England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE EATRF 98/0724/3

Royal Courts of Justice

Thursday, 22nd July 1999

Before:

LORD JUSTICE HENRY

LORD JUSTICE MUMMERY

LORD JUSTICE LAWS

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ECM (VEHICLE DELIVERY SERVICES LTD

Appellant

-v-

B COX & OTHERS

Respondent

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(Handed down transcript of

Smith Bernal Reporting Limited

180 Fleet Street, London EC4A 2HD

Tel: 0171 421 4040 Fax: 404 1424

Official Shorthand Writers to the Court)

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MR. J. GOUDIE Q.C. (instructed by Messrs Burdetts) appeared on behalf of the Appellant.

MR. J. BURKE and MR. J. TAYLER (instructed by Messrs Bridge McFarland) appeared on behalf of the Respondent.

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APPROVED JUDGMENT

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Crown Copyright

Lord Justice Mummery:

This appeal concerns the construction and application of the Transfer of Un

dertakings (Transfer of Employment) Regulations 1981 (the 1981 Regulations) in the light of recent decisions of the European Court of Justice, notably Suzen [1997] ICR 662, and of this court in Betts v. Brintel Helicopters Ltd [1997] ICR 792.

In extended reasons sent to the parties on 13 November 1995 the Employment Tribunal (at that time still called an Industrial Tribunal) at Hull unanimously held, after a 5 day hearing, that the 1981 Regulations applied to this case. The consequence was that applications for unfair dismissal made by 24 car transporter drivers and yardmen, formerly employed by the transferor Silcock Express, now called Axial Ltd (Axial), succeeded against the transferee, ECM Limited (ECM) and failed against Axial.

ECM appealed to the Employment Appeal Tribunal. The first hearing took place on 10 October 1996 when, at the end of argument, the Appeal Tribunal indicated that it would dismiss the appeal for reasons to be given in due course. Before those reasons were given the European Court of Justice delivered another ruling on 11 March 1997 on the interpretation of the Acquired Rights Directive 77/187/EEC (the Directive) in Suzen (supra). On 26 March 1997 the Court of Appeal in Betts v. Brintel Helicopters Ltd (supra at 807F) stated that Suzen

"...does represent a shift of emphasis ,or at least a clarification of the law, and some of the reasoning of earlier decisions, if not the decisions themselves, may have to be reconsidered."

ECM's solicitors invited the Appeal Tribunal to hear further argument. That took place on 23 April 1998. On 15 May 1998 the Employment Appeal Tribunal dismissed the appeal on the grounds that there was no error of law in the decision of the Employment Tribunal. Leave to appeal to the Court of Appeal was granted. The judgment of the Employment Appeal Tribunal is reported in [1998] ICR 631.

Appeal to the Court of Appeal

On this appeal, Mr James Goudie QC appeared for ECM and Mr Jeffrey Burke QC appeared for Mr Cox and the other successful applicants. Neither of them had appeared in the tribunal hearings. An appeal to this court from the Employment Appeal Tribunal only lies on a question of law. The question for this court is whether there is any error of law in the decision of the Employment Tribunal. ECM submit that the error is in the tribunal's interpretation and application of the 1981 Regulations when reviewed in the light of the recent decisions.

The background facts found by the Employment Tribunal may be summarised as follows:-

(1) Axial had a contract with VAG Limited under which Axial was to deliver Audi and Volkswagen cars on transporters from Grimbsy docks to local delivery centres and dealers in different parts of the England, Scotland & Northern Ireland. For about 50% of the time the drivers delivered other types of vehicle.

(2) Axial employed the drivers of the transporters, three full time administrative staff in Grimsby and yardmen on site to deal with the VAG contract. The yardmen collected vehicles from VAG staff, inspected them for damage and placed them ready for collection by the drivers. Axial "operated a dedicated fleet to the VAG contract."

(3) In October 1993 Axial became aware that it had lost the contract with VAG to ECM which took over the contract in relation to the delivery of vehicles in the same area of the North via their networking system administered centrally from Carlisle. There were no administrative staff on duty at Grimsby. There were no more deliveries to local delivery centres.Two inspectors were employed at Grimsby to check that the vehicles were not damaged before they were handed over to ECM drivers.

(4) ECM decided not to employ any ex-Axial workers because it was clear that the drivers would claim unfair dismissal against ECM if they were not appointed. The Tribunal found that

"It was always considered a possibility that the [1981 Regulations] could apply to the transfer and, therefore, all of the applicants' contracts would be protected by the Regulations. Nobody, however, could be certain about this." (Para 7)"

(5) The Managing Director of ECM, Mr McDowell, did not think that the 1981 Regulations applied and therefore did not think that ECM had a legal obligation to the applicants. He did, however, say that the applicants could make applications for new posts with ECM and that these would be treated like any others. He could not guarantee that they would be given employment and the pay would be significantly lower than the drivers had been receiving and the drivers were expected to be away from home for 5 nights a week. The applicants' representatives continued to press their argument that the 1981 Regulations protected their terms and conditions of employment. The tribunal found that

"It became clear to Mr McDowell in the autumn of 1994 that the applicants' representatives would proceed with an action in industrial tribunals for unfair dismissal if he did not appoint them to posts within his company. The tribunal accepted that this was the major reason why he had decided not to appoint any ex-Silcock Express/ Axial Ltd workers to work for ECM.. "(Para 9)

In these circumstances the tribunal correctly identified as the question for decision as

"Whether the [1981 Regulations] applied to any transfer of undertaking between [Axial] and [ECM] ".(Para 10)."

On this point the tribunal were referred to most of the leading cases decided by the European Court of Justice, the Court of Appeal and the Employment Appeal Tribunal. Prominent among the authorities were the decisions in Spijkers [1986] ECR 1119 and Schmidt [1995] ICR 237 in the Court of Justice and the decision of the Court of Appeal in Dines v. Initial Healthcare Services Ltd [1995] ICR 11.

The Tribunal found that there was a discrete economic entity which retained its identity after the transfer. The 1981 Regulations therefore applied.

(1) The economic entity was described as

"... the VAG contract itself and the activities which surrounded that VAG contract. If there had been no VAG contract the applicant drivers would have had no job. If there had been no VAG contract the applicant yardmen would have had no job. The tribunal was satisfied that there was a discrete entity of an undertaking transferred from Axial to ECM....The work on the VAG contract was a very significant amount of work done by [Axial] as indicated by the number of employees who were made redundant as a result of the loss of the contract. The work that the drivers did, which was not specifically transporting VAG cars, was nevertheless consequential work and dependent on the VAG contract. The same could be said of the work done by the yardmen....".(Para 13).

(2) The next question was whether

"...the economic entity had retained its identity following the transfer." (Para 14)"

The Tribunal found that the economic entity was identifiable after the transfer. While noting that there were clear differences in the way that ECM carried out the VAG contract (e.g. the networked system, the administration in Carlisle,the fact that the drivers were expected to be out five nights a week, and the absence of any local delivery centres) the tribunal nevertheless found

"... that the customers essentially were the same,and that the work that was going on was essentially the same. Cars were unloaded at Grimsby, were put onto transporters, and were driven to VAG dealers. The end result was the same. It was true to say that ECM...did not take on any of [Axial's] staff but if this in itself was taken to be a good reason for saying the 1981 Regulations do not apply, this would give an opportunity for any employer to avoid the Regulations simply by not giving an employee a contract. The tribunal decided that this was not an appropriate way of interpreting the Regulations." (Para 14).

(3) The tribunal added that

"...there was not just a transfer of employees, but a transfer of a service. The VAG contract and activities which went along with it were transferred. ... it was not true that the form of business undertaking ceased at the moment of the alleged transfer and was no longer identifiable after that moment. It was identifiable after the transfer." (Para 15)

(4) The tribunal later reiterated that

"It was clear from the facts of the case that the main reason why Axial... employees had not been taken on by ECM... was because ECM....considered that it would not be appropriate to appoint them because they were in the process of taking action against ECM ... within the terms of the 1981 Regulations."(Para 18)"

The ground of appeal was that there was no transfer from Axial to ECM. It was accepted that there was an undertaking carried on by Axial involving the delivery of Audi and Volkswagen cars.

The basis of the argument was that the change of emphasis of the European Court of Justice in the case of Suzen (supra), as recognised and applied by the Court of Appeal in Betts -v- Brintel Helicopters (supra) meant that the Employment Tribunal had erred in law. It was submitted that the position on transfers of undertakings now is that where the only continuing feature is the nature of the activity itself and all that continues is the service itself, it is impossible to find that an undertaking or part of an undertaking has been transferred. All that continued in this case after Axial had lost the VAG contract was the activity of delivering cars under the contract with VAG. The case against a transfer was strengthened by the significant differences identified by the Employment Tribunal between the way in which the VAG contract was performed by ECM after Axial had lost the contract.

It was argued by Mr Goudie QC that the decision that there was a transfer of undertaking was not a conclusion that was legally open to the Employment Tribunal on the facts found by it.

It was, however, accepted that the Employment Tribunal was entitled, and indeed bound, to consider a wide range of factors in arriving at its decision. This was recognised by the European Court of Justice in Spijkers [1986] ECR 1119. Those factors included whether assets or staff were transferred and whether the undertaking was carried on in the same or a similar way. It was contended, however, that it was irrelevant to ask why a prospective transferee had chosen not to take assets or staff. Criticism was made of the part played in the decision of the Employment Tribunal by the reference to the reasons why staff were not taken on by ECM, namely seeking to avoid the application of the 1981 regulations by simply not giving an employee a contract. The Tribunal did not regard that as an appropriate way of interpreting the regulations. The Employment Appeal Tribunal went further and said that it was a legitimate inference that ECM had refused to take on the staff precisely in order to prevent the 1981 Regulations from applying and that if they had been taken on then the 1981 Regulations would clearly have applied. This was criticised as an erroneous approach in law, first, because it was not a legitimate inference from the decision of the Employment Tribunal that ECM had refused to take on the staff in order to avoid the transfer; rather it was because of the threat of litigation. Secondly, and in any event, there was no evidence of how many of the staff might have been taken on if there had been no threat of litigation.

In my judgment, this appeal fails on the ground that there is no error of law in the decision of the Employment Tribunal. In reaching its conclusion that the 1981 Regulations applied, the Employment Tribunal had regard to all those factors which were held by the European Court of Justice in Spijkers to be relevant to the determination of the issue whether there was a transfer of an undertaking. The Employment Tribunal considered the factors on each side. They noted the differences in the way that ECM carried out the VAG contract, but pointed out that the customers were essentially the same and that the work that was going on was essentially the same i.e. cars were unloaded at Grimsby, were put onto transporters and were driven to VAG dealers. The result was the same. The Employment Tribunal were entitled to conclude that, even though ECM did not take on any Axial staff, the identity of the economic entity in the hands of Axial was still retained in the hands of ECM after the loss of the VAG contract. This justified the finding of a transfer.

The Employment Tribunal applied the correct test, as laid down by the European Court in Spijkers and followed in other cases, such as Schmidt [1995] ICR 237. Although the Suzen decision has been described as involving a shift of emphasis or a clarification of the law, nothing was said in Suzen which casts doubts on the correctness of the interpretation of the Directive in the earlier decisions cited to and applied by the Employment Tribunal in the extended reasons.

In my judgment, it is clear that, but for the argument about the scope and effect of the later decision in Suzen, there would be no possible ground of appeal in this case. ECM's case has to be that Suzen makes all the difference. It does not in this case. The importance of Suzen has, I think, been overstated. The ruling in Suzen should be seen in its proper context.

(1) The Court of Justice has not overruled its previous interpretative rulings in cases such as Spijkers and Schmidt. This is clear not only from the citation of those cases in the judgment in Suzen, but also from their continued prominence in the reasoning of the Court of Justice in its post- Suzen decision in Sanchez Hidalgo [1999] IRLR 136.

(2) It is still the case that it is for the national court to make the "necessary factual appraisal" in order to decide whether there is a transfer in the light of the criteria laid down by the Court of Justice.

(3) It is still the case that those criteria involve consideration of "all the facts characterising the transaction in question", as identified in Spijkers at para 13 of the Judgment of the Court of Justice, in order to determine whether the undertaking has continued and retained its identity in different hands. The Employment Tribunal carried out a full factual appraisal, applied the correct criteria and concluded that, despite changes in the organisation of the operation for the delivery of cars under the VAG contract, there was a continuation in the hands of ECM of the existence of the discrete economic entity previously carried on by Axial.

(4) The importance of Suzen is that the Court of Justice identified limits to the application of the Directive. On the one hand, it affirmed that

(a) "The decisive criterion for establishing the existence of a transfer within the meaning of the Directive is whether the entity in question retains its identity, as indicated inter alia by the fact that its operation is actually continued..." (Para 10);

(b) a direct contractual link or relationship between the transferor and the transferee is not conclusive against a transfer (Paras 12 and 13);

(c) consideration of all the facts characterising the transaction in question is necessary (Para 14).

(5) On the other hand, it set limits by indicating that

(a) "...the mere fact that the service provided by the old and the new awardees of a contract is similar does not therefore support the conclusion that an economic entity has been transferred."

Other factors are important-the workforce , the management staff, its operating methods and its operational resources (Para 15):

(b) "The mere loss of a service contract to a competitor cannot therefore by itself indicate the existence of a transfer within the meaning of the Directive...In those circumstances, the service undertaking previously entrusted with the contract does not, on losing a customer , thereby cease fully to exist, and a business or part of a business belonging to it cannot be considered to have been transferred to the new awardee of the contract" (Para 16);

(c) the question whether the majority of the employees are taken over by the new employer to enable him to carry on the activities of the undertaking on a regular basis is a factual circumstance to be taken into account, as well as the similarity of the pre-and post-transfer activities and the type of undertaking concerned e.g. in labour intensive sectors (Paras 20 and 21).

(6) This case is unaffected by the limits indicated in Suzen. It is not a case (like Suzen) of the loss of a contract with one customer being asserted to amount to a transfer of an undertaking. It is not a case like Betts of the loss of a contract for one location being asserted to be a transfer of an undertaking.It is not a case of a transfer depending merely on a comparison of the similarity of the activities of Axial and ECM after the loss of the VAG contract by Axial. The transfer was established by the Employment Tribunal looking at all the relevant facts and concluding that this undertaking was based on the VAG contract and that it continued in different hands, even though no employees of Axial were appointed by ECM. The Tribunal was entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed by ECM. The Court of Justice has not decided in Suzen or in any other case that this is an irrelevant circumstance or that the failure of the transferee to appoint any of the former employees of the transferor points conclusively against a transfer.

I would dismiss this appeal.

Lord Justice Laws:

I agree.

Lord Justice Henry:

I also agree.

Order: Appeal dismissed with costs; application for permission to appeal to House of Lords refused.