Lassman & Ors v Secretary Of State For Trade & Industry & Anor [1998] UKEAT 167_97_2711

EAT
Lassman & Ors v Secretary Of State For Trade & Industry & Anor
[1998] UKEAT 167_97_2711 · 1998-05-20

JUDGE PETER CLARK :

This is an appeal by Mr Lassman and ten other former employees of Pan Graphics Industries Ltd (In Receivership) ["Pan Graphics"] against a decision of the London (North ) Industrial Tribunal (Chairman: Mr C B Robson) first promulgated with extended reasons on 3rd December 1996, corrected by a certificate signed by the Chairman on 4th December 1996 ["the original decision"] and varied on review by a further decision with extended reasons promulgated on 13th March 1997 ["the review decision"], limiting the period of continuous employment of the appellants for the purposes of calculating redundancy payments due from the Secretary of State for the Department of Trade and Industry ["the Department"] to the period 5th April 1988 until their dismissal by Pan Graphics' receivers by reason of redundancy on various dates during 1995.

The Facts

Each appellant was employed by Rotaprint PLC ["Rotaprint"] from various dates prior to March 1988. For example, Mr Lassman commenced his employment with Rotaprint on 16th August 1979.In early 1988 receivers took over the running of Rotaprint's business. On 4th March 1988 150 out of the 400 factory workers employed by Rotaprint were declared redundant. These appellants were not included amongst those 150.On or about 29th March 1988 the Receivers of Rotaprint entered into an Option Agreement with Tiltcode Ltd ["Tiltcode"] giving Tiltcode the option to buy Rotaprint's business. On Maundy Thursday, 31st March 1988, all remaining employees of Rotaprint, including these appellants, were dismissed. Mr Lassman was taken into the employment of Tiltcode a few days earlier, and following the Easter weekend worked as a director and employee of Tiltcode, doing much the same work as he had done for Rotaprint.Although given notice of dismissal on 31st March, the then existing Rotaprint employees, including the other ten appellants, were invited to report for work with Tiltcode after the Easter weekend. They did so and continued to perform the same duties in the same places under the same managers and on the same terms and conditions of employment as had applied with Rotaprint.In June 1988 each of the appellants received a payment from the Department, described as a redundancy payment, on the basis of their respective periods of continuous employment with Rotaprint up to their "dismissal" on 31st March, Rotaprint being insolvent within the meaning of the what is now s. 166(1)(b) of the Employment Rights Act 1996 ["the Act"].We should interpose an historical note at this stage. Under the law as it was then understood the Department may be assumed to have taken the view that these appellants had been dismissed by the receivers of Rotaprint by reason of redundancy on 31st March 1988; there was no relevant transfer of an undertaking to Tiltcode such as to preserve continuity of employment and that accordingly the Department was obliged to make the "employers' payment" under what is now s. 167 of the Act. That understanding of the law was not to be altered until the House of Lords pronounced judgment in Litster v Forth Dry Dock [1989] ICR 341 in March 1989.Resuming the narrative, the appellants continued in their employment with Tiltcode, which subsequently changed its name to Pan Graphics, until that company went into receivership and each appellant was made redundant during 1995. It is common ground that Pan Graphic was insolvent, and that the appellants each claim redundancy payments and pay in lieu of notice based on their continuous service having commenced at the beginning of their employment with Rotaprint. The Department would only make those payments on the basis that their period of continuous service began on 5th April 1988, that is, when Tiltcode took over the former business of Rotaprint.Dissatisfied with those payments the appellants applied to the Industrial Tribunal under what is now s. 170 of the Act for determination of the liability of the employer to pay the employers' payment, and consequently for payment of the correct amount due from the Department standing in the shoes of the insolvent employer.

The original decision

On the first day of the hearing before the Industrial Tribunal it was conceded on behalf of the Department that a relevant transfer within the meaning of the TUPE Regulations 1981 took place between Rotaprint and Tiltcode at Easter 1988.It was submitted on behalf of the Department that continuity of employment was broken by the payment of a statutory redundancy payment by virtue of the provisions of s. 214 of the Act.The material provisions of s. 214 are:
"(1) This section applies where a period of continuous employment has to be determined in relation to an employee for the purposes of the application of section 155 or 162(1).
(2) The continuity of a period of employment is broken:(a) a redundancy payment has previously been paid to the employee (whether in respect of dismissal or in respect of lay-off or short-time), and(b) the contract of employment under which the employee was employed was renewed (whether by the same or another employer) or the employee was re-engaged under a new contract of employment (whether by the same or another employer).. ..(5) For the purposes of this section a redundancy payment shall be treated as having been paid if-. ..(c) the Secretary of State has paid a sum to the employee in respect of the redundancy payment under section 167."For the appellants, Mr Lassman submitted that for the purposes of s. 214(2)(a) the previous payment must be a redundancy payment which the employer was liable to pay under the Act. It must be a statutory redundancy payment. He relied on Rowan v Machinery Installations (South Wales) Ltd . [1981] IRLR 122 , a decision of this Appeal Tribunal presided over by Slynn J., for that proposition.Further, he tells us that he took a second point, that there was no renewal or re-engagement within the meaning of s. 214(2)(b), subparagraphs (a) and (b) of s. 214(2) being conjunctive. Mr Britten for the Department accepts that this point was taken below and not adjudicated on by the Industrial Tribunal. It is further agreed between the parties that we should rule on the point in this appeal.The Industrial Tribunal rejected the appellants' case, holding that a distinction was to be drawn between a redundancy payment made by the employer and one paid by the Department. Their reasoning is set out at paragraph 24 of the original decision, later affirmed in paragraph 24 of the review decision as follows:
"24 Section 214(2)(a) provides that the continuity of a period of employment is broken where a redundancy payment has previously been paid to the employee. Mr Lassman's submission is that this must mean a redundancy payment which the employer was liable to make. In the present case, however, we are dealing with a payment made by the Secretary of State and not by the employer. Section 214(5)(c) deals with the situation quite explicitly. It says a redundancy payment shall be treated as having been paid if the Secretary of State "has paid a sum to the employee in respect of the redundancy payment under section 167." (our italics) The statute draws a clear distinction between, on the one hand, a redundancy payment proper [ sic ] made by the employer and, on the other hand, a payment made by the Secretary of State "in respect of" a redundancy payment under section 167. Section 167 relates to the making of payments by the Secretary of State in relation to "employer's payments" and the expression "employer's payments" is defined in section 166(2) as meaning, among other things, "a redundancy payment which his employer is liable to pay to him." That does not, in our view, mean that section 214(2)(a) and (5)(c) only operate so as to break continuity of service where the payment made by the Secretary of State relates to a redundancy payment that the claimants employer is liable to make. It is enough, we consider, for the Secretary of State's payment to be made "in respect of" such a redundancy payment and a payment is so made if it is made in respect of a redundancy payment which the Secretary of State believes the employer is liable to pay, whether or not the employer is in law liable to pay it."
The tribunal then went on to hold in paragraph 25 of their reasons that in any event the appellants were estopped from asserting that payments made to them by the Department in 1988 were not made in respect of redundancy payments which their employer was liable to pay them.In conclusion, the Industrial Tribunal dismissed the appellants' Originating Applications.On 5th December Mr Lassman wrote to the Industrial Tribunal, pointing out that the basis of the original decision went to the issue of continuity of employment for the purposes of calculating redundancy payments, but did not affect the question of continuity for the purposes of the claims for pay in lieu of notice.By letter dated 31st January 1997 the Department accepted that the provisions of s. 214 did not affect the claim for pay in lieu of notice and conceded that the appellants "are accordingly entitled to payment under s. 182 of the Act in respect of payments in lieu of notice taking into account the full period of their combined service with Rotaprint and Tiltcode/Pan Graphics, up to the statutory maximum of 12 weeks." (Review decision. Paragraph 2).Accordingly the Industrial Tribunal allowed the review and varied the original decision so as to award each appellant the claimed additional pay in lieu of notice.We see also, in the varied original decision annexed to the review decision, that the Industrial Tribunal deleted paragraph 25 of the original decision, that is the finding of estoppel. The Department does not support that basis for the original decision as to redundancy payment entitlement, quite properly in the light of the House of Lords decision in Secretary of State for Employment v Globe Elastic Thread Co. Ltd [1979] ICR 706 .

The statutory provisions

Redundancy payment

By s. 135 of the Act an employer shall pay a redundancy payment to an employee of his if the employee is dismissed by the employer by reason of redundancy, or is eligible for a redundancy payment by reason of being laid off of kept on short-time. No question of lay-off or short-time arises in this case. Accordingly, the right to a redundancy payment from the employer is dependent on the employee having been dismissed."Dismissal" is exhaustively defined in s. 136. It arises in three circumstances:(a) if the contract under which he is employed by the employer is terminated by the employer, with or without notice,(b) if he is employed under a contract for a fixed term and that term expires without being renewed under the same contract. By s. 235(1) renewal includes extension, and any reference to renewing a contract or a fixed term should be construed accordingly.(c) constructive dismissal.In this case neither (b) or (c) arises.By s. 138 the employee shall not be regarded for the purposes of Part XI of the Act (redundancy payments) as dismissed if his contract of employment is renewed, or he is re-engaged under a new contract of employment in pursuance of an offer (whether in writing or not) made before the end of his employment under the previous contract, and the renewal or re-engagement takes effect immediately on, or after an interval of not more than four weeks, after the end of that employment. In these circumstances the original dismissal "vanishes" and there is then no dismissal on which to found an entitlement to a redundancy payment.For the purposes of entitlement to a redundancy payment the employee must have completed at least two years continuous service at the effective date of termination (that is the date of dismissal. S. 155.) The redundancy payment is calculated by reference to the number of years continuous service to be counted and the employee's weekly wage, subject to the statutory maximum in force at the effective date of termination. S. 162.

Continuous Employment

We have earlier set out the material provisions of s. 214 of the Act. We should also refer to s. 218, which deals with the change of employer. By s. 218:
"(1) Subject to the provisions of this section, this Chapter relates only to employment by the one employer.
(2) If a trade or business, or an undertaking (whether or not established by or under an Act) is transferred from one person to another-(a) the period of employment of an employee in the trade or business or undertaking at the time of the transfer counts as a period of employment with the transferee, and(b) the transfer does not break the continuity of the period of employment."

Employer's Insolvency

Payment by the Department under Chapter VI of Part XI of the Act of a payment to the employee will arise, inter alia, where the employee claims that his employer is liable to pay to him an employer's payment and that he has taken all reasonable steps to recover the payment from the employer, it remains unpaid and the employer is insolvent. S. 166(1).An "employer's payment" means, for present purposes, a redundancy payment which his employer is liable to pay to him under Part XI of the Act. S. 166(2).Where, on a s. 166 application by the employee in relation to an employer's payment, the Department is satisfied that the employee is entitled to the employer's payment and that it remains unpaid and the employer is insolvent, a sum equivalent to a redundancy payment shall be paid to the employee.

The Appeal

The first point taken by Mr Lassman in this appeal focuses on s. 218(1) of the Act. He submits that the effect of the sub-section is to preclude the Department from relying on the provisions of s. 214 because Chapter I of Part XIV of the Act applies only to employment by the one employer, and here the appellants were employed by more than one employer. We think that is a bad point. S. 218(1) is subject to the provisions of that section. S. 218(2) preserves continuity where there is a transfer of a trade, business or undertaking. It is just such a transfer from Rotaprint to Tiltcode in 1988 on which these appellants rely in order to claim continuous employment from the date on which they first came into employment with Rotaprint. In these circumstances we are satisfied that the provisions of s. 214 potentially apply in this case.His further submissions relate to the proper application of the provisions of s. 214 to the facts of this case. First, he contends that but for the those provisions the appellants are able to claim continuity from the start of their employment with Rotaprint. In view of the Department's concession that the appellants had such continuity for the purposes of calculating notice entitlement under s. 184(1)(b) that must be correct. That period of continuous employment is the same as that used for the purposes of calculating a redundancy payment under Part XI. (S. 211(1)).He submits that such continuity is not broken by the provisions of s.

(a) and (b) for the following reasons:

(1) S. 214(2)(a) can only arise on the facts of this case if the appellants received a redundancy payment in 1988, in respect of dismissal. Since it is now accepted that by operation of the TUPE Regulations there was no dismissal they were not entitled to a redundancy payment from their then employer, Rotaprint. See Rowan .(2) Further, because the contracts of employment with Rotaprint were not terminated, but continued with the substitution of the new employer, Tiltcode, under the TUPE Regulations, it cannot be said that the contract was renewed, or that the appellants were re-engaged under new contracts, for the purposes of s. 214(2)(b).In response, Mr Britten submits that the position of the Department is different from that of a solvent employer. Whereas, under the authority of Rowan and the later case of Senior Heat Treatment v Bell [1997] IRLR 614 , an employer who makes a payment when he is under no obligation to do so under the redundancy provisions of the Act cannot rely on that payment as breaking continuity under s. 214(2), it is enough that the Department was satisfied that an employer's payment was due under s. 167. The Department was so satisfied in 1988 when the payments were made to the appellants, and that counts as a redundancy payment for the purposes of s. 214(2)(a) by virtue of s. 214(5(c). The Industrial Tribunal were correct on this point in paragraph 24 of their reasons.Secondly, the fact that a contract of employment continues uninterrupted by virtue of the TUPE Regulations does not exclude a renewal or re-engagement by the new employer, here Tiltcode, for the purposes of s. 214(2)(b).Accordingly both requirements of s. 214(2) are met; continuity was broken for the purposes of calculating the appellants' redundancy payment due in 1995. The period of continuous employment commenced on 5th April 1988.Further, that meets the justice of the case. If the appellants' contentions are correct, they will enjoy a double recovery for the period of employment with Rotaprint.In our judgment the position contended for by the appellants is correct. It is an absolute prerequisite of entitlement to a statutory redundancy payment that the employee has been dismissed by reason of redundancy. We disregard the alternatives of lay-off and short-time for present purposes.S. 214(2) envisages that a redundancy payment has been paid by the employer (or, as in the present case, an equivalent payment by the Department under s. 167) in respect of dismissal . Here, the payment, made by the Department in 1988, was not made in respect of a dismissal. The contract of employment continued without termination when Tiltcode took over the business of Rotaprint. There was no dismissal for the purposes of s. 214(2)(a). Further, a contract of employment will only be renewed where it has first come to an end, e.g., by expiry of a fixed-term, and an employee will only be re-engaged under a new contract of employment if the old contract has first been terminated.In these circumstances we have concluded that s. 214(2) did not operate on the facts of this case to break continuity of employment dating from the commencement of the appellants' employment with Rotaprint. They are entitled to count the full period of employment from the commencement of employment with Rotaprint for the purposes of calculating their redundancy entitlement on dismissal by Pan Graphics' receivers in 1995.As to the question of those claims, we have been shown an agreed schedule which is at page 55 of our bundle. We take Mr Lassman's case by way of example. He commenced employment with Rotaprint on 16th August 1979. He received a payment of £1,968 from the Department in 1988. In 1995 he received a further payment of £2,152.50. On the basis of continuous service from 16th August 1979 he would have received £5,040. Accordingly he is entitled to £2,887.50, being the difference between £5,040 and £2,152.50. He is not obliged to give credit for the payment of £1,969 made in 1988 as Mr Britten contends. Similar principles apply in the remaining ten cases.Accordingly these appeals are allowed. The appellants are each entitled to further payments from the Department as set out in the column headed "Net Claim" in the agreed schedule.