Sita (GB) Ltd v Burton & Ors [1996] UKEAT 114_96_1911

EAT

Sita (GB) Ltd v Burton & Ors

[1996] UKEAT 114_96_1911 · 1996-10-10

For the 1st and 2nd Respondents For the 3rd Respondents MR P EPSTEIN (of Counsel) Mr P Pledger UNISON Atherna House London Road Morden Surrey SM4 5AX MR T PITT-PAYNE (of Counsel) Director of Legal Services Royal Borough of Kingston-Upon-Thames Guildhall Kingston-Upon-Thames Surrey KT1 1EU

LORD JOHNSTON : In this appeal the appellants who were the successful tenderers for certain services provided by the third respondents ["the transferee"] seek to overturn a decision of the Industrial Tribunal sitting at London (South) in October 1995 to the effect that the applicants were unfairly dismissed by the present appellants, notwithstanding that at the time of that dismissal they were in the employment of the now third respondents ["the transferor"].

The history of the matter can be taken briefly from the findings of the tribunal.

Both respondents were and had been in the employment of the transferor for some time prior to the early 1990's when the local authority was required to embark upon a review of its contract services for a number of reasons which are not material to the present dispute, save that redundancies were acknowledged as sooner or later being inevitable. On 16th December 1993 the Policy and Resources Committee of the local authority ["the transferor"] resolved to enter into negotiations with the transferee with a view to effecting a transfer of certain services within which department the two applicants, the first and second respondents in this appeal, were employed. There were extensive consultations between the transferor, staff representatives, the unions and indeed, the transferee, some aspects of which do bear upon this appeal to which we shall return. Suffice it to say that after sundry discussions between the transferor and transferee the proposal to transfer was approved by the transferor on 22nd February 1994. Subsequently certain employees including the first and second respondents applied for redundancy or early retirement, but at the beginning of March in respect of these two gentlemen that request was refused. On respectively 14th and 15th March 1994 both respondents resigned with effect from the end of the month. On 31st March 1994 they ceased to work for the transferor and the transfer was as a matter of history finally completed on 15th April 1994.

The critical findings of the Industrial Tribunal start at paragraph 28:

"28. However, the Tribunal is satisfied that there was an actual breach of contract. The Tribunal is satisfied that there was an actual breach of the implied condition of mutual trust and confidence. In Woods v. W M Car Services (Peterborough) Ltd [1981] ICR 666 Browne-Wilkinson J, said:

"To constitute a breach of this implied term it is not necessary to show that the employer intended any repudiation of the contract: the Tribunal's function is to look at the employer's conduct as a whole and determine whether it is such that its effect, judged reasonably and sensibly, is such that the employee cannot be expected to put up with it ..."

29. All the evidence before the Tribunal was that the behaviour of the 1st Respondent in the weeks leading up to the transfer was such as to lead a reasonable employee to suspect that their terms and conditions might change substantially after transfer and to strike at the basic condition of trust and confidence in that employer after transfer. It notes Mr Elliott's foolish remark and the reaction of Mr McDonald, the 2nd Respondent's Director of Personnel to it. He said that he would have liked to have shot him. This remark led the Applicants and their representatives and fellow employees to believe that any changes would be a result of imposition and despite assurances to the contrary, this belief was confirmed by the words of the 1st Respondent itself. The acknowledgement by the 1st Respondent that changes would come and that proposals for change would be brought forward in the first six months, together with its reluctance to use the word "negotiated" in much of its correspondence in the opinion of the Tribunal justifiably left the Applicants and their union believing that the 1st Respondent could not be trusted to act lawfully and that any change would be to their detriment. The Applicants believed that their livelihood was going to be significantly affected and the Tribunal finds that it was reasonable at that time for them to hold that belief. They had the example of the refuse collectors who used their depot and the fact there was little work at the Elmbridge depot. They also saw their own manager being given redundancy. The Tribunal therefore finds that it was reasonable for them to believe that they could no longer put up with what was happening and that their resignation amounted to constructive dismissal.

30. The Tribunal also finds that the constructive dismissal was in connection with the transfer. It is quite clear that both Respondents had been working satisfactorily for the 2nd Respondent for some time, Mr Pickard for many years. Both had acceptable work records. The actions of the Applicants in putting up their resignations on the canteen notice board, from the use of words such as "slavery" and the fact that neither man had a job to go to indicated to the Tribunal the depth of their anger and discontent about what was happening, i.e. the proposed transfer. The Tribunal finds that their resignation was prompted totally by the transfer and by virtue of Regulation 8(1) was unfair.

31. The question remained who was responsible for the dismissal? The 1st Respondent argued there had been no transfer when they resigned and that the transfer did not take place until over a fortnight after the Applicants' employment ended. The 1st Respondents asked how, if there had been no transfer when the Applicants resigned, could it be liable for a dismissal when it was not the employer. The 2nd Respondent argued that it had not in any way breached the terms and conditions of employment and asked how they could be liable for a constructive dismissal in those circumstances. The Tribunal finds from the evidence before it, particularly from Mr Phillips and others, that the 2nd Respondent had done all it could to facilitate the transfer and to ensure the protection of the terms and conditions of its employees' contracts. It has been argued that it could have ensured a six months' guarantee that terms and conditions would remain the same. The 2nd Respondent's explanation was that such a guarantee could not be enforced. It was also argued that the 2nd Respondent had a duty to ensure the protection of their employees' terms and conditions. The Tribunal noted that it also had a duty to ensure that this function was put out to competitive tendering and that that was a statutory duty imposed upon them as a local authority. The Tribunal is satisfied that in the limited circumstances in which it could operate the 2nd Respondent did all that it could to ensure that the transfer proceeded smoothly and to ensure that its staff were protected and that it was not responsible for the breach of the implied term of mutual trust and confidence.

32. The Tribunal is also satisfied that the cause of the breach was the behaviour of the 1st Respondent. Mr Elliott's foolish remark confirmed all that the Applicants' representatives feared. The equivocal response of the 1st Respondent to many of the questions put to it enforced that fear. The question then is how can a party who is not at the relevant time the Applicants' employment ends be held responsible for termination of their employment. Mr Pitt-Payne referred to the House of Lords in Litster & Others -v- Forth Dry Dock & Engineering Co Ltd (in Receivership) and Another

[1989] IRLR 61

. In the Litster case the employees were summarily dismissed at 3.30 p.m. on the day of the transfer. Immediately after the transfer the transferee began to recruit, but did not recruit the appellants. The House of Lords held that the unfair dismissals were transferred to the transferee, along with the undertaking, by the requirement to read the words "immediately before the transfer" in Regulation 5(3) as if the words "or would have been so employed if he had not been unfairly dismissed in the circumstances described in Regulation 8(1)" had been inserted immediately after. The Tribunal is therefore satisfied that a party can become liable for an unfair dismissal, even though that party never became the employer of an applicant. The Tribunal notes that the definition of "dismissal" in section 55(2) of the Employment Protection (Consolidation) Act 1978 includes constructive dismissal in subsection (c). The Tribunal finds that the effect of the Directive and the Regulations is to treat the contract of employment as continuing. If that is so, then the behaviour of the transferees becomes relevant before the transfer as well as after it. If, before the transfer, the transferee by its behaviour leads the employee to resign, then the transferee must bear responsibility for that resignation, in the same way as if there the employee had been dismissed as in Litster. Otherwise the Regulations could be avoided by treating future employees in a way that induces or encourages them to resign their employment. The Tribunal is satisfied that if the behaviour of the 1st Respondent had not been such to breach the Applicants' contract, the transfer would have gone ahead and the Applicants would have been employed after the transfer. The Tribunal does not find that the fact that there is a gap from 1 to 15 April 1994 significant. When the Applicants resigned they and everyone else believed that the transfer would take place on 1 April. The fact that there was slippage in the date does not, in the opinion of the Tribunal, affect the analysis of the facts. The resignation was immediately before what was believed to be the date of the transfer. The Tribunal therefore finds that the Applicants were unfairly dismissed by the 1st Respondent."

Against that background, we heard excellent argument from Counsel for the appellants and the first and second respondents respectively. We also allowed the third respondents a locus through Counsel having regard to their interests in the matter, although in fact they were inviolate in terms of any consequences of this particular appeal. Counsel therefore also appeared for them and made some helpful observations.

Before considering the submissions of the parties in detail, it is necessary to establish the three main facts. Firstly that at the time of their resignations the first and second respondents were both employed by the third respondent, the transferor, and were never in the employment of the appellants. Secondly, it follows from this, and this was not disputed at the Bar, that if the tribunal's findings were intended to convey a conclusion that a breach of contract of employment was made out on any aspect of this case, the employer in that contract could not be the appellants both as a matter of fact and law. Thirdly, as a matter of law, again not disputed, the effect of the Transfer of Undertakings Regulations 1981 ["TUPE"], was to affect a statutory novation of a contract of employment of any employee in employment, at the time of the transfer, with the transferor, subject always to the additional gloss to be put on that proposition by the case of Litster & Others v Forth Dry Dock & Engineering Co

[1989] IRLR 161

. Against that background Counsel for the appellants first proposition was that properly read the Industrial Tribunal had clearly misdirected themselves in holding on the face of the decision that there was a breach of contract on the part of the appellants. In support of this argument, which was essentially one of interpretation of the decision, Counsel founded upon the last sentence in paragraph 31 on page 14 of the decision, together with a sentence in the middle of the same paragraph, the last sentence in paragraph 32 of the decision and the construction that the same tribunal put upon their first decision when considering the question of remedy in their second decision dated 1st February 1996, in particular at the top of page 2 of that decision. Since none of the three preliminary observations that we have made supra could be disputed, this argument was bound to succeed if it represented a proper interpretation of the Industrial Tribunal's decision. Counsel went on to submit that in paragraph 32 of its decision the tribunal while correctly representing the general propositions to be taken from the case of Litster supra , wholly misunderstood its implications with regard to such a situation where a contract of employment was terminated by the transferor prior to the transfer taking place, always assuming Regulation 8 did not bear upon the situation which in the present case it did not. Put simply, there was nothing to be transferred on the evidence from the transferor to the transferee as far as any contract of employment or liability was concerned with regard to either of these two respondents. The tribunal in seeking effectively to blame the conduct of the appellants for what had happened were confusing cause with legal responsibility.

In reply to this argument Counsel for the first and second respondents recognising the impossibility of sustaining in law an argument that any contract of employment that was breached in this case was between the respondents and the transferee, submitted a substantial argument to the effect that, firstly, properly understood, the decision of the tribunal, albeit at times slightly difficult to follow, was effectively that they were holding to be breached the contract of employment between the respondents and the third respondent, the transferor, and not any contract apparently to exist between the respondents and the appellants. This, it was submitted they were doing under reference to blaming the conduct of the appellants for that breach in the context that an employer impliedly owed a duty to his employee to maintain his confidence and trust and in the particular circumstances of this case, the employer, the third respondent, had breached that implied term in such a material way as to entitle the respondents to repudiate the contract by resignation. Assuming, Counsel went on, that that interpretation of the actual decision of the tribunal was incorrect, he nevertheless submitted that as a matter of principle they reached the right result on the basis that the law recognised the existence of this implied term, enunciated by Browne-Wilkinson J, in the case of Wood quoted in the tribunal's decision in paragraph 28. He buttressed this argument of principle by reference to the historic case of Nokes v Doncaster Amalgamated Collieries Ltd [1940] A.C. 1014 , and more recently, in a decision of the Court of Appeal in Newns v British Airways

[1992] IRLR 575

. There was nothing unsound in principle said Counsel in the proposition that a breach of such a term of contract, be it of confidence or good faith, could arise from the conduct of a third party if it was within the power of the employer to avoid his employees being effected by such conduct and yet declining to exercise that power, thus exposing them to it. Counsel went on to point to the findings of the tribunal as to the reasons why the appellant's conduct, albeit transposed as a matter of responsibility to the employer in certain particular ways, justified the employee looking to the future to consider that his present employer, was breaching the contract of trust by going ahead with the transfer and exposing him to the new employer which would automatically happen upon transfer.

It is at this point necessary to note that by way of secondary and subsidiary argument Counsel for the appellants submitted that the facts relied upon by the tribunal effectively criticising the conduct of the appellants with reference to how they would behave once the transfer was effected were insufficient to warrant a conclusion of such apprehension and gravity with regard to the likely futures of the employees as to amount to a material breach of some contract whatever is was affecting the employees. He recognised that he would have to establish that the findings of the tribunal in this respect in applying these facts was perverse but did not shrink from so doing.

Counsel for the first and second respondents recognised that if his argument was correct in law it still had to depend upon the tribunal's findings with regard to these issues as regards the conduct of the appellants as acceptable and sufficient to achieve a material breach of contract, and in this respect, he simply adopted the approach that the tribunal took arguing that each of the factors taken into account bore upon the issue and cumulatively achieved sufficient weight.

Finally in rehearsing the arguments, Counsel for the third respondent first of all submitted that, in the context of mutual confidence and trust, where whatever the employer was alleged to have done did not deny or remove a remedy from the employee, it could not be said that there was a breach of the mutual confidence and trust implied term. In this case the effect of TUPE was to give absolute protection to the employees of their existing contracts with consequent rights if any attempt was made unlawfully by the transferee to vary, reduce or otherwise damage their employment rights in the particular contract. He also submitted, as a mater of generality, the dire consequences of introducing into the whole question of transfers of undertakings possible consequences to the employees by reason of attitudes being displayed by the transferee as to their future conduct with regard to the transferred undertaking. Such, it was submitted, would lead to uncertainty and a quite unwarrantable control or power being exercised by the workforce when the employer was endeavouring on this hypothesis to achieve the best result both for the undertaking and its employees. While "floodgates" arguments are never attractive, it has to be said in this case that they are not without relevance.

Finally, we were addressed on remedy, Counsel for the respondents seeking initially dismissal of the appeal, failing which a remit for clarification as to its intended results and reasoning to the same Industrial Tribunal, finally recognising that we could grant the appeal and reverse the decision simpliciter . In addition to this, Counsel for the appellants recognised another option was to remit back to the Industrial Tribunal further to consider properly, in view of the ambiguity of the decision, in the context that it was relevant to examine the conduct of the appellants, to determine whether or not the third respondents were in breach of their contract of employment with the first and second respondents, and whether the facts warranted such a conclusion.

In seeking to resolve this matter, we turn first to attempt to construe the content and meaning of the Industrial Tribunal's decision. We have come without much hesitation to the inescapable conclusion, particularly having regard to the phraseology used, that the tribunal misdirected themselves, in as much that they were considering whether or not the contract of employment which was broken was that between the appellants and the employees. It cannot again be disputed as a matter of the common law that a third party cannot be held responsible for a breach of contract between two other parties, unless by wholly separate wrong whereby he or she has induced that breach. No such suggestion is made in this case. Accordingly, if there is to be any liability upon the appellants it must come to them under the transfer regulations which itself assumes that there was a breach of contract by the transferor creating a liability which thus becomes transferred. It may be that this is the issue to which the tribunal was directing itself in paragraph 32, but as a matter of interpretation we are far from satisfied that this is the case. In our view the tribunal wholly misdirected itself ex facie of its decision by even addressing the idea that the appellants could be in direct breach of contract with the two employees.

However the matter does not end there since Counsel for the respondents recognised that if the proper interpretation to be put upon the tribunal's decision was the one upon which we have just reached a conclusion, contrary to his own interpretation argument, the real issue is whether despite its reasoning the tribunal reached the correct conclusion upon the application of the law to the facts it found proved. This upon one view is the heart of this case, which we now turn to consider whether upon the approach of Counsel for the respondents in view of the interpretation that we have reached, or whether upon the view that our interpretation is wrong and that of the first and second respondents is to be preferred.

It cannot be doubted that between employer and employee there exists within the terms of the contract, albeit implied in most cases, a duty upon the employer to maintain the trust and confidence of his employee and to act in good faith towards him. The question is whether that term can be breached by reason of the actions of third parties. It is our conclusion that in general terms such could only occur in the rarest of cases even as a matter of principle. We cannot exclude the case that in the context of transfers of undertakings the consequences of the proposed transfer, as known to the transferor, to his employees are so dire, whether in health and safety terms or otherwise that the proposal on the part of the employer to go ahead with the transfer could so undermine the confidence relationship with his employees as to defeat it. But again, as a matter of principle, we are quite unable to agree with the proposition that this can apply when what is at risk, however serious it may be, is the preservation after the transfer of the employee's current terms in his contract with the transferor. We say this because TUPE provides an absolute answer by way of remedy to any attempt by the transferee to alter those terms unlawfully after the transfer. We do not consider that conduct of an employer, albeit induced or related to the conduct of a third party potential transferee which may affect in due course his employee, can be regarded as sufficiently drastic with regard to the obligation of mutual trust and goodwill, if it does nothing to alter the remedies available to the employee upon transfer. In our opinion the implied term properly understood should relate to situations where there is no other remedy than that the employee must resign in his own interests. Without therefore wishing to exclude a case where third party conduct may bear upon this implied term, we cannot see how it can do so in a context of transfer of undertakings where the complaints or fears of the employee relate solely to the terms and conditions of his contract and where the substance of those complaints and fears are totally protected by the operation of the regulations.

In our analysis therefore, the principle enunciated by Counsel for the respondents cannot apply in the present context, and if it had been applied by the tribunal accepting his interpretation, we would have held that approach to be erroneous in law.

That being so, it is our view that this appeal must succeed. But since arguments have been advanced as to perversity which no longer bears upon the issue, we would go on to assert that assuming we were wrong and that the questions of conditions and terms of service could raise legitimate fears in the employee's mind with regard to an impending transfer amounting to a breach of the implied term of trust, we do not consider that the elements relied upon by the tribunal in this respect are remotely sufficient in weight and relevance to amount to a material or repudiatory breach. There was a "foolish" remark by one of the transferees senior management in the course of discussions with the employees. There appears to have been some reluctance on the part of the transferee to give guarantees pending the transfer. There appears to have been some fears as to the way the transferee might behave towards his workforce in the future having regard to the way it had behaved in the past on two separate occasions as enunciated; and there was concern that the particular respondents immediate line manager was going to be dismissed. All these factors may be worrying, but in the context of the implied term under consideration, no where reach a level that could be regarded as material to warrant repudiation by the employee. Accordingly if this issue is still live, we would have favoured the appellants on this point also.

In these circumstances we find positively that the tribunal misdirected itself as to the question of what contract it should have been considering as between the employees and the transferor and transferee. But assuming it did direct itself to the right question, namely whether there was a breach of the contract between the transferor and the employees, a conclusion that such a breach took place entitling repudiation is supportable neither in law nor fact.

For these reasons it is our opinion that this appeal must succeed and accordingly we will reverse the decision of the Industrial Tribunal. We are not empowered in this hearing to make any order with regard to the findings of the second tribunal on the question of compensation, but we would proffer the view that, given our conclusion in this case, that, so long as it stands, the order made by the second tribunal is superseded.