Banger & Ors v Pall Mall Services [1998] UKEAT 395_97_2101

EAT
Banger & Ors v Pall Mall Services
[1998] UKEAT 395_97_2101 · 1997-12-02
MR JUSTICE LINDSAY : We have before us the appeal by Mrs B.K. Banger and 26 others who were dismissed on the 30th September 1995 from their employment by the Respondent, Pall Mall Services Group Ltd, at Hillingdon Hospital. There has been a hearing before the Industrial Tribunal spread over three days, the 3rd-5th February 1997, at London (North) under the Chairmanship of Mr D.H. Roose. On the 12th February 1997 the Industrial Tribunal gave its Extended Reasons; and its decision was that the 27 employees were not unfairly dismissed. They appeal to this Tribunal by way of an amended Notice of Appeal.In 1994 domestic services at Hillingdon Hospital had from 1987 been contracted-out to a company which may be called "Initial" under a contract which was limited to expire that year. The NHS Trust which was responsible for the running of the hospital drew up a specification for the next intended contract period and put it out to tender. The specification has not been seen by us nor was it produced to the Industrial Tribunal but that it involved in some change in comparison to the contract that was due to expire was mentioned in evidence given to the Industrial Tribunal. Pall Mall, which makes some 30-56 tenders a year, elected to tender for the Hillingdon contract. Quite what other bids were made and how far Pall Mall knew of them is not clear but there is some reason to believe Pall Mall knew it was bidding against Initial the then contractor and perhaps also against a so-called "in-house" bid. Pall Mall recognised that staff-costs represented some 80% of the total cost of providing the services required of it and it reviewed those likely costs in order to explore what ability there was to provide services in a more cost-effective manner. It knew the then-existing rates of pay being paid to employees at the hospital but its information was not complete in areas such as the weekend and overtime hours that were being worked. It intended to propose to the Trust a multi-disciplined workforce in which existing demarcations between porters, cleaners and caterers, for example, would be removed so as to have, at any rate after training, a more flexible workforce. This was not a plan required by the specification itself but was Pall Mall's preferred way of meeting the specification. A specific example of the intended flexible workforce was to be found in the idea of having "ward hostesses", who were to represent an amalgam of cleaning and catering roles.There was no evidence that Pall Mall had to bid for the Hillingdon contract in the sense that it would not otherwise survive or that the contract had to be bid for by reason of any particular business plan or strategy; it chose to bid. Prior to the bid it had looked at local rates of pay. It formed the view that £3.50 an hour was a fair figure upon which to base its bid so far as concerned the staff with which this appeal is concerned. The existing staff in 1994 was in part made up of individuals still either directly employed by the Trust or remunerated at rates set by the Trust and partly by those employed by Initial or at rates which had been set by Initial. Pall Mall had in mind simplifying the pay structure by paying £3.50 an hour as a basic rate to all, but without any London Weighting Allowance as had hitherto been paid and without distinction between the erstwhile Trust employees and Initial employees.On the 10th June 1994 Pall Mall sent its bid to the agents acting for the Trust. It would seem that the specification had invited bids by tender for five separable services - catering, domestic, portering, CSSD (a service which required sterilisation of materials) and laundry - but, as we mentioned above, as a reflection of its plan to remove demarcations, Pall Mall, to use the jargon, preferred that its combined "hotel services" offer would be taken up. Pall Mall in its tender said:-
"... we are submitting tender responses for all the services required ... however, although the services have been costed individually, we are proposing that our document is read as a single bid for a hotel services contract. Our submission includes a management structure for the combined contract and individual structures should Hillingdon Hospital NHS Trust wish to separate the services offered. Please read this submission as a combined bid."

Pall Mall, so far as concerns wages, indicated in its bid that:-

"We have submitted on base rate at £3.50 an hour"

and that it would be reviewing holiday periods, sick pay, Bank Holiday rates and weekend enhancements. It recognised there would have to be negotiation with the staff. The bid had been what was described as a "TUPE" bid, meaning that it was in the context of Pall Mall recognising it to be likely that the Trade Union Reform and Employment Rights Act 1993 and the Transfer of Undertakings (Protection of Employment) Regulations 1981 [ "TUPE"] would apply so that, at any rate initially, Pall Mall, to whatever extent it was successful, would automatically become the employer of the then-existing workforce.Pall Mall recognised in its tender that there needed to be determined the gross rate differential between the then-current service and the rates of pay at which it proposed to operate. It recognised, too, that it was difficult to assess how many staff might not accept the revisions to terms and conditions which it had in mind. Its bid included as part of Pall Mall's costing a so-called TUPE premium of some £364,000, the cost of ensuring full performance by Pall Mall of its obligations under TUPE as they were understood to be likely to be.On the 18th July 1994 Pall Mall were told its bid had been accepted as to all five services for which it had tendered but the start of the contract still lay in the future. In September 1994 Pall Mall had an internal meeting to discuss, inter alia, an "implementation plan on changes to terms and conditions".On the 17th October 1994 Pall Mall's contract with the Trust first began to be performed. Some 194 staff were transferred into Pall Mall's employ. For the time being, that change apart, the staff remained on their existing terms and conditions but Pall Mall still contemplated changes would have to be made. The achievement of profit was seen by Pall Mall's management to be dependent upon, inter alia:-
"Ending those additional labour costs inherited by the transfer of existing terms and conditions of employment. The longer the situation remains unchanged the lower the profit margin will be."
By February 1995 Pall Mall's managers were meeting "to formulate a TUPE change action plan". Its provision of the £364,000 TUPE premium in its costing (a figure which had been computed by reference to the pre-existing wages being payable for the first year of the contract) meant that in effect Pall Mall was cushioned against the cost of paying out, as it was, at greater overall rates than £3.50 an hour during that first year. But it plainly behoved Pall Mall to plan for a change to that lower rate and also to move to the "hotel services" concept upon which its bid had been based.On the 8th April 1995 Pall Mall wrote to the staff to tell them there would be a staff meeting. The first was on the 13th April when the staff were told of Pall Mall's view of "Generic Workers" namely:-
"Someone who has a basic knowledge of other services as well as knowing their own specialist job. Generic Workers will be able to help out in other areas where needed."
The creation and use of such Generic Workers was necessary if the hotel services idea was to be put into operation. The staff were given a slide-show which explained some of Pall Mall's plans for them. Diagrams, including interlocking circles (described in argument as like the Olympic rings), showed how what had been previously been separate services would be required to overlap. There were further meetings and the financial proposals now put to the staff included lump sum commitment bonuses proposed for those who signed to new terms. The slides described Basic Pay Increases and specific proposals as to holidays, Bank Holidays and sick pay. The next steps were described as including a:-

"Terms and Conditions Agreement Form."

It is not said that any of the Appellants attended none of these meetings.The employees, or at any rate those who had been on Initial's terms and conditions, had as a term of their contracts that:-

"Any changes to your terms and conditions will be notified to you in writing."

That had not yet been done and on the 3rd May 1995 letters were written to the staff by Pall Mall, the terms of which need to be set out in some detail. The letters were accompanied by a sheet headed "Comparison in Terms and Conditions" which set out the "New Terms and Conditions" appropriate to the particular addressee and his or her "Current Terms and Conditions". With our emphasis added the letter reads as follows:-
"As you may be aware, Pall Mall have been reviewing the contract since the award of our tender submission. We have now completed the review and have concluded that it is necessary to make a number of changes within the contract. These changes are to be made in order to ensure that the contract runs effectively in line with our business plan, and to meet the targets we have been contracted to achieve.
The changes will mean a change to your terms and conditions of employment which will take effect from 1st September 1995 and are :

Basic Pay Rate increased by 2.39% to £3.576 (No LW will be payable)

Holiday Entitlement 15 days per annum

Sick Pay SSP

Bank Holiday Pay 10 days @ double time

Your pay period will also be changing to fortnightly pay, and you will need to be in agreement of new terms and conditions in Pall Mall's policy handbook.In addition to these changes you will receive a full bonus of £ if you sign this agreement in advance of 1st June 1995, payable in two parts, 1st instalment in June and the 2nd instalment in September 1995. If you sign this agreement in advance of 1st September 1995 you will only receive half the bonus amount, payable in September 1995.Please sign the attached copy of this letter as willing acceptance of your amended terms and conditions of employment and payment cycle.Signed: Date:May I take this opportunity to thank you for your commitment and support to the contract and company over this period of development."We have not been shown, nor was the Industrial Tribunal shown, "Pall Mall's Policy Handbook". There is no evidence it was shown to staff at the time. Taking the first Appellant's case as typical, the "Comparison in Terms and Conditions" sheet gave figures for a reduced wage. In her case the previous gross hourly wage of £3.81 was to become £3.58 (a new basic pay per hour of £3.50 with a 2.39% increase on the 1994 rate) but Saturday and Sunday hourly rates were reduced. There was no express mention in either the letter or the sheet of changes involving a move to "Generic" working or "hospital services" and in point of contract it is hard to see how a signature to that letter could possibly represent a present agreement to any changes on the part of the employee other than (regarding holiday and sick pay arrangements as pay) changes to pay. A good many of the staff signed up to the amended terms and conditions of employment and payment cycle but those who had not later received a letter dated the 30th June 1995, the more material parts of which provide as follows:-
"We are contractually required to supply a single multi-service, Hotel Services contract to our Clients. Our presentation to you showed how we see the transition from the individual single services to the one Hotel Service.
On the 24th April in our 'Way Forward' presentation, and then in your individual discussions with us, we have shown how these changes will affect you both in your new role as a Support Services Operative and also how it will affect your Terms and Conditions. In addition we have had open discussions on the way forward with your Trade Union Stewards and Branch Officials.All staff were offered the opportunity to accept the resulting changes and a large number have taken up this offer. We are very sorry that you have not yet signed to accept the changes as we know that you can make a valuable contribution to the success of the new service.Regrettably, I have to conform that as you have not accepted the amendments to your contract we have to give you notice that your current contract of employment will come to an end and your employment under this contract will be terminated on Saturday 30th September 1995. However, we would be delighted if you would accept and sign a new contract with effect from 1st October 1995, the details of which are attached. Your service would of course be counted as continuous."It is accepted by Pall Mall that the "details of which are attached" was a reference to a fresh copy of the letters and comparison sheets which had been sent on the 3rd May 1995. In the interval between that letter and the expiry of the notice on the 30th September 1995 further numbers of the staff signed the letters they had received but the 27 Appellants did not. They were accordingly dismissed on the 30th September 1995 and launched their applications for unfair dismissal within the appointed time.As we indicated earlier, the hearing before the Industrial Tribunal was in February 1997 and the unanimous decision was that the Applicants had not been unfairly dismissed.The first question for the Industrial Tribunal was whether the transfer to Pall Mall (which was throughout accepted to be a transfer to which TUPE applied) or a reason connected with that transfer was either the only or the principal reason for the dismissals on the 30th September 1995 - see Regulation 8 (1) of TUPE.

That regulation 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 and Articles 20 to 41 of the 1976 Order (unfair dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal."

The Industrial Tribunal held:-

"In this case the Applicants have been dismissed because they have refused to agree variations to the terms and conditions"
of the Contracts of Employment they had made earlier and which, by Regulation 5 (1) of TUPE, was now to be treated as if made between the respective applicants and Pall Mall. That is an unassailable (and unassailed) finding but it is necessary, as Miss Grewal for the Appellants invites us to do, to look in more detail at what the variations were that had been refused. The letter of the 3rd May was all that needed to be signed up to if dismissal was to be avoided. It appears to identify the totality of what it was that was to be agreed by way of signature to it and that was matter, broadly speaking, only of pay. In particular, the Appellants were not thereby asked there and then to agree to Generic working and cannot by declining to sign it be taken to have refused to undertake Generic working. There was no evidence that any Appellant refused anything but to sign up to the letter of the 3rd May and thus no evidence that any refused Generic working or was even asked to agree to Generic working as such. There was evidence, in some cases, that Generic working had not been resisted.Moving on from that, Miss Grewal then says that given that the only refusal that could have been held to exist by the Industrial Tribunal was a refusal as to the reductions in pay which the letters of the 3rd May indicated, one then has to ask whether those unagreed reductions, as the immediate cause of the dismissals, were principally or only by reason of the transfer or were so connected with it that one could say that the dismissals were for an only or principal reason connected with the transfer within Regulation 8 (1). That, says Miss Grewal, was a question which the Industrial Tribunal never asked itself, nor answered, because the "variations" it had in mind, wrongly, were not the variations in pay alone (which alone had been refused) but more general variations going beyond pay and into prospective variations into working methods and job titles implicit in the proposed changes to "hotel service".It has to be accepted by the Appellants that, the pay changes of the 3rd May apart, there were a number of prospective or proposed changes that were considered and developed by Pall Mall in the first year of the contract and which the Appellants knew, at least in outline, that Pall Mall had it in mind to introduce. But as those changes, which we will call "non-pay changes", were not put in writing to the Appellants for their specific agreement (and perhaps not even put orally for their individual agreement - there is no evidence of it) and because, too, there was no evidence whatsoever of non-pay changes being refused by any Appellant and because, again, it was only pay variations which needed to be agreed if dismissal was to be avoided, the non-pay variations, says Miss Grewal cannot have been what the Tribunal was referring to when it held, as we have already cited, that:-
"The Applicants have been dismissed because they have refused to agree variations to the terms and conditions of their contracts."
Such scanty evidence as there was of non-pay variations being considered by the Appellants was that they had not declined them. Accordingly, if in that finding the Tribunal had had it in mind that non-pay variations had been refused, their decision is perverse, says Miss Grewal, even by reference to what is perhaps the sternest of the formulations of perversity, that of Lord Donaldson in Piggott Bros -v- Jackson [1992] ICR 85 at p. 92. There was, she says, no evidence whatsoever to support it.However, it follows from that argument that the decision would be saved from perversity if the variations which the Tribunal was referring to in that passage could be taken to be the pay variations. That possibility, though, introduces another problem. The Tribunal held in the very same paragraph:-
"That the variations were sought not on account of the transfer itself but following a review during the first year of the contract."
Was there, then, any evidence that the pay variations "followed" a review during the first year, in the sense, presumably (as the Industrial Tribunal was looking to cause and effect matters rather than merely to the elapse of time) not of simply being after the review but of being a consequence of it. The difficulty for Pall Mall here is that from the outset its proposal in its bid to the Trust as early as the 10th June 1994 had been costed on the basis of £3.50 an hour as the base rate, the very base rate proposed in the variation "new terms and conditions" of the 3rd May 1995. Nor is there any evidence whatsoever of £3.50 having been departed from but then being reverted to. Mr Wraight, Pall Mall's Divisional Director of health care, had indicated to the Industrial Tribunal in his written evidence that £3.50 an hour as the basic rate was seen as a fair rate prior to the making of the bid, with the London Weighting dropped on rationalisation of weekend rates. If the pay changes had not been introduced, he had said, the continuing operation of the tender would have been at a substantial loss. In his oral evidence, too, he spoke of the bid having been estimated at a rate of £3.50 an hour. He said that if Pall Mall had maintained the current rate they would have made no profit. Labour costs represented 80% of the costs of performing the contract. The Chairman's notes record his answer:-

"Could not have won contract without reducing labour costs."

Pall Mall's other witness before the Industrial Tribunal, Sue Bond, Pall Mall's Human Resources Manager at the time, had not been involved in the tender process but gave written evidence, as had Mr Wraight, that the letter of the 3rd May 1995 was a letter (with our emphasis) "outlining the proposed changes" and that:-
"The contractual notices which had been sent out on the 3rd June 199[5] expired on the 30th September, and anyone who had not signed to accept the new terms and conditions was dismissed with effect from then."
Her oral evidence was that the bid was on the basis that there would be a lower rate of pay but no separate London Weighting allowance, that the bid involved a different rate of pay and that Pall Mall did not budge on pay. There was no evidence whatsoever that at any time after it had lodged its bid, still less after it had had its bid accepted and it had taken over the contracts of the Appellants, Pall Mall had had it in mind not to introduce the basic rate of pay at or about the £3.50 an hour upon which its costings had been based and which it later specified in its letters of the 3rd May 1995. At all material times it had intended to introduce that by way of variation to the pay of the existing workforce. Voluntary redundancies to reduce labour costs had been ruled out as being too expensive an option. Nor was there any evidence of any "review" during the first year of the contract of which that reduction in pay could be said to be a consequence. Accordingly, there is, in our judgment, no escape from a conclusion that the Industrial Tribunal was in the technical sense perverse in its conclusion on that first main issue. The only refusal by the Applicants was as to pay but the variations of pay that were refused cannot have been properly held to have followed (in the sense of being a consequence of) a review during the first year of the contract as there was no evidence at all of any review of such a kind. The central reasoning of the Industrial Tribunal - that the refusals which led to the dismissals were not connected with the transfer but rather that the dismissals were a consequence of a refusal of terms which emerged by way of review after the transfer - was flawed as based upon a conclusion of fact for which there was no evidence whatsoever.It would not, of course, assist Pall Mall to say that the variations in pay "followed" a review in the sense merely of occurring after a review as, rightly, the Industrial Tribunal saw itself to be investigating a causal link between the transfer on the one hand and the variations and dismissals on the other and not a merely temporal one. But that consideration does lead to another doubt; the Tribunal held:-
"Clearly there must come a time when employees find themselves in the same position as employees who have not been transferred and Mr Cavanagh on the strength of Meade and Baxendale has suggested that eight months is such a time."
The Tribunal does not say whether it accepted or rejected that submission but it would seem to be uncomfortably close to looking to time alone to negative the existence of a connection between the transfer and dismissal. As the Industrial Tribunal does not in terms accept the argument Mr Cavanagh had thus put in front of it we do not say that they were in further error of law on this point but the doubt which the point creates only serves to bolster our view that on this first point the Industrial Tribunal were in error of law.Mr Cavanagh urges that the variations which the Appellants declined to agree and which had led to their dismissals were not merely the pay variations in the letter of the 3rd May but were a "package deal", as he puts it, of both pay and non-pay variations and that there were on any footing non-pay variations which, correctly, the Industrial Tribunal held had followed a review during the first year of the contract. By rejecting the pay element of the package the Appellants had refused the package. The package as a whole was not connected with the transfer in the way in which it might be said the pay variations alone were (although, of course, his argument was that the pay variations themselves were also unconnected with the transfer). In such a way the Industrial Tribunal could and did properly conclude, he said, that neither the transfer nor any reason connected with it was the only or the principal reason for the dismissals. However, this argument falls at the threshold; there was no evidence of any relevant package deal of variations being put to the Appellants in any form in which, if it were accepted, a contract would have emerged, still less of its being put to them in writing, as most at least of their contracts required. Put another way round, those who signed up to the letter of 3rd May could hardly have been claimed to be in breach of contract if they had clung to their existing job descriptions and had declined generic working. Nor was any package refused by way of the only refusals on the Appellants' part which were in evidence, (refusals to sign the letters of the 3rd May 1995), nor was there any package to which any Appellant had been required to agree, but only to the letter of the 3rd May, if dismissal was to be avoided.Before leaving this part of the case we note Mr Cavanagh's attempt to limit the effect of that part of Regulation 8 (1) which makes a dismissal unfair if not the transfer itself but "a reason connected with it" is either the only or the principal reason for it. He sought to argue that that expression goes further than does the Acquired Rights Directive (77/187/EEC) Article 4 and that it was to that extent not to be relied upon. Miss Grewal's convincing response to that was to point to Article 7 of that Directive which shows that the Directive does not affect the right of Member States to introduce provisions which, in comparison to the Directive's provisions, "are more favourable to employees".Our conclusion on this first part of the case - namely upon Regulation 8(1) of TUPE - is, though, by no means an end of the matter. Regulation 8 (1) is disapplied if Regulation 8(2) is satisfied. The Industrial Tribunal held that Regulation 8 (2) was satisfied. It held there to be "an economic technical or organisational reason" which, although they did not say so in terms, was presumably such, in their view, that it entailed changes in the workforce and was the sole or principal reason for the dismissals. They held:-
"... there is sufficient evidence to show that changes were being made to the jobs and that re-training was being carried out to assist in that transition. This would impact upon weekend working on which the Applicants relied to enhance their pay by working at premium rates but this was an area which the Respondent was proposing to manage to reduce costs. We are satisfied that the dismissals cannot be automatically unfair [i.e. within Regulation 8 (1)] because there was in any event an economic technical or organisational reason."
In order here to consider Regulation 8 (2) one needs to pose a series of questions; what was the only or principal reason for the dismissals? Can that reason fairly be described as economic technical or organisational? Did it entail changes in the workforce (of either the transferor or transferee)?The reasoning of the Industrial Tribunal on Regulation 8 (2) is vitiated because, following on from their conclusion under Regulation 8 (1), they were plainly considering the dismissals to have been because the Appellants refused to agree variations which were sought in consequence of a review during the first year; in other words, as we have dealt with above, they were proceeding on the unfounded basis that there had been refusals which were or included refusals of non-pay conditions. But, even if that defect were not present, and even assuming that there was an economic technical or organisational reason for the dismissals, could it, within Regulation 8 (2), be said to have "entailed changes in the workforce"? What does that expression mean?Here we were referred to Delabole Slate Ltd -v- Berriman [1985] IRLR 305 C.A. . The judgment of the Court of Appeal given by Browne-Wilkinson L.J. says at paragraph 15:-
"To our minds, the word "workforce" connotes the whole body of employees as an entity: it corresponds to "the strength" or "the establishment". Changes in the identity of the individuals who make up the workforce do not constitute changes in the workforce itself so long as the overall numbers and functions of the employees looked at as a whole remain unchanged."
We can find no evidence on which the Industrial Tribunal could have relied for a conclusion that the overall numbers or functions of the employees looked at as a whole here changed. The Industrial Tribunal was not given evidence as to just how far the functions of the employees had been defined and performed before the transfer to Pall Mall save for such broad outlines as could be derived from the slide shows and other general descriptions including the overlapping "Olympic ring" diagrams. The Tribunal did not have before it the Trust's specification for services as it had been under the Initial contract nor as it was during Pall Mall's contract. There would seem to have been no evidence that suggested other than that both before and after the transfer to Pall Mall the unchanged workforce viewed as a whole supplied and supplied only those non-medical hospital services that a modern hospital requires. True it is that if the non-pay variations were eventually put in force a more "generic" approach to demarcations would emerge; some catering staff, for example, would begin to do, in addition, domestic work and thereby be designated as "Ward Hostesses". A porter might, as another example, find himself required to push a catering trolley. As training was taken further no doubt more marked incursions over the old demarcation lines would begin to be made, but there was no evidence whatsoever, in our judgment, of changes that could be said to be changes in the employees' functions looked at as a whole within Delabole supra , nor that the unchanging employees were "given entirely different jobs to do" see Crawford -v- Swinton Insurance Ltd [1990] ICR 85 at p. 92 D-E (our emphasis). Accordingly the Industrial Tribunal erred in law in this conclusion as to Regulation 8 (2), even if it were right to assume in their favour that the variations the refusal to accept which had occasioned the dismissals could properly have been regarded as the package deal variations which the Industrial Tribunal had plainly had in mind. The Industrial Tribunal should have concluded that Regulation 8 (2) (a) did not here serve to disapply Regulation 8 (1). The consequence should have been that the dismissals were to be treated as automatically unfair under Regulation 8 (1).Given these errors of law, we must allow the appeal. We set aside the decision that the Applicants were not unfairly dismissed. However, despite Miss Grewal's application in this behalf, we do not feel able to conclude that had the Industrial Tribunal properly instructed itself it could not have possibly concluded other than that the dismissals were unfair. To conclude that for want of evidence the route which the Tribunal in fact took was not open to it is not to say that on the totality of the available evidence all other possible routes to the same result are barred. So to conclude would, in our view, involve us in improper speculation. We therefore remit the matter to a fresh hearing before a different Industrial Tribunal.