JOHN HARDMAN & CO v 1) MR D URMSTON 2) MRS T DOWNES 3) MR A WARBURTON [2006] UKEAT 0620_05_1407

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2006] UKEAT 0620_05_1407

Case No Appeal No. UKEAT/0620/05

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

JOHN HARDMAN & COAPPELLANT

1) MR D URMSTON 2) MRS T DOWNES 3) MR A WARBURTONRESPONDENT

Before

His Honour Judge Birtles Mr P Gammon

Date 14 July 2006

[1]APPEARANCES For the Appellant MS JOANNE WOODWARD (Of Counsel) Instructed by: Messrs Horwich Farrelly Solicitors National House 36 St Ann Street Manchester M60 8HF For the Respondent MR SIMON GORTON (Of Counsel) Instructed by: Messrs SAS Lawyers 30 Greek Street Stockport Cheshire SK3 8AD SUMMARY Appeal by employers on the ground of inadequate reasoning by the ET following findings of unfair dismissal after dismissal immediately before a TUPE transfer. Appeal dismissed on the facts. No inadequate reasoning by ET. A claim of perversity was also dismissed. HIS HONOUR JUDGE BIRTLES Introduction This an appeal from the judgment of an Employment Tribunal sitting in Manchester on 13 – 17 June 2005 and in Chambers on 28 July and 31 August 2005. The Chairman was Mr K E Robinson and the members were Mr J J Cain and Mr M Rawcliffe. The unanimous judgment of the Employment Tribunal was (in so far as it affects this Appeal) that the claims of Mr Urmston, Mrs Downes and Mr Warburton were well-founded as all three were unfairly dismissed and their claims for damages for breach of contract were also well-founded. A separate claim for unlawful deductions of wages was also well-founded on the basis that salary accrued for holidays was due to them. There were other parties before the Employment Tribunal but they are not relevant for this Appeal. The Material Facts

[2]The material facts were found by the Employment Tribunal in paragraphs 13 – 44 of its Judgment. The Employment Tribunal said this:

"13 The claimants worked for the Company. The Company was to supply services to the Firm in order to enable the Firm to conduct personal injury claims (P1 claims). The idea for the Company was Mr Powell's. He set up the company and had a 25% interest in it. Mr Hinchcliffe put in £25,000 cash funding and also held a 25% interest. Mr Brooke and Mr Hardman, both partners in the Firm, had a 12.5% interest each. The final 25% was owned by Post Legal Protection Limited, an after event insurer. Its Director were Mr Bilhan, Mr Patel, Mr Kelly and Mr Cooper. The company worked from the Firm's premises with support staff. Mrs Hardman was the Firm's HR Manager and also dealt with the HR issues for the Company. The files were opened in the name of the Firm. The fee earners were held out as employees of the Firm in relation to using the Firm's letter heading and personal cards. Appraisals were carried out in the presence of Mr Brooke and Mrs Hardman. Further supervision, in order to meet the requirements of The Law Society, was carried out by the Firm on the Company's employees. 14 By September 2003 Mr Hardman recognised the Company was in financial difficulties. 15 At page 117 of bundle 2 the following words appear in the draft Minutes of a Company meeting dated 9 th September 2003:- "

The anticipation was dealt that the Company would be able to trade out of its difficulties and ensure that the statutory creditors were paid …. If the Company was faced with a situation in which it did not have both the consent of the bank and the revenue to an instalment arrangement, then John Hardman & Co would have to step in and take over the employment of the Hard Shelf Co employees in order to service the case load for which John Hardman & Co was primarily responsible". 16 The three claimants represented by Mr Gorton were dismissed on 2 June 2004 after a Board Meeting with Mr Powell with Mr Hardman, Mr Hinchcliffe, Mr Kelly and Mr Brooke all in attendance. Mr Brooke was not a director of the Company but he was a shareholder and also held himself out as the Solicitor for the Company. 17 It was resolved at that meeting that … "Mr Powell would use available remaining resources to seek to manage the caseload until such time as the Company could afford to recruit further staff." 18 Mr Hardman was going to deal with the principle creditors, namely HM Customs & Excise and the Inland Revenue. 19 After the dismissal of the three claimants, which was carried out by Mr Brooke with Mr Powell in attendance, it was suggested by Mr Brooke that he should give them one month's notice and that they were redundant. 20 Neither redundancy payment nor notice pay has been paid to the three claimants nor has any monies that may be owing in terms of reduction from wages regarding holiday pay. 21 Letters of dismissal were sent out on the Firm's notepaper. 22 There were references to the three claimants being employed by John Hardman & Co in the brochures sent out to clients which included, for example, a description of Christopher Powell as:- "The Personal Injury Department at John Hardman & Co was formed when Chris (Powell) joined the practice in 2001". 23 Mrs Hardman in her HR role wrote to the Cheshire Building Society on behalf of Mr Warburton informing them that he was an "employee of the Firm". 24 Once the three claimants were dismissed the support staff, such as Elaine Fisher who was a personal assistant, were kept on and helped service the files with Mr Powell. A number of other employees of the Firm assisted Mr Powell during June to run the 1500 or so PI files in existence. The employees of the Firm who helped were Miss Eckersley, Mr Wright, Mr Williams and Mr Maher. 25 Mr Brooke also carried out an audit of all the files in that period. The Company started recruiting PI fee earners and a PI Department was set up no later than 19 th July 2004, and that department continues to service the PI files which had been left with the Firm by the Company in June 2004. 26 There was no agreement signed between the directors of the Company and the partners of the Firm with regard to the relationship between the Company and Firm. A draft agreement, however, was prepared but never completed. 27 The staff that had remained in June 2002 were given new contracts to sign in the name of John Hardman & Co. The contracts were identical save for the name of the paying party. The Firm paid the wages not the Company. 28 Miss Fisher confirmed that she was told there was continuity of service and that confirmation came from John Brooke. She was told by Mrs Hardman, in early June, that she should carry on as if she was working for John Hardman & Co and was told "We have not had this conversation" 29 It was also in early June 2004 that Miss Fisher informed Mrs Downes that John Hardman was keeping the Company staff on and simply transferring those staff members onto the Firm's payroll. 30 At page 371(c) of the first bundle there appears a note dated Friday 9 July 2004 by Elaine Fisher which reads as follows:

"Conversation with Sue Hardman re contract of employment. Concern re continuous employment. Sue telephoned JB who had advised continuity was maintained due to transfer of the employment from Hardshelf Co 122 Ltd to John Hardman& Co. SH would do of a memo of the same or I can just make a note for my own records". 31 We accepted not only the existence of that note but also the truthfulness of its contents. 32 Mr Brooke admitted in evidence that the time of the dismissals on 2 June 2004 he was advising the directors of the company differently from what he was telling the employees because he felt that he had to maintain ownership of the PI files. 33 Mr Brooke was concerned about one of two things occurring. Either that the claimants would move to other solicitors and then seek to transfer the files they had been working on to those solicitors or that the other directors of the company would seek to claim ownership of the files. 34 Mr Brooke was therefore at pains to make sure, as early as possible, and certainly in early June 2004 that the files were to remain not only under the control of the Firm but within the ownership of the Firm. In effect Mr Brooke was detailed by the Firm to make sure that the position with regard to the PI practice was safeguarded. 35 A file note from him dated 2 nd June 2004 reads in part:- "

In the meeting I advised that as they (the claimants) would still be employed by the Company for the currency of their notice period any attempt to divert a maturing business opportunity from John Hardman & Co to any other firm of solicitors might be regarded as breach of contract entitling us to refuse to pay them at the end of June". 36 He went on to say in that note that "the files remain the property of the Firm". 37 Mr Brooke had three roles. He was a partner in the firm, shareholder in the Company and acting as solicitor for the Company. He accepted that those roles were incompatible. 38 Although it is now accepted by the respondents that there was a transfer of undertaking there is no file note or document we saw which suggests Mr Brooke had considered the TUPE issue. 39 During June 2004 work as done by the Firm's fee-earners on the Company's files. Mr Hardman accepts that Mr Powell was working on the files with the assistance of Paul Williams, a Firm employee, but other Firm employees were working on those files as well. 40 At page 125 of the second bundle there appears a memorandum from Mr Brooke to the directors of the Company referring to the Company as "the Client of the Firm". It is dated 11 June 2004 and contains these words:- "In order to achieve Lexcell accreditation we need to start managing tiles in a standard and organised way now." By the "we" Mr Brooke meant the Firm. 41 In that same memorandum he also confirms that five commercial fee earners spent the evening of Wednesday 9 June auditing the personal injury case load against the check list drafted not only by Mr Powell but also by himself. 42 In the fifth bundle documents appear which show that work was being carried out on the PI files by the Firm's fee earners (page 1543). 43 On Sunday 20 June 2004 Mr Hardman approached by telephone Mr Urmston to see whether he would come to work for them again. 44 Two days later Mr Urmston declined that invitation."

[3]Before coming to its conclusions the Employment Tribunal made a series of findings about the witnesses who gave evidence before it. Those findings had an important bearing upon its conclusions in this case. It is therefore important that we set them out. They are found in paragraph 55 – 63 of its Judgment:

"55 Mr Powell did not give evidence. However we did read his statement but put little weight on his statement as his evidence could not be challenged in cross-examination. We also noted that a witness order had been issued against Mr Powell yet he did not choose to attend to give evidence. 56 Before dealing with the reasons for our decision a note on credibility. Where there has been a conflict of evidence we have found in favour of the claimants' witnesses rather than the respondents for the following reasons. 57 We exclude Miss Eckersley from that comment. We believe Miss Eckersley gave truthful and fair testimony but her evidence could not take the matter much further. 58 We thought Elaine Fisher was a reliable witness. We accepted that she was vague in relation to some of the dates and times of events. She did not strike the Tribunal as someone who had come to the Tribunal with a particular agenda. Under strong cross-examination she was not shaken when challenged in relation to her conversation with Mr Brooke over the continuity of service and the document at page 371(C) nor in relation to the comment made to her by Mrs Hardman about not "having the conversation". 59 Both Mrs Hardman and Mr Brookes agreed that if the Tribunal accepted Miss Fisher's evidence their case was seriously damaged. 60 Mr Hardman, Mr Brooke and Mr Hardmans' evidence was self-serving. When Mr Hardman gave evidence he suggested he was forced into many actions by a strong willed Mr Powell. When he was challenged on certain issues his stock answer was that it was Mr Brooke who would deal with that in his evidence. For a professional man with many years' experience in running his own firm and a partner in another firm, he strove to suggest that he had little or no control over events as they unfolded. 61 We felt Mr Hardman was very much in control of the situation during June and July 2004. As a director of the Company he was the prime mover in attempting to solve the problems of the Company. It was he, for example, who went to see the Inland Revenue about the Company's debt. 62 Mr Brooke held himself out as a meticulous lawyer but was actually less than meticulous in dealing with this matter. He admitted some very unprofessional acts. For example, he accepted, when cross-examined, that he was advising co-shareholders in one way and the employees in another. He accepted that his role as a shareholder, a partner in the Firm and a solicitor advising a company compromised his position. He held himself out as an employment lawyer but the paperwork does not suggest he addressed the TUPE issue. When challenged on that point he said that TUPE was discussed all the time over the course of June and July 2004 yet there is no written record of that. 63 Mrs Hardman became agitated when challenged over her evidence. In particular she was unnecessarily persistent in seeking to persuade the Tribunal that her role as office manager should not be confused with her position as the wife of a partner of the Firm. She played down her HR role in the Company. Overall she came across as an unconvincing witness."

[4]Having made those comments about the evidence the Employment Tribunal went on to reach its conclusions in paragraphs 64 – 77 of its Judgment:

"64 Our primary view is that as early as September 2003 the Firm knew exactly what they would do if the Company went further into financial difficulties. The transfer took place on 2 June 2004 and consequently the claimants were dismissed immediately prior to the transfer. During June Mr Powell did continue to work on the files but by that time it was the partners of the firm who had taken control. 65 The relationship between the Company and the Firm was always a close one. 66 Fee earners from the firm were working on the PI files in early June. The Firm saw the files as theirs from early June and that by keeping the support staff, the company was subsumed by the Firm. 67 The claimants were dismissed for a reason connected with the transfer and that the principle reason for the dismissal was the transfer (Regulation 8(1)). 68 If the transfer did not take place on 2 June 2004 it certainly had taken place, even by Miss Woodward's own admission, sometime between 23 June and the middle of July. 69 We then needed to decide whether the reason for the dismissals was an ETO reason and consequently whether regulation 8(2) applied. 70 The firm put in place a complete department to run the PI files. They are still running those files and the Firm still has a PI Department. 71 This is not a situation where staff were dismissed in order to make the business viable or sellable (indeed the firm did not try to sell the PI practice). We were not presented with any evidence to suggest that the firm had made substantial economies because of the Company's own financial over commitment and we believe that Mr Hardman saw a way through the difficulties by allowing the Company to go under and then forming his own PI Department but this time run by the Firm. 72 In short the reason for the dismissal of these three claimants was because the undertaking was transferred. This was not an economic, technical or organisational reason which entailed changes in the workforce. 73 This is not analogous to a situation where the Company dismissed the employees in order to get best price for the business. 74 There is evidence that Mr Hardman and Mr Brooke thought that the three claimants were not particularly good at their job and were overpaid but the impression we gained was that they wanted to get their hands on the PI business and work with it in their way rather than in the way Mr Powell and the Company had been doing. 75 In all the circumstances, the three claimants have to be treated as unfairly dismissed because the principle reason for the dismissal was the transfer of the Company's business into the hands of the Firm and they were dismissed immediately prior to the transfer (Reg 5(1)). 76 We further find that no actions of the claimants in any way effected their dismissal. There should consequently be no reduction in compensation. 77 Finally, for completeness, we confirm there are no identified issues not determined. It was pleaded on behalf of the claimants that from the beginning they were employees of the firm on an implied contract and consequently never employed by the Company. For the avoidance of doubt we confirm that that was not this case and that the claimants win because the part of the undertaking employing them was transferred to the Firm and their dismissal was automatically unfair."

Agreed Facts

[5]Before leaving the Judgment of the Employment Tribunal it is important to note that there were a series of agreed facts before the Employment Tribunal. They were referred to in an argument before us and we have therefore annexed them to this Judgment. The Notice of Appeal

[6]By Notice of Appeal dated 12 January 2006 the Appellant company (The Respondent below) appealed to the Employment Appeal Tribunal. Prior to that there had been a Remedies Hearing before the same Employment Tribunal on 20 October 2005 and in Chambers on 26 October 2005. The Employment Tribunal made awards to Mr Urmston of £29,150.00, to Mrs Downes of £65,792.00 and Mr Warburton of £26,203.00. There was an appeal against that judgment by the Appellant company. At the Preliminary Hearing of the liability appeal His Honour Judge J R Reid QC ordered the stay on the Remedies Hearing. That stay has been continued. We are therefore only concerned with the Liability Hearing.

[7]For the sake of completeness we should state that the Claimants cross-appealed from the Judgment of the Employment Tribunal on liability which it was agreed was only relevant if we found that the Employment Tribunal made an error of law. We shall deal with the Appeal and the Cross-Appeal in turn. The Law

[8]The relevant part of Regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 provides:

"(1) Except where objection is made under Paragraph 4(A) below, a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferee in the undertaking or part-transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if it were originally made between the person so employed and the transferee. (2) Without prejudice to paragraph (1) above but subject to Paragraph 4(A) below, on the completion of the relevant transfer- "(a) All the transferor's right, 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 where a person employed under that undertaking or part shall be deemed to have been done by or in relation to the transferee. (3) Any reference in Paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, the person so employed immediately before of those transactions."

[9]The relevant part of Regulation 8 states:

"(1) Where 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. (2) Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee- (a) paragraph (1) above shall not apply to his dismissal; but (b) without prejudice to the application of Section 57(3) of the 1978 Act or Article 22(10) of the 1976 Order (test of fair dismissal) the dismissal shall for the purposes of section 57(1)(b) of that Act and Article 22(1)(b) of that Order (substantial reason for dismissal) be regarded as having been for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held …"

The Employment Appeal Tribunal Decision

[10]Before turning to the specific grounds in the Notice of Appeal and the Cross Appeal we think it is important that we record our view that the Appellant's appeal is in essence a reasons appeal: see Meek v City of Birmingham District Council

[1987] IRLR 250

and English v Emery Reinbold and Strick Ltd

[2002] 1WLR 2409

. No application has been made at any time for this case to be remitted to the Employment Tribunal for it to give further reasons: Barke v Seetec Business Technology Centre Limited

[2005] IRLR 633

. Ground 1

[11]This ground of appeal argues that the Employment Tribunal failed to give any or any adequate reasons for the following findings which were findings on the principal issues in dispute in this case and/or failed to respond to written and oral submissions on the part of the Second Respondent on these issues:-(1) The transfer took place on 2 June 2004;

(2) The Claimants were dismissed for a reason connected with the transfer and the principal reason for the dismissal was the transfer;

(3) This was not a situation where staff were dismissed in order to make the business viable. We take each in turn.

[12]The Employment Tribunal found that the transfer took place on 2 June 2004 and consequently the Claimants were dismissed immediately prior to the transfer: Judgment paragraph 64. Miss Woodward conceded that this finding was only relevant if the finding on the second issue was also capable of challenge. Otherwise she conceded that the date of transfer was immaterial. The fact of the transfer was not in dispute. The date of the transfer was Miss Woodward submitted that the Tribunal failed to have regard to the detailed documentary and oral evidence put before it on this issue and the earliest date on which it could be argued that the transfer took place was 23 June 2004 when the Board Meeting Minutes record that the Appellant believed that Hardshelf was in fundamental breach of the Service Agreement: EAT Bundle page 193. The bulk of the PI work was being continued by Mr Powell into July 2004 and responsibility for that remained with Hardshelf.

[13]There is no dispute that the Employment Tribunal had to decide the precise date when the transfer took place: Celtec Limited v Astley

[2005] IRLR 647

. There were in fact two possibilities here: either the transfer took place on 2 June 2004 or in the period from 23 June 2004 to the middle of July 2005. The Tribunal chose the first: Judgment paragraph 64 but accepted that if it did not take place on that date that it certainly had taken place on Miss Woodward's own admission sometime between 23 June 2004 and the middle of July 2004: Judgment paragraph 68. It seems to us this is entirely a question of fact based upon the careful consideration of the evidence and submissions and we find that it was open to the Employment Tribunal to make the findings that it did.

[14]The Employment Tribunal made the finding that the date of transfer was 2 June 2004 in the light of their primary findings of fact from paragraphs 13 – 44 of the Judgment. The Employment Tribunal clearly accepted the submissions made on behalf of the Claimants that it was the retention of the support staff coupled with the change of the identity of the fee earners that brought about the transfer and made its finding in paragraph 66 that:

"66 Fee earners from the firm were working on the PI files in early June. The Firm saw the files as theirs from early June and that by keeping the support staff, the company was subsumed by the Firm."

[15]As we have indicated this is a reasons appeal. Reasons were given in paragraphs 64 – 66. The reasoning was adequate: see English v Emery Reinbold and Strick Limited

[2002] 1WLR 2409

at page 2418, paragraphs 18 – 19, 21 and 26 per Lord Phillips of Worth Matravers MR.

[16]On the reason for the dismissal Miss Woodward submits that there was substantial evidence before the Employment Tribunal of the financial position of Hardshelf and that she made submissions that the only possible way of saving Hardshelf itself was to dismiss the substantial proportion of its employees and to endeavour to service the files on a skeleton staff basis whilst alternative funding arrangements were pursued. Furthermore, she submitted to the Employment Tribunal that there was no evidence of collusion between the Appellant and Hardshelf in engineering the dismissals of the Respondents. She argued that the Employment Tribunal failed to address those submissions which were critical to the issue of the reasons for the transfer and to the credibility of the Appellant's witnesses.

[17]This ground of appeal overlapped with the first ground of appeal as to the date of the transfer. However, as long as the finding of fact by the Tribunal that the dismissals were for a reason connected with the transfer is correct, the actual date of the transfer is immaterial in the light of the wording of Regulation 8(1). On this ground of appeal it is clear that the Employment Tribunal were satisfied that the reason that the Claimants were dismissed and the reason why the original plan of September 2003 was not followed by the Appellant was because of the transfer and Mr Hardman's plan to obtain the personal injury practice without the Claimants: Judgment paragraphs 61 - 22, 64, 71 and 74. We also refer to paragraph 19 of the Remedy Judgment.

[18]There is no doubt that the Employment Tribunal were wholly critical of the Appellants' witnesses: Judgment paragraphs 32, 56 - 63 and also by what it saw as the Appellants' attempts to deny matters for which it had been responsible: Judgment paragraphs 28, 30 and 59. The question which the Employment Tribunal had to ask itself was this: Was the transfer the reason for the dismissal? See Litster v Forth Dry Dock Engineering Co Ltd

[1989] IRLR 161

; Kerry Food Limited v Craver and Others

[2000] ICR 556

and Thompson v SCS Consulting Limited

[2001] IRLR 801

. The Employment Tribunal decided this issue of fact in favour the Claimants: Judgment paragraphs 64 and 67.

[19]Miss Woodward then argued that this was a situation where staff were dismissed in order to make the business viable. In particular she relied upon the fact that Mr Hardman gave comprehensive evidence and produced financial material which addressed this issue. It was a main plank of the Appellants' case before the Employment Tribunal that the Respondents were dismissed in order to make the business viable. She criticised the Employment Tribunal because although the Employment Tribunal did not specifically reject that evidence it stated that they were not presented with any evidence to suggest that the firm had made substantial economies because of the Company's own financial over-commitment: Judgment paragraph 71. Miss Woodward suggests that the Tribunal must have forgotten about this evidence when it met to reach its decision. We find that submission impossible to accept.

[20]It is clear from the Employment Tribunal's Judgment that it found that this was not a dismissal which was caught by Regulation 8(1). However, the Tribunal did go on to consider Regulation 8(2). It rejected the Appellants' arguments on that: Judgment paragraphs 69 – 72. Miss Woodward's submissions ignore the criticisms made of Mr Hardman by the Employment Tribunal: Judgment paragraphs 60 - 61 and indeed of the Appellants' other witnesses.

[21]It is clear to us reading the Judgment as a whole that the Appellants' evidence was rejected. Ground 2

[22]In the alternative Miss Woodward submits that the Employment Tribunal reached a perverse decision in concluding that:-(1) It was not presented with any evidence to suggest that the firm had made substantial economies because of the Company's own financial over-commitment.

(2) This was not a situation where staff were dismissed in order to make the business viable.

(3) In the alternative it was a decision wholly unsupported by any evidence in respect of a number of critical findings of fact.

[23]We remind ourselves of the test set out by Mummery LJ in Yeboah v Crofton

[2002] IRLR 634

at paragraph 93:

"Such an appeal would only to succeed for an overwhelming case is made out that the Employment Tribunal reached the decision which no reasonable Tribunal, on a proper appreciation of the evidence and the law, would have reached. Even in cases where the Appeal Tribunal has "grave doubts" about the decision of the Employment Tribunal, it must proceed with "great care": British Telecommunications Plc v Sheridan [1990] IRLR 27 paragraph 34."