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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Adi (UK) Ltd v. Willer & Ors [2000] EAT 11_99_1804 (18 April 2000) URL: http://www.bailii.org/uk/cases/UKEAT/2000/11_99_1804.html Cite as: [2000] EAT 11_99_1804

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APPEARANCES

 

For the Appellants	NICHOLAS ROBERTSON (Solicitor) Messrs Rowe & Maw Solicitors 20 Blackfriars Lane London WC4V 6HD
For the First Respondents For the Second Respondents (Firm Security Group Ltd)	THE FIRST RESPONDENTS NEITHER PRESENT NOR REPRESENTED IAN LEE (of Counsel) Instructed by: Messrs Edwards Geldard Solicitors Dumfries House Dumfries Place Cardiff CF1 4YF


 


MR JUSTICE BURTON:

1. This is an appeal against a finding by a majority decision of the Shrewsbury Employment Tribunal that there was no transfer within Regulation 3 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the 1981 Regulations").
2. Judgment in this case is being given simultaneously with that in Whitewater Leisure Management Limited v. Barnes, and the consideration of the law in each is in similar terms, but the decisions are by tribunals with different compositions, and hence, because the judgments have been the subject of independent consideration by each such Tribunal, and are being delivered separately, the two judgments will stand alone and are therefore inevitably repetitious so far as the setting out of the law and conclusions on the law are concerned.
3. Neither the Council Directive 77/187 ("the Directive") nor the 1981 Regulations define what is meant by the transfer of an undertaking. Article 1(1) of the Directive simply states:-

"This Directive shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger."

And s.3(1) of the 1981 Regulations states only:-

"Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or part of one which is situated."

4. A number of authorities have been referred to which have laid down principles and given guidance. The most central for our purposes have been the decisions of the European Court, Spijkers v. Gebroeders Benedik Abattoir CV [1986] CMLR 296, Süzen v. Zehnacker Gebäugereinigung GmbH Krankenhausservice [1997] ICR 662 and Sanchez Hidalgo v. Asociacion de Servicios Aser [1999] IRLR 136, and the two recent Courts of Appeal decisions, Betts v. Brintel Helicopters Limited [1997] ICR 792 and ECM (Vehicle Delivery Service) Limited v. Cox [1999] IRLR 559. The other relevant authorities to which we have had some recourse include Schmidt v. Spar-und-Leihkasse der Früheren Ämter Bordesholm [1995] ECR 237 (ECJ), Rygaard v. Strø Mølle Akustik A/S [1996] ICR 333 (ECJ), Superclean Support Services PLC v. Lansana EAT 20/5/1997, The Highland Council v. Walker EAT 25/1/1997, Connick Tree Care v. Chapman EAT 6/3/1998, ECM in the EAT [1998] ICR 631, CWW Logistics Limited v. Ronald EAT 1/12/1998, North East Lincolnshire Council v. Beck EAT 21/1/1999, Kerry Foods Limited v. Kreber [2000] IRLR 10 (EAT) and Allen v. Amalgamated Construction Co. Limited {2000] IRLR 1119 (ECJ).
5. The question of central importance is whether the 1981 Regulations apply where a business comes to an end, employees employed in the undertaking have apparently been made redundant, and the issue arises as to whether there is a situation in which it can be asserted that there has been transfer of the undertaking from the old ceased business to a new business, so that the employees can claim continuity of employment by transfer to such new business. The 1981 Regulations can apply not only to an 'obvious' transfer – where a business is transferred contractually between one party and another – but also to a reorganisation or rearrangement where there is no contractual relationship between the party alleged to be the transferor and the party alleged to be the transferee. See Süzen at 670 paragraph 11: "Whilst the lack of any contractual link between the transferor and the transferee or, as in this case, between the two undertakings successively entrusted with the cleaning of a school, may point to the absence of a transfer within the meaning of the Directive, it is certainly not conclusive": this was adopted in respect of the 1981 Regulations in Betts at 803E, ("In other words it is a relevant factor") and 806H, per Kennedy L.J. Examples of such transactions which can be found to be transfers are the so-called 'first generation' contracting-out, where an activity which has been carried on 'in-house' is, whether by competitive tendering or otherwise, now to be allocated to someone else to carry on, or 'second generation' contracting-out, i.e. where an activity which is already contracted out is to be carried out by a new party, as a result of the expiry of the contract with the previous sub-contractor, or even taken back in-house. There will be many occasions when it is not clear whether such first or second generation contracting-out does or does not amount to a transfer of undertaking: contrasting examples were given by HH Judge Clark in Beck, namely where on the one hand a successful tenderer, with an already established workforce and equipment, takes the place of the unsuccessful and/or departed predecessor, or on the other hand a new contractor, a successful tenderer, does not have its own workforce, or at any rate sufficient workforce to perform the contracts; and in the latter case, if that successor takes over all or part of its predecessor's workforce there may be a transfer. In many cases it will be the case, as put by HH Judge Clark in another decision of the EAT, Superclean, that "the identity of the 'economic entity' disappeared on termination of [the predecessor's] cleaning contract. There was no concomitant transfer from one undertaking .. to the other .. of significant tangible or intangible assets or taking over by Superclean of any, let alone a major part of [the predecessor's] workforce employed on the … contract." On other occasions, depending on the finding of facts by the Tribunal, the protection of employment, which is the expressed aim of the 1981 Regulations, may be achieved by a conclusion that there has been a relevant and qualifying transfer.

The questions to be asked

6. It is quite plain that there are two questions to be asked and answered by a tribunal as to whether the 1981 Regulations apply. Kennedy LJ makes this quite clear in Betts at 798C, namely:-

"(1) Prior to 30 June 1995 was Brintel's Beccles operation an undertaking or part of an undertaking for the purposes of Regulation 3(1) of the Regulations of 1981 (as properly understood in the light of Community jurisprudence)? (2) If so, was that undertaking transferred so that it retained its identity in the hands of K.L.M.? "

Thus Lord Johnstone in Walker described the "two relevant and quite separate questions", namely "whether or not there was an identifiable business entity constituting an undertaking within the meaning of the Regulations; and, secondly, assuming such could be determined, whether or not there was a relevant transfer."

7. It seems to us quite clear that a tribunal should consider these questions separately and in turn, for different considerations relate to each. It will normally be best and clearest for an employment tribunal to deal first with the question of whether there was a relevant and sufficiently identifiable economic entity, and then proceed, whatever be the answer to that question, to ask and answer whether there was (or would have been, if such hypothetical question can be answered, in the event of a conclusion that there was no such entity) a relevant transfer of any such entity. As is emphasised in all the cases, from Spijkers at 303 paragraph 14 through to Kerry Foods at 12 paragraph 10, the decision is one of fact for the employment tribunal, which will be rarely disturbed, particularly not if the right questions are asked.

The first question

8. Whether there is an entity has first to be identified, and what it is, not least because only in that way can there be comparison of the before and after. It must be identified as an economic entity (Spijkers at 303 paragraph 12,) but that is not sufficient. The two formulations which appear to have been most authoritatively used are as follows:

(1) Is there a stable economic entity? (Rygaard at 346 paragraph 20, Süzen at 670 paragraph 13, Betts at 803E). In all those passages there is added the words "whose activity is not limited to performing one specific works contract". But it is clear that that is, each time, a reference back to Rygaard and to the particular facts of Rygaard, which involved the transfer of the fag-end, or run-off, of a particular construction sub-contract, which, on the facts of the particular case, was held not be "the transfer of a body of assets enabling the activities or certain activities of the transferor undertaking to be carried on in a stable way" (at 346 paragraph 21). In ECM, reference was made in the Court of Appeal (at 560 paragraph 12 and 561 paragraph 23(3)) to a "discrete economic entity.": and it may be appropriate therefore to talk of a "stable and discrete economic entity".

(2) The alternative version, adopted by the European Court most recently, in Sanchez Hidalgo at 138 paragraph 26, asks the question whether the entity is "sufficiently structured and autonomous". It is to be noted that the early case of Schmidt concentrated wholly on the question of transfer, i.e. the second question, and does not appear to address at all the first question, as to whether there was a stable and discrete, never mind a sufficiently structured and autonomous, economic entity, as the developed jurisprudence has led us to understand to be necessary; and this may be the reason why in Schmidt the somewhat odd result was achieved relating to the contracting-out of a cleaning activity carried on by one employee.

9. In the asking of this important first question, guidelines are given in Süzen at 670-1 paragraphs 13 and 15:-

"13. The transfer must relate to a stable economic entity … The term entity thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective.

15. 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. An entity cannot be reduced to the activity entrusted to it. Its identity also emerges from other factors, such as its workforce; its management staff; the way in which its work is organised; its operating methods, or indeed, where appropriate, the operational resources available to it." ...Adopted in Betts at 803, 806H).

Such an entity does not have to have assets; thus in Sanchez Hidalgo at 138 paragraph 26:-

"Whilst such an entity must be sufficiently structured and autonomous, it will not necessarily have significant assets, material or immaterial. Indeed, in certain sectors, such as cleaning and surveillance, these assets are often reduced their most basic and the activity is essentially based on manpower. Thus, an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity."

10. It may be indicative if it is found as a fact that the employment of identified employees depends upon the continuation of a specific contract (ECM (C.A.) at 560 paragraph 13), or the dependence on a single contract may be irrelevant and simply the explanation for lay-offs and a redundancy situation in a deteriorating business. The factor that the specific purpose of the alleged entity is the performance of only one contract and/or only for one customer and/or at only one location may, or may not, be an indicator against its being a stable and discrete economic entity: see the Court of Appeal in ECM at 562 paragraph 23(6): "It is not a case (like Süzen) 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) if the loss of a contract for one location being asserted to be a transfer of a undertaking.". The use of the expression "distinct cost centre" by the Employment Tribunal in CWW may, notwithstanding the resort to modern jargon, be a helpful thought process.

The second question

11. In the context of whether there is a transfer, the same passage in ECM in the Court of Appeal at 562 should be addressed: "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" Such similarity of activity is referred to as "necessary but not sufficient" by Morison J in ECM in the EAT at 638H, and as "relevant but not critical" by Kennedy LJ in Betts at 804H. The best and clearest guidelines are in Spijkers at 303 paragraphs 12-13:-

"12. Consequently it cannot be said that there is a transfer of an enterprise, business or part of a business on the sole ground that its assets have been sold. On the contrary, in a case like the present, it is necessary to determine whether what has been sold is an economic entity, which is still in existence, and this will be apparent from the fact that its operation is actually being continued or has been taken over by the new employer, with the same economic or similar activities.

13. To decide whether these conditions are fulfilled it is necessary to take account of all the factual circumstances of the transaction in question, including the type of undertaking or business in question, the transfer or otherwise a tangible asset such as buildings and stocks, the value of intangible assets at the date of transfer, whether the majority of the staff taken over by the new employer, the transfer or otherwise of the circle of customers and the degree of similarity between activities before and after the transfer and the duration of any interruption in those activities. It should be made clear, however, that each of these factors is only a part of the overall assessment which is required and therefore they cannot be examined independently of each other."

The words of paragraph 13 in Spijkers are repeated almost verbatim in the seminal judgment of the European Court in Süzen at 670-1 paragraph 14, and there is then further repetition in paragraph 20 at 672:-

"In that regard, it should be borne in mind that the factual circumstances should be taken into account in determining whether the conditions for a transfer are met include in particular, in addition to the degree of similarity of the activity carried on before and after the transfer and the type of undertaking or business concerned, the question whether or not the majority of the employees were taken over by the new employer."

These passages again are adopted by the Court of Appeal in Betts at 803-4 and 806H.

12. In Betts, Kennedy LJ recognises, at 806F-G, a distinction between labour-intensive undertakings, "in which if the staff combine to engage in a particular activity which continues or is resumed with substantially the same staff after the alleged transfer the Court may well conclude that the undertaking has been transferred so that it has retained its identity in the hands of the transferee" and "other types of undertaking in relation to which the application of the Spijkers test .. involves a more wide-ranging inquiry." It is plain from Süzen at 671 paragraph 18 that it is well understood that there can be a transfer even if there are no significant tangible or intangible assets: "Where in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets". Nevertheless there will always be central consideration of the assets question, and if assets e.g. equipment, are indeed transferred from the predecessor to a successor sub-contractor, then that is a very likely indicator of a relevant transfer. Other matters than title to identifiable tangible assets may be relevant. It is clear that in Kerry Foods the employment tribunal in that case was entitled to pay substantial regard to the transfer of a brand name and good will. Betts itself (at 805B and 807D) and CWW make clear that the transfer of a licence to use the owner's equipment or assets may be material, though plainly less material than transfer of ownership as between transferor and transferee: and to carry out an analysis on this kind of basis – e.g. the old cleaning company had a licence to enter the premises in order to clean, and so does the new, thus there is a transfer of a licence to enter - will end up as nothing more than the admittedly insufficient exercise of comparing the similarity of the two activities.
13. As for the labour-intensive undertaking, to which Kennedy LJ refers, in the very passage at 806F-G he indicates both the purpose of the exercise of considering the question of staff, namely to see if by reference to the staff the undertaking has retained its identity in the hands of the transferee, and the nature of the enquiry, namely whether it "continues or is resumed with substantially the same staff after the alleged transfer". The Court of Appeal in Betts at 803-804 and 806H adopts and approves the reference in the passage cited above from Spijkers at 303 paragraph 13 as to "whether the majority of the staff are taken over by the new employer", and in terms the passage in Süzen at 672 paragraph 20. At the end of paragraph 20, the European Court in Süzen again adopts the words from paragraph 13 of Spijkers relating to "the question whether or not the majority of the employees were taken over by the new employer" and then continues in paragraph 21:-

"Since in certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skill, of the employees specially assigned by his predecessor to that task. In those circumstances, as stated in Rygaard … a new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis."

This passage is effectively repeated at paragraph 23, and both paragraphs are again adopted in Betts at 804B-F, 806. Notwithstanding the upholding by the Employment Appeal Tribunal and the Court of Appeal in ECM of the particular findings of fact of the employment tribunal in that case, to which we refer below, the Court of Appeal in ECM affirmed in terms, by reference to Süzen, at 562 paragraph 23(5) that:-

"The question whether the majority of the employees [is] 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".

It seems to us, particularly as these are only guidelines, but always within the parameters set by Kennedy LJ that one is looking to see whether the staff is "substantially the same", that the apparent contradictions, or at any rate uncertainties, in the formulation of these questions, when looking at an alleged transfer of a labour-intensive undertaking, can be reconciled. It may be that in a given case the question will be answered by totting up to see whether a majority of staff is taken on. In another case there may be a minority in number, but on examination of the skills of the employees, be they managerial, administrative or technical, the skills of those who have been taken on outweighs the mere numerical factor, such that, albeit not a majority, nevertheless those taken on constitute a major part. There may perhaps even be a reverse case where the taking on of a numerical majority would be outweighed if the significant employees, in terms of skills, who in fact constituted the important part of the undertaking, were not taken on. Again these precise questions about numbers of staff become less significant if there is a transfer of something else other than staff, so that the picture can be looked at in the round.

The ECM point

14. Into the relatively straightforward analysis above set out, of the posing and answering of the two questions, there has now emerged, as a result of the finding of fact by the employment tribunal in ECM, an additional factor. Morison J described the position thus in the Employment Appeal Tribunal at 639E:-

"In this case, on the tribunal's findings, the transferee did not take on the men precisely because they were asserting that the Regulations of 1981 applied and were threatening proceedings on that basis. An obvious inference from these facts is that thereby the transferee hoped to defeat their claims. The question arises, therefore, [whether] it is possible for a transferee to cause the Regulations to be disapplied by refusing to take on the workforce."

The Court of Appeal found (at 562 paragraph 23(6)) that "the tribunal was entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed by ECM".

15. The following factors are plainly significant:-

15.1 In Betts, in which KLM decided not to take over any staff or equipment from Brintel, a similar point was argued (794F). The conclusion that was or might have been reached, as appears from 806A and 807D, was that if there had not been a ban by KLM on taking any Brintel employees some (or a modest number of) Brintel employees might or would have been engaged by KLM. Such a consideration, albeit hypothetical, at to what would or might have happened, would or could easily be part of the factual consideration given by a tribunal. But what the Court of Appeal in Betts did not say, and indeed the Court of Appeal in ECM did not say, is that if there be a finding of fact by a tribunal that there was a deliberate decision by a possible transferee not to take on any of the possible transferor's staff, in order that, or with the intended result that, the 1981 Regulation should not apply, then in such a circumstance all the employees are deemed to have been transferred.

15.2 In any event if the 'reason why the employees were not appointed by ECM' is to be left to be considered as a factor by the Employment Tribunal, the interpretation and the weight must also be for them. Is subjective intention or motive, or objective purpose or effect to be judged? It may be difficult if not impossible to differentiate – if it is relevant to do so – between a decision not to take on any staff because it is desired to avoid, or not to trigger, the 1981 Regulations, a decision not to take on any staff with the effect that the 1981 Regulations do not apply and a decision that, because it is not intended to take on any staff, the 1981 Regulations do not apply. In any event, as Mr Robertson for ADI has very properly drawn to our attention, in Brookes v. Borough Care Services and CLS Care Services Ltd [1998] IRLR 636 where a contractual transfer was expressly structured as a transfer of shares in order that the 1981 Regulations should not apply, the employment tribunal, and the Employment Appeal Tribunal on appeal, held that they did not, because "the conduct of the undertaking via the first Respondent had a deliberate and genuine commercial intent interest quite independent of the 1981 Regulations" (at 640 paragraph 58). On the one hand there will no doubt be scrutiny by the employment tribunal of the transactions, on the other hand the fact that there is not a transfer, because no transfer of staff, cannot itself lead to a conclusion that there is a transfer.

15.3 Mummery LJ in the Court of Appeal in ECM is at pains to point out, at 561-2, not only, as Morison J himself had done in the Employment Appeal Tribunal, that the issue arose out of a finding by the employment tribunal, but also that, again as Morison J had concluded (at 639H-640B), such factor did not, on the facts of ECM, stand alone as the only basis for the conclusion that there had been a transfer. ECM is thus not itself a case which would support, or at any rate exemplify, a proposition that, in the absence of a transfer of any assets or any staff, or of any other material factor indicating a transfer, the ECM point alone would be determinative of the issue of transfer.

16. It is in all those circumstances that Mummery LJ's guidance remains (at 562 paragraph 23(6)) simply that "the tribunal was entitled to have regard, as a relevant circumstance, to the reason why those employees were not appointed by ECM".

The application to this case.

17. Economic entity?

The relevant facts found by the Employment Tribunal were:-

17.1 ADI's business involved contracting out security staff to various clients, operating a number of different activities ranging from shopping centres to airports. From August 1997 to 16^th March 1998 ADI provided security services at the Darwin Shopping Centre, Shrewsbury.

17.2 The security services provided by ADI consisted of 9 security officers, who worked for ADI only, in the Darwin Shopping Centre. ADI had no other contracts in the area, the nearest being at Birmingham International Airport.

17.3 ADI's client made available for the use of the security officers certain facilities in the Darwin Centre, being use of a CCTV and clocking system, a control room and a monitoring room, and, together with other employees of the client, of a locker room and canteen.

18. Transfer?

There were the following relevant findings of fact:-

18.1 ADI decided that it wished to terminate the contract, and so gave three months notice, which was subsequently shortened at ADI's request because the sickness record of the security officers was making the situation worse. Firm Security was approached to see if it would be interested in taking over the contract on ADI's withdrawal, and in the event it obtained the contract to provide security services at the Darwin Shopping Centre, commencing from 16^th March 1998, the date when, at the request of ADI, ADI's contract terminated.

18.2 No employees of ADI were taken on by Firm Security (the circumstances in which this arose are dealt with below).

18.3 The finding of the Tribunal was that no tangible assets were transferred, but what they called "intangible assets [consisting] of the CCTV, the control room, the radios and the fire alarms." What this meant was that the new contractor was to be allowed to use those items, the property of the client, in the same way that ADI had been allowed so to use them. The Tribunal found that there was "in one sense good will", presumably by reference to the fact that both ADI and Firm Security had a contract with the same client.

18.4 So far as concerned the similarity of the operation before and after, there was no interruption or cessation, and although there was a new "title" (by which we assume is meant a new logo and/or business identity) – with provision of different uniforms – and a new emphasis on customer relations (the security officers apparently now being described as uniformed customer liaison officers), the Tribunal concluded that this was not sufficient to "prevent the identity being set", by which we assume was meant 'to amount to a material difference in the nature of the operation.'

19. On the face of it, the Employment Tribunal did consider the two questions separately, the majority concluding in paragraph 8 that it was "not satisfied that there was an economic entity", and in paragraph 9 that "it is an activities case rather than an economic entity case" (by which we assume they meant that they had decided that there was no economic entity but that it was simply the continuation of a similar activity, without any transfer of undertaking) "and, therefore there was no transfer." However, it appears clear to us that the Tribunal has considered, and recited in paragraph 8, factors relating to the second question when answering the first question, and/or has not isolated out the first question and considered it separately, notwithstanding that it purported to do so. This may perhaps result from its reliance on the four principles it derived from HH Judge Clark in Connick Tree Care, which are set out in paragraph 7 of the decision. With respect to HH Judge Clark, those principles are not clearly segregated as between the question of entity and the question of transfer, but his second principle appears to include an amalgam of both questions:-

"2. An economic entity is an organised grouping of persons and assets; it is not enough that merely an activity is transferred; the mere loss of a service contract will not of itself indicate the existence of a transfer."

20. It appears to us difficult to support a conclusion that there was no discrete and stable economic entity, or no efficiently structured and autonomous economic entity, in this case. It may be of course that on a fuller analysis, if such evidence had been adduced, it could have been shown that there was no distinct cost centre. But on the face of the findings by the Tribunal as set out in paragraph 17 above, the entity supplying, in the Darwin Shopping Centre, the security services consisting of the 9 security officers, making use of the facilities provided and many miles away from the nearest similar operation run by ADI, looks very much like a qualifying entity. We find it difficult to understand what was meant by "the employees in question were not of a kind to be necessary for the continuation of the operation of the contract", which is presumably seeking to draw a distinction with the finding of fact of the tribunal in ECM in relation to the VAG contract, but that does not seem to follow naturally from this Tribunal's own findings of fact. Similarly the fact that ADI's business consisted of many contracts and that they employed many other than the nine security officers in Shrewsbury" would not detract from the argument that (absent some other evidence) the entity at Shrewsbury was discrete and stable.
21. On the other hand, leaving aside consideration of the ECM point, to which we refer below, we can see no reason to doubt the Tribunal's conclusion that there was no transfer. The operation was plainly labour-intensive. No assets at all were transferred, save for the right to use some of the client's facilities, and no doubt the right to enter the client's premises, which, as discussed above, amounts to nothing more than the recognition that the same operation is going to be carried out at the same premises. In those circumstances, given that the entity consisted entirely or almost entirely of the workforce dedicated to the carrying out of a single contract which terminated at the instance of ADI, it is clear that when none of that workforce transferred, it is at the very least open to the Employment Tribunal to have found, by reference to any of the tests or any of the guidelines set out above, that there was no transfer.

ECM

22. In relation to this point, there is in the event a minority judgment in this Tribunal (hence we refer to the "EAT majority/minority"), as there was in the Employment Tribunal (the "ET majority/minority").

The EAT majority judgment

23. The findings of fact are set out in paragraph 3(d) of the decision:-

"John Marlow held a meeting with ADI's existing security officers on 4 February, intending to take them on. We accept Mr Marlow's evidence that the meeting became hostile when it became clear that [Firm Security] would not in the normal course of working expect overtime to be necessary. The hostility also arose because the Applicants were asked to fill in another form for completion of a vetting procedure. We accept that the Applicants declined to say that they would "come over" to … Firm Security, and that finding is supported since the forms were left on the table in the room where the meeting took place and none were filled in and returned. [Firm Security] wrote to all the Applicants on 27 February 1998 informing that none of them would be offered a position at the Darwin Centre and suggesting that they talked to their company "to clarify your future employment status … on the termination of the Darwin Centre contract."

24. The ET minority, but not the ET majority, concluded (in paragraph 10) that Firm Security failed to take on the nine security officers "in order to avoid the application of the Regulations" and decided "having weighed up the pros and cons it was preferable to decline to continue their employment", such that "the minority's possible opinion was that there was a transfer of an undertaking and the Applicants' employment should be protected". However the conclusions of the EAT majority are that:

24.1 This was not the finding of the ET majority, which was perfectly entitled to reach the conclusion it did on the evidence, after considering, but rejecting the conclusion of the ET minority. There would thus be no ground for substituting the view of the ET minority.

24.2 In any event it could be said that there was no evidence to support the conclusion of the ET minority. There was no or no sufficient analysis or finding of fact by the ET minority. On the findings of fact in paragraph 3(d) of the decision, set out above, Firm Security had intended to take on some or all of the employees and were put off by their attitude, but nevertheless left forms behind, none of which were completed. On the very finding by the ET minority, it was a question of Firm Security "weighing up the pros and cons".

24.3 There was no consideration by the ET minority as to what would have happened had there been individual consideration by Firm Security of an application by each employee: indeed such findings as there were were consistent with a view that not all would have even applied and in any event that none or few would in any event have been accepted due to the hostility.

24.4 The ET minority, having concluded that the object of Firm Security was to avoid the Regulations, simply then decided that there was a transfer, i.e. amounting to a 'deemed' transfer of all staff, even though none were transferred. This is the central flaw. As pointed out in paragraph 15.1 above, that is not what Mummery LJ said, when he indicated that the Tribunal was entitled to have regard to the reason why the employees were not appointed. The ET minority did not consider what the consequence was of its finding. Were there any other reasons? Was there any commercial justification for what occurred? Does the existence of this reason outweigh any other reasons or any other factors?

24.5 In paragraph 9, the ET majority concluded "the ban is really of very little relevance". On the view of the ET majority, to which they were entitled to come, there were no indicia of a transfer. There was no transfer of assets (except insofar as both ADI and Firm Security had a licence to enter and make some use of the same premises (as discussed in paragraph 12 above). There were no other factors, apart from the suggested ECM point, pointing towards a transfer. There is thus, on the finding of the ET majority, a significant difference between this case and ECM, which arises directly out of the last paragraph of Mummery LJ's judgment in the Court of Appeal, at 562 paragraph 23(6). As set out above, in that paragraph Mummery LJ pointed out that the factor to which the tribunal, in his conclusion, was entitled to have regard as a relevance circumstance, namely the reason why the employees were not appointed by ECM, did not stand alone:-

"It is not a case (like Süzen) 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 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."

24.6 This case significantly was all those three; and the reason which the ET minority found and the ET majority did not find, would in any event, even if found unanimously, in this case have stood alone as a factor pointing to a transfer.

25. Even in ECM itself, as considered by Morison J in the Employment Appeal Tribunal (at 640), he concluded that "this was a decision which could have been decided either way". In this case, on the basis of the findings of fact, the ECM point did not arise but in any event could not of itself be and is not determinative. In those circumstances the EAT majority firmly conclude that not only is ECM distinguishable, but there is no basis upon which this Tribunal could interfere with the decision of the ET majority.

The EAT minority judgment

26. Accepting that there are two questions to be asked (paragraphs 6-7 above), the EAT minority agrees with the EAT majority that the first question "the stable and discrete economic entity", (paragraphs 8-10) is correctly answered positively (this "looks very much like a qualifying entity", paragraph 20 above). The EAT minority's difference concerns the second question (the question of "transfer" for which "similarity of activity" is "necessary but not sufficient", paragraph 11 above); and the established guidance to tribunals that amongst the factors here to be considered is the "reason why the employees were not appointed" (paragraph 15.2 and paragraph 16 above). In this case, the EAT minority concludes that the ET majority misdirected itself on this second question and that (properly directed) this clearly was a qualifying transfer.
27. The EAT minority does not accept (as argued here for ADI) that the ET majority decision is perverse; but it does accept the three grounds of appeal set out below.
28. The first two grounds of appeal were:

(1) That the ET majority failed to ask the correct question in identifying the economic activity; and

(2) That there was no basis to exclude from the scope of the Directive and/or Regulation a stable economic entity consisting of a specific works contract.

29. In the view of the EAT minority, the conditions for identifying an entity or a transfer were set out by the European Court in Süzen (paragraph 14) and these can appropriately be checked against the facts established by this Employment Tribunal – bearing in mind that all are "merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation." Most particularly, it was here appropriate for the Tribunal to record (which it failed to do) whether there was any change in economic activity after Firm Security took over the contract from ADI. Two of the Süzen criteria appear to relate particularly to the identification of an entity; and their application in the present case is as follows:

(a) The type of undertaking or business. This was security guarding which was unchanged as between the two contracts.

(b) The degree of similarity of the activities and the period (if any) for which the activities were suspended. The only claimed differences in the activities were overtime and the customer service element. So this aspect was largely unchanged. There was evidence before the Tribunal that changes in overtime arrangements were a significant factor. There was, however, no finding by either the ET majority or minority that this amounted to a contractual term, which could/should have been transferred, and no ground of appeal on the point. The fact that the time for which the activities were suspended was zero would, however, reinforce the view that this aspect was unchanged.

30. The ET majority went straight from Connick Tree Care to a conclusion which failed to take ECM [1999] in the Court of Appeal. The ET majority quoted Counsel (apparently approvingly) as saying that "the ECM case was of dubious authority because Morison J's views were not consistent with the view of the Court of Appeal and the ECJ and Süzen". In the light of the Court of Appeal decision in ECM, such a statement is clearly inappropriate (if, indeed, it was appropriate at the time) and now amounts to a misdirection. It is noted that this Employment Tribunal issued its decision on 23rd October 1998; that the date of Connick Tree Care which was adopted by the Tribunal was 6th March 1998; the date of ECM at the EAT was 15th May 1998; and the date of ECM at the Court of Appeal was 22nd July 1999.
31. The remaining "Süzen criteria" relate to the question of transfer (either in whole or in part):

(c) Whether or not tangible assets such as buildings or moveable property are transferred and their value at the time of transfer. The CCTV, control room and monitoring room were all central to the security guarding function and although they remained the property of the client their use was transferred (see paragraph 17.3 above). For the ET majority to describe those as "intangible" (see paragraph 18.3 above) was (in the view of the EAT minority) an error. While it might not be appropriate for the EAT minority to substitute its view for a decision of the Employment Tribunal on those grounds alone, the immediate point here is that the position in relation to assets was unchanged as between the two contracts.

The related Süzen criterion (the value of intangible assets) may, however, be the most significant asset for this type of security operation. As discussed during the hearing of the appeal, this concerned the right to enter upon the premises. The position in relation to this intangible asset was unchanged – indeed without that right, it would have been impossible for either ADI or Firm Security to fulfil their contracts. In those circumstances, the absence of transfer of physical assets may in any case not necessarily have been fatal to the question of a protected transfer. At the extreme and all other things being equal, a protected transfer might have been possible even if there had been no tangible asset transfer. In summary, the EAT minority concludes that the ET majority error in relation to tangible assets such as CCTV, when they simultaneously ignored the truly intangible (but crucial) asset of the right to enter the shopping centre in combination amounts to a misdirection by the ET majority.

(d) Whether or not the customers are transferred. This case amounted to a 100% transfer in that the only customer was transferred, so that this aspect was changed but in a manner indicating that there was a relevant transfer.

(e) Whether or not the majority of its employees are taken over. In this case, none of the employees were transferred so in respect of this Süzen criterion the situation had changed. For reasons set out in paragraphs 32-33 this change occurred in a manner indicating that there was a relevant transfer. The EAT minority thereby accepts point 3 of the appeal, namely that:

(3) This Tribunal failed to identify the relevant transfer and adopt ECM.

32. ECM should have been applied here because the Court of Appeal specifically considered and adopted the purposive approach to transfers as proposed by the EAT in ECM. This ET majority's error was, however, understandable in that the Court of Appeal judgment was available neither to this Tribunal nor to the different division of the Employment Appeal Tribunal in Connick Tree Care when it delivered judgment. The EAT minority recalls the Court of Appeal's judgment [1999] IRLR 561-2 that:

"The transfer was established by the (ECM) 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."

33. Applying that clarification by the Court of Appeal properly to the facts of this case, and not least to the final "Süzen criterion" (e) above, the EAT minority is in no doubt that the events here amounted to a transfer within the terms of the Directive if not of the 1981 Regulations. The ET minority concluded that Firm Security "failed to take on the nine security officers in order to avoid the application of the Regulations." (paragraph 10). If that was the case, that would clearly be an unacceptable "ECM Reason". The EAT minority's acceptance of this third point of appeal is based, however, on the failure of the ET majority to rule on this point. Instead of asking the ECM question of what was the reason for this failure to transfer, they incorrectly sought the answer to a "hypothetical situation of whether there would have been a transfer had the workforce or the majority of the workforce been transferred in this case." (paragraph 9).
34. The EAT minority is confirmed in its view on this appeal by the examination at this Tribunal of the definition of a transfer, and the distinction between the Directive and the 1981 Regulations. While there is no definition of transfer in the 1981 Regulations, the EAT minority notes that the transfer definition has been clarified by the Amending Directive 98/50 Directive Article 1(1)(b). This establishes that "there is a transfer within the meaning of the Directive where there is an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary." Although this Directive only came into force on 17th July 1998, it seems to the EAT minority that the new text goes no further than summarising existing case law of the European Court (and indeed the amending Directive preamble states that the European Court interpretation of the scope of the law is unaltered).
35. There is a unanimous view on this appeal that (contrary to the Tribunal's decision at paragraph 8) this amounted to a qualifying entity: in the view of the EAT minority, however, while it is possible that this appeal should succeed on those grounds alone, it is certainly the case that the ET majority here failed to have sufficient regard to the reason why the employees were not appointed. Partly in consequence, they failed to undertake the required examination of the second ("relevant transfer") question. So the EAT minority concludes that applying the Directive definition and the approach of the Court of Appeal in ECM to the facts of this case leads necessarily to the conclusion that points (1), (2) and (3) of this appeal should be allowed.

Conclusion

36. In those circumstances it is the majority view that there are no grounds whatever for challenging the conclusion by the majority of the Employment Tribunal that there was no transfer of undertaking in this case. Although it would be difficult to support a conclusion that there was in this case no economic entity, on its findings of fact the Tribunal was entitled, if not bound, to come to the conclusion that there was no transfer of undertaking within the 1981 Regulations. The appeal is accordingly dismissed.