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Grace v Youth Development & Adventure Project and another


Employment – Transfer of undertakings – Relevant transfer – Employment tribunal finding transfer of undertaking from first respondent to third party rather than second respondent – Correctness of decision.

For some time prior to March 1999, the complainant was employed by the first respondent, which was a freestanding organisation, funded by central government, concerned with youth projects generally. The operation to the first respondent came to an end some time in 1998 when the relevant funding was withdrawn. The second respondent was established in 1997, for the purpose of making a plan for North Ayr and to determine strategy for youth involvement. At the time of the determination of the first respondent’s activities, the complainant was dismissed following investigation into financial irregularity. The complainant made a complaint that she had been unfairly dismissed, and it fell to be determined as a preliminary issue whether there had been a transfer of undertaking of the first respondent, and against whom her claim for unfair dismissal should be directed. The employment tribunal found that the activities of the first respondent, which had been accepted by the parties to be an undertaking within the meaning of the relevant regulations, had been transferred to South Ayrshire Council and not to the second respondent. The complainant appealed against that decision on the ground that the tribunal had misdirected itself by concentrating, essentially, on the question of contracts of employment after the date of transfer which were undoubtedly with the South Ayrshire Council as the paying authority, notwithstanding the terms of the original letter re-engaging the other employees which referred to the second respondent, which had amounted to an error of fact by the tribunal.

The appeal would be allowed.

In the instant case, the tribunal had placed too much emphasis on the single issue of contract of employment against the broader background of whether or not an undertaking had been transferred. What one looked for in the issue of transfer was what aspects of the undertaking could be found in the new employer/transferee. It was not conclusive, although it might be an important factor, that no employees of the transferor were transferred to the transferee. In the instant case, it was not, therefore, determinative that the remaining employees were paid by South Ayrshire Council and subject to their terms and conditions of payment. In the circumstances, there was an open question yet to be resolved as to who was properly to be regarded as the transferee and the tribunal had reached its conclusion on the basis of a misdirection. The matter would therefore be remitted back to a differently constituted tribunal for consideration before which both the second respondent and South Ayrshire Council should be represented.

Fairhurst Ward Abbotts Ltd v Botes Building Ltd and others


Employment – Transfer of undertakings – Continuity of employment – Unfair dismissal – Economic entity – Transfer of part of economic entity – Transfer of Undertakings (Protection of Employment) Regulations 1981, reg 3 – Council Directive (EEC)  77/187.

In 1996 Southwark London Borough Council (the local authority ) entered into a contract with the first respondent company (Botes) to carry out works of maintenance and alteration to void domestic buildings owned by the local authority. Employees of the local authority who worked in the function that had been contracted-out were transferred to the employment of Botes pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 1981. Of the employees transferred were the second to ninth respondent employees. Subsequently, the local authority sought tenders for the future provision of servicing void buildings, and divided the service area into two. The appellant company (Fairhurst) was awarded a contract for undertaking the servicing of one of the areas. Fairhurst decided that the eight employees’ employment did not transfer to it from Botes, pursuant to the 1981 Regulations, as it believed, inter alia, that Botes had deliberately manipulated the situation prior to the local authority’s tenders to make it appear that the employees were assigned to the area Fairhurst had won the contract for in order to divest themselves of their obligations towards them. Of the eight employees, P was the supervisor of the entire borough under the Botes contract and S was off work at the time of the alleged transfer. Meanwhile, Botes maintained that there had been a transfer of employment under Council Directive (EEC) 77/187 (on the approximation of the laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings,businesses or parts of businesses) (the ‘Acquired Rights Directive’) and reg 3 of the 1981 Regulations as ‘part of an undertaking’ and, on the expiry of the original contract, the eight employees’ contracts of employment came to an end. The eight employees then presented their originating application to the employment tribunal complaining of unfair dismissal. It was common ground that the employees had been unfairly dismissed; the issue for the tribunal was by whom they had been unfairly dismissed. The tribunal concluded that six of the employees had been unfairly dismissed by Fairhurst and the remaining two, P and S, had been unfairly dismissed by Botes. Fairhurst appealed on the basis, inter alia, that although the tribunal concluded, on the facts, that the services contract constituted an economic entity capable of being transferred under the 1981 Regulations, that economic entity was not transferred to Fairhurst, as the entity Fairhurst took over under the new services contract had not existed, or was not the same economic entity, as that which Botes previously operated under one contract for the whole borough. Botes cross-appealed, asserting that the tribunal had erred in concluding that P and S had been unfairly dismissed by them and there had not been a transfer to Fairhurst.

The tribunal ruled:

(1)  The ‘Acquired Rights Directive’ and the 1981 Regulations envisaged the granting of such protection to cases in which the undertaking or entity in the hands of the new employer was structurally different from and was only part of the undertaking or entity in the hands of the old employer. The appeal tribunal did not regard the provisions of the directive or Regulations which applied that protection to the case of transfer of part of an undertaking as necessarily requiring that the part transferred was of itself a separate economic entity before transfer. Such a requirement appeared to be neither logical nor practical. On the findings of fact in the instant case, the tribunal were not precluded in principle from so proceeding, as they had, on the basis that the undertaking carried out by Fairhurst was a part of the undertaking or entity operated by Botes up to that time and that therefore, there could in law, on the facts as found, be a transfer from Botes to Fairhurst within reg 3 of the 1981 Regulations of that part of Botes’ undertaking.

(2)  In the light of established authority the tribunal’s conclusion upon the facts was one which was open to them and which, therefore, could not be successfully attacked on appeal; Cheesman v R Brewer Contracts Ltd [2000] All ER (D) 2047, ADI (UK) Ltd v Willer [2001] All ER (D) 237 (Jun) and RCO Support Services Ltd v Unison [2002] All ER (D) 50 (Apr) applied.

(3)  In respect of the cross appeal, on the facts of the individual cases, P had not been employed in the area contracted to Fairhurst immediately before the transfer and accordingly Botes’ appeal would be dismissed. In respect of S, however, the appropriate test was whether he was employed to work in the specific area immediately before the transfer. The same test would apply to an employee who was on holiday, on study leave or on maternity leave. However the tribunal failed to ask themselves where S would have been required to work and, accordingly, S’s case would be remitted to the same tribunal to determine the answer to the relevant question.

King v RHM Frozen Foods Ltd

Employment – Unfair dismissal – Constructive dismissal – Employee’s resignation – Connection with disciplinary hearing – Employment Rights Act 1996, s 95(1).

The respondent employee was originally employed as a cold store superintendent with the respondent employer’s predecessor. In May 1997, the employee’s employment was transferred to the employer under the Transfer of Undertakings (Protection of Employment) Regulations 1981. In early 1999, there were occasional problems with the operation of the warehouses and in December, a disciplinary hearing was arranged for the employee. The employee’s line manager did not inform her of what matters were to be discussed and she was not supplied with any relevant documentation. The employee was given a verbal warning which she expressed her wish to appeal against. Subsequently, the employee notified the employer that she would be off sick as she was suffering from a major depressive disorder with phobic anxiety disorder that arose directly as a result of the disciplinary hearing conducted by her line manager. Eventually, the employee tendered her resignation and presented her originating application complaining, inter alia, that she had been constructively unfairly dismissed contrary to s 95(1) of the Employment Rights Act 1996. The employment tribunal upheld the employee’s complaint and the employer appealed on the basis there was no evidence, or express conclusions made by the tribunal, that the employee’s resignation was in response to the disciplinary hearing.

The appeal would be allowed.

The employment tribunal had simply failed to direct itself as to the question it was required to answer, and failed to make the necessary findings of fact to enable it to be answered. There was, in short, a complete mistrial on the point. The appeal tribunal took the view that because of the gaping chasm in the tribunal’s decision it had no alternative but to allow the appeal and remit the employee’s complaint for a re-hearing.

Alderson and others v Secretary of State for Trade and Industry

Employment – Transfer of undertakings – Relevant transfer – Transfer from local authority to private law company – Refuse collection – Existence of transfer of undertaking – Refuse collection in nature of commercial venture – Transfer of Undertakings (Protection of Employment) Regulations 1981 – Council Directive (EEC) 77/187.

Council Directive (EEC) 77/187 made provision for the protection of employees in the event of a change of employer, in particular to ensure that employment rights were safeguarded. Article 1 provided, inter alia, that the directive applied ‘to the transfer of an undertaking, business, or part of a business to another employee as a result of a legal transfer or merger.’ The directive did not define ‘undertaking’. The United Kingdom purported to implement the directive by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). TUPE defined an undertaking as including ‘any trade or business but does not include any undertaking or part of an undertaking which is not in the nature of a commercial venture.’ The Court of Justice of the European Communities subsequently held that the UK had failed to implement the directive properly, in that it had excluded non-profit making undertakings from the scope of TUPE (see Commission v UK [1994] IRLR 392). The instant case was a test case, and concerned the transfer to a limited liability company of the refuse collection function by a local authority. That function was paid for from the authority’s budget. Many of the authority’s former employees and vehicles were used by the company, although some employees were made redundant at the time of the transfer. Whilst the company was at liberty to decide how to fulfil its obligation, that obligation was the same as that which had been performed by the authority. The claimants claimed damages from the government for its breach fully to implement the directive into domestic law. Although it was admitted that TUPE failed to implement the directive in full, the court had to determine whether that failure had caused the claimants any loss. The issues to be determined were: (i) whether there had been a transfer of undertaking within the meaning of the directive; and (ii) if so, whether the local authority refuse collection was in the nature of a commercial venture within the meaning of TUPE.

The court ruled:

(1)  The identity of an economic entity was to be ascertained by reference to all the facts including its activity, organisation, employees, resources and assets. Each of those factors made its own contribution to the overall character and the identity of the undertaking. Assessing those factors in light of the circumstances of the instant case, there had been a transfer of an undertaking, namely the economic entity which undertook refuse collection, within the meaning of the directive.

(2)  The status of a local authority could not of itself prevent it from carrying out a function ‘in the nature of a commercial venture’. Having regard to settled law, in assessing whether something was a commercial venture, it was necessary to have regard to: (i) the make up and essential characteristics of the undertaking, including the purposes for which it existed; (ii) the status of the entity; (iii) how it was governed structured and managed; and (iv) whether there were any special objectives or aspects or purposes which shed light on its character. In the instant case, the authority’s refuse collection had provided a service to individual and identifiable members of the public, that service was performed by paid employees, and was paid for, albeit indirectly, through taxation, by those to whom it was provided. In those circumstances, the local authority had been carrying on an undertaking in the nature of a commercial venture prior to transfer.

C R Smith Glaziers (Dunfermline) Limited v Customs and Excise Commissioners (Scotland)

Value added tax – Exempt supply – Supply of insurance and related services – Requirement for statement setting out amount of premium under contract of insurance to be entered into in pursuance of transaction – Form of statement – Value Added Tax Act 1994, Sch 9, Group 2, Item 4, Note 5.

The taxpayer supplied double-glazing. It gave a ten-year guarantee supported by an insurance policy to protect the customer against the risk of its insolvency. The charge to the customer consisted of the price of the double glazing and additional charges for the insurance premium and services provided in arranging and administering the policy. The supply of those additional services was prima facie exempt from VAT pursuant to art 13B(a) of the EC Sixth Directive. Section 38 of the Finance Act 1997, which came into force on 19 March 1997, prescribed new conditions for the exemption of United Kingdom suppliers of insurance and related services. It substituted various provisions in Item 4 of Group 2 of Sch 9 to the Value Added Tax Act 1994. Thereafter, in order for there to be an exemption Note 5 to Item 4 required there to be: ‘(a) a statement setting out the amount of the premium under any contract of insurance that is to be or may be entered into in pursuance of the transaction in question; and (b) a statement setting out every amount that the customer is, is to be or has been required to pay, otherwise than by way of such premium, in connection with that transaction …’ Following the introduction of that section, the taxpayer’s standard form of contract contained in the small print cl 3 which was headed ‘Price/Payment terms’. Clause 3(4) provided: ‘Where the total contract price is £1000 or more the installation is insurance backed and the premium of £16 is included in the total contract price.’ Clause 6(3) provided: ‘… where the total contract price is £1000 or more, an insurance policy is in place and incorporated in the total contract price are costs incurred for the making and arranging of the policy with the necessary support and administration of 10% …’ A question arose as to whether the contractual document contained the ‘statements’ required by Note 5. The Commissioners argued that it did not contain such a statement. In their submission, the reference to 10% in cl 6(3) was inadequate. The tribunal was of the opinion that a statement ‘setting out the amount’ meant a specific sum such as £5000 and that what cl 6(3) provided was a formula which was not a statement of the amount but a means by which the amount could be ascertained or calculated. The Extra Division of the Court of Session agreed holding that ‘amount’ meant a specific monetary figure. The taxpayer appealed. The Commissioners argued that there was a requirement for there to be a specific sum in order to prevent avoidance by value shifting.

The appeal would be allowed (Lord Slynn dissenting)

Looking at the language of Note 5 against the background of the whole statutory scheme and having regard to European jurisprudence, in order to comply with that provision, a document supplied to the customer had to successfully communicate to him what amount or amounts he had to pay for insurance-related services, there was no requirement that it had to be communicated in a particular form. Under domestic law, Note 4(c) gave the Commissioners a specific power to prescribe the form of the document by notice, yet they had made no formal requirements whatever. There was no objection to the information being tucked away anywhere in the small print at the back of the form. If that was allowed, it would seem capriciously fastidious for Parliament to insist that the information had to be communication had to be communicated in a self-contained form and without requiring the reader to have any knowledge of arithmetic. Moreover, it was doubtful whether insistence on a self-contained figure would in itself contribute much to ensuring that the customer knew exactly what amount he was paying in relation to the provision of insurance services. With regard to European law, the Commissioners’ construction did not conform to the terms of the Sixth Directive. The only way that the United Kingdom could justify rules which deprived insurance-related services from VAT was by showing that they were to prevent any possible evasion, avoidance or abuse. In the instant case, a provision insisting not merely that the documents disclosed the apportionment of consideration but to do so in a particular form could not be said to be suitable for the purpose of preventing avoidance. The additional burden upon suppliers would be disproportionate to any effect the measure would have in addressing the alleged problem. Furthermore, if the specific objective was to prevent surreptitious or retrospective value shifting, all that was required was disclosure of the apportionment without insistence on any particular form. It followed that the Commissioners’ construction did not conform to the terms of the Sixth Directive. Accordingly there would be a declaration that the taxpayer was entitled to exemption for the consideration attributable to insurance-related services during the relevant period.

Lowe and others v Dudley Bower Building services Ltd


Employment – Continuity of employment – Transfer of undertakings – Preliminary issue – Employment tribunal finding existence of relevant transfer – Correctness of decision – Transfer of Undertakings (Protection of Employment) Regulations 1981.

The first respondent employee had worked as an electrician, employed by the Public Services Agency, based at RAF Cosford. The employee’s employment was then transferred to the second respondent company under the Transfer of Undertakings (Protection of Employment) Regulations 1981. The employee was one of four directly employed labour employees specialising in electrical and mechanical maintenance and repairing duties. In July 1996, the Ministry of Defence invited tenders for a new contract at Cosford. The third respondent was successful in its tender. The second respondent made it clear to the second respondent that the transfer of the contract would be subject to the Regulations and that several individuals, including the employee, were potentially subject to transfer. The third respondent intended to subcontract the work and notified the second respondent of any companies tendering for the subcontracting work, so that the second respondent could contact the subcontractors to establish what their intentions were in respect of the Regulations. The appellant successfully tendered for the subcontracting role, however it denied that the employee’s employment had been transferred. The appellant interviewed the employee but no offer of employment followed. The appellant appointed a new electrician who spent the majority of his time carrying out the work the employee had carried out. The remaining three directly employed labour employees had been transferred to the third respondent in order to carry out the duties they had with the second respondent. The employee presented his originating application to the employment tribunal complaining of breach of contract, unfair dismissal and redundancy. The question of whether there had been a relevant transfer under the Regulations arose by way of a preliminary issue. The tribunal determined that the employment of the employee had been transferred to the appellant under the provisions of the Regulations. The appellant appealed.

The appeal would be dismissed.

When considering the Regulations the court had to consider whether a stable economic entity existed and whether that entity had been transferred. Those were separate and distinct questions with different factors to be considered. Although the authorities referred to ‘an organised grouping of persons and assets’ the existence of assets was not a requirement in sectors which were essentially based on manpower where there might be few if any assets. An entity could not be reduced to the activity entrusted to it; its identity also emerged from other factors, such as its workforce, its management staff, the way in which its work was organised, its operating methods or the operational resources available to it. The application of those factors to the circumstances of any particular case was a determination of fact by the national court, provided that that court had the correct factors in mind when considering the circumstances before it. Whether a stable economic entity existed in any given case was always a question of fact and degree but there was no reason in principle why the work performed by a single employee should not amount to such an entity. Further, the court needed to consider the extent to which an operation was structured and autonomous in order to determine whether it amounted to a stable economic entity. It was clear from the decision of the tribunal that they gave careful consideration to the law and its application. The appeal tribunal were satisfied that it applied the correct principles in determining whether or not a stable economic entity existed and that they had not made any error in interpreting the law. They clearly had all the relevant factors in mind when they applied the law to the facts. Accordingly, the tribunal’s decision was carefully considered and reasoned and contained no error of law.

McLoughlin v BKE


Employment – Continuity of employment – Transfer of undertakings – Preliminary issue – Relevant transfer – Transfer of Undertakings (Protection of Employment) Regulations 1981.

The respondent employee was initially employed by Redpath Engineering, which was then taken over by Kvaerner. In 2000, Kvaerner told its employees that it was finishing at the site and told the employee, and other employees in the team, to resign and apply for employment with the appellant employer. The employee and the rest of the team were interviewed together and taken on as a team by the employer. The employee’s contract of employment described his services as continuous and referred to the site at which the employee had been based throughout his employment with both Redpath and Kvaerner. Subsequently, a preliminary issue came before the employment tribunal concerning whether or not there had been a relevant transfer of the employee’s employment from Kvaerner to the employer. The tribunal determined that the employee’s employment amounted to an undertaking, which had been transferred to the employer under the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981. There was, however, no contractual documentation involving Kvaerner or the employer, with the papers before the tribunal. The employer appealed.

The appeal would be allowed.

The employment tribunal approached the case upon a broad-brush basis. Their findings of fact were brief and in parts unclear. They were handicapped by the lack of evidence from Kvaerner and the complete absence of any contractual documentation but, as neither side had applied for an adjournment in order to obtain that evidence or documentation, the tribunal did not seem to have been aware of the true significance of its absence. Without it, it was difficult to establish whether an economic entity existed or not and difficult to determine whether or not there had been a transfer of such an entity. The decisive test in establishing a transfer was whether the entity in question retained its identity as indicated by the fact that the operation was actually continued or resumed. Without hearing evidence as to the true nature of the entity and how it might have changed it was very difficult to see how the question could have been answered. Accordingly, the decision of the tribunal could not form a basis upon which the appeal tribunal was able to make any clear decision, and in the circumstances, there was no alternative but to remit the matter for rehearing by a fresh tribunal who would have the benefit of considering the appropriate contractual documentation.