Appeal No.	 EAT/1354/01/RN

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 20 May 2003

Before
THE HONOURABLE MR JUSTICE BURTON (PRESIDENT)
MR D NORMAN
MRS R A VICKERS

BLUE DIAMOND SERVICES LIMITED	APPELLANT

(1) MRS C McNEISH 
(2) CLOCK TOWER SERVICES LIMITED 
(3) NORTH WEST LEICESTERSHIRE DISTRICT COUNCIL	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	Mr R N Connelly
Personnel Manager
Blue Diamond Services Limited
c/o Building 33
Dakota Road
East Midlands Airport
Castle Donington
Derby DE74 2SA	
For the Respondents	No appearance or
representation by or 
on behalf of the Respondents

THE HONOURABLE MR JUSTICE BURTON (PRESIDENT)

1	This is an appeal against the Decision of the Employment Tribunal at Leicester sitting on 10 October 2001.  In that Employment Tribunal there were or had been a number of parties.  

2	The Applicant was a Mrs McNeish, who has not appeared before us today on this appeal.  There were three Respondents and we need only to consider the position of two of them.  The First Respondent, Clock Tower Services Ltd, was the transferee of an undertaking in respect of a cleaning contract with the Third Respondent, the North West Leicestershire District Council.  It was common ground that such transfer of undertaking fell within the Transfer of Undertakings Employment Regulations 1981 (TUPE).  The Second Respondent, Blue Diamond Services Ltd, was the transferor of that undertaking.  

3	The Tribunal concluded that the Applicant was unfairly dismissed by the First Respondent and ordered the payment of compensation.  The First Respondent had entered a Notice of Appearance but, it seems, failed to comply with Orders and its Notice of Appearance had been struck out by the Employment Tribunal, and the First Respondent did not attend the Tribunal.  It appears that the company ran into some kind of difficulties and may well be insolvent; it certainly took no role in the proceedings, in the circumstances we have indicated, and it would appear as though any claim by the Applicant against that company would have been unlikely to be recoverable, but we are not told as to whether the compensation which she was awarded for unfair dismissal was paid.  

4	The second Decision of the Employment Tribunal related to the fact that there was a finding by the Tribunal that the Second Respondent, the transferor, failed to consult with the Applicant in accordance with Regulation 10 of TUPE, and was ordered to pay compensation to the Applicant in the sum of £560.  There were certain other complaints by the Applicant which were dismissed.  The findings of the Tribunal were that the Second Respondent, who had acted in good faith through Mr Gladwin, had, in the circumstances, had a reason, with which we do not need to trouble ourselves on appeal, for not consulting with the Applicant; but that nevertheless the obligation being a strict one, it was in breach.  

5	The issue that was contested for the Tribunal was not as to the facts, although, as we have indicated, the Second Respondent was anxious to explain the circumstances in which it had failed to consult, but as to whether the liability which there plainly was, as a result of breach of Regulation 10, had been transferred to the transferee, the probably insolvent First Respondent, or remained with the transferor.  

6	The Regulations, under Regulation 10, which is headed up “Duty to inform and consult representatives” do not need, in the circumstances, to be recited by us, but the argument ranged around Regulation 5 of TUPE, which reads as follows in material part:
5(1) ……….a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee. 
(2) Without prejudice to paragraph (1) above ……. on the completion of a relevant transfer - 
(a) all the transferor’s rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this Regulation to the transferee; and
(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee.”
And there is a saving, under sub-paragraph (4), that sub-paragraph (2) does not affect the liability of any person, that is obviously a transferor, in respect of criminal liability, which is not, of course, here in issue.

7	Before the Tribunal, reference was made by the transferor, who was represented then as before us by its Personnel Manager Mr Connolly, in objection to the course that the Tribunal was proposing to take, to the decision of Transport and General Workers Union -v- McKinnon [2001] ICR 1281, being a decision of this Employment Appeal Tribunal per Lord Johnston, as it happens, sitting in Scotland, on the basis that that decision, it was suggested, had been challenged, and, indeed, might be the subject of an appeal.  But, said the Tribunal, it was a decision which was binding upon them until and unless it was overturned.  The conclusion of Lord Johnston and that Employment Appeal Tribunal in McKinnon was that liability for a failure to consult did not transfer under Regulation 5(2).  

8	However, there had been, prior to the decision in McKinnon, an expressly inconsistent decision of this Tribunal per Morison P, Kerry Foods Ltd -v- Creber [2000] ICR 557.  As to Kerry Foods, the date of the argument was July/August 1999, and the judgment was handed down in October 1999.  The date of the hearing in McKinnon was 29 May 2000 and the decision was handed down on 4 June.  McKinnon referred to Kerry Foods and, as it was put in the note in the report in the ICR, distinguished it.  But it is plain that the two decisions were inconsistent.  

9	The ordinary practice of this Tribunal, given that it is not bound by its own previous decisions, as is the case in any first instance decision by a puisne judge in the High Court, must find previous decisions of its own heavily persuasive, and uncertainty would be created amongst those who require to know what the law is, if it easily departed from its own earlier decisions.  Thus, strictly, although the point does not appear to have been canvassed in terms before this Tribunal, it was right that, as a matter of ordinary precedent and practice, the Tribunal below would follow the more recent of two inconsistent decisions of the Employment Appeal Tribunal, provided that it was clear to the Tribunal (and always because it is an inferior Tribunal looking at a superior Tribunal’s decision, such a conclusion is only reached rarely) that one or other of them was not per incuriam, if we may be permitted to use the Latin.  It is not suggested that either of those two decisions were per incuriam, and, the two being inconsistent, McKinnon was the later.  

10	It appears clear to us that the two decisions are inconsistent by virtue of a question of approach and a conception of policy, because, as a matter of construction, it appears difficult to see how Lord Johnston would ordinarily reach the conclusion that a breach of an obligation on a transferor employer to consult his employees in relation to the possible transfer of their contract of employment to a transferee would not be a “liability of the transferor under or in connection with a contract of employment” within Regulation 5(2)(a) or, indeed, even more simplistically, something “done before the transfer is completed by or in relation to the transferor in respect of [such a] contract of employment or a person employed in an undertaking” within Regulation 5(2)(b). 

11	If one looks behind the Regulation, to the Council Directive, pursuant to which the Regulation must be regarded as having been implemented (although, of course, the Directive that we are now looking at is a recent re-implementation of an earlier Directive), that is to be found in Council Directive 2001/23/EC of 12 March 2001, under heading Chapter 2 “Safeguarding of Employees’ Rights” and the provisions of Article 3(1) read:
“The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.”

There too, it seems difficult to see how an obligation of an employer to consult in relation to the potential transfer of a contract of employment is not an obligation arising from an employment relationship existing on the date of the transfer.  What appears to have motivated Lord Johnston in his conclusion was a policy question which, perfectly properly and understandably, particularly in an employment Court, caused him and his colleagues to construe the Regulation, as they would have seen it, in order to achieve the best purpose of safeguarding an employee’s rights.  There is plainly an important balance to be reached.  

12	On the one hand it can be said that the best protection for an employee to ensure that he is consulted prior to a transfer is to ensure that the obligation is on, and remains with, the transferor.  On the other hand, it can be said that if there is a breach, the best way of protecting the employee is to make sure that the employee is compensated, and that, in the ordinary case, the best way of ensuring that the employee is compensated is to ensure that the obligation transfers to a transferee who has the business and assets transferred to it, and thus is likely to be solvent, rather than remaining with the transferor, who has neither interest in, or possibly  assets available for, paying any obligation; for the business will have gone, perhaps either paid for in cash and dissipated, or possibly not paid for at all, for example simply by way of an absolution from outstanding obligations, such that the transferor may disappear into the sunset, without the wherewithal to pay any liabilities to employees.  

13	Any securing of the position of the innocent transferee can and will ordinarily be done by the transferee obtaining warranties from the transferor.  If the transferor does, indeed, disappear into the sunset at least it will be the transferee and not the employee who is left without recovery, while if the transferor is not insolvent, then the transferee will then be able to recoup the money that it will have paid out to the employee.  Lord Johnston was obviously influenced by a view as to the balancing act, in his construction, while Morison P, influenced both by what appeared to us to be the obvious construction and, no doubt, his own view of the policy considerations, had reached the opposite conclusion.  

14	That was the state of things when the matter came before this Tribunal in April 2002 on the preliminary hearing, which at that time was held in almost all cases, and, not surprisingly, and in the light of the inconsistency of the two decisions, this Tribunal, chaired by Wall J concluded that this Tribunal ought to seek to resolve that inconsistency, in the interests of certainty, so far as the law is concerned.  On the face of it, of course, the Employment Appeal Tribunal could still have followed the more recent decision, as in practice did the Employment Tribunal, but, where there are inconsistent decisions, it is still usually appropriate for the matter to be looked at in detail by the subsequent tribunal, even though in the event of what might be called a tie-break the fact that one was more recent, and had considered the earlier judgment, may tip the balance.  

15	This Tribunal therefore on the preliminary hearing gave permission for the case to proceed, and, in the light of the two inconsistent decisions, McKinnon and Kerry Foods, invited the instruction by the Treasury Solicitor of Counsel as a Friend of the Court, or amicus curiae, and we have had the advantage of Mr Choudhury making submissions in writing to us for the purposes of today’s hearing.  

16	However, all this has been overtaken, as the best laid plans sometimes are, by a further and different case coming before this Tribunal in the meanwhile, the case of Alamo Group Europe Ltd -v- Tucker [2003] IRLR 266, in respect of which a reserved decision was given by Judge Altman on 24 February 2003.  Judge Altman did the very work, although without the benefit of a Friend of the Court, which was intended to be done on this appeal.  The matter was very fully argued before Judge Altman’s Tribunal.  Mr Napier QC was instructed on behalf of the transferee, and Ms Tether, of Counsel was instructed on behalf of the transferor.  

17	Both the two previous decisions were carefully considered, and their inconsistencies reviewed, and more than ten authorities were referred to in the learned and full judgment of Judge Altman on behalf of this Tribunal.  He resolved the inconsistency between the two decisions, both by reference to construction of the relevant Regulation and Article, and by reference to a view of whether there was required to be, and, if so, in what direction, a purposive construction, firmly in favour of the liability transferring within Regulation 5(2). We see no reason to differ from the very careful decision by this Tribunal chaired by Judge Altman which resolved that inconsistency.  

18	Further, we consider it important that unless there is some ground to do so, such as some argument that was not put before the Tribunal, or some change of circumstances since, a further Employment Appeal Tribunal should not, as a matter of principle, involve itself in re-treading ground which has so carefully been trodden by one of its predecessor panels in such a situation.  The Employment Appeal Tribunal in Alamo Group knew that there were two inconsistent previous decisions, and sat for the purpose of resolving that inconsistency, notwithstanding that McKinnon was the more recent of the two and, indeed, had considered Kerry Foods, as it was entitled to do, this Tribunal, per Judge Altman, concluded that it preferred the decision of Morison P and the result in Kerry Foods.  

19	We do not consider it right or necessary or appropriate to differ from Judge Altman and it is, for the purposes of certainty, right that people should now know that the law is, subject of course to any higher court further considering the matter, as stated by Judge Altman in Alamo v Tucker and, of course, by Morison P in Kerry Foods, which he preferred, and not as stated by Lord Johnston in McKinnon.  

20	We wish to say two further things by way of generality to add to our conclusion.  First, it is unfortunate that on the facts of this particular case, the Applicant employee is not protected because, in this particular case, the transferor is a company of integrity and solvency and it would appear that the same cannot, at any rate necessarily, be said in relation to the transferee, and that the employer would have been better off, on the facts of this particular case, being able to look to the transferor than the transferee.  That does not, however, detract from the strength of the conclusion of policy, insofar as it is relevant, because the question of construction at the end of the day is independent of policy; but if policy is to be relevant, as it plainly has been in these considerations, the conclusion of this Tribunal is that, in general, the employee is better protected by having the liability transferred to the transferee than left with the transferor, and it may well be that this is one of those cases where it can be said that the exception proves the rule.  Clearly one must have some sympathy for the Applicant, on the facts of this case, but we are quite clear that by the decision of Judge Altman in the Alamo case, an employee is in general better off and, in any event, the clear and straightforward construction which Alamo thus establishes is preferable, and in our view we have no reason to doubt that it is correct.  

21	The second point that we wish to make is, we hope, timely, because we know that there is consideration at this very moment of amendments to TUPE.  Article 3 of the Council Directive to which we have referred, continues as follows:
“Member states may provide that, after the date of transfer, the transferor and the transferee shall be jointly and severally liable in respect of obligations which arose before the date of transfer from a contract of employment or an employment relationship existing on the date of the transfer.”

It that had been the law, which no one has suggested that it is, in the United Kingdom at present, then there would not have been a need for the Employment Appeal Tribunal to choose as to which of the two, transferor or transferee, be liable, but would have been able to be told by the law that both were liable, leaving it to the two of them to sort out the ultimate liability, as between themselves.  

22	That is, however, not presently the law.  It may be that this will be a case which might lead to further consideration by the legislature to see whether it would be right to implement the suggestion of Article 3 or not.