INITIAL CONTRACT SERVICES LTD v MRS HARRISON & OTHERS (2) HARRWOOD ENVIRONMENTAL SERVICES LTD [2001] UKEAT 64_01_0309

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2001] UKEAT 64_01_0309Case No Appeal No. EAT/64/01Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
INITIAL CONTRACT SERVICES LTDAPPELLANTMRS HARRISON & OTHERS (2) HARRWOOD ENVIRONMENTAL SERVICES LTDRESPONDENT
Before
His Honour Judge J Altman Mr A D TuffinDate 3 September 2001
[1]APPEARANCES For the Appellant MR GERRARD McDERMOTT QC Instructed By: Initial Contract Services Limited Unit P Gunnelswood Road Stevenage Hertfordshire SG1 2BH JUDGE J ALTMAN : This is an appeal from a decision of the Employment Tribunal sitting at Sheffield on 19 and 20 October 2000. Before the Employment Tribunal the First Respondents, then four Applicants, sought a decision from the Tribunal as to whether there had been a Transfer of Undertaking between the Appellants and the Second Respondents and whether the Transfer of Undertaking (Protection of Employment) Regulations 1981 should have applied to their contracts of employment. The Employment Tribunal determined that there was no Transfer of Undertaking so that the application against the Second Respondents was dismissed and the Appellants were found to be the employer at the date of dismissal of the First Respondents.[2]This appeal comes before us by way of preliminary hearing to determine if there is a point of law arguable at a full hearing before the Employment Appeal Tribunal. Essentially the Appellants complain that the Employment Tribunal failed to apply the right tests to the facts they found and to ask the correct questions in accordance with decided case law and it is contended that it is arguable that on such facts as were found by the Employment Tribunal their decision that there was no Transfer of an Undertaking was perverse.[3]We turn first to the facts found by the Employment Tribunal. The Appellants carried out a cleaning operation at the premises of a company called Rhodia. This continued from 1982 until 1999 and the First Respondents were all employed by the Appellants. In due course this company put out to tender the contract for cleaning their premises. There was no written contract or document to evidence the contract between the Appellants and Rhodia but on the evidence they heard the Employment Tribunal found that the new contract was:
"7 … materially different from the previous one in that the supervision required was completely different. The frequency of cleaning was different and the hours when the cleaning was to take place was also not insignificantly different. 8 … they [the Appellant employees] were actually paid for 158½ (hours) per week … . 9 After the end of the tender process and the contract had been awarded to the second respondents the hours were only 121. The supervisors job had completely disappeared and had been replaced by a working supervisor who only worked 10 hours and who was referred to as a chargehand and the one full-time job that of Mr Davies had completely disappeared. 10 The cleaning of the offices (apart from the directors) had gone down from daily to alternate days and there had been not insignificant reductions elsewhere, but the crucial difference was the question of supervision. 11 The tribunal accept Miss Pastuszka's evidence that Rhodia wanted a different contract from the point of view of supervision. They wanted the matter to be supervised by full-time employees from [the Second Respondents] … and not effectively by the cleaners themselves. "
[4]In due course the contract was awarded to the Second Respondents. The Appellants maintained that the Transfer of Undertakings Regulations applied and the Second Respondents maintained that they did not. The Second Respondents did see the majority of the staff, including three of the First Respondents, but the majority of the employees could not manage the new jobs because of the alterations of the timings of the hours of work and whilst two of the First Respondents indicated that they would be interested, in the event no employees were taken over by the Second Respondent.[5]It appears that following the award of the contract to the Second Respondents and at some stage the number of hours was increased from 121 to 126 and there were also two special cleans outside the contract.[6]Upon those findings of fact it appears that the Tribunal then embarked upon a two-fold exercise considering first whether there was an undertaking and, secondly, in the event that there was, whether such undertaking had been transferred. In paragraph 16 the Tribunal posed the question in the following way:
"16 … the crucial question is essentially one of fact. When the question of fact is being considered and all the various points which have been the subject of dispute in the past, ie was the workforce transferred? Were any assets tangible/intangible transferred? Was the position after the event broadly similar to the position before? Was there in fact ever a stable economic entity? 17 Only when those facts are known should the various cases be looked at to see which way the decision should go. In this particular case the tribunal has looked at first; was there a stable economic entity or was this operation merely a small part of the business of the [Appellants] which has subsequently gone away."
[7]In considering whether there was an undertaking the Tribunal looked to the existence of such stable economic entity. They looked at what happened on site between 1982 and 1999. They found that:
"Beyond the fact that there was a cleaning operation, the operation fluctuated in the extreme."
They pointed to the fact that it started with only two employees, rose to a much larger number in the early 1990s and subsequently declined. In paragraph 18 the Tribunal went on to find "therefore" that there was not a stable economic entity but merely a group of employees carrying out part of the overall business of Initial under the control of the Initial central organisation. They went on to find that the:
"task to be done, changed over the years consistently with the demands of the employer."
They concluded that there was no entity to be transferred.[8]Mr McDermott, on behalf of the Appellants, argues that just because the hours changed does not mean that the entity changes. He contends that the Tribunal should not have looked simply at the number of employees overall but he contends that they should have considered the position immediately or perhaps for a few months before the transfer. He argues that the approach of the Tribunal was to look at the level of economic activity within the entity, rather than establishing whether or not there was a "core" entity which remained stable, albeit fluctuating in size. He suggests that the approach should have been for the Tribunal to ask itself if there was a sufficient "stand alone" activity to amount to a unit. He points to the fact that this was a substantial undertaking with a number of employees operated, he would say, by the Appellants as a unit to which staff were specifically assigned with their own supervision.[9]We reject the submission of Mr McDermott. First the Employment Tribunal correctly identified that the determination of whether or not there was a stable economic unit was essentially one of fact. Where an operation is represented almost entirely by employees with what is accepted to be no or virtually no assets or capital investment, it is inevitable that the question will be determined to a large extent by looking at the workforce. We reject the submission that the Employment Tribunal looked only at the number of employees and their fluctuation over a number of years. Whilst they examined such fluctuation and regarded it as significant in itself, they clearly went on to infer two matters from the facts they had found which were additional. First, in paragraph 18 they referred to the fact that the employees were "merely carrying out part of the overall business of (the Appellants) under the control of the Appellants' central organisation" and secondly they found that the "task to be done" changed consistently with the demands of the employer. Furthermore, looking at the approach to the fluctuation in employees itself, we consider there is no requirement of law for an Employment Tribunal to confine itself to the movements in a workforce during a set period of time, such as a few months. Additionally, in seeing if there is a stable economic unit we consider there is no requirement for the Tribunal to look at a "core" of employees. Effectively the argument of the Appellants appears to be, reduced to absurdity, that so long as there was one employee who had been there for a number of years the fact that the total number varied from time to time is irrelevant for the one employee represented a core. Of course, as was pointed out in the case of Oy Liikenne Ab v Pekka Liskojärvi (European Court of Justice) Case C-172/99 the question whether or not the core of the putative transferor's employees were taken over by the new employer is a relevant consideration in determining whether there was a transfer.[10]We accept that the period in time in which to look at the number of employees, the need to look at whether there was a permanent central group of employees during the relevant period, the need to look at the question as to whether there was an operation as a single unit with specific assignment, are all matters of fact which can be urged upon an Employment Tribunal when considering the overall situation. The Employment Tribunal set out in some detail their findings of fact as to what actually happened. They stated that it was necessary to look at what actually happened on the site. They referred to the fluctuation in the cleaning operation, the variation in the number of employees, their own assessment that this was merely a group of employees acting under central control by the Appellants and that the task changed over the years. These are all factors to which they were entitled to look, it seems to us as a matter of law, in coming to the conclusion which they did. Mr McDermott has said, effectively, that where it is a cleaning contract there really cannot be many fluctuations or changes for cleaning is cleaning. However we have noticed with interest that in the Oy Liikenne Ab case, although dealing with the issue as to whether or not there has been a transfer, at page 34 the European Court of

Justice say:

"The mere fact that the service provided by the old and the new contractors is similar does not justify the conclusion that there has been a transfer of an economic entity between the two undertakings. Such an entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce, its management staff, the way in which its work is organised, its operating methods or, indeed, where appropriate, the operation resources available to it."
[11]Of course the factors which would be relevant in any particular case will vary. We find that the Employment Tribunal were entitled to take into account the factors that they did take into account, and cannot arguably be said to have erred in law in failing to take into account other factors and cannot be argued to have been in error in law in reaching the conclusion they did that there was no stable economic unit.[12]Furthermore the Employment Tribunal went on to consider, in the event that they were wrong as to the existence of an undertaking, whether there had been any transfer. Mr McDermott suggests that the Employment Tribunal's finding in relation to the existence of an undertaking will have coloured their finding as to a transfer in a way which makes it difficult to look at the two separately. Whilst of course there may be many factors which are common we can see no basis for criticising the Employment Tribunal for dealing with both. Indeed, implicit in their doing so is the recognition that in seeking to establish whether there is an undertaking, there is a fine balancing act which may go one way or the other.[13]The Tribunal then considered the factual elements required to determine whether or not there was a transfer and they decided that there was not. They pointed out that the customer required something different in the way of supervision and in how the business "should be carried on"; "which beyond the fact that clearly the cleaning operation was still of the same type as the previous cleaning operation, was a substantially different operation."[14]Mr McDermott complains that the Tribunal were elevating what were minor differences into significant factors. He contended that the cleaning operation was still being done so that there were never any substantially different operations. It seems to us that paragraph 34 of the Oy Liikenne Ab decision leads one to endorse, rather than criticise the approach of the Employment Tribunal. What is clear in paragraph 20, to which we have just referred, is that the Employment Tribunal were not ignoring the fact that there was still a cleaning operation being carried out. They used the phrase "beyond the fact". On the contrary, the Employment Tribunal appear to have being carrying out a balancing process, taking account on the one hand of the continuation of cleaning whilst on the other considering all the other factors. The Tribunal in paragraph 23 go on to make clear their recognition that one of the factors to be taken into account, effectively in favour of a transfer, is that there was a cleaning operation before and after in saying:
"… beyond the undoubted fact that there was a cleaning operation before and after there was nothing to support the question of a transfer."
Whilst it is possible to say, in relation to one particular aspect or consideration, that it represents a minor difference, the real issue is whether or not the Tribunal looked at all the factors, stood back and formed a judgment they were entitled to take. In paragraph 21 the Employment Tribunal summarised a number of the factors; "The new plan required totally different supervision, different hours and much fewer hours. When one adds to this that there is not the vestige of an asset of any description whether tangible or intangible transferring from one company to another and that none of the employees were taken over and transferred, the tribunal is irresistibly drawn to the conclusion that there was no transfer."[15]The Employment Tribunal then referred to a number of cases which they themselves had read; " Spijkers [1986] 2 CMRL 296 ECJ Süzen [1987] ICR 662 ECJ Betts v Brintal Helicopters Ltd [1997] IRLR 361 CA ECM Vehicle Delivery Service Ltd v Cox [1999] IRLR 559 CA RCO Support Service and Aintree Hospital Trust v Unison [2000] IRLR 624 EAT"[16]Mr McDermott referred particularly to the RCO case, summarising and analysing as it does the earlier decisions. That case concerned the cleaning and catering operation in hospitals and their transfer. The overall decision of the Employment Appeal Tribunal there was not to the effect that as a matter of law there was a transfer but rather that the Employment Tribunal did not err in law, when analysing the facts, in coming to the conclusion that there was a relevant transfer. The case did not go beyond a finding that the Employment Tribunal were entitled to reach the conclusion they did. Lindsay J in his judgment, following the ECM case, set out the following seven propositions:
"(i) … as was the case in ECM , there can both be an undertaking and a transfer of it notwithstanding that neither significant assets nor a majority of the workforce moves over; (ii) that 'all the facts characterising the transaction in question', must … be taken into account; (iii) that the 'necessary factual appraisal' is for the Employment Tribunal to carry out as the national court entrusted with the task; (iv) that whilst it is wrong to look merely to see if a given activity continues in order to find whether there is either an undertaking or its transfer, … the decisive criterion as to transfer is whether the business in question retains its identity and as to the importance in relation to that of whether its operation was continued by the new employer with the same or similar activities; (v) … when no assets are transferred …the safeguarding of employees' rights, the very subject-matter of the Directive, cannot depend exclusively on such a factor (which is) not to be decisive on its own; (vi) … very little is required to amount to something capable of being an undertaking - one cleaning lady and her organisation - once due regard is paid to the safeguarding of employees' rights, the subject-matter of the Directive; (vii) Not only is it not necessarily decisive that no majority of the workforce is transferred … that is only one of the number of factors that need to be considered, none alone being decisive but all being required to be taken into account by the fact-finding body in its composition of an overall view of whether or not there has been a relevant transfer of an undertaking."
[17]Mr McDermott criticises the approach of the Employment Tribunal, by suggesting that it adhered too staunchly to the Süzen decision, that without assets or a majority of the workforce moving over there can have been no transfer, and he refers to paragraph 23 of the Employment Tribunal decision in support of this proposition. However it seems to us that the wording of that paragraph demonstrates that the Employment Tribunal were alive to the very point that that decision had been tempered by later decisions and the Employment Tribunal were quite careful in drawing out the weakness in the Süzen decision in the following terms:
"The case of Süzen may well have been doubted and devalued but even looked at at its weakest the 'no assets' and 'no employees' are important factors to take into account."
[18]It is one thing to say, as RCO does, that there can be a transfer notwithstanding neither assets nor workforce moving over, to say that the absence of assets and workforce moving over is wholly irrelevant. Furthermore the RCO case also makes clear it is wrong to look merely to see if a given activity continues: "in order to find whether there is either an undertaking or its transfer", which is also relevant in relation to our earlier findings concerning the existence of an undertaking. And the emphasis is placed in RCO on the need to look at the overall factual situation, to conduct a factual appraisal and to look at all the facts characterising the transactions in question.[19]Mr McDermott criticises the Employment Tribunal saying that they gave undue weight to the case of Süzen and have not carried out a factual analysis fully. Having dealt with the case of Süzen and its modification in paragraph 23 of their decision, the Employment Tribunal went on to point out that there was no indication in the case before them that the employees were rejected by the Second Respondents out of a motive to avoid the Transfer of Undertakings Regulations. Mr McDermott suggested that the correspondence showed a determination on the part of the Second Respondents to avoid considering the application of the Regulations to them, but a careful reading of such correspondence discloses no more than that they took a stance based upon what they understood to be their legal obligations in the face of the true facts as they perceived them to be. However, it seems to us, in referring to any possible motive the Employment Tribunal were simply turning to one issue they had not previously considered which would undoubtedly have been relevant. Mr McDermott points out that the finding of a motive to avoid the effect of the Regulations is not required in order to find that there has been a transfer in this sort of instance. That is perfectly true but it is not inconsistent with the decision of the Employment Tribunal. Furthermore, simply because it is at this point in the decision, when the cases have been considered by the Employment Tribunal and the different approaches of those cases in relation to motive clearly emerged, that the Employment Tribunal deal with that particular issue does not mean that it was elevated into any pre-eminent position in their overall judgment.[20]Indeed at the end of paragraph 23 the Tribunal find:
"In those circumstances the tribunal unanimously find that there was no Transfer of Undertakings … ."
Although when the Decision was typed that sentence was at the end of paragraph 23, it is clear in the context of the Decision as a whole that it is the expression of the final opinion of the Tribunal based on the circumstances that have gone before in the Decision as a whole. Looking back to paragraph 20, where the Employment Tribunal begin their analysis of whether or not there was a transfer, that same phrase "in those circumstances" occurs so that there is a continuous thread setting out the circumstances the Employment Tribunal took into account. Those include the changes in the number of employees assigned to this work over the years, the finding that they were under the control of the Appellants' central organisation, the finding that the task to be done changed over the years, the change in the way of supervision, the change in the way the business was to be carried on, that it was a substantially different operation other than the fact that the cleaning operation was still of the same type as the previous cleaning operation, that there were totally different hours, that there were much fewer hours, that there was no asset transferred and that none of the employees were transferred, and that there was no motive for not so transferring them.[21]Essentially it seems to us the argument being advanced is that the Tribunal should have come to a different conclusion. However it seems to us that in the circumstances of this case that can only be presented as an argument on the facts. It seems to us, if we are looking at the legal analysis, that it can only be said that the Tribunal were entitled as a matter of law to reach the conclusion that they did and that there can be no argument that as a matter of law they reached the wrong conclusion. Accordingly, this appeal falls to be dismissed at this preliminary stage.[22]We have been informed by Mr McDermott that the case of RCO will be considered in the Court of Appeal within a matter of a few days. We have indicated that, should it be appropriate, and following the judgments being handed down in that case, we would be prepared to consider an application to review our judgment and decision in the light of such judgments. In anticipation of the substance of this judgment but before it was able to be delivered Mr McDermott made application for leave to appeal on the grounds that the matters raised by him were matters of law capable of argument before the Employment Appeal Tribunal. Understandably that, of course, challenges the substance of our judgment and we are driven to conclude from our perspective that there is no reasonable prospect of success in that argument and leave to appeal is refused.