Appeal No. EATS/0016/03

EMPLOYMENT APPEAL TRIBUNAL
52 MELVILLE STREET, EDINBURGH EH3 7HF

	At the Tribunal
	On 27 August 2003

 
Before
THE HONOURABLE LORD JOHNSTON
DR A H BRIDGE
MR M G SMITH

 

TELENOR BUSINESS SOLUTIONS LTD 	APPELLANTS
(Formerly Nextra Ltd)

 

(1) GORDON MACKENZIE
(2) SYNSTAR INTERNATIONAL PLC	RESPONDENTS

 
 
Transcript of Proceedings
 
JUDGMENT

 

 

 
	APPEARANCES

 

For the Appellants	Mr G Pennel, Solicitor
Of-
Messrs Maclay Murray & Spens
Solicitors
3 Glenfinlas Street
EDINBURGH   EH3 6AQ

 
For the 1st Respondents

 

 

 
For the 2nd Respondents	 
 
No Appearance
Nor Representation

 

 

Mr I Meth, Consultant
Of-
Croner Consulting Ltd
2 Stewart Drive
Clarkston
GLASGOW   G76 7EZ	

LORD JOHNSTON:
 
1.	This is an appeal relating to whether or not the termination of a computer services contract by the employer with the second respondents and the subsequent taking on of the contract with the same employer by the appellants, constituted a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”).
 
2.	As stated by the Tribunal, the basic facts are not in dispute and were set out by them as follows:-
 
“THE EVIDENCE
The material facts were not in dispute.  The applicant was employed by the first respondents (“Synstar”), whose business is the provision of computer services, from May 1996 initially as a customer service engineer and from January 2001 as a senior engineer. 
Under a contract between Synstar and Sema Group UK Ltd (“SEMA”) for the provision of IT support services, SEMA subcontracted to Synstar the supply of engineering services as detailed in a service level agreement with Highland Health Board (“HHB”) from 1 April 1999 for 3 years (1R1 & 1R2).   
The applicant and another service engineer, Jon Hunter, were assigned by Synstar as engineers dedicated to the HHB contract.  Initially they worked from an office on HHB premises.  Then they were assigned a base in a small office owned by Synstar, not far from Raigmore Hospital, their main place of work.  However, they also covered HHB bases in Wick, Skye, Badenoch & Strathspey and Fort William. The applicant was responsible for the stock held and for the HHB and other Synstar contracts.  The HHB contract represented 90% of his workload and 100% of Mr Hunter’s.
Synstar was not asked to re-tender for the work in the period preceding the expiry of the contract on 31 March 2002 and in January 2002, they learned that their contract for the provision of IT support and computer servicing to HHB would not be renewed.  The applicant went into hospital for treatment on 18 February and was off work for 5 weeks.  Mr Hunter accepted a post in Keith which became available, for which the applicant did not apply.  Mr Hunter, therefore, was no longer looking to transfer to Nextra by the time the Synstar contract expired. 
The company which successfully tendered for the contract was Nextra, which had around 10 contracts with SEMA.  These were mainly service contracts and help desks.   Nextra calculated the manpower they would require to service the HHB contract was 2.1 engineers.  The workload from the contracts they had prior to being awarded the HHB contract was sufficient for 2 engineers, but insufficient for the 3 engineers they were employing in the area at the time.  They determined that due to efficiencies, they would not need to recruit any more engineers to service the HHB contract, because by using engineers from Aberdeen to cover periods of pressure as well as holidays and sickness absences, they would manage with the staff they already had.  No assets transferred from Synstar to Nextra on 31 March 2002.
 
Between 27 February and 22 March in correspondence between the two respondents, Synstar insisted that the TUPE Regulations applied to the change of contractor, a claim which Nextra refuted.  In a letter of 15 March 2001 to Mr Deeks, Nextra’s commercial director (1R5), Mr Edmondson advised that there were 2 named engineers dedicated to this contract and their continued employment was contingent upon the continued existence of the HHB contract.  Mr Deeks, denying that Nextra agreed TUPE applied, stated Synstar was wrong to have advised the 2 engineers to report to Nextra’s site representatives on 1 April (1R7).  In responding, Mr Edmondson advised that Synstar had redeployed one engineer, adding, “your perceived exposure is reduced to one employee”. The information from Nextra that the HHB contract was to be serviced from Nextra’s mobile force, rather than by dedicated engineers, was rejected by Synstar as support for the claim that TUPE did not apply (1R8).  
The applicant was first officially informed by letter from Synstar on 18 March that the contract on which he worked was being transferred to Nextra (A14) and that in Synstar’s opinion TUPE applied.  It continued:
“The contract is due for termination from Synstar on 31 March 2002 and you should report to a Nextra representative on 1 April 2002.
Additional correspondence is planned to keep you fully informed and consulted over the next few weeks”.  
With his letter to the applicant of 27 March (A11), Mr Edmondson copied the correspondence he had had with Nextra about the transfer.  He also informed him that “the address you need to report to on the 1st April 02 is Nextra c/o SEMA, Beechwood Park, Inverness.  We currently do not have a name for you to report to, but please obtain a visitors badge and insert your company as Nextra.  In the interim I will be available to provide some additional help should you require it.”  
 
On 1 April 2002 the applicant presented himself for work at Nextra’s workplace. As it was a bank holiday he was informed that he would not commence work that day, but he should telephone Mr Gibson in Cumbernauld the next day. When he contacted Mr Gibson as suggested, Mr Gibson informed him there was no job for him as Nextra did not recognise there was a TUPE transfer when they assumed the contract.”
 
3.	Against that background the Tribunal asked itself three questions which it set out as follows:-
 
“1      Is there an identifiable economic entity?
2   If so, upon the new contractor taking over the [contracted-out] business, did that business retain its identity?
3          If so, was there a transfer of the business undertaking or a part of it?   
 
1   For there to be an economic entity for the purposes of the Regulations, there needs to be a stable economic entity whose activity is not limited to performing one specific works contract, an organised grouping of persons and of assets enabling (or facilitating) the exercise of an economic activity which pursues a specific objective.  So long as it is sufficiently structured and autonomous, it need not necessarily have significant assets in order to constitute such an undertaking, Cheesman v R Brewer Contracts Ltd [2001] IRLR 144.  Further an organised grouping of wage earners who are specifically and permanently assigned to a common task may be found to amount to an economic entity.  In the instant case, there were 2 employees, the applicant being the manager, both of whom were dedicated on a permanent basis under a 3 year contract to pursuing a specific objective by providing the services detailed in the schedules to the Master Agreement entered into between SEMA and Synstar (1R1), (repairing pcs, servers, monitors and printers) for a single client with centres at various sites in the north of Scotland.  The tribunal concluded that such a grouping amounted to an identifiable economic entity.  
2   The tribunal then considered the second question - Did the entity in question retain its identity?  Retaining its identity is regarded as the decisive criterion for establishing the existence of a transfer within the meaning of the Directive, Spijkers and Sophie Redmond Stichting.  As the EAT in the ECM case stated: “There is an economic entity as distinct from a mere activity where the employees concerned are dedicated to a particular contract and their continued employment is contingent upon the continued existence of the service contract. In contrast, there is no transfer of a business where the loss of a customer does not of itself result in dedicated and identified staff losing their employment”.   As held by the EAT in Cheeseman, relying on Spijkers, the fact that the work is performed continuously with no interruption or change in the manner of performance is a normal feature of transfers and it went on to hold that “the decisive criterion for establishing the existence of a transfer is whether the entity in question retains its identity, as indicated, inter alia by the fact that its operation is actually continued or resumed”. In the instant case, the changeover was without interruption to the service, with Synstar’s contract expiring on 31 March and Nextra’s commencing on 1 April 2002.  
It has also been held that for the Regulations to apply the economic entity does not have to be identical before and after the transfer.  In the tribunal’s view the fact that Nextra was going to deploy its mobile force to carry out the (same) work, rather than keep employees working exclusively on the specific contract, did not in our view mean that the economic entity changed its identity. The key question according to the EAT in The Isles of Scilly v Brintel Helicopters & Another [1995] IRLR 6 was whether having regard to all the circumstances, the economic entity identified prior to the transfer can be found after the transfer and they suggested that tribunals might find it helpful to seek an answer to the question: is the job previously done by the employee still in existence?   It was common ground between the parties that the work to be done under the contract was the same before and after 1 April.  What differed was the manner in which it was to be carried out.
Despite the decision in Süzen, the absence of movement of significant asset or a major part of the workforce did not, as the Court of Appeal held in RCO Support Services v UNISON [2000] IRLR 542, necessarily deny the existence of a relevant transfer.  They also held, departing from the opinion in ECM that the tribunal could take into account the transferor’s subjective intention if that was to evade the TUPE Regulations, that the motive of the incoming contractor to avoid the application of TUPE could not be held to be a decisive feature.   The tribunal understood Nextra’s reasons for not taking the applicant on was because they did not consider the TUPE Regulations applied in the circumstances.  Nextra, writing on 27 February 2002 to confirm TUPE did not apply, contended that the HHB contract “is currently being operated [by Synstar]… with the employees based on the customer site. However, we will be running the contract with field engineers” (2R8).  (The Synstar engineers were in fact not by the time the contract passed to Nextra based on the customer site.)  Nextra considered they had sufficient manpower to include the servicing of the HHB contract with the 3 engineers already in their employment, instead of two engineers one of whom was dedicated to it and the other working virtually full-time on it.  However, the mere fact that Nextra used 3 engineers, each devoting around 60% of his time to the HHB contract and overtime when required, and with back-up from Aberdeen when needed, was not a sufficient reason, in the tribunal’s opinion, to conclude that the entity had changed its identity. The contract involved the same work being performed at the client’s places of business, for the same client.  The EAT in Argyll Training Ltd v Sinclair & Another [2000] IRLR 630 upheld an employment tribunal’s decision that there was a transfer of an undertaking when the incoming contractor took over a training contract from the outgoing contractor, (the applicant’s employer), notwithstanding that the activity concerned was limited to one specific contract, and without the transfer of significant assets or of the majority of the relevant employees.  Plainly, had Nextra not had a sufficient complement of engineers able to service the contract, its acceptance of the applicant as an employee, would have resulted indisputably in the application of the TUPE Regulations.  Accordingly there was, in the tribunal’s opinion, an economic entity, which retained its identity.
 
The final question was whether there was a transfer of the business or a part of it.   The majority of judicial opinion currently adopts the view that Süzen cannot be taken to have overruled earlier ECJ decisions and that its importance could too easily be overstated (ECM); that Süzen can no longer be safely relied upon (RCO Support Services).  Moreover, a material factor in Süzen was that there was a break of a month between the contract expiring and the new one starting.  The circumstances of the Oy case to which the tribunal was also referred, dealt with the specialised activity of bus transport to which public service contract procedures applied.  The reasoning was that because bus transport involved tangible assets contributing significantly to the performance of the activity, it could not be regarded as one based essentially on manpower. The absence of a transfer of assets led the ECJ to conclude that the entity did not retain its identity. The position here was that the assets comprised only computer spares and parts.
 
In concluding that there was a transfer, the tribunal had regard to the protective purpose of the Directive and the Regulations made under it as well as to post Süzen change of contractor cases, the most recent of which contained facts resembling closely those in the instant case.  That decision was Pinnacle A/C Ltd v Honeyman & others & Cape Industrial Services IDS Brief 719, October 2002.  It involved 9 scaffolders who were told by their employer, upon the loss of the contract, that they would transfer under TUPE to the incoming contractor.  The new contractor wrote to the employees denying that TUPE applied and refused to take them on.  It proposed to apply some of its existing staff to perform the contract.   The EAT, upholding the tribunal’s decision that there was a relevant transfer, concluded the tribunal had reached its decision in line with the principles set out in the RCO case, had applied the Spijkers test and that the decision that TUPE applied was a permissible one, which should not be interfered with.  
 
The effect of a finding of a relevant transfer is that the contract of any person employed by the transferor does not terminate, but has effect after the transfer as if originally made between the person so employed and the transferee (Regulation 5). Mr Burnside conceded that if the tribunal’s finding was that there was a transfer, then the refusal to take on the applicant constituted an automatically unfair dismissal.”
 
4.	Mr Pennel, appearing for the appellants, argued that the Tribunal had misapplied the law, both in the question of identification of an economic entity, and, also, on the issue of transfer of that entity.  Put succinctly, Mr Pennel submitted that there were other factors than those taken into account by the Tribunal which it ought to have considered, all of which, looked at cumulatively, would have determined that there was not a transfer of an identifiable economic entity.  The most important point being whether the latter could be found in the activities of the second respondents and are reflected again in the activities being carried out by the appellants after the date of the “transfer”.
 
5.	Mr Meth, appearing for the second respondents, submitted that the Tribunal had directed itself to the right questions and had reached answers upon which they were entitled to conclude, not least, on the question of identifiable economic entity.  We were referred to a number of authorities as follows:-
 
“1. Spijkers -v- Gebroeders Benedik Abattoir CV 1986 2CMLR 296
 
2.	Süzen -v- Zehnacker Gebäudereinigung GmbH [1997] IRLR 255
 
3.	Betts v Brintel Helicopters Ltd [1997] IRLR 361
 
4.	ECM Vehicle Delivery Service v Cox [1999] IRLR 559
 
5.	Sanchez Hidalgo and Others v Aser and associated case [1999] IRLR 136
 
6.	Allen and Others v Amalgamated Construction Co Ltd [2000] IRLR 119
 
7.	ADI (UK) Ltd v Willer [2001] IRLR 542
 
8.	RCO Support Services Ltd v UNISON and Others [2002] IRLR 401
 
9.	The Isles of Scilly v Brintel Helicopters and Another [1995] IRLR 6
 
10.	Compass Services UK Limited v David Patrick EAT/1264/99”
 
6.	Both Mr Pennel and Mr Meth concentrated on the confusion which has developed in the law since the decision of Süzen supra and the various attempts to rationalise it by the Court of Appeal in England, principally, in ECM supra and RCO supra, focussing in turn on questions as to whether or not the absence of any transfer of assets or workforce, negative the existence of a transfer.
 
7.	We are content in this case to follow our own decision of Compass Services UK supra, where we stated that the issue of an identifiable economic entity and a subsequent transfer were both questions of fact to be determined by the Tribunal of first instance.  It follows that any decision that they make can only be interfered with at this level if we are satisfied that the Tribunal took into account factors that it should have left out of account or vice versa.  While we recognise that the Tribunal has only concentrated on two aspects of the matter in determining the existence of an identifiable economic entity, we are satisfied that that was a conclusion that the Tribunal was entitled to reach, even if there is room for an opposite view.  We are particularly concerned that it should not be conclusive that the work is now being done in a different way by the new contractor.  What matters is whether the identifiable entity, having been so discovered before the transfer, is mirrored in the work of the transferee after the transfer.  The Tribunal have found this to be the case and we do not consider they have misdirected themselves in considering that Süzen has now to be regarded as overstating the position, if it expresses an absolute.
 
8.	In these circumstances we consider that this is a decision the Tribunal were entitled to reach on both aspects and one with which we will, accordingly, not interfere.
 
9.	The appeal is refused.