Cochran v Grey Pine Ltd [1994] UKEAT 925_93_1611

EAT
Cochran v Grey Pine Ltd
[1994] UKEAT 925_93_1611 · 1994-11-16

JUDGE HULL QC:

This is an appeal from an Industrial Tribunal which sat at Manchester under the chairmanship of Mr Beckett on 3 August 1993. They entertained the application of Mr Cochran, who is the Appellant here.Mr Cochran was employed as Operations Director by a firm called B & F Carter Engineering Limited and his employment started on 1 April 1990. Unfortunately, the employers, who were an engineering firm concerned with making gears and other such tasks, became insolvent and went into administrative receivership under two receivers appointed from the well-known firm of Touche Ross on 23 October 1992. A short while after that Mr Cochran, who of course was a very senior person and familiar with the affairs of the company, was kept on but there came a time when the receivers purported to dismiss him. They wrote a letter on 13 November, which said:
"Dear Mr R Cochran,
...As we are sure you are now aware, joint administrative receivers of the above company were appointed on 23 October 1992.We regret that we have to advise you that the company is no longer in a position to pay your wages after the close of business on the date of this letter. In our capacity as agents of the company, we have to advise you that your contract of employment will end on that date."Mr Cochran did no further work after that. He stated repeatedly that that was when he last worked and he was not paid after that but, in due course, the undertaking of the insolvent company was transferred. We are told that it was a management buy-out. Certain members of the management team put together, as so often happens, the necessary resources to make a bid to the administrators and, no doubt, being in the circumstances the best possible purchasers, a firm called Grey Pine Limited was formed and they duly took an assignment of the undertaking of the company in the usual way.That was completed on 23 December 1992. For the purposes of this story, nothing material happened until 19 March 1993, when Mr Cochran presented his application to the Industrial Tribunal and he complained against both the companies, Grey Pine Limited and B&F Carter Engineering Limited (still in receivership) of unfair dismissal and he said as follows:"My employment started with B&F Carter Engineering Limited ("B&FC") on 1 April 1990. That company passed into Administrative Receivership on 23rd October 1992. On 13th November 1992, the Administrative Receivers purported to dismiss me on behalf of B&FC at a time when they had reached a decision to sell B&FC's business to Grey Pine Limited ("GP"). The transfer ... was completed on 23rd December 1992.My claim for unfair dismissal is brought, inter alia, under Regulation 8 of The Transfer of Undertakings (Protection of Employment) Regulations 1981."So far as B&F Carter Engineering Limited's, that is to say the receiver's, interest was concerned, that was a matter of no consequence but Grey Pine Limited, of course, resisted the claim and first and foremost, they said that this claim was out of time. It is to be noted that under s.67 of the Employment Protection (Consolidation) Act 1978 there is the usual time-limit on claims for unfair dismissal. The section reads:
"(1) A complaint may be presented to an industrial tribunal ... by any person ... that he was unfairly dismissed by the employer.
(2) ... an industrial tribunal shall not consider a complaint under this section unless it is presented to the tribunal before the end of the period of three months beginning with the effective date of termination or within such further period as the tribunal considers reasonable in a case where it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of the period of three months."and the "effective date of termination", it says at s.55 of the Act:
"(4) ... (a) in relation to an employee whose contract of employment is terminated by notice, whether given by his employer or by the employee, means the date on which that notice expires;"
and there is a similar provision in (b) with regard to an employee whose contract is terminated without notice. However you look at it, said the Respondents, the effective date of termination was 13 November 1992. Not so, says Mr Cochran, through his solicitor. He said this to the Industrial Tribunal; he says it to us today. The employment did not end, it continued until the effective date of the transfer, which was 23 December 1992. How does that come about? That comes about because of the way in which the Transfer of Undertakings (Protection of Employment) Regulations 1981 are phrased and the construction which was put on those Regulations by the House of Lords in the celebrated case of Litster and Others and Forth Dry Dock & Engineering Co Ltd [1989] ICR 341 which I will come to in a moment. To see how that submission is made out, we have to look at the Regulations and I must refer to several of them to show how the submission is made to us. They are concerned with the transfer of undertakings and an undertaking says Regulation 2, "includes any trade or business" so, on the face of it, they covered this transfer. They apply to relevant transfers and, says Regulation 3:
"... these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated."
There is a special provision with regard to transfers by receivers and liquidators in Regulation 4, which I do not think has any particular relevance but it is when we come to Regulation 5 that the real point begins to emerge:
"(1) ... a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee."
If Mr Cochran was indeed employed on 23 December 1992, his employment on the face of it would be transferred to the transferee, Grey Pine Limited. Paragraph 2 says:

Without prejudice to paragraph (1) ... on completion of a relevant transfer -

(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract [of employment] shall be transferred by virtue of this Regulation to the transferee; and(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee."So that appears to us to be a statutory novation and Mr Elliott, who has argued this case so well for Mr Cochran, does not dissent from that description of it. It is a transfer not merely of rights to the transferee, but also liabilities, and it is saying, in effect, that the transferee is to stand in the shoes of the transferor for the purpose of contracts of employment.Paragraph (3) says:
"Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions."
Again, stating it very shortly, a person employed in the undertaking immediately before the transfer has the benefit of what has been done before and it is on paragraph (3) of Regulation 5 that Mr Elliott's submission hangs with, of course, the interpretation of it by the House of Lords, to which I will come in a little while.Regulation 8 provides:
"(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part V of the 1978 Act ... as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal."
Paragraph (2) makes an exception for economic, technical or organisational reasons causing the dismissal but, subject to that, if an employee is dismissed, he should be treated as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal. For the purpose of submissions today, certainly, it was conceded that the reason for the dismissal on 13 November, or purported dismissal, which is what Mr Elliott says it is, was the transfer or a reason connected with it.Of course, there is one obvious loophole, as one can now see that it is, since article 5, which is the vital one, transferring obligations and rights to the transferee, applies only to those who are employed by the transferor immediately before the transfer. What happens if the transferor, who is so often insolvent and in receivership, as in this case, takes the wise if perhaps unscrupulous precaution of dismissing those who are in his employment shortly before, not immediately before, but perhaps, as in the case of Litster , an hour before, perhaps days before, perhaps as in this case, something like six weeks before. What is to happen in those circumstances? That was the problem which was considered by the House of Lords sitting of course for Scotland in the case of Litster and Others v Forth Dry Dock & Engineering Co Ltd [1989] ICR 341 . I must read the headnote and make plain what was decided by the House of Lords:
"The 12 applicants worked for the transferor who became insolvent and went into receivership. The receivers agreed to sell the business assets to the transferee and one hour before the transfer took place the workforce were told by the receivers that the business was to close down and that they were dismissed with immediate effect. They were handed dismissal letters which stated that no further funds were available to pay their wages with effect from the close of business and that no payments would be made for accrued holiday pay or damages for failure to give them the statutory period of notice. Within 48 hours of their dismissals the applicants, learning that the transferee was recruiting labour, applied to be taken on but none was successful. Only three former employees of the transferor were taken on by the transferee who preferred to recruit elsewhere at lower rates of pay. The applicants made a complaint of unfair dismissal to the industrial tribunal against the transferor subsequently adding the transferee as an additional party to the proceedings. The industrial tribunal concluded that the applicants had been employed by the transferor in the business immediately before the transfer to the transferee within the meaning of regulation 5(3) of the ... Regulations...; that their dismissal was for a reason connected with the transfer and was therefore unfair in terms of regulation 8(1); and that the liabilities of the transferor to the applicants in connection with their contracts of employment were transferred to the transferee by virtue of regulation 5(1) and (2). They held that the applicants had been unfairly dismissed by the transferor and that the transferee was liable to pay them compensation. On appeal by the transferee the Employment Appeal Tribunal affirmed the decision of the industrial tribunal. The Court of Session allowed an appeal by the transferee.

On appeal by the applicants:-

Held , allowing the appeal, that the Regulations of 1981 were expressly enacted for the purpose of complying with Council Directive (77/187/EEC) which provided for the safeguarding of employees' rights on the transfer of a business; that the courts of the United Kingdom were under a duty to give a purposive construction to the Regulations in a manner which would accord with the decisions of the European Court of Justice on the Directive and where necessary implying words which would achieve that effect; that there had to be implied into regulation 5(3) after the words `immediately before the transfer' the words `or would have been so employed if he had not been unfairly dismissed in the circumstances described by regulation 8(1);' that regulation 5 operated to transfer the applicants' contracts of employment, with their attendant obligations, from the transferor to the transferee; and that, accordingly, the applicants had been dismissed for a reason connected with the transfer, their dismissals were unfair and the transferee was liable to them for compensation."The manoeuvre of the transferor in dismissing one hour before the transfer availed the transferee nothing because the House of Lords said that in construing article 5(3) you must construe the words:

"immediately before the transfer"

so as to include those who have been dismissed before but by reason of the transfer. Mr Elliott asked us, first, to look at what Lord Keith of Kinkel said at the top of page 350:
"So there must be implied in regulation 5(3) words indicating that where a person has been unfairly dismissed in the circumstances described in regulation 8(1) he is to be deemed to have been employed in the undertaking immediately before the transfer or any of a series of transactions whereby it was effected."
Next, he invited us to look at what Lord Templeman said at page 353(E):Thus the courts of the United Kingdom are under a duty to follow the practice of the European Court of Justice by giving a purposive construction to Directives and to Regulations issued for the purpose of complying with Directives. ... it seems to me, following the suggestion of my noble and learned friend, Lord Keith of Kinkel, that paragraph 5(3) of the Regulations of 1981 was not intended and ought not to be construed so as to limit the operation of regulation 5 to persons employed immediately before the transfer in point of time. Regulation 5(3) must be construed on the footing that it applies to a person employed immediately before the transfer or who would have been so employed if he had not been unfairly dismissed before the transfer for a reason connected with the transfer. It would, of course, still be open for a new owner to show that the employee had been dismissed for `an economic, technical or organisational reason entailing changes in the workforce,' but no such reason could be advanced in the present case ..."So he agreed with what had fallen from Lord Keith of Kinkel. Lord Oliver said at page 354:
"If the legislation can reasonably be construed so as to conform with those obligations [that is under the Treaty of Rome] - 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."
Lord Oliver went on at page 357:
"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 may, I think, be assumed that those who drafted both the Directive and the Regulations were sufficiently acquainted with the realities of life to appreciate that a frequent - indeed, possibly, the most frequent - occasion upon which a business or part of a business is transferred is when the original employer is insolvent, so that an employee whose employment is terminated on the transfer will have no effective remedy for unfair dismissal unless it is capable of being exerted against the transferee."
Finally, Mr Elliott went to the end of Lord Oliver's speech and he said, citing at page 372 - Lord Oliver had, of course, made the longest speech and had subjected the Regulations to a most careful analysis, he said:
"It follows from the construction that I attach to regulation 5(3) that where an employee is dismissed before and by reason of the transfer the employment is statutorily continued with the transferee by virtue of the Regulations and the first of the two options referred to in the passage quoted above is not, therefore, one which will effectively protect the transferee from the employee's claim for a redundancy payment."
"Look at that", says Mr Elliott, "there Lord Oliver is saying in terms, and not as mere obiter dicta, that it follows from the construction that he attached to Regulation 5(3) that the employment is statutorily continued with the transferee by virtue of the regulations". So we have to consider what that involves and Mr Elliott put it very plainly. He said, "What that means is that the employment continues until the transfer and thereafter" says Mr Elliott "with the transferee". So that in the present case it mattered not that the receivers said, "We dismiss you on 13 November and this will be the last day of your employment". They were altogether impotent to do so. It mattered not whether six hours, six weeks, six months or any other period elapsed before the transfer. Given that the reason for the dismissal was a reason connected with the transfer, the employment would never end until the transfer took place. A submission which, if one thinks about it, has astonishing consequences because it would mean, of course, that the employers, subject to insolvency, would continue to be under a liability to pay and Mr Cochran, subject to his being sent home and told not to report again, would be under the duties of an employee and, of course, it would mean that the question whether he was still employed would be a very uncertain matter, because if the transfer took place then he would be employed until the transfer but if no transfer took place, then it would mean that all this had been simply so much speculation. It would turn out then that he had been dismissed on 13 November, truly an arresting submission when one thinks about its possible consequences. Is that, indeed, the effect of what the House of Lords decided? The House of Lords was construing, and was purporting to construe in the purposive fashion which they held to be right only article 5(3), and were construing only the phrase:
"Any reference ... to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer"
and as stated by the plain grammar of Lord Oliver and by the other speeches of the Lords to whom I have referred:
"It follows from the construction that I attach to regulation 5(3) that where an employee is dismissed before and by reason of the transfer the employment is statutorily continued with the transferee by virtue of the Regulations ..."
That construction was for the purposes of article 5(3) only, enabling Lord Oliver and the other Lords to say that if a person is dismissed before the transfer but because of a reason connected with the transfer, then he is to be treated - not for all purposes as being the employee of the transferor until the transfer date, whenever that may be and however far off that may be - but for the purposes of article 5(3), as a person employed in the undertaking immediately before the transfer, so that it can be truthfully said of him, not that his employment continues but that all the transferor's liabilities under or in connection with his contract of employment, shall be transferred to the transferee. What are those liabilities and obligations? The answer is, of course, if the transferor has dismissed the employee, as in this case, six weeks before the transfer, obligations and liabilities arising from any breach of contract committed before the dismissal as, for example, damages for wrongful dismissal, obligations under employment law as, for example, for unfair dismissal and, very possibly, other obligations, too - damages, say, if the employee has been injured. All the rights and duties under or in connection with the contract of employment become those of the transferee. It is a novation, it is not, in our belief, a continuation of the contract until the moment before transfer and then after until it is ended by the transferee. It appears to us not only that the House of Lords never decided any such thing but that they confined themselves simply to the construction of article 5(3), to construe that in a purposive way and to bring about that result. They were not dealing with the extension of the contract in any way apart from that. What they were saying was that the liabilities and duties under that contract which, ex hypothesi, had ceased to exist, did continue on the basis that the Applicant (the employee) was to be treated as so employed immediately before the transfer for the purposes of Regulation 5(3) (and for no other purpose). When one goes on to consider the extraordinary and absurd consequences which would flow if what Mr Elliott has suggested to us is right, it would become impossible, it seems to us, for any Court, and certainly for the House of Lords, to hold not merely that a person in that position is to be treated as employed by the employer immediately before the transfer for the purpose of article 5(3) but for all other purposes. If that were right, it would be quite impossible for the employer validly to dismiss him or, putting it at an even higher level of absurdity, it would be impossible to say whether a dismissal was effective until one saw whether the transfer took place, so that there would be a prolonged, perhaps very prolonged period of limbo, in which it could not be said whether the employee had been dismissed or not. His employment would have continued if the transfer did take place but would not if did not take place.When one considers that it seems to us quite impossible to uphold the submission which is made to us by Mr Elliott, which appears to be wholly unjustified by what is said by the House of Lords and to be, standing by itself and without any reference to what was said by the House of Lords in Litster , clearly entirely unworkable as a submission. We do not believe, with respect, that there is any such construction possible.Now what is the effect of that? For the purposes of argument it was conceded that on 13 November the purposive dismissal, as Mr Elliott calls it, dismissal as we find it to be, was for a reason connected with the transfer. That is accepted before us for the purpose of argument. It follows that on that date, on the face of it, a legitimate claim for compensation for unfair dismissal arose. It arose on that date and that was the effective date of termination under the Act of 1978 and under s.67(2) the complaint had to be presented within three months of that date. It was not presented within three months of that date, it was presented more than a month out of time. In those circumstances, it appears to us to be perfectly plain that the complaint was out of time and subject to the consideration of the question whether it was reasonably practicable to present it within time, irremediably so. The claim was out of time, as the Industrial Tribunal found it to be, and nothing which was said, either in the Transfer of Undertakings Regulations or by the House of Lords in Litster affected s.67(2) and its operation. The dismissal had, in fact, duly taken place on 13 November when the receivers wrote the letter which I have read.In those circumstances, the Industrial Tribunal reached an entirely correct conclusion and this appeal must be dismissed.