ALAMO GROUP (EUROPE) LIMITED v (1) MR P TUCKER (2) TWOSE OF TIVERTON LIMITED (NOW KNOWN AS TTL LTD) [2003] UKEAT 994_01_2402

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2003] UKEAT 994_01_2402Case No Appeal No. EAT/994/01Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
ALAMO GROUP (EUROPE) LIMITEDAPPELLANT(1) MR P TUCKER (2) TWOSE OF TIVERTON LIMITED (NOW KNOWN AS TTL LTD)RESPONDENT
Before
His Honour Judge J Altman Ms B Switzer Mr B M WarmanDate 24 February 2003
[1]APPEARANCES For the Appellant MR BRIAN NAPIER (of Counsel) Instructed By: Messrs Eversheds Solicitors Fitzalan House Fitzalan Road Cardiff CF24 0EE For the First Respondent For the Second Respondent MISS MELANIE TETHER (of Counsel) Instructed By: Messrs Michelmores Solicitors 18 Cathedral Yard Exeter EX1 1HE NO APPEARANCE OR REPRESENTATION BY OR ON BEHALF OF THE RESPONDENT HIS HONOUR JUDGE J ALTMAN: The Employment Tribunal held at Exeter on 8 and 9 May 2001 considered the issue does Regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) have the effect of transferring to the transferee the duties and liabilities imposed on the employer under Regulations 10 and 11? The Respondent (Alamo) appeals from the decision that Regulation 5 rendered them, as transferees, liable for the default of the transferor.[2]The Employment Tribunal found that the Second Respondents (Twose of Tiverton Ltd) went into administration on 22 June 2000. At Works Council meetings during July management did pass on information about the general situation. They consulted appropriately over a proposed management buyout that in the event did not materialise. However on 8 September Alamo concluded a contract to purchase Twose who did not comply with regulations 10 in relation to this particular transfer. The Employment Tribunal found that the duty to consult under Regulation 10 covered 2 weeks between 1 st and 15 th September 2000, and from this finding there is no appeal. Although Alamo did all they should for their new employees in terms of consultation, the effect of the decision of the Employment Tribunal is that they have to bear the burden of the default of the transferor. Mr Napier on behalf of Alamo argues that liability under Regulations 10 and 11 does not transfer.[3]There are two inconsistent decisions of the Employment Appeal Tribunal on this very issue. Kerry Foods Limited v Creber [2000] ICR 556 was concerned with the transfer of the duty to consult over collective redundancies under Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 , but it is clear, and has been confirmed by Counsel who appeared in that case and now appears in this, that the case was also concerned with the (TUPE). The EAT in Kerry held that liability does transfer, but in Transport & General Workers' Union v James McKinnon and Others [2001] IRLR 597 the EAT in Scotland declined to follow Kerry and held that liability does not transfer. Regulation 5 provides; "Effect of relevant transfer on contracts of employment, etc. 5(1) ... (2) ... on the completion of a relevant transfer –(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this Regulation to the transferee; and(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee." "A relevant transfer" is defined in Regulation 3 as being:
"(1) ... a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated."
Regulation 10 provides:
"Duty to inform and consult trade union representatives 10(1) ... (2) Long enough before a relevant transfer to enable the employer of any affected employees to consult all the persons who are appropriate representatives of any of those affected employees, the employer shall inform those representatives of – (the facts, implications, measures to be taken and where possible employees who will be transferred in relation to the proposed transfer). (3) The transferee shall give the transferor such information at such a time as will enable the transferor to perform the duty imposed on him by virtue of paragraph (2)(d) above. . .. (7) If in any case there are special circumstances which render it not reasonably practicable for an employer to perform a duty imposed on him by any of the foregoing paragraphs, he shall take all such steps towards performing that duty as are reasonably practicable in the circumstances."
Regulation 11 provides: "Failure to inform or consult. 11(1) Where an employer has failed to comply with a requirement of Regulation 10 or Regulation 10A, a complaint may be presented to an employment tribunal on that ground - … (2) If on a complaint under paragraph (1) above a question arises whether or not it was reasonably practicable for an employer to perform a particular duty or what steps he took towards performing it, it shall be for him to show - a) that there were special circumstances which rendered it not reasonably practicable for an employer to perform the duty; and (b) that he took all such steps towards its performance as were reasonably practicable in those circumstances. . .. (4) Where the tribunal finds a complaint under paragraph (1) above well-founded it shall make a declaration to that effect and may – (a) order the employer to pay appropriate compensation to such descriptions of affected employees as may be specified in the award; or (b) if the complaint is that the transferor did not perform the duty mentioned in paragraph (3) above and the transferor (after giving due notice) shows the facts so mentioned, order the transferee to pay appropriate compensation to such descriptions of affected employees as may be specified in the award. (5) An employee may present a complaint to an industrial tribunal on the ground that he is an employee of a description to which an order under paragraph (4) above relates and that the transferor or the transferee has failed, wholly or in part, to pay him compensation in pursuance of the order. (6) Where the tribunal finds a complaint under paragraph (5) above well-founded it shall order the employer to pay the complainant the amount of compensation which it finds is due to him. . .. (11) In this Regulation 'appropriate compensation' means such sum not exceeding thirteen weeks' for the employee in question as the tribunal considers just and equitable having regard to the seriousness of the failure of the employer to comply with his duty. ...[4]In considering the construction of the regulations, we examine first their overall structure and then the provisions of regulations 5, 10 and 11. The Overall Structure of the Regulations[5]Regulation 5 is in our judgment the core provision, protecting the position of employees on a transfer by transferring the rights, powers, duties and liabilities under or in connection with a contract of employment. The preceding Regulations deal with matters such as definitions and a particular procedure in the case of a company winding up. Following the general statement in Regulation 5, Regulations 6 to 11 deal with specific situations; collective agreements, occupational pension schemes, unfair dismissal, trade union recognition, and, in Regulations 10 and 11, consultation and information. Then regulations 12, 13 and 14 deal with matters such as qualifications, restrictions, exclusions and consequential amendments. Additionally, we note that Regulation 7 provides expressly that occupational pension schemes are not transferred by regulation 5, and the question arises as to why, if it was also intended to exclude regulations 10 and 11, that is not also spelt out?. Also, Regulation 8, in dealing with the application of the principles of unfair dismissal to a transfer, is likewise concerned with a liability arising in consequence of statute, although not of TUPE itself. Although by no means conclusive, it does appear that the structure of the regulations supports the proposition that Regulation 5 is the central general provision to which specific provisions apply unless they state otherwise.[6]In McKinnon Lord Johnston states that these regulations contain their own regulatory regime. We return to this later in the context of the argument that the provisions are therefore outside a contract of employment, but insofar as such a regime is created, it does appear to give pre-eminence within its own structure to Regulation 5. We consider the regulations themselves.

(a) and (b)

[7]Under subparagraph (1) not only is the actual contract of employment itself transferred, but the above paragraphs provide a broad transfer of all the transferor's rights, powers, duties and liabilities "under or in connection with any such contract" under subparagraph (a) and "anything done in respect of the contract or the person employed under subparagraph (b). The language is clearly very wide. TUPE derives from the Directive of the Council of the European Communities 77/187/EEC (the Acquired Rights Directive). Article 3 provides:
"1. The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer ... shall, by reason of such transfer, be transferred to the transferee."
[8]Article 3 of the Directive was considered extensively in Martin v Lancashire County Council ; Bernadone v Palma Services Group Ltd & Others [2001] ICR 197 . Peter Gibson LJ at paragraph 17, page 205 referred to the guidelines on the application of the Directive in a memorandum by the European Commission. He quotes the following passage from them:
"... Thus, the transferee is bound by all the transferor's obligations resulting from an employment contract or an employment relationship, including those which arose before the date of transfer. ... It is the transferee who assumes liability for bearing the burden resulting from employees' rights existing at the time of transfer."
The wide effect of '…resulting from…an employment relationship' is there demonstrated and, it seems to us, informs the construction of the effect of Regulation 5.[9]Moving to English Law from the European Commission guidelines and the Acquired Rights Directive Peter Gibson LJ continues:
"Consistently therewith, in Wilson v St Helens Borough Council [1998] ICR 1141 , Lord Slynn of Hadley, ... said: 'In my opinion, the overriding emphasis in the Court of Justice's judgments is that the existing rights of employees are to be safeguarded if there is a transfer. That means no more and no less than that the employee can look to the transferee to perform those obligations which the employee could have enforced against the transferor. ... The object and purpose of the Directive is to ensure in all member states that on a transfer an employee has against the transferee the rights and remedies which he would have had against the original employer'."
Indeed Lord Slynn went on to say in that case:
"To that extent it reduces the differences which may exist in the event of a change of employers as to the enforcement by employees of existing rights. They must all provide for enforcement against the transferee of rights existing against the transferor at the time of transfer."
[10]At page 210 Peter Gibson LJ turns to the matter then in issue, namely whether an obligation in tort that an employer owed to an employee was subject to transfer under Regulation 5. He said:
"... The economic entity carrying on the undertaking after the transfer will be the transferee, and in general the employees are more likely to be protected if the rights and obligations to be transferred are more rather than less comprehensive. But such rights and obligations must of course fall within the limiting words 'arising from a contract of employment or from an employment relationship'. It would seem to me to be surprising if the rights and obligations were to be limited to contractual claims and to exclude claims in tort. Why should there be such a dividing line (in accordance with the distinction in English law between tort and contract) in a Community Directive? It is the more surprising when the language used in the Directive is broad ('arising from') and when it is not only a contract of employment but also an employment relationship (which is plainly something different) from which the rights and obligations must arise. The European Commission guidelines and the remarks of Lord Slynn in the Wilson case ... which I have cited in paragraph 19 above do not support the exclusion of non-contractual rights and obligations."[the preceding sentence to be removed in due course]. Peter Gibson LJ then turns to the 1981 Regulations and the extent to which they mirror the Directive. He says: "... it is noticeable that the language does not mirror that of the Directive, although it is of course necessary to construe the Regulations consistently with the Directive if possible. Again one notes the width of the language used in subparagraph (a) of Regulation 5(2): 'all the transferor's rights, powers, duties and liabilities under or in connection with' the contract of employment. The rights etc are not limited to those under the contract but include those 'in connection with' the contract. That prepositional phrase is far wider and it does not suggest that the rights etc need to be contractual. That is supported by subparagraph (b) of regulation 5(2), It is not just what is done by the transferor in respect of the contract that is deemed to have been done by the transferee but also anything done by the transferor in respect of the employee. That does not suggest that it is limited to what will result in contractual rights and liabilities. It is further supported by regulation 5(4). That suggests that but for that paragraph the liability of a person to be prosecuted for, convicted of and sentenced for any offence would or might have been transferred, and that paragraph (2) therefore cannot be limited to contractual rights and liabilities. Consideration such as these weighed with ... Mummery J in DJ International Ltd v Nicholas."
[11]We draw from these words in Martin and Bernadone , coming as it does at the end of a long line of authorities and also interpreting European law, that the right or obligation that is the subject of enquiry need not be embodied in the contract of employment. There must be a contract of employment that establishes the relationship of employer and employee that gives rise to certain obligations, but that does not mean that the specific obligation being considered must arise from that contract. The decision also demonstrates that as a matter of general principle it is in the interest of the employee for the particular right being examined to be subject to transfer.[12]It is true that in that particular case the determination as to the transfer of tortious liability was at least in part due to its close similarity to contractual liability. Mr Napier points out that the nature of the obligation in Martin and Bernadone , that of tort, was a very different type of obligation to that we are considering and he submits that accordingly the case falls to be distinguished. Nonetheless the analysis of the construction of the TUPE regulations in that case is wide and far-reaching and does not appear to us to be confined to the facts of the case.[13]We were also referred to Beckmann v Dynamco Whicheloe MacFarlane Ltd [2002] IRLR 578 in which the European Court of Justice held that the Directive allows of no exception to the rule, although we have already noted the exception in relation to occupational pensions.[14]Mr Napier submits that there are some cases where there is some connection with the contract of employment but not sufficient for a transfer and that it is not sufficient to demonstrate just any connection. He referred to Chapman and Elkin v CPS Computer Group Plc [1987] IRLR 462 in which an indirect connection with the contract of employment in that an employee had entitlements under a share option scheme that was available only to employees but was contained in a separate contract was not enough to trigger Regulation 5. However in that case it seems that the Court of Appeal were astute to point to the fact that they were dealing with a contract other than that of employment. Glidewell LJ said, (paragraph 24):
"... this case is not concerned directly with the contract of employment; it is concerned with another contract – the contract granting the option for the purchase of the shares. As to that contract, submits Mr Mitting, the Regulations have no effect; they are totally irrelevant. ... In my judgment that argument is correct."
The Court of Appeal was, it seems to us, concerned with how to define the circumstances in which a stock option could be exercised in a contract quite separate from TUPE. That seems to us a different question as to whether Regulation 10 transfers.[15]Mr Napier also referred to Hagen v ICI Chemicals and Polymers Ltd [2002] IRLR 31 in which it was held that liability for negligent misstatement by the transferor on a pension related entitlement did not pass. In that case the transferors were found to have been liable for negligent misstatements about benefits conferred on employees under an occupational pension scheme. Did such liability transfer under Regulation 5 or was it excluded from transfer by Regulation 7? Some of the crucial words in the two Regulations were the same. With the liability transferred as being "under or in connection with the contract of employment" or was it excluded as being "under or in connection with" that part of the contract of employment as relates to an occupational pension scheme? Elias J said, at paragraph 332:
"This [Regulation 7] is framed in very broad terms. Its effect is that no liabilities transfer where they arise under or in connection with so much of the contract as relates to an occupational pension scheme. In my judgment, given the wide meaning given to the words 'in connection with' in Bernadone, a liability which arises from a misrepresentation about pension benefits under an occupational pension scheme gives rise to a potential liability 'in connection with' that part of the contract relating to the scheme. Accordingly it is caught by Reg. 7 and does not transfer. It follows that the liability remains with ICI."
[16]Accordingly, whilst in a sense this is an example of a liability that does not pass under Regulation 5, the reason that it does not pass is that it is caught by the very form of words, otherwise used in Regulation 5, but here effective under Regulation 7 to specifically exclude it. It does not seem to us that this really effects the interpretation of Regulations 5 and 10.[17]In McKinnon , at paragraph 5, Lord Johnston draws a distinction in the sort of liabilities that transfer between an obligation to compensate for a tort, as in the Martin and Bernadone case, on the one hand from the imposition of a fine imposed upon an employer for the same incident at criminal law under the Health and Safety Regulations. However it seems to us that the contrary conclusion is to be drawn. Regulation 5(4) excludes liability to prosecution conviction and sentence and Peter Gibson LJ said, in the passage quoted from Bernadone :
"…regulation 5(4)…suggests that but for that paragraph liability would or might have been transferred…"
If a criminal liability may have been transferred but for that provision, this seems to favour rather than disprove the proposition that provisions that are not expressly excluded do transfer.[18]It seems to us first, that Regulation 5 applies to rights and obligations derived from statute and regulations, even if not expressly or impliedly incorporated in the contract of employment, provided they exist 'in connection with' the contract of employment or 'the employment relationship'. Secondly, all else being equal, such rights are included in regulation 5 unless shown to be excluded, rather than the other way around. Regulations 10 and 11.[19]When Peter Gibson LJ turns to the issue as to whether liability under the Occupiers Liability Act 1957 transferred, he said:
"... In my judgment, the particular circumstances of the alleged liability must be examined to see whether it did arise from or was in connection with Mrs Bernadone's contract of employment."
[20]Likewise, it would seem to follow, for Regulations 10 and 11. Mr Napier has pointed out that neither the Directive nor the Regulations specifically transfer liability under Regulation 10 and it is necessary therefore to examine its provisions to see if they come under the wide provisions of Regulation 5. He refers to the case of Berg & Busschers v Besselsen case 144/87 [1989] IRLR 447, where at paragraph 12 it was held:
"... the purpose of the Directive is to ensure that in the event of a change of employer, employees retain their rights, by enabling them to remain in the employment of the new employer on the same conditions as those agreed with the transferor."
It is true that those words appear to be referring to a rather narrower process than is contended for by the Respondents. However, it seems to us that that construction of the intention of the Directive must be seen in the context of the particular case and did not purport to express the entire scope of the intention of the Directive or its limitations, save in the context of being limited to the extent to which the transferor remained liable after transfer.[21]Mr Napier argues that Regulation 10 creates a duty on the transferor owed to representatives of employees and not to individual employees themselves. The right to claim compensation that accrues to individual employees under Regulation 11 only arises where there has been not only a default in communicating and informing but a default in paying compensation to the representatives of the employees following such default. For this reason he submits that these Regulations stand outside the Transfer provisions of Regulation 5. Mr Napier argues that under TUPE the only obligation to consult was with the recognised trade union, or representatives. He contends that the law is as set out in Angus Jowett & Co Ltd v National Union of Taylors and Garment Workers [1985] ICR 646 which held that Regulation 5 was concerned with an employer's duties and liabilities under a contract with an individual employee on the completion of a transfer and not with the employer's obligations to consult with a union, then under Section 99 of the Employment Act 1975 , in relation to collective redundancies. Whilst that did not specifically deal with Regulation 10, the principle would appear to be comparable. However Kerry held that the principles set out in Angus had been eclipsed by the decision of the European Court of Justice in Commission of the European Communities v United Kingdom [1994] ICR 664 , commonly referred to as the infraction proceedings. In Kerry it was pointed out that the Angus case was decided at a time when the only obligation to consult under the statute and the Regulations was with a trade union on a collective basis. The infraction proceedings were brought, it was stated in Kerry , because, as the Court of Justice found, the Council Directive relating to collective redundancies was designed to protect the rights of workers as individuals so that where there was no recognised trade union there was still an obligation to consult through worker representatives. On this ground Kerry held that Regulation 10 gave rise to a right which arises from the individual contract between each worker and his employer. It was emphasised in Kerry that this was demonstrated by the nature of the remedy which belongs to the individual as set out above. Nonetheless, Mr Napier argues that the infraction proceedings did not falsify the decision in Angus in that way. He points out that even after the infraction proceedings there was no obligation to consult individual employees. However Miss Tether points out that in the infraction proceedings the Court really accepted that the provisions of Article 6 were designed to protect employees by giving them the right to be informed and consulted "through their representative". Paragraph 15 of the infraction judgment referred to:
"15… . .. the combined effect of articles 6 and 8 of the Directive, which require member states to take all measures necessary to ensure that employees are informed and consulted through their representatives in the event of the transfer of an undertaking."
[22]We accept the force of the submission that, in effect, the provision for consultations with representatives is the medium by which it is intended that individual employees should be protected. The representatives do not themselves have any free-standing benefit to gain from these consultations. The lack of significance in the fact that it is the representatives rather than the individual employees that are to be directly informed and consulted under Regulations 10 and 11 is reflected in Article 6(5) of the Acquired Rights Directive which provides:
"Member States may provide that where there are no representatives of the employees in an undertaking or business, the employees concerned must be informed in advance when a transfer within the meaning of Article 1(1) is about to take place."
If such a provision were enacted, it would be somewhat inconsistent, it seems to us, if rights acquired by an individual in such a provision were to transfer whereas those acquired 'through' representatives were not. The rights seem to be those of the employee whether exercised directly or 'through' a representative.[23]Mr Napier acknowledges, in fact, that the individual right to default compensation does transfer. He contends that this arises later and is capable of passing as an entirely different entity. At page 210 in the Martin and Bernadone Peter Gibson LJ said:
"It is to my mind significant that by common consent all contractual rights and liabilities are transferred. They are not limited to those which are still contingent. Thus fully accrued rights and liabilities are transferred."
The fact that the remedy of the employee may arise as an enforceable right later on in the process does not affect the fact that it is at all times a "contingent" liability and we find it difficult to distinguish that from the entire process of Regulations 10 and 11. It seems to us it is part of the process and dependent upon what has gone before. It is difficult to accept that within the same Article it was intended that there may be a liability for one default that did transfer, because individual employees were referred to, but a default which did not transfer where it referred to representatives only.[24]This lack of any real distinction can also be seen, it seems to us, from actual wording of Regulation 11(5) where the right of the individual employee to claim for non-payment of compensation is expressed to arise when: "the transferor or the transferee has failed…to pay him compensation in pursuance of the order" which seems to indicate that the liability to pay is owed to him, and not his representative. Also we note that this provision is referring back to what is described in subparagraph (4) as an obligation to pay compensation to "such descriptions of affected employees as may be specified" so the regulations seem to treat that obligation also as owed to the employee. Additionally, the yardstick for measuring compensation, even though claimed in the first instance by the representatives, is the individual employee and his week's pay. We find that the fact that there is a primary duty to consult with the representative should not obscure the fact that the right to be consulted appears to be owed by the employer to the employee through the representative.[25]In construing Regulations 10 and 11 and their relationship to Regulation 5 we also apply the dicta of Peter Gibson LJ to the effect that all the Regulations and Directives envisaged that the best way to protect employees is by transfer.[26]Another ground upon which we conclude that the rights and obligations under Regulations 10 and 11 transfer is the absence from the Regulations of any express exclusion, unlike the position of the occupational pensions, to which we have previously referred.[27]Finally, in considering the proper construction of Regulations 10 and 11 we have heard argument as to the effect of policy considerations. This weighed heavily with the Employment Appeal Tribunal in McKinnon . On the basis that a transferor could, at the moment of transfer, escape responsibility for failure to give information and consultation, Lord Johnston suggested that to prevent that happening, and to provide an incentive to comply, the regulations should be construed so as to ensure that liability remained with the transferor.[28]However, it seems to us that there are many instances where the danger of non-compliance by the transferor can be guarded against, and that this pitfall is not so pervasive as to inform the application of the regulations in all circumstances. As the Employment Tribunal in the present case pointed out, the transferee can protect himself, and provide an incentive for the transferor to comply, by providing for warranties and indemnities in the contract of transfer. We accept that warranties are not relevant in every case, and that there are transfers where in practice the transferor and transferee have no relationship at all. Such may arise, for instance, where a public service private finance initiative is re-tendered and the contract won by a new contractor in circumstances where he has no opportunity to impose warranties. However, regulations 10 and 11 may have less application to such situations, for they provide a 'defence' where it is not 'reasonably practicable' to consult and inform, so that in those 're-tendering' cases the transferor, and thereby in due course the transferee, may be able to rely on that provision. Furthermore, even with a recalcitrant transferor it is sometimes in the employee's interest for there to be a transfer of liability; for instance as is conceded by Mr Napier and as applies to the very facts of this case, where the transferor is insolvent or in administration, an employee is likely to have a better chance of recovering compensation from the transferee. And the primary purpose of the regulations is to protect the employee, even if it follows that the innocent transferee may on occasions have to bear the liability. It does not appear that a construction that favours transfer produces an unjust result in such a way as to require a contrary construction. For all these reasons we conclude that it is not appropriate to construe the regulations to provide for no transfer of regulation 10 and 11 rights in order to protect the interests of an employee on transfer; there is not the ground for completely reversing, in this one instance, the underlying theme of the regulations, that is that the employee is best protected by a transfer of rights. Kerry and McKinnon[29]In the light of our findings, we turn to the conflict in these cases. In McKinnon Lord Johnston quoted the decision of the Employment Tribunal with apparent endorsement, to the effect that a distinction is to be drawn between liabilities created in a contract and those liabilities which are provided for in the TUPE Regulations themselves, and a distinction is drawn between the liability arising under TUPE itself and "a general liability arising out of or under a contract of employment". Apart from the policy element to which we have already referred, this appears to have formed the main reason for the decision of the EAT in McKinnon. However, it seems to us that whether the origin of the right under examination is contractual or from statute or regulations, and whether it is within or without the regime of TUPE itself, the question is the same, namely whether the right being examined arises 'under or in connection with the contract of employment or arises from the employment relationship'. Had regulation 5 dealt only with rights 'under' the contract of employment, then it may indeed have been necessary to determine the origin of the right in the contract of employment, but as Peter Gibson LJ pointed out in the passage quoted from Martin and Bernadone, in which both tort and statutory liability under the Occupiers Liability Act transferred:
"…the width of the language used in subparagraph (a) of Regulation 5(2)…does not suggest that the rights etc need to be contractual…"
[30]This seems to have been at the heart of the difference between McKinnon and Kerry, for Lord Johnston suggested that the issue before that Tribunal raised "a sharp issue" which they did not consider had been determined by the Kerry case. Kerry was criticised as taking too broad a view as to the construction of the words "arising out of a contract of employment", but in so doing the EAT in McKinnon appear to have overlooked the words 'in connection with' in regulation 5. Two other factors influence our conclusion on this issue. The first involves Regulation 8 of TUPE which provides for there to be an 'unfair dismissal' in certain circumstances on transfer under TUPE. It is to be noted that this refers to a statutory right, not a contractual right, and furthermore it is included in TUPE itself, although it is true that it constitutes an incorporation by reference to another statute rather than a wholly new right created within TUPE. It was established in the cases of Litster v the Forth Dry Dock Ltd [1989] ICR 341 and Wilson v St Helens Borough Council [1998] ICR 1141 that notwithstanding the reference to a statutory right contained within TUPE itself, liability for unfair dismissal under regulation 8 was subject to the transfer provisions of regulation 5. The fact that Regulations 10 and 11 are contained in TUPE does not, it seems to us, militate against their being subject to Regulation 5, for had the legislator intended to exclude them their very proximity would no doubt have led to the exclusion being express, as in regulation 7. Also, their presence in the same regulations is not essential, they could equally have been enacted separately. Secondly, the modern relationship of employer and employee is not confined to the terms of the contract between employer and employer for there are not only terms that have been implied by statute, but statute has created a number of rights and liabilities that are imposed on the parties and which they cannot exclude by agreement. The very purpose of such provisions is, very often, to give added protection to employees. It seems to us that it would be wholly artificial to distinguish liabilities that are contained in the actual contract from those imposed by statute in determining whether they are subject to Regulation 5. Once the legislator has determined that the best way to protect employees on transfer is under regulation 5 it seems to us that it would be curious if the legislator were then to intend to exclude statutory or regulatory rights that the legislator had introduced for the very purpose of protecting employees.[31]We understand that at the time of McKinnon, Martin and Bernadone had not been reported. We also note that Peter Gibson LJ in that case referred, without demur, to the argument in Kerry that the infraction proceedings had changed the position after Angus Jowett. With a degree of judicial hindsight we have concluded that Kerry is to be preferred. Regulation 5(2)(b)[32]Miss Tether also submits that, in any event, Regulations 10 and 11 are embraced in Regulation 5(2)(b) as something "done before the transfer is completed by ... the transferor in respect of ... a person employed in that undertaking" so as to be subject to transfer. Miss Tether refers to Martin and Bernadone where at page 214 Peter Gibson LJ paraphrases the judgment of Mummery J in DJM International Ltd. v Nicholas [1996] ICR 214:
"... that the words of regulation 5(2)(b), 'anything done ... in respect of ... a person employed in that undertaking', must be read in the light of, and consistently with, the reference to an employment relationship in article 3 of the Directive and should be construed as referring to obligations other than those which arise out of the contract of employment."
[33]Mr Napier submits that this appeal is about the transfer of a liability, which he says is the province of Regulation 5(2)(a), and not something 'done' by the transferor, the proper province of Regulation 5(2)(b). We recognise the force of that argument. Further, this passage may appear to imply that Regulation 5(2)(a) is confined to obligations which do 'arise out of the contract of employment', which would be inconsistent with the construction of Regulation 5(2)(a) in Martin and Bernadone. We do not consider the position to be so clear as to lead us to differ from the interpretation of the word 'done' to include 'obligations'. With a great deal of hesitation we find that Regulation 5(2)(b) also has effect to transfer the liability to pay compensation in this case to the transferee. Conclusion[34]It seems to us that the rights and liabilities in regulations 10 and 11 are rights that arise in connection with the contract of employment, or arise from the employment relationship and that consequently they are subject to Regulation 5. We take into account all the matters set out in this judgment, in particular the structure of the regulations that seems to give pre-eminence to Regulation 5, and the meaning of that regulation as provided for in its words, the European originating material, and the interpretation of its terms in decided cases. These, it seems to us, all emphasise the width of its application to matters arising in connection with the contract of employment or out of the employment relationship. As to Regulations 10 and 11, we note that there is no express exclusion from regulation 5 and we agree with the EAT in Kerry that the approach of the European Court in the Infraction proceedings, coupled with the express provision in part of the regulations for liability to be owed to the individual employee, result in Regulations 10 and 11 being interpreted as applying to the individual employee. We consider that this interpretation is consistent with the twofold general approach of the Regulations, first that their purpose is to protect employees on a transfer and secondly that generally that is best achieved by a transfer of rights. In our judgment the rights in Regulations 10 and 11 to information, consultation and compensation in default are in connection with the contract of employment and arise out of the employment relationship and are subject to the transfer provisions of Regulation 5. Compensation[35]Mr Napier argues that the Employment Tribunal erred in awarding any compensation. The Tribunal dealt with the issue of compensation in paragraphs 21 and 22. In paragraph 21 they find that there was no evidence of specific loss to any employees apart from the shock of sudden announcement which would have been mitigated by their knowledge that the future of the Company was being negotiated in any event. The Employment Tribunal found that the breach lasted for two weeks, that the transferees consulted and 'ameliorated any prejudice which the employees might have suffered', so that the employees were employed and remunerated for longer. They also found that consultation would not have made any difference and that the case justified an award on the low side which they fixed at one week's gross wage. Mr Napier argues that the employer for the purpose of assessing the amount of compensation should be taken to be the transferee who has been rendered liable. However we prefer Miss Tether's argument that the compensation is for the primary liability of the transferor in failing to consult and inform. It is that liability which transfers. The assessment of compensation is very much a matter for the discretion of the Tribunal and we would only interfere if this was exercised in some way that was plainly wrong. Whilst we recognise that the award was "hard" on the Appellants, particularly bearing in mind first that they were not responsible for the initial default and, secondly, that they themselves conducted any consultations and gave information in a way most favourable to the employees, it is not such that we feel it appropriate to interfere with the award. We find that the Employment Tribunal did not err in law in their assessment of the award.[36]The Employment Tribunal in this case, and in a most carefully reasoned decision, construed Regulations 5, 10 and 11 in a way with which we agree and awarded an amount of compensation that was not so excessive as to be wrong in principle. Accordingly this appeal is dismissed.