe received in connection with a course which the Industrial Tribunal held he was acting properly in taking.

There is in our view no substance in this latter point. An educational grant was in our view sufficiently remote for the Industrial Tribunal to take the view which it did in saying that it would not in all the circumstances be just and equitable to deduct that sum from the compensatory award having regard to the fact that the Tribunal did not consider that the efforts which he had made to improve himself should redound to the benefit of the Company in particular having regard to the relatively short period of the compensatory award. That conclusion was in our view well within the ambit of the discretion conferred by s.74(1) of the 1978 Act.

The part time earnings of Mr D'Ingerthorpe raise a different point. They are not dealt with at all by the Industrial Tribunal beyond its finding that after his dismissal Mr D'Ingerthorpe took up part time work and commenced a degree course. Remuneration from part time work should in general be taken into account in calculating economic loss sustained through the cessation of earnings caused by a constructive dismissal. This aspect of the case in our view needs reconsideration by the Industrial Tribunal to whom the matter is remitted for that purpose. Finally, we should mention that an argument was addressed to us that Mr D'Ingerthorpe removed himself from the employment market in taking the course that he did and therefore should not receive a compensatory award. We are satisfied there is no substance in that argument. The Industrial Tribunal reached the conclusion that in all the circumstances Mr D'Ingerthorpe had mitigated his loss to a proper extent and that if he had done more in the short term his loss would have lasted longer. This was well within the discretion conferred upon the Industrial Tribunal and gave effect to its duty under s.74(4) to apply the rules regarding mitigation of loss.