Ward & Anor v Beresford & Hicks Furniture Ltd & Anor [1996] UKEAT 860_95_1612

EAT
Ward & Anor v Beresford & Hicks Furniture Ltd & Anor
[1996] UKEAT 860_95_1612 · 1996-11-06
For the 1st Respondent For the 2nd Respondent MR J HOSKINS (of Counsel) Messrs Bevan Ashford Solicitors 35 Colston Avenue Bristol BS1 4TT MR S DAVENPORT (of Counsel) Messrs Kenneth Bush & Co Solicitors Evershed House 23/25 King Street King's Lynn Norfolk PE30 1DUMRS JUSTICE SMITH : This is an appeal from the decision dated 4th July 1995 of an Industrial Tribunal sitting at Bury St Edmunds.There were before the tribunal applications by two groups of workers for compensation for unfair dismissal in circumstances which involved a transfer of the business for which they were working. The first respondents, Beresford and Hicks Furniture Ltd ["Beresfords"] were manufacturers of high quality furniture. They were part of a group of companies called Cabinet Makers Plc. In late 1992 the group fell into financial difficulty and on 22nd March 1993 Barclays Bank Plc, who were debenture holders, appointed joint administrative receivers for all companies in the group including Beresfords. Within a few days, the Receiver had made redundant 64 Beresford employees. About 61 employees remained. The Receiver then advertised Beresfords' business for sale and on 15th June 1993 the second respondents purchased sufficient of the assets that the purchase constituted the transfer of an undertaking to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 ["TUPE Regulations"] applied.By letters dated 4th June 1993, 35 employees had been given notice of termination of their employment for redundancy by the Receiver on behalf of Beresfords. Those notices, which were to have immediate effect upon receipt, were received by some employees on 5th June, by some on the 6th and by some on the 7th. We shall refer to those as the 4-7th June dismissals. Twenty-six employees then remained in employment. They were dismissed as redundant by the Receiver at 1pm on 15th June 1993. The transfer to the second respondents took place at 4pm that afternoon.Both groups of employees, the 35 and the 26, presented claims alleging that they had been unfairly dismissed. The Tribunal held that all 61 employees had been unfairly dismissed by the Receiver on behalf of Beresfords. They were all dismissed summarily without any consultation. Beresfords were insolvent and there would be no proceeds available in the administration for unsecured creditors. Both groups of workers also sought a remedy against the second respondents who were solvent. In order to succeed against the second respondents, each group of employees relied on the provisions of the TUPE Regulations.It is convenient to set out the relevant provisions of the TUPE Regulations. Regulation 5(1) provides:-"A relevant transfer shall not operate so as to terminate a 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".

Regulation 5(3) provides:-

"Any reference in paragraph (1) ... 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 effective by a series of two or more transactions, a person so employed immediately before any of those transactions".In the case of LITSTER V FORTH DRYDOCK CO LIMITED [1990] 1AC 546 the House of Lords held that in order to give effect to the purpose of the TUPE Regulations, additional words must be implied into Regulation 5(3) so that it would read:-
"Any reference in paragraph 1 above to a person employed in an undertaking ... is a reference to a person so employed immediately before the transfer - or a person who would have been so employed if he had not been unfairly dismissed in the circumstances described by Regulation 8.1 - ..."

Regulation 8(1) provides :-

"Where either before or after the relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated ... as unfairly dismissed if the transfer or a reason connected with it is the reason or principle reason for his dismissal".Both groups of employees sought to demonstrate that they would have been employed by the transferor immediately before the transfer had they not been unfairly dismissed for a reason connected with the transfer. If they could show that, their contracts of employment were not terminated by the transfer and they were entitled to any benefit which would flow from employment by the second respondents immediately after the transfer on 15th June 1993.The Industrial Tribunal accepted the employees' submission in respect of the second group, that is the group who were dismissed at 1pm on the 15th June. They held that this group had been unfairly dismissed for a reason connected with the transfer and would otherwise have been employed by the transferor immediately before the transfer. Those employees therefore succeeded against the second respondents.The Tribunal held that the group dismissed on 4-7th of June had been unfairly dismissed but that the reason for the dismissal was not the transfer or a reason connected with it so that they would not in any event have been employed by the transferor immediately before the transfer. So that group had no remedy against the solvent second respondents. This appeal was brought by that group and the question arising is whether the Tribunal were entitled to find that reason or principal reason for the dismissal was not the transfer or a reason connected with it. The appellants' contention was that the tribunal's conclusion was perverse in that it was plainly and obviously wrong.It is necessary to set out the course of events in some detail. The Tribunal heard evidence from Mr Barnett who was responsible for the receivership of Beresfords. They found that when he first attended at the Beresford factories in March 1993, he found high levels of stock and work in progress. His intention was to allow the business to run for about 10 to 12 weeks in order to give time to complete the work in progress and negotiate the sale of part of the business. He estimated that he would need to keep on about 60 workers to complete the work in progress. Accordingly he dismissed 64 employees within a few days.By the end of March the sale had been advertised. During April several prospective purchasers showed an interest, one of whom was Mr Ferero, the Managing Director of the second respondents. On 26th April 1993, Mr Ferero made an outline offer of purchase. On 10th May, he submitted a revised offer. On 13th May the second respondents' bankers sent a letter of support for the proposal to purchase. On 14th May the second respondents began negotiations with the lessors of the factory premises which they wished to take over if they were to proceed with the purchase.By mid May all prospective purchasers except the second respondents had ceased to show interest. As they appeared to be serious contenders, Mr Barnard allowed Mr Ferero to meet Mr Thompson, Beresford's General Manager. Mr Ferero told the Tribunal that Mr Thompson gave him a list of employees who in his opinion were the minimum number who could manufacture Beresford's furniture at the level of turnover envisaged by Mr Ferero. The list comprised those people who Mr Thompson thought were the best workers. Mr Ferero wished to re-employ those employees after the purchase.Beresford's employees were due to start their annual 2 weeks holiday on Friday 21st May. They were due to return on Monday 7th June. Mr Barnett decided that production would not be resumed at the end of the 2 week holiday. He would not then need most of the production workers and he planned to make them redundant at that stage. These plans fitted in with the run down of manufacturing in other centres within The Cabinet Makers Plc Group and it also accorded with his original intention to complete the work in progress at Beresford's within 10-12 weeks. He said that his decision to make redundancies after the works holiday crystallised during the week commencing 1st June. His plan was to retain only sufficient craftsmen to deal with repair work arising from warranty claims. Also he wanted to keep a few members of the accounts department to pursue debtors. In addition he would need a few staff for the care and maintenance of the premises and the preparation of items for sale by auction, which would take place several months later if there were no sale of the business in the meantime.Meanwhile, during late May the second respondents continued with their attempts to purchase the business. By 25th May they had successfully negotiated terms with the lessors. By 27th May a draft contract had been exchanged. That contained a provision which envisaged that all Beresford employees would have been dismissed by reason of redundancy and their employment effectively terminated prior to the transfer date.On 3rd June 1993 there was a meeting between the Receivers and the second respondents, attended inter alia by Mr Barnett and Mr Ferero. A full note of the proceedings was kept. Mr Barnett said that he was unhappy about the delay in completion of the purchase, which was due to the lawyers. Mr Ferero did not think his lawyers would be ready to complete by 11th June. He told Mr Barnett that he wanted to start moving stock from the factory which he was not taking over to the factory that he was hoping to take over. Mr Barnett would not agree to the movement of any stock until the agreement had been signed. Mr Barnett said that he would be making all the production staff redundant by letter on 4th June. Mr Ferero said that he had a list of 43 people whom he would be willing to re-employ. They were the employees recommended by Mr Thompson. Mr Barnett agreed that Mr Ferero could speak to the employees' Trade Union. There were more discussions about the completion date. Both sides were keen to complete as soon as possible. Mr Ferero offered to pay the employees' wages for the week after their return from holiday so that they could move stock but Mr Barnett still would not agree. Finally, Mr Ferero asked Mr Barnett how, if the Receivers made the employees redundant, could they be re-employed by the second respondents? Mr Barnett said that that was not his problem.Mr Barnett explained to the tribunal and the tribunal accepted that his reason for refusing to allow the second respondents to move stock before the agreement had been signed was that he preferred to keep up the pressure on a prospective purchaser. He thought that no deal was safe until the agreement was signed. He refused to agree to the proposal to keep on the employees for an extra week as he thought such a proposal was not in the best interests of the creditors. The decision had been taken earlier to cease production. That was a decision which the tribunal found had been taken in good faith and with a view to preparing for a sale of the assets by auction. Once production had ceased no profits could be made. Mr Barnett wished to limit the drain on the company's financial resources.Mr Barnett caused redundancy notices to be sent to 35 production workers on the following day, 4th June. No notice was given; the dismissals took effect on receipt. They were all received on or before 7th June. Mr Barnett told the tribunal that he did not pay any attention to the employees' rights or interests in reaching his decision to dismiss summarily. His duty was to the debenture holders and the preferential creditors. It was these dismissals and the reason for them which were under consideration in this appeal. However, for the sake of completeness, we set out the remaining history.Negotiations for the sale and purchase of the business then proceeded rapidly. On 10th June there was a further meeting at which final agreement was reached. The Tribunal had before them a full note of that meeting. One of the main points of contention was the position of employees. Clause 8 of the agreement provided that the purchaser would make an additional payment to the Receivers in the event that the Receivers were successful in persuading the Department of Employment (DoE) to accept the redundant employees' claims for redundancy payments. It was envisaged that all employees' employment would have been effectively terminated prior to the transfer. The employees' claims for redundancy payments would be referred to the DoE, because the dismissing employers were insolvent. The Receiver would try to persuade the DoE to pay the employees' claims. The parties acknowledged that there was a risk that the DoE might refuse, on the ground that the employees had been transferred to the second respondents pursuant to the TUPE Regulations. If the claims were rejected, the second respondents would have to pay those claims which could amount to as much as £340,000. It was therefore agreed that, to the extent that the Receiver was successful in persuading the DoE to pay the claims, the second respondents would pay an additional purchase price equivalent to the amount paid out by the DoE, up to a ceiling of £150,000. We understand that this type of agreement is common between Receivers and prospective purchasers. It is clear that the Receivers were, in accordance with their duty to the debenture holders, seeking to maximise the receipts of the receivership regardless of the rights of employees. Also, the purchasers were seeking to avoid the transfer to them of the burden of Beresford contracts of employment. They wanted to be free to re-employ a hand-picked group of employees on terms which they themselves laid down.The final group of Beresford employees were dismissed at 1pm on 15th June 1993. At 4pm the agreement for the sale and purchase of assets was completed. We understand that some employees were re-employed. Of the 43 employees whom Mr Ferero wished to re-employ, some had been dismissed on 4-7th June and some were dismissed on 15th June.In respect of the employees who were dismissed on 4-7th June, the tribunal rejected the employees' contention that they had been unfairly dismissed for a reason connected with the transfer and that if they had not been they would have been employed by the transferor immediately before the transfer. The tribunal said that the Receivers' decision to dismiss them 'was a consequence of their primary decision to cease trading. It was not connected with the proposed sale of the business to the second respondents.'Mr Hogarth for the appellants accepted that the tribunal's finding was one of pure fact with which this Appeal Tribunal cannot interfere unless it was perverse. He submitted that the tribunal's conclusion was plainly wrong. He argued that by examining the course of the negotiations, one could see quite clearly that the real reason why Mr Barnett decided to dismiss the group of 35 employees on the 4-7th June was in order to encourage and advance the prospects of the sale of the business. The prospective purchasers did not want the burden of the Beresford contracts of employment. That could be seen from clause 8 of the agreement which, from the first draft, envisaged the dismissal of all employees before completion. Thus the dismissals on 4-7th June must have been designed to improve the prospects of completion. Therefore the reason for those dismissals was 'connected with the transfer.' He submitted that the point was even clearer when one saw how advanced the negotiations were by 4th June, how clear it was that Mr Ferero was anxious to proceed and how quickly the deal was concluded after the meeting on 3rd June. Mr Hogarth also submitted that Mr Barnett's reason for dismissing the 35 on 4th June rather than allowing them to stay on for another week was a reason connected with the transfer. If the 35 had been kept on for another week, they might have had continuity of employment which would have carried them through the transfer or, if not, they would have been dismissed so close to the time of the transfer that the inference that they had been dismissed for a reason connected with it would have been overwhelming.For the respondents it was submitted that the decision was one which was open to the tribunal on the evidence and was one with which we could not interfere.The tribunal's reasoning was very shortly expressed. We say that not as criticism but we have have felt that, in order to understand their reasoning, it is helpful to set out the factors which the tribunal accepted had or must have been present to Mr Barnett's mind when he decided to dismiss the group of 35 employees on 4th June.From the start, it was Mr Barnett's intention that production should cease when work in progress had been completed. That was expected to happen 10 to 12 weeks after the appointment of the receivers. So, as Mr Barnett said, the two week holiday formed a natural break after which production would not be resumed. After that time the business would need only a skeleton staff of 26 for warranty work, collecting debts and preparing stock for auction. The business would not need the 35 production workers.Meanwhile, Mr Barnett must have been hoping to effect a sale of the assets. As he explained to the tribunal, an early sale to the second respondents would be financially better for the debenture holders than a sale of the stock at auction several months later. All the employees would have to be made redundant before the completion of the sale, at the insistence of the prospective purchasers. It appeared that Mr Ferero would have preferred that they be kept on until just before completion. Whether that was in order to facilitate re-employment or to effect the movement of stock is not clear.Thus, when considering his position just before the 4th June, Mr Barnett must have thought that whether the sale went through or not, his best course was to dismiss the 35 production workers forthwith, with immediate effect. He had no use for them after the holiday whether or not the sale went through. If he dismissed them with notice, the Receivers would be liable to pay several weeks wages for each employee. He could have kept them on for another week and then dismissed them summarily, but for what purpose? Only to please Mr Ferero. He could not use them to the Receivers' advantage. He did not care whether or not some of them might be re-employed by the second respondents. Keeping them on would cost something even though Mr Ferero was prepared to pay their wages for the week. It was in the Receivers' interests to dismiss the 35 production workers as soon as possible after the holiday, whether or not the sale was to go through. The real test as is seems to us is to ask what would have happened if Mr Ferero had called off the sale five minutes before these notices of dismissal were signed. They would still have been signed.Analysed in this way we think it was plainly open to the tribunal to hold that the reason or the principal reason for the dismissal of the 35 production workers was not the transfer or a reason connected it. The reason was that summary dismissal on 4th June was in the best interests of the debenture holders and the receivership. Indeed had Mr Barnett decided not the dismiss the 35 production workers on 4th June, but had elected to keep them on for another week, the reason for that decision might well have been 'the transfer or a reason connected with it'. Had he done that, one might readily have said that he was seeking to promote the sale by complying with the prospective purchaser's wishes. But he did not; he refused to cooperate with Mr Ferero's plans.We have no doubt that the tribunal were entitled to reach the conclusion that the reason for Mr Barnett's decision to dismiss the 35 employees on 4th June was not connected with the transfer. Accordingly, this appeal fails and is dismissed.