LONDON BOROUGH OF NEWHAM v J C SMITH AND ANOTHER [2002] UKEAT 1345_00_2002

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2002] UKEAT 1345_00_2002Case No Appeal No. EAT/1345/00Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
LONDON BOROUGH OF NEWHAMAPPELLANTJ C SMITH AND ANOTHERRESPONDENT
Before
Mr Recorder BurkeDate 20 February 2002
[1]APPEARANCES For the Appellant Mr DAMIAN McCARTHY (Of Counsel) London Borough of Newham Legal Services Division Newham Town Hall East Ham London E6 2RP For the Respondents Mr ANDREW HOGARTH (Of Counsel) Instructed by: Messrs O H Parsons & Partners Solicitors 3rd Floor, Sovereign House 212-224 Shaftesbury Avenue London WC2H 8PR MR RECORDER BURKE QC This is an appeal by the London Borough of Newham against part of a decision of the Employment Tribunal sitting at Stratford chaired by Mr Haynes and promulgated with summary reasons on 21 July 2000 and with extended reasons on 31 August 2000.[2]Thirteen employees, who had worked in the Directorate of Works of the London Borough of Waltham Forest and who were transferred under the Transfer of Undertaking Regulations 1981 to the employment of Newham in March 1999, claimed that their new employers were not honouring in full after the transfer the terms of their contract of employment as they had been before the transfer.[3]There was a number of complaints; but by the end of the hearing before the Tribunal only 2 issues remained for decision. Those 2 remaining issues were resolved by the Tribunal on the basis of considering the cases of 2 of the employees, Mr Mead and Mr Smith which cases by agreement were to be treated as test cases. The Tribunal, having given its decision on the 2 test cases, then produced another decision in identical words in the cases of the other 11 employees. While on the face of it the present appeal is an appeal only in respect of the decision upon the 2 test cases, it has been agreed that it should be treated as an appeal against the decision in all of the cases. That agreement between the parties makes no difference either to any of the arguments that have been put before us or to our decision because the arguments are the same and our decision will be the same in respect of all.[4]The 2 outstanding issues arose in this way. The first issue arose from a system pursuant to which employees of the Waltham Forest Directorate of Works could be called out for emergency work outside normal working hours. The system did not involve a regular rota pursuant to which the employee shared such work equally and some employees, as the Tribunal found, did all or most of the emergency work. After the transfer circumstances changed in a manner which the transferred employees did not welcome.[5]The second issue related to the arrangements for the employees' travelling between their homes and their places of work. The Tribunal found that, until a period some way prior to the transfer, the employees used to use their own vehicles to go to and from work and were paid in respect of their use of their own vehicles in so doing; but that system changed; the evidence makes it clear that it changed 3 months or so before the transfer. New arrangements were put in place, pursuant to which Waltham Forest provided a fleet of vans which the employees used not only for work purposes but also for travelling to and from work; and the employees no longer received pay for the use of their own vans. Instead they obtained, in addition to their remuneration, free travel to and from work; and the employers no longer had to pay to the employees anything in respect of the employees' use of their own vehicles. Whether the value of free use of the employers' vans was taxed as an emolument in kind is not relevant for present purposes.[6]When the employees transferred to Newham they found that they were required to operate under a different system so far as the use of the employers' vans to go home or to come into work was concerned. Newham allowed such use but charged in respect of it £3 per day if the employees lived within and £6 a day if the employees lived outside the M25.[7]The Tribunal firstly and primarily had to decide in respect of these 2 issues whether the working arrangements operated by Waltham Forest which we have described were embodied into the contracts of employment of the employees at the time of the transfer. If they were, the effect of regulation 5 of the Transfer of Undertaking Regulations 1981 ("TUPE") would have been to transfer the contractual obligations of the transferor, Waltham Forest, in respect of those arrangements to the transferee, Newham. If they were not, then no obligations in respect of those arrangements existed and there was nothing in respect of those arrangements which could be transferred by way of contractual obligation to Newham, the transferee. We say that the Tribunal primarily had to decide that issue because, if they were to decide that there was no contractual obligation in respect of those arrangements at the date of the transfer, no other arguments were necessary or relevant; the employees' claims were bound to fail.[8]The Tribunal decided that Waltham Forest's arrangements relating to the emergency cover system were not contractual and therefore, that in respect of those arrangements, no obligations passed to Newham. Against that part of the Tribunal's decision there is no appeal. However, so far as the vans were concerned, the Tribunal set out their conclusion at paragraph 9 of their decision. They found that the arrangements in relation to the vans had, before the transfer or by the time of the transfer, become part of the contract of employment of the relevant employees. They went on to hold that, in seeking to deduct £3 or £6 per day as appropriate for the use of the employer's vans, Newham had been making or were seeking to make unlawful deductions from the employees' contractual pay. They rejected Newham's arguments that, by signing a document as some of these employees had done, seemingly authorising the deduction of or agreeing to pay the £3 or £6 in respect of the use of the vans, the employees had agreed to amend their contracts of employment so as, by variation, to remove the contractual arrangements in relation to the use of the vans which we have described. They found that the employees had not as a whole (we mean by that all the employees taken together) agreed to vary their contracts of employment.[9]It is the Tribunal's conclusions in relation to the arrangements for the vans which are the subject matter of this appeal. As the first line of attack on the Tribunal's conclusions developed by Mr McCarthy helpfully and succinctly before us, it is submitted that the Tribunal erred in finding that the arrangements relating to the vans were at the date of the transfer incorporated as contractual terms into the contract of employment of the employees. Mr McCarthy submits and it is not in dispute that there was no document embodying such a term or evidencing in such a term. He correctly submits that there was no evidence of an oral agreement as to the arrangements, either collective or individual, and that the Tribunal do not find there to have been an oral agreement in relation to those arrangements. Mr McCarthy then submits that, in the absence of a written agreement or an oral agreement as to those arrangements, the Tribunal could not have found that the arrangements were or became contractual.[10]While he accepts, as is well established, that a term may be implied into a contract of employment from what is familiarly called custom and practice, he submits that it is necessary before a Tribunal can conclude that such a term has been implied in an individual case or in individual cases, for the Tribunal to make findings which this Tribunal did not make. He has referred us to the decision of the Employment Appeal Tribunal in Quinn v Calder Industrial Materials Ltd [1996] IRLR 126, a decision of the Employment Appeal Tribunal presided over by Lord Couldsfield.[11]In the headnote which is the part of the decision to which we have been principally directed (but nobody had suggested that the headnote does not in summary terms represent what is in the body of the judgment) the following proposition is set as the holding of the Employment Appeal Tribunal in that case:
"In determining whether a policy adopted by management unilaterally has become a term of the employee's contract on the ground that is an established custom and practice the factors referred to by Mr Justice Browne Wilkinson in Duke v Reliance Systems whether the policy has been drawn to the attention of the employees by the management or has been followed without exception for the substantial period are likely to be among the most important circumstances to be taken into account. But they have to be taken into account along with all the other circumstances of the case. The question is not whether the period for which a policy has been followed is substantial in the abstract sense but whether in relation to other circumstances it is sufficient to support the inference that the policy has achieved the status of a contractual term."
Mr McCarthy submits in reliance on that proposition that the Tribunal in this case did not consider the various factors set out in Quinn 's case or and in Duke v Reliance Systems or make findings upon them.[12]In our judgment Quinn 's case was a case on facts which were very different indeed. Firstly, this was not a case in which, as in Quinn , the Tribunal had to consider whether a policy adopted by management unilaterally had become a term of the employee's contract. In Quinn those were indeed the facts; the position in Quinn was that the employers had adopted a policy of granting enhanced redundancy payments which was not communicated to the employees and was a unilateral policy adopted by management. In this case arrangements had been made between the employers and the employees for the use of the vans in the manner which we have described. Thus the starting point for the analysis in Quinn 's case, namely determination as to whether a unilateral policy had become a term of the employees' contracts, was not the starting point in the present case.[13]There were further important differences of fact. In Quinn 's case the policy had only been operated on 4 occasions in 7 years; and each time it was operated the employers considered whether or not to operate it. In the present case the arrangements which we have described, from the time at which they came into operation some 3 months or so before the transfer, were operated between all of the employees to whom they applied and the employers on a day by day basis over a period of 3 months. Thus not only is the starting point for consideration of the applicable principles in Quinn 's case one which is not present or which is very different in this case but also the facts were of a wholly different nature.[14]Mr Hogarth has submitted that there is a further important distinction, namely that in this case the new arrangements were contractual, or to be regarded as contractual if the Tribunal so found, from the start and that this was not a case in which the Tribunal had to consider whether the arrangements became contractual as a result inter alia of sustained use. Mr McCarthy points to the fact that the Tribunal appears to have approached this case on the latter basis rather than that advocated by Mr Hogarth. He relies on the words in paragraph 9 of the decision:
"The Tribunal finds that it had become part of the contractual arrangements between Waltham Forest and the Applicants."
These words in our judgment are neutral as between the 2 rival contentions; but we will assume in the employers' favour that the Tribunal are not to be taken to have been deciding that the arrangements were contractual from the start, although we have to say if they had so found it would be difficult to see any basis on which such a decision could be challenged. On the basis that the Tribunal found that the arrangements became contractual we have to consider whether the Tribunal have in some way failed to apply any of the relevant principles derived from Quinn 's case or from common law.[15]The Tribunal had before it a quite simple and straightforward factual situation. The arrangements were clear and certain. There was no difficulty as to publication or knowledge on the part of the employees; the employers knew of the arrangements and were, as we have said, operating them on a day by day basis. The new arrangements replaced an arrangement by which the employers paid money to the employees in respect of the employees' use of their own vehicles to go to and from work the legal nature of which the Tribunal did not consider; but if the Tribunal had considered it, they could not have come to any conclusion other than that it was a contractual arrangement. Mr McCarthy accepted that these circumstances made this a very different case from that of Quinn ; and ultimately he reduced his submission to this, that the Tribunal had not addressed their mind to and therefore did not find that the arrangements had continued for a substantial period.[16]While he accepts that the Tribunal found at paragraph 9 that these arrangements had gone on for some time before the transfer and accepts too that that means that they were finding that the arrangements had gone on for 3 months, because the unchallenged evidence was that they had gone on for 3 months, Mr McCarthy submits that they did not decide whether that was or was not a substantial period and indeed that they could not have concluded that 3 months was a substantial period but because it was not and could not so have been viewed.[17]We revert to what we have already quoted from Quinn 's case. Whether a period for which an arrangement has been followed is substantial is not to be determined in the abstract sense but by considering whether, in relation to other circumstances, it is sufficient to support the inference that the policy has achieved the status of a contractual term. Applying that principle, it was for the Tribunal to decide on the facts whether the circumstances including those which we have set out and the duration of the arrangements were sufficient to give rise to an inference that the arrangements had achieved the status of a contractual term.[18]The Tribunal's decision in that respect was one of fact; and in our judgment they were plainly entitled, in the context of the other circumstances, to regard the duration for which these arrangements had existed as sufficient to enable them to draw the inference which they drew. It is true that the Tribunal did not expressly address themselves to the words "substantial period" but they found at paragraph 9 that the arrangements had gone on for some time before the transfer; and we have identified what period they had in mind. That period was not in our judgment so short that the Tribunal could not, as a fact finding Tribunal, regard it as sufficient to be a substantial period or to be a sufficient period from which the inference, which the Tribunal drew having regard to all the other circumstances, drew could be drawn.[19]For those reasons we are entirely satisfied that the Tribunal was entitled to reach the decision on this issue that they reached.[20]The next area which we must consider is that of variation. The employers' case before the Tribunal was, as we have indicated, that the employees had agreed to vary their contracts of employment by signing documents which appeared on the face of them to permit the deductions which Newham sought to make. It is not entirely clear how many employees did sign such documents. The Tribunal found as a fact that 2 of them did not. Some of those who signed the documents, and we do not know how many signed them, added the words 'without prejudice' at least some of the time.[21]The Tribunal found that there was no discussion or informed agreement between employers and employees. The employees were given an ultimatum; either sign the form and permit the deduction or do not use the van at all. The reluctance of the employees, the Tribunal found, was well known to the employers. The Tribunal found that these new arrangements were imposed on the employees by the employers. Mr McCarthy submits that the Tribunal erred in regarding this situation as one which did not establish variations by the employees of their contracts of employment by agreement with the employers and in relying on the fact that the employees were reluctant to enter into any such agreed variation. Of itself their reluctance would not of course be an answer to the contention that there was an agreed variation; but their reluctance could properly be regarded as evidence that they did not consent to the variation which the employers sought to impose on them.[22]Similarly, it is argued that the fact that there was no discussion or informed agreement does not mean that there was no variation and of itself we accept that that is correct. But again the absence of discussion or informed agreement is evidence which it was for the Tribunal to assess and value in reaching a conclusion on whether the employees did or did not consent to the variation which the employers proposed.[23]We do not think it necessary to draw any distinction between those employees who signed the document, those who signed it without prejudice or those who did not sign it without prejudice. In the case of those who did not sign it at is difficult to see how they could have consented to the variation; but we are not asked to regard their 2 cases as different from the others. Looking at the matter as a whole, as the Tribunal was entitled to do, the Tribunal had to decide whether these employees had consensually agreed to vary their contracts of employment. That was the question which they had to answer on the facts.[24]That they posed that question to themselves is clear; and no criticism is made of their approach in law. Once that is clear, then it was for the Tribunal looking at the matter in the round to decide whether on the facts these employees had consented to such a variation or had not. We do not see any basis on which it could be said that the Tribunal were not entitled to reach the conclusion, as they did, that there was no consensual variation by these employees in the circumstances of this case and on the facts as found.[25]There is no separate point taken upon subsection 13(1)(b) of the Employment Rights Act 1996. That subsection permits an employer to make a deduction from wages if the worker from whom the deduction is sought to be made has signified in writing his agreement or consent to the making of such deduction. Mr McCarthy fairly accepts that, in the absence of an agreed variation to the contracts of employment, he cannot rely on section 13(1)(b) and does not seek to do so. We therefore need say no more about that.[26]Finally, there arises an issue which has caused difficulties for tribunals and for higher courts and indeed for the European Court of Justice. It is the extent to which, where after a transfer the employers and employees agree a variation in the terms of the contracts of employment as compared with the terms which existed prior to the transfer and were transferred to the transferees because of the transfer, those variations in so far as they reduce any of the terms and conditions of the contract of employment so far as the employees are concerned, are valid or are invalid by reason of regulation 5 of TUPE and the appropriate provisions of the Acquired Rights Directive. It was argued on behalf of the employees in this case that, even if the employees had entered into agreed variations of their contracts of employment with Newham in the terms sought by Newham, such variations would have been unlawful or not valid and therefore could not be relied upon by Newham by virtue of regulation 5 of TUPE on the basis that they (to put it neutrally for the moment) were caused by the transfer.[27]In their summary reasons the Tribunal on this issue found, in paragraph 3, in these terms:- "the variation was directly connected with the transfer". Those words are not reproduced in the Extended Reasons. In the Extended Reasons, at paragraph 10, the Tribunal says:
"This infringes the Applicants rights under Regulation 5 of the Transfer of Undertakings Regulations."
[28]Counsel on both sides in this case accept that we should read those 2 sentences together and should take the Tribunal to have decided that, if there were the alleged variations, they infringed the employees' rights by reasons of Regulation 5 because they were variations which were directly connected with the transfer. Mr McCarthy submits, supported by the recent decision of the Employment Appeal Tribunal in Ralton v Havering College of Further & Higher Education [2001] IRLR 738 , that the Tribunal applied the wrong test in this area. Ralton appears to have decided following numerous cases in the European Court of Justice, that the correct question is not whether the reason for the variation was connected with the transfer but whether the variation was solely by reason of the transfer.[29]Mr McCarthy submits that test was not one which was ever considered by the Tribunal in this case and that, if this point is relevant, there would have to be a remission so that the Tribunal could consider the application of the correct test. Mr Hogarth, on behalf of the employees submits that on the facts of this case the two tests really come to the same thing.[30]We incline to the view that Mr Hogarth is correct in this; on the facts of this case, the reason behind the desired variation was the employers' wish to harmonise the terms of employment of the transferred employees with those of their own employees who had not been transferred. If one then asks why did they wish to harmonise in this way and to make changes to produce that harmonisation, the answer appears quite simply to be that the sole reason was the transfer.[31]However, because of the decision we have reached and already expressed that the Tribunal's decision on the variation of contract issue, without any TUPE factor being considered, was not erroneous in law, it is not necessary for us to decide this point; and we do not propose to do so. It is not necessary for this case to be remitted because there will no useful purpose in so remitting it for what would be a wholly academic exercise, having regard to the fact that, if we are right, the decision of the Tribunal as to the absence of any consensual variations of the contracts of employment must stand.[32]For those reasons this appeal is dismissed.