Ibex Trading Co Ltd (In Administration) v Walton & Ors [1994] UKEAT 911_93_2106

EMPOLYMENT APPEAL TRIBUNAL
BAILII case number: [1994] UKEAT 911_93_2106Case No Appeal No. EAT/911/93Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
Ibex Trading Co Ltd (In Administration)Walton & Ors
Date 21 June 1994
[1]BAILII case number: [1994] UKEAT 911_93_2106 Appeal No. EAT/911/93 EMPOLYMENT APPEAL TRIBUNAL 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS At the Tribunal On 21 June 1994 Judgment delivered on 13th July 1994 Before THE HONOURABLE MR JUSTICE MORISON MRS M E SUNDERLAND JP MR G H WRIGHT MBE IBEX TRADING CO LTD (IN ADMINISTRATION) APPELLANTS(1) R W WALTON & OTHERS(2) ALPINE (DOUBLE GLAZING) CO LTD RESPONDENTS Transcript of Proceedings JUDGMENT Revised APPEARANCES For the Appellants MR J BOWERS (of Counsel) Messrs Wilde Sapte Solicitors Queensbridge House 60 Upper Thames Street London EC4V 3BD For the Respondents MR A HOGARTH (of Counsel) Messrs O H Parsons & Partners Solicitors 212-224 Shaftesbury Avenue London WC2H 8PR MR JUSTICE MORISON: Background Alpine Double Glazing were, before certain events in 1991, a well known company which sold double glazing products to the public. It was not a profitable venture. The Furniture, Timber and Allied Workers Union was a recognised union and had negotiated for the company's employees rates of pay more favourable than that provided for in the National Agreement. At the beginning of 1991 no wage increase was on offer and the employees voted for strike action; they were locked out but on their return to work they were paid for the time they were out but not given any wage increase. In July 1991, Alpine's parent company decided not to continue to support it and caused it to apply for administrative receivership. On 8 August 1991 an Administration Order was made and a Mr Barry and a Mr Montjack, accountants, were appointed joint administrators. Because of underlying debt and future obligations under guarantees, it was not judged sensible to seek to dispose of the shares, but rather to make an arrangement whereby the business could be transferred free of debt and commitments. The administrators sought to reduce the size of the workforce and to reduce the wages of those who remained. To this end a meeting was held which was attended by the shop stewards, a full-time official and one of the two administrators. The workforce was told by the administrator that a new method of payment was being put into operation which would mean a substantial reduction in wages. He also announced the start of the 30 day consultation process, although the number of redundancies he had in mind were not disclosed. Letters were sent to each of the employees which they were asked to sign, accepting the new lower wage arrangements. Although the letter did not say that this would be the consequence, those who refused to accept, that is 40 out of a total of 94, were dismissed by reason of redundancy. The fact that the Production Manager calculated that he needed only to retain exactly 54 people, the precise number who had accepted the reduction, was said to be a co-incidence. The decision was implemented and the 40 refuseniks were dismissed, despite the Union's suggestions that if 40 redundancies were called for it should be done on the basis of last in first out. The dismissals were effected by letters sent on October 16 1991 which took effect at 4 November 1991. On November 11 1991 an offer to purchase the business was made, which ultimately led to a purchase of Alpine's business by a shell company which then changed its name to Alpine. The negotiations with the prospective purchaser proceeded and came to fruition when a contract was signed on 13 February 1992. The transferor company changed its name to Ibex Trading Company Limited and the new company, the transferee, is called Alpine (Double Glazing) Company Limited; that company went into liquidation whilst the hearings before the Industrial Tribunal were taking place. To avoid any confusion arising from company name changes, throughout this Judgment we shall refer to the companies as the transferor and the transferee, respectively. We shall refer to the dismissed employees as the employees. The employees presented complaints to an Industrial Tribunal alleging that they had been unfairly dismissed and claimed relief against the transferor and transferee. The matter came before an Industrial Tribunal held at Newcastle upon Tyne on May 11 1993, a considerable time after the IT1s had been presented and after the dismissals of which complaint was being made. At that date, the transferee was still in business and, as counsel, who appeared for the employees at that time, as well as on the appeal, acknowledged, it was perceived to be to his clients' advantage that there should be a finding against the transferee so that any award they obtained would be against a solvent target. However, around the third day of the hearing the transferee went into liquidation, and it became clear that the employees would be better off if their claim succeeded against the transferor, which, although in administration, had some assets; whereas it was believed that there would be no dividend from the liquidation of the transferee. As a result, the emphasis of the case changed in midstream. This sequence of events may go some way to explaining why, in certain parts of their well-reasoned Decision, the Industrial Tribunal may have fallen into error. Further, we have had the benefit of able argument and assistance from counsel, Mr John Bowers, on behalf of the transferor; whereas the transferor was not legally represented in the Industrial Tribunal. The Industrial Tribunal Decision The reasoning behind the Decision may be summarised thus: As to the dismissals, the reason for them was either redundancy [paragraph 13] or "one connected with a relevant transfer" within the meaning of Regulation 8(1) of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ["the Regulations"]. "The reason was not the sale to [the transferee]. That had not been contemplated at that time." The business needed to be made attractive to a prospective purchaser; it was uneconomic "and it was hoped to make it more economical and therefore saleable by reason of the redundancies" [paragraph 14].[2]The dismissals were not automatically unfair because of the application of Regulation 8(2), and the Tribunal had to consider whether or not they were fair within the meaning of section 57(3) of the Employment Protection (Consolidation) Act 1978 ["the Act"] [paragraph 14].[3]The Industrial Tribunal found as facts [paragraphs 9, 13 & 15] that: there was no customary arrangement or agreed procedure relating to redundancy; the employees were never specifically told that their jobs were at risk if they refused to accept the lower wages; there was no consultation or discussion with the recognised Union about the method of selection; the employees were never consulted and given the chance to accept a change in their wages rather than face dismissal. Accordingly, they concluded that the dismissals were "clearly unfair" .[4]The employees were not employed immediately before the transfer, within the meaning of Regulation 5(3). Even if a dismissal can be connected with a relevant transfer within the meaning of Regulation 8(1) where, as here, there was no identified purchaser and no certainty that there would ever be a sale, it would be extending the decision in Litster v Forth Dry Dock Co Ltd [1989] ICR 341 too far to say that employees were employed immediately before a transfer when many months elapsed between dismissal and transfer. They noted that in Litster there was a gap of one hour between dismissal and transfer and there had been collusion between transferor and transferee in an attempt to avoid the impact of the Regulations. The Industrial Tribunal, therefore, concluded that on a proper construction of the Regulations the liability remained with the transferor and was not transferred under Regulation 5. Shortly before the Appeal was due to be heard, the employees sought from us leave to join the administrators as additional respondents, in the mistaken belief that following the decision of the Court of Appeal in Powdrill & Another v Watson & Another The Independent 22 March 1994, administrators were personally liable in respect of contracts of employment which they adopted. That application was refused as being misconceived. THE APPEAL Without doing full justice to them, we summarise the main points which were argued on this appeal. A. Arguments on behalf of the Transferor (the Appellant) (1) The Industrial Tribunal should have applied Litster rather than seeking to distinguish it. The House of Lords held that, in order to give effect to the purpose of the Regulations and the Directive, the words "so employed immediately before the transfer" should be construed to include those persons who would have been so employed had they not been dismissed unfairly before the transfer for a reason connected with the transfer. Therefore, on the finding by the Industrial Tribunal that the employees had been dismissed in connection with a transfer, they were persons who, but for that dismissal, would have been employed immediately before the transfer on February 13 1992. The House of Lords decision is not to be treated as applying only where there is a very short gap between the dismissal and the transfer; nor is it to be confined to those cases where there has been collusion between transferor and transferee to avoid the application of the Regulations. In support, reliance was placed on a decision of this Tribunal in Harrison Bowden Ltd v Bowden [1994] ICR 186 at page 191F.[2]The Industrial Tribunal gave an unduly wide meaning to the word "economic" in Regulation 8(2) where the words are:
"Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee ..."
In Wheeler v Patel & Another [1987] ICR 631 the EAT chaired by Scott J, as he then was, refused to follow a decision of the EAT held in Scotland and presided over by Lord Macdonald [Anderson v Dalkeith Engineering Ltd [1985] ICR 66], and said:
"A desire to sell a business so as to obtain in money the value of the business is an economic reason for the sale; a desire to obtain an enhanced price is an economic reason. If Lord Macdonald's view as to the scope of the phrase "economic, technical or organisational" is correct, it is difficult to think of any case falling within paragraph 8(1) where the reason for dismissal would not be an "economic" reason for the purposes of paragraph 8(2). Paragraph 8(1) applies where "the transfer or a reason connected with it is the reason or principal reason" for the dismissal. The transfer is, itself, in a sense an economic reason. If the case is to be taken out of paragraph (1) wherever the reason for the transfer is an economic reason in the broad literal sense, it does not seem to us that any scope will be left for paragraph (1). We think "economic" must be given a more restricted than literal meaning. ................. The references to "technical" and to "organisational" reasons seem to us to be references to reasons which relate to the conduct of the business. In our view, the adjective "economic" must be construed eiusdem generis with the adjectives "technical" and "organisational"
. The "economic" reasons apt to bring the case within paragraph (2) must, in our view, be reasons which relate to the conduct of the business. If the economic reason were no more than a desire to obtain an enhanced price, or no more than a desire to achieve a sale, it would not be a reason which related to the conduct of the business. It would not, in our judgment, be an "economic" reason for the purposes of paragraph (2). We think the need to leave a sensible scope for paragraph (1) similarly requires a limited meaning to be given to the adjective "economic" in paragraph (2)." [See also Gateway Hotels Ltd v Stewart & Others [1988] IRLR 287, a subsequent decision of an Appeal Tribunal held in Scotland, which followed Wheeler rather than Anderson ][3]Thus, the Industrial tribunal should have concluded that:(a) the employees were dismissed for a reason connected with the transfer within the meaning of paragraph 8(1) of the Regulations and were deemed to have been unfairly dismissed;(b) the reason for the dismissals did not fall within paragraph 8(2) of the Regulations;(c) but for their dismissal, they would have been employed in the undertaking at the time of the transfer to the transferee, within the meaning of paragraph 5(3), as interpreted by the House of Lords in Litster , and, therefore, the liability for unfair dismissal was transferred to the transferee under paragraph 5(2).[4]The decision that the dismissals were unfair was perverse or demonstrated a misdirection. B. Arguments on behalf of the employees "... it would not be right to regard Regulation 5(2) as transferring to the transferee responsibility for a dismissal carried out entirely by the transferor and taking effect before, or simultaneously with, the transfer, to the exclusion of any liability on the transferor in the absence of an express provision to that effect." The application of the Regulations is seldom straightforward, as anyone who sits on Industrial Tribunals and in this Tribunal know. There is always a real danger, in this area, of hard cases making bad law and of points being decided beyond what is strictly necessary for the particular decision. For understandable reasons, it is sometimes tempting for parties to open up issues which do not strictly arise: whether it be people who frequently act as administrators or Unions who frequently have to confront transfer situations. The circumstances in which points relating to the Regulations, or the analogous continuity provisions in Schedule 13 to the Act, vary. As the House of Lords pointed out in Litster a purposive approach to the construction of the Regulations required an extended interpretation of the words of Regulation 5(3): it was unsatisfactory to leave employees to whistle for their money from the transferor, who was frequently not in a position to pay. In this case, it is somewhat anomalous that the administrators of the transferor should be striving to have the liability transferred to the transferee, whereas the employees are anxious to say that the transferor is liable, either solely or jointly with the transferee. Normally, one would expect each to take exactly the opposite position. In issues as to continuity, an Industrial Tribunal is likely to be influenced by the presumption in favour of continuity and to find a transfer of a business wherever the facts make such a finding possible. It is, therefore, necessary that we tread warily because of the unusual circumstances in which this case comes before us. That said, we have not had any real difficulty in reaching our conclusions which may be summarised thus:
"provide that, after the date of transfer within the meaning of Article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship" the United Kingdom Parliament, when it introduced the Regulations into our law, did not avail itself of that opportunity. In other words, contrary to the approach of the Scottish EAT, we would have said that, in the absence of express language, subject to Regulation 5(4), where Regulations 5(1) and 5(2) apply the transferor ceases to be the employer of those whose contracts of employment are transferred; all [we emphasise] his rights powers, duties and liabilities in relation to the contract are transferred and, for the avoidance of doubt, everything he did prior to the transfer shall be treated as though it had been done by the transferee. The scope of Regulations 5(1) and (2) could not be wider and is inconsistent, we think, with the transferor remaining liable, after the transfer, for anything connected with the employment of those to whom the Regulation applies. The primary meaning of "transfer" in the 1989 edition of the Oxford English Dictionary is "
To convey or take from one place, person, etc to another, to transmit, transport, to give or hand over from one to another" In other words, the use of the word 'transfer' in its natural and ordinary meaning suggests a taking away from one and a handing over to another. This is more consistent with the transferee taking on obligations in place of the transferor than that the transferor retains liability. We were told by counsel that they were unaware of any academic support for the view adopted in Allan . Having regard to the definition of "transferor" in the Directive and the decision in Wendelboe v LJ Music [1985] ECR we consider that the interpretation in Allan , namely, that in the absence of express language to the contrary, the transferor remains liable, is inconsistent with the Directive and has no support in any decision of a United Kingdom court or tribunal. We stress, we did not have the benefit of full argument on the point. It follows, therefore, that we have differed from the Industrial Tribunal on two matters:- (1) the application of Regulation 8(1); (2) the proper interpretation of Regulation 8(2). It was submitted to us, on behalf of the transferor, that we should remit the matter back to the Industrial Tribunal for it to re-consider the matter in the light of our Judgment. Under paragraph 21(1) of Schedule 11 to the Act, for the purposes of an appeal we may exercise any powers of the Industrial Tribunal. There has been considerable delay in this case. Further, we do not think that there would be any point in remitting the matter: the Decision on unfairness was clear and obvious and we can, without injustice to either party, resolve the matter ourselves. Accordingly, we can simply dismiss the appeal on the grounds that the employees were unfairly dismissed by the transferor who, alone, is responsible for meeting any liability. It seems to us that a further hearing by the same or a differently composed Industrial Tribunal should be arranged as soon as is practicable so that the question of compensation can be determined, in default of agreement.