DJM International Ltd v Nicholas [1995] UKEAT 1218_94_1210

EAT

DJM International Ltd v Nicholas

[1995] UKEAT 1218_94_1210 · 1995-10-12

MR JUSTICE MUMMERY (PRESIDENT) Most cases on the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the Regulations") and on the EC Directive on Acquired Rights No.77/187 ("the Directive") turn on questions whether there is an "undertaking" or a relevant "transfer" or whether the transfer, or a reason connected with it, is the reason or principal reason for the dismissal of the employee who claims unfair dismissal.

This appeal raises a novel question on the scope and effect of a relevant transfer of an undertaking. The question on the appeal from the decision of the Industrial Tribunal held at Reading on 4th October 1994, is whether, in its Full Reasons notified to the parties on 31st October 1994 the Tribunal placed an erroneous interpretation on Regulation 5 of the Regulations. Although this judgment is confined to the question whether there is an error of law in the Tribunal's interpretation of that Regulation, we shall point out aspects of the case on which there has been insufficient investigation of the relevant facts and perhaps a failure to join parties potentially liable for any sex discrimination suffered by Mrs Nicholas.

The Facts

An account of the facts must include some reference to the course of Mrs Nicholas's proceedings in the Industrial Tribunal and in the Employment Appeal Tribunal. The relevant facts may be chronologically stated as follows.

(1) On 14th October 1967 Mrs Nicholas began to work for DJ Mouldings Ltd ("Mouldings"). From 1972 onwards she worked as a production supervisor in the Miniature Section.

(2) On 10th July 1992 Mrs Nicholas attained the age of 60. She claims that she was not willing to give up work, but was forced to retire by reason of her age.

(3) On 20th July 1992 Mrs Nicholas was re-employed by Mouldings as a supervisor in the Miniature Section on a part-time basis.

(4) On 27th September 1992 another company, DJM International Ltd ("International"), purchased certain assets from Mouldings. According to the Full Reasons of the Industrial Tribunal the parties "impliedly accepted that this constituted `a relevant transfer' for the purpose of the 1981 Regulations".

(5) Mrs Nicholas worked for International on a part-time basis until, without any prior warning, she was dismissed for redundancy on 25th February 1993.

(6) On 5th April 1993, Mrs Nicholas presented an Originating Application to the Industrial Tribunal complaining of "sex discrimination, redundancy payment, unfair dismissal." International, whose address was given as Autech House, Wallingford, was named as the only employer or body that Mrs Nicholas was complaining about. Mouldings was not made a party to the application, though Mrs Nicholas gave the dates of her employment as from 14th October 1967 to 25th February 1993.

(7) On 20th May 1993 International served a Notice of Appearance resisting a claim made by Mrs Nicholas on the ground that she was dismissed because of a down-turn in the business of International. It was denied that she was made redundant. Most important of all, it was denied that the dates of employment given by Mrs Nicholas were correct. According to International the correct dates of her employment with International were 20th July 1992 to 25th February 1993. In the details of the Notice of Appearance International contended that Mrs Nicholas was not continuously employed by International for a period of not less than two years ending with the effective date of termination of her employment. She was not therefore entitled to bring a claim for unfair dismissal or a redundancy payment. As to the claim for sex discrimination International contended that, so far as her complaint related to the fact of her retirement on 10th July 1992, she was precluded from complaining about that because her complaint was presented after the expiration of a period of three months from her retirement. International set out a history of her employment from October 1967 and contended that Mrs Nicholas had not been forced to retire. At all times she was fully aware that she had to retire at 60, the date upon which she would begin to receive her pension under Mouldings Employee Benefits Scheme and that Mouldings expected her to retire on her attaining 60. For reasons set out in detail International denied that there had been any discrimination against Mrs Nicholas and, if there was any discrimination, it was denied that it was on the grounds of her sex.

(8) On 13th September 1993, a hearing was held at the Industrial Tribunal at Reading to decide a number of preliminary questions in relation to the claims made by Mrs Nicholas. In Full Reasons notified to the parties on 30th September 1993 the Tribunal unanimously decided that Mrs Nicholas did not have the requisite two years' service to bring a complaint of unfair dismissal and her claims for compensation for unfair dismissal and redundancy were dismissed. The Tribunal held that her claim under S.63 of the Sex Discrimination Act 1975 was not presented within the three months' time limit but, in all the circumstances, the Tribunal considered that it was just and equitable to consider the complaint and exercised its discretion to extend time.

(9) International appealed against the extension of time for the sex discrimination claim. On 9th March 1994 the Employment Appeal Tribunal dismissed the appeal on the basis that there were no grounds for interfering with the Tribunal's exercise of discretion.

(10) The matter went back to the Industrial Tribunal for hearing on 4th October 1994 to deal with two further preliminary points. This appeal is only concerned with the first of those points defined in paragraph 7 of the Full Reasons for the Industrial Tribunal's decision in these terms.

"Whether, in the light of the Employment Appeal Tribunal's decision on appeal and having regard to Regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 the Applicant's claim for sex discrimination arising out of the alleged act of discrimination which allegedly took place in July 1992 can properly be brought against the respondent [International]."

(The other question was whether the Industrial Tribunal had jurisdiction to entertain the claim by Mrs Nicholas for sex discrimination arising out of an alleged act of discrimination in February 1993. The Tribunal held that it had jurisdiction to entertain that claim). The question on this appeal is whether there was any error of law in the Tribunal's unanimous decision that any liability in respect of an act of sex discrimination committed earlier on 10th July 1992 transferred by reason of the 1981 Regulations from Mouldings to International in September 1992 [the decision incorrectly refers to a transfer on 27th July 1992].

Neither side called any evidence at the hearing before the Industrial Tribunal. The case was argued simply as a matter of statutory interpretation of Regulation 5 in the context of the Directive.

So far as we have been able to gather from the two decisions of the Industrial Tribunal and from further information provided by the parties' representatives on this appeal, no one to date has raised the question whether Mouldings should be a party to the proceedings. As we understand the position Mrs Nicholas claims that any liability to her for sex discrimination on the part of Mouldings has been transferred to International. If that is right, International will be liable for any sex discrimination which she establishes. If she is wrong on her claim that there has been a transfer, any liability for sex discrimination would remain with Mouldings. But Mouldings has never been made a party. At the request of the Tribunal counsel and solicitors attempted to throw light on the present position of Mouldings and International. Mouldings still exists. It only transferred "certain assets" to International. International still exists, though it is in insolvent voluntary liquidation. Solicitors and counsel appearing for International on this appeal are instructed by the Liquidator. This fact appears to have been unknown to the advisors of Mrs Nicholas until the hearing of the appeal. Yet another company (Munchy Ltd) occupies the premises at Autech House. The relationship between Mouldings, International and other companies remains obscure. It may be necessary, for the proper resolution of this dispute, for further enquiries to be made on these matters and for further thought to be given to the constitution of these proceedings.

For the purpose of deciding this appeal, however, it is only necessary to consider the correct construction of Regulation 5 in the light of the competing contentions. The hearing of the appeal has been shortened to some extent because Mr Sendall, for International, did not pursue the first ground in his Notice of Appeal dated 8th December 1994. That ground was that

"The liability to an employee of a transferor of an undertaking for discrimination contrary to the Sex Discrimination Act 1975, is not capable of being transferred to the transferee by the provisions of Regulation 5 [of the 1981 Regulations.]"

For the purpose of this appeal Mr Sendall concedes that such a liability, arising from the employment relationship existing between the transferor and the employee at the date of transfer, is transfered to the transferee.

The only question on this appeal is whether the Industrial Tribunal erred in law in its construction of Regulation 5 of the 1981 Regulations when they found that the act of discrimination complained of under the 1975 Act need not arise out of the contract of employment existing at the time of the transfer. The Tribunal concluded that it could arise under an earlier contract of employment which had ceased to exist prior to the relevant transfer.

The 1981 Regulations

In order to decide the question of interpretation it is necessary to refer to the relevant provisions of the Regulations and the Directive.

Regulation 5 of the 1981 Regulations concerns the effect of a relevant transfer on contracts of employment. Regulation 5(1) provides that -

"... a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee.

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

(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract 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.

(3) Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person 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."

Reference has also been made to the Directive which the Regulations were intended to implement. The preamble to the Directive states that -

"Whereas it is necessary to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded."

Article 3 is in Section II of the Directive headed `Safeguards of Employees' Rights'

"1. The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee."

The Submissions of International

Mr Sendall advanced a succinct submission on the interpretation of Regulation 5, construed in the light of Article 3 of the Directive. In summary his argument was as follows:-

(1) Mrs Nicholas can only bring a claim for sex discrimination arising from her first period of employment (ie with Mouldings) if the liability for sex discrimination relating to that earlier period of employment transferred to International in September 1992 pursuant to Regulation 5.

(2) Regulation 5 deals only with contracts and employment relationships which would otherwise have been terminated by the transfer. This is clear from Regulation 5(1).

(3) The contract of employment and the employment relationship created by it which gave rise to the claim of sex discrimination was terminated on 10th July 1992. That was not a contract "which would otherwise have been terminated by the transfer" in September 1992.

(4) The liabilities transferred to the transferee are those described in Regulation 5(2)(a) as liabilities "under or in connection with any such contract". The reference to "any such contract" in Regulation 5(2)(a) is a reference to a contract in Regulation 5(1) ie a contract "which would otherwise have been terminated by the transfer". That could not apply to the contract from which the sex discrimination allegation arose. As that contract had terminated on 10th July 1992, it is not a contract which would otherwise have been terminated by the transfer two months later.

(5) Regulation 5(2)(b), which refers to "anything done before the transfer is completed" as deemed to have been done by or in relation to the transferee, is confined to things done "in respect of that contract". That, in turn, is a reference back to a contract "which would otherwise have been terminated by the transfer" within the meaning of Regulation 5(1). Regulation 5(2)(b) could not, therefore, apply to the contract with Mouldings from which the sex discrimination allegation arose.

(6) Further, it was clear from Regulation 5(3), to which Regulations 5(1) and 5(2) are subject, that the whole Regulation is concerned only with the employment relationship which exists "immediately before the transfer". The employment relationship which existed immediately before the transfer in September 1992 was the contract for part-time employment made between Mrs Nicholas and Mouldings with effect from 20th July 1992. Her complaint was not in relation to that employment relationship. It was concerned with an earlier employment relationship for full time employment which terminated on 10th July 1992 and therefore did not exist "immediately before" the transfer in September 1992.

(7) Article 3 of the Directive does not assist Mrs Nicholas. That Article provides for the transfer of rights and obligations "arising from a contract of employment or from an employment relationship existing at the date of a transfer ". Any obligation on the part of Mouldings to Mrs Nicholas for sex discrimination did not arise from such a contract or such an employment relationship. It arose from a contract or relationship which had ceased to exist over months before the date of a transfer ie, on 10th July 1992.

Although the Tribunal decision refers to a number of cases on the interpretation of Regulation 5, Mr Sendall submitted that none of the authorities had a direct bearing on the point for decision on this appeal.

Conclusions

In our judgment the Industrial Tribunal was legally correct in rejecting Mr Sendall's interpretation of Regulation 5 of the 1981 Regulations. In paragraph 14 of the Full Reasons the Tribunal, after considering the Regulation 5 and Article 3 of the Directive, concluded

"In our view the proper interpretation of Regulation 5(2)(b) is that the words `anything done' are wide and can relate to anything done by or in relation to the transferor in respect of that contract, that is to say the contract of employment then transferred. They can also apply to anything done by or in relation to a person employed in that undertaking in which event the acts done need not relate to the contract of employment then transferred. On a proper construction of the Regulations in accordance with the Directive we conclude that the liability of D J Mouldings Ltd to meet a claim arising under the Sex Discrimination Act 1975 there was an obligation arising out of an employment relationship. In that the applicant was still within time to bring a claim as of the date of the transfer, it was an obligation (should the claim succeed) which existed at the date of the transfer. We interpret the words "existing on the date of the transfer" in Article 3 as governing both the existence of rights or obligations as well as the existence of a contract or employment relationship at that date. The applicant's right to bring a claim and the liability of D J Mouldings to meet it, if it succeeded, arose out of a contract of employment. Although that particular contract of employment no longer existed at the date of the transfer the liability existed and the Regulation was effective to transfer it to the present Respondent."

The Tribunal accordingly concluded that -

"...any liability for the alleged act of discrimination on 10th July 1992 transferred to the Respondents"

and added that they would say nothing as to the substantive merits of the application. That would be for the Tribunal to determine at a later stage.

We agree with the conclusion of the Tribunal. The emphasis in Mr Sendall's argument is on the references in Regulation 5(2)(a) and (b) to " any such contract " and to " that contract ", conditioned by the overall reference in Regulation 5(1) to "any such contract which would otherwise have been terminated by the transfer". The weakness in this argument is that it ignores the width of the wording in Regulation 5(2)(b). That paragraph applies not only to things done before the transfer "in respect of that contract"; it also applies to anything done before the transfer in respect of "a person employed in that undertaking". Anything done in respect of such a person is deemed to have been done by the transferee. The crucial question is not, therefore, whether what was done was in respect of a particular contract, but whether it was in respect of a particular person employed in the undertaking transferred. Those words of extension reflect the reference in Article 3 of the Directive to "an employment relationship existing on the date of a transfer" which have a more extended meaning than obligations arising "from a contract of employment". At the date of the transfer in September 1992 there was an employment relationship between Mrs Nicholas and Mouldings. The broad aim of the Regulations and the Directive is to ensure, as far as possible, that that relationship continues unchanged with the transferee: see Litster v. Forth Dry Dock & Engineering Co Ltd

[1989] 1 All ER 1134

at 1148E per Lord Oliver. We agree with the submission made by Miss Beavan on behalf of Mrs Nicholas that the reference anything done in respect of "a person employed in that undertaking" must be read in the light of, and consistently with, the reference to an employment relationship in Article 3 and should be construed as referring to obligations, other than those which arise out of the particular contract of employment. Regulation 5(2)(b) is not limited to those obligations which arise out of the particular contract in existence at the date of the transfer.

In brief, at the date of the transfer by Mouldings to International in September 1992 Mrs Nicholas was employed in the undertaking of Mouldings. Before that transfer was completed something was done by Mouldings (so Mrs Nicholas alleges) in relation to her ie, an act of sex discrimination in terminating her employment at the age of 60 on 10th July 1992. The thing done to her is, according to Regulation 5(2)(b), deemed to have been done by the transferee, International. The fact that what was done was in respect of an earlier contract terminated on 10th July 1992 does not make it any the less something done by Mouldings to Mrs Nicholas as a person employed in the undertaking transferred. The fallacy in International's arguments, as advanced by Mr Sendall, is that they seek to apply to the second limb of Regulation 5(2)(b) words used in Regulation 5(1), 5(2)(a) and the first limb of 5(2)(b) which limit the matters transferred to those which arise "under or in connection with" or "in respect of" a contract which would otherwise have been terminated by the transfer. The wide words of the second limb of Regulation 5(2)(b) make it clear, in our view, that a liability may be incurred by an employer to an employee and that a subsequent change in the contractual relationship between the employer and employee does not prevent that liability from transferring to the transferee of the undertaking.

For those reasons the appeal is dismissed.