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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> The Scottish Coal Company Ltd v. McCormack & Ors [2004] UKEAT 0034_03_2605 (26 May 2004) URL: http://www.bailii.org/uk/cases/UKEAT/2004/0034_03_2605.html Cite as: [2004] UKEAT 34_3_2605, [2004] UKEAT 0034_03_2605

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APPEARANCES

 

 

For the Appellants	Mr R McKenzie, Solicitor Of- Messrs Harper Macleod Solicitors The Ca'd'oro 45 Gordon Street GLASGOW G1 3PE
For the 1st Respondents For the 2nd Respondents	Mr B Murphy, Solicitor Of- Messrs A C White Solicitors 23 Wellington Square AYR KA7 1HG No Appearance, Nor Representation

SUMMARY

TUPE: Whether transfer of undertaking


 


LORD JOHNSTON:

1. This is an appeal from a determination of the Employment Tribunal sitting in Glasgow, on a preliminary question as to whether or not the circumstances whereby the second respondents ("Crouch") now in administration, ceased their mineral extraction activities at the relevant site in Ayrshire, which, in turn, were taken over by the appellants, amounted to a relevant transfer in respect of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE"). Crouch declined to appear before this Tribunal.
2. The background to the matter is that for some 13 years, Crouch were engaged, under a series of contracts, to extract minerals from the site on an open cast basis. Their activities involved removing the surface, exposing the coal, removing the coal and restoring the surface. For that purpose they used a number of pieces of heavy equipment, including dumper trucks and diggers. They constructed buildings on the site for the purposes of offices and facilities for the men. After this operation, as we have said, had been going on for a number of years, the relationship between the second respondents and the appellants was terminated, and on Monday 23 April 2001 the employees, who had been off for an Easter break, returned to work, by this time employed by the appellants on different terms and conditions. The appellants took over the site together with the buildings that had been provided by Crouch. They had endeavoured to buy the heavy equipment, to which we have made reference, from Crouch, who refused to let them do so. They therefore installed their own. Accordingly, after 23 April, with the exception of one employee, the activities continued physically on the site with the same workforce that had been operating under the previous regime.
3. Against that background the decision of the Tribunal is as follows:-

"Each of the representatives then addressed us on the evidence, and made helpful submissions. All of the representatives were clearly familiar with the well-trodden path through the TUPE minefield, and skilfully tried to steer us away from what each considered to be the dangerous areas. Mr Murphy based his submission on Chapter Five of MacMullen on Business Transfers, which is an authoritative and exhaustive analysis of the "definition of a transfer and when a transfer occurs." Mrs Sutherland supported the conclusions drawn from this analysis by Mr Murphy, but felt that the questions for the Tribunal to determine could be narrowed down to a much shorter list of four individual issues, as follows:-

1. Was the first respondents undertaking at Chalmerston/Pennyvenie a stable economic entity?

2. Was the first respondents undertaking there confined to a specific works contract?

3. Was there a change in the identity of the employer of that undertaking on or about 13/14 April 2001?

4. Did the transferred undertaking retain its identity after 13/14 April 2001?

It is a feature of TUPE that every few years, in an effort to be helpful, the European Court of Justice, or the United Kingdom courts, set out a list of what they consider to be the relevant factors in question regarding TUPE transfers. Succeeding Spijkers, from the European Court of Justice, we now have Cheesman from the Employment Appeal Tribunal, and Miss McManus took us through this case for the basis of her analysis of the facts and law.

Having considered the various submissions, we preferred to follow the guidance of Cheesman which seemed to us to more fully address the issues (and also for the very good reason that it is binding authority). We looked at each of the points for consideration listed in that case, insofar as they were relevant to our present deliberations.

On the first issue of whether there was an undertaking, EAT observed that:-

( 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. It has been held that "one specific works contract" is restricted to a contract for building works.

This was one of the primary issues. We came to the conclusion that whilst it was true that immediately before the transfer, the workforce were largely engaged on one specific contract, they were not exclusively engaged on that, and, in any event, it was not open to us to simply ignore any previous activity ongoing continuously since 1988, as if this latest contract was something entirely separate. It clearly was not. It was merely part of the ongoing mining process, which for some reason had been separately defined. After the alleged transfer, the remaining part of the mining process was resumed.

We have to say that we do not understand the rationale behind the expressed view of the employment Appeal Tribunal that the authority of the case of Rygaard is to be restricted to a contract for "building" works. It is difficult to see the distinction between excavating the top cover of soil for purposes of erecting a building and carrying out a similar process for the purpose of extracting coal. We would have been inclined to regard ourselves as bound by the European Court in that case had the facts been that the applicants had been engaged on a "specific works contract" for the removal of the overburden, without any previous history on the site, and if there had been no intention immediately thereafter to proceed to extraction. If these had been the circumstances, we would have been inclined to accept the views of Ms McManus.

( in order to be such an undertaking it must be sufficiently structured and autonomous, but it will not necessarily have significant tangible or intangible assets.

The applicants formed part of a team (or "unit", as one witness claimed). They had a defined management structure, but were clearly locally autonomous from both the first and second respondents. Even apart from the issue of the earth moving plant, there were significant tangible assets, which did not transfer with them.

( an organised grouping of wage-earners who are specifically and permanently assigned to a common task may, in the absence of other factors or production, amount to an economic entity.

We regarded the common task as the mining aspect of the whole site, to which for is all intents and purposes the workforce was specifically and permanently assigned from 1988 until 14 April 2001. The contractual basis of the arrangements for the extraction between the first and second respondents did not affect that reality, in our view. We appreciate that at various points in time, the contract went out to tender, but the result seems to have been accepted as a foregone conclusion. Presumably the reason for this is that the setting up costs for a new contractor would be so great as to make it not a viable proposition. The facts point to a position that so long as the second respondents wished to extract coal, and the first respondents were acceptable as contractors, then the relationship, and the operations, would continue.

( an activity of itself is not an entity; the identity of an entity emerges from other factors such as its workforce, management staff, the way in which its work is organised, its operating methods and, where appropriate, the operational resources available to it.

The fact that the second respondents wished to take on the same workforce is of significance here. The local knowledge, the familiarity with each other, and with the equipment, the continuity of operating method including "the box cutting", shift pattern, etc, all point to the existence of a stable economic entity since 1988.

As to whether there has been a transfer, EAT stated that regard must be had to the following:

( the decisive criterion for establishing the existence of a transfer is whether the entity in question retains its identity, as indicated, amongst other things, by the fact that its operation is actually continued or resumed.

There was no evidence that there was any intention on the part of the second respondents to cease operations at the site. The interruption was only momentary, and would have been a holiday period in any event for most of those employed. There was only one change in the workforce; the replacement of the foreman. Weighed against the fact that apart from administrative matters, no other changes were effected, this is in our view insignificant. Our finding is that the entity retained its identity.

( in a labour-intensive sector it is to be recognised that 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 skills, of the employees specially assigned by his predecessors to that task. That follows from the fact that in certain labour-intensive sectors a group of workers engaged in the joint activity on a permanent basis may constitute an economic entity.

There was no argument that the vast majority (all but one) of the workforce ceased working for the first respondents, and were instructed thereafter to attend for duty one week later. From the surrounding facts and circumstances, the workforce clearly felt that they were obliged to do so. Again, this is an indication to us that the economic entity retained its identity.

( it is necessary to consider all the factors characterising the transaction in question - but each is a single factor and none is to be considered in isolation. However; whilst there is no legal authority on the point, it is presumably not an error of law to consider 'the decisive criterion' in isolation because that is an aspect of its being 'decisive', although when considering 'the decisive criterion' it is necessary to have regard to the fact that it is not itself dependent on a single factor.

We did not regard any one single factor as being decisive in this case. The matter was complicated, and it was necessary for us to take an overall view of a large number of factors. There was no "smoking gun".

( matters that require consideration include the type of undertaking, whether or not its tangible assets are transferred, the value of its intangible assets at the time of transfer; whether or not the majority of its employees are taken over by the new company, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer; and the period, if any, in which they are suspended.

We did consider all of these matters. We disagreed with Mrs Sutherland that assets transferred included any rights in respect of the coal itself. In our view, all that the first respondents had in this respect was a contractual obligation to work 'the coal, and a right to be paid for that work in terms of their ongoing contract. It was clear that no contractual obligations were transferred. There could not be any "goodwill" in the circumstances we have described. The only intangible asset that was transferred was the value of the coherent and experienced workforce. It also seemed to us that customers were not relevant to our consideration. The obligation of the first respondents were simply to deliver coal to a rail head from whence it was delivered to customers by the first respondents. If there was any customer relationship, then the first respondents were the "customers" of the second respondents.

( account also has to be taken, amongst other things, of the type of undertaking or business in issue, and the degree of importance to be attached to the several criteria will necessarily vary according to the activity carried on.

We did attach importance, as did the respondents, to the continuity of the workforce. Mining is a dangerous activity, and safety is a major consideration. All other things being equal, it appeared to us that a site experienced workforce will be safer and more efficient than a workforce which is not familiar with the site. These must be the primary reasons why the second respondents wished to retain the existing workforce.

( the mere fact that the service provided by the old and new undertaking providing a contracted-out service or the old and new contract-holder are similar does not justify the conclusion that there has been a transfer of an economic entity between predecessor and successor.

This factor alone does not justify the conclusion, but it is a factor which we can take into account.

( the absence of any contractual link between transferor and transferee may be evidence that there has been no relevant transfer but it is not conclusive as there is no need for any such direct contractual relationship.

We agreed that there was no contractual link in terms of continuing obligations after 14 April. The fact that the discharge of the earlier contracts was still to be completed is probably irrelevant in this context. There is, however, abundant authority for the view that any incoming contractor needs no direct contract with the outgoing contractor for the transfer regulations to apply.

( when no employees are transferred, the reasons why can be relevant to determine whether or not there was a transfer.

Our finding is that the employees did transfer.

( the fact that the work is performed continuously with no interruption or change in the manner or performance is a normal feature of transfers of undertakings but no particular importance should be attached to a gap between the end of the work by one sub-contractor and the start by the successor

If there was any gap in the operations at all, it was of no significance.

Since the case of Lightways, it is open to the Tribunal to consider as a factor the attitudes adopted by the parties in anticipation of the transaction. In the present proceedings, we heard a deal of evidence about the positions adopted by the first and second respondents at various points in advance of, and immediately after the transfer.

We took the view that such evidence as was produced was not clear cut as to, in particular, the position of the second respondents. The difficulty for the Tribunal, was that the second respondents are an incorporated body, and different officers and agents, with different responsibilities, have apparently said different things at different times. Where no settled and concluded view is apparent, we took the view that it would be wrong for us to assume that such a settled and concluded view existed, and draw any inference from it.

In any event, it was not necessary for us to do so. There was a sufficiency of other evidence, in our view, to hold that the answers to each of Mrs Sutherland's questions pointed to the existence of a transfer, and having considered all those matters which we have narrated, we find accordingly.

At the close of the submissions, Mr Murphy asked to address the hearing on the issue of expenses. These cases will now proceed to a hearing on the merits, which, as we have earlier indicated will be before another Tribunal. We think it would be appropriate to defer consideration of expenses until after all these proceedings are complete, since it is possible that any findings by us in relation to expenses at this stage could complicate matters further down the line. For the avoidance of doubt, however, if such a motion is made at the end of the day, it will be considered by this Tribunal, insofar as it relates to the proceedings before us."

4. We were referred to a number of authorities by both sides, the important ones being as follows:-

Jozef Maria Antonius Spijkers v Gebroeders BenedikAbattoir CV and Alfred Benedik en Zonen BV, Case 24/85 ERC 1119

Ledernes Hovedorganisation, acting on behalf of Ole Rygaard v Dansk Arbejdsgiverforening, acting on behalf of Strø Mølle Akustik A/S, Case C-48/94 ECR 1995 1-2745

Ayse Süzen -v- Zehnacker Gebäudereinigung GmbH Krankenhausservice Case C-13/95 1997 ECR 1-1259

G.C. Allen and Others v Amalgamated Construction Co.Ltd Case C-234/98 ECR 1996 1-8643

Oy Liikenne Ab v Pekka Liskojärvi and Pentti Juntunen, Case C-172/99 ECR 2001 1-745

Betts and Others (plaintiffs/respondents) v Brintel Helicopters Ltd (defendants) and KLM ERA Helicopters (UK) Ltd (defendants/appellants) [1997] IRLR 361

Argyll Training Ltd (appellants) v (1) Sinclair and (2) Argyll & The Islands Enterprise Ltd (respondents) [2000] IRLR 630

Cheesman and others (appellants) v R. Brewer Contracts Ltd (respondents) [2001] IRLR 144

ADI (UK) Ltd (appellants) v WilIer and others (respondents) [2001] IRLR 542

P & 0 Trans European Ltd (appellants) v Initial Transport Services Ltd and others (respondents) [2003] IRLR 128

5. Mr McKenzie, appearing for the appellants, submitted an extensive skeleton argument, running to some 45 pages, which we adopt as part of this decision for the purposes of reference. His basic propositions were as follows:-

"(a) That in the case of an activity involving the carrying out of a number of works contracts, even sequentially, the necessary prerequisite of a stable economic entity, capable of being transferred for the purposes of the Directive and TUPE, cannot, by definition, apply where the putative transfer is claimed to occur on the conclusion of a works contract and where there was no transfer of "a body of assets enabling the activities or certain activities of the transferor undertaking to be carried on in a stable way" (Rygaard paragraph 21).

(b) The Tribunal erred in law in failing to properly address the question of whether a stable economic entity existed.

(c) That in the case of an economic entity characterised by substantial tangible and/or intangible assets there can be no transfer of that entity for the purposes of the directive or TUPE if at least a substantial proportion of such assets do not transfer.

(d) The Tribunal erred in its approach to the determination of the question of whether a transfer of an identifiable economic entity took place by applying an analysis appropriate to a case of a labour intensive service type industry where the principal characterisation of the entity is its workforce."

6. In essence, Mr McKenzie submitted that, properly understood, there was no identifiable economic entity to be discovered in the activities of Crouch, prior to the termination of their contract. He submitted that what was going on was a specific works contract which was not amenable to a TUPE transfer. He drew the distinction from the authorities between what could be described as "labour-intensive activities" and "asset-reliant activities". The labour intensive activities encompassed all the authorities where the only aspect that was relevant was the existence of the workforce. On the other hand, when it came to asset-reliance he maintained that, even if such could be identified as an economic entity before any purported transfer, the assets or a substantial and material part of them had to be transferred with the workforce before there could be an effective transfer under the Regulations. He developed his arguments by reference to the authorities we have cited, relying particularly on Rygaard and Oy Liikenne. When it came to the terms of the transfer, he maintained that the Tribunal had misdirected itself by relying upon Cheesman, since the present case was plainly an asset-reliant situation rather than a labour-intensive exercise. We mean no disrespect to the formal submissions by Mr McKenzie by paraphrasing them as such. The text can be gleaned from the skeleton he produced, which we have incorporated by reference. In this particular case he said that there was no identifiable economic entity before the transfer, and even if there was, there was no effective transfer in terms of the Regulations because the main part of the assets that mattered, namely, the heavy equipment, was not transferred. The Tribunal had misdirected itself by going down the Cheesman line.
7. Mr Murphy, in response, emphasised that in each case, the question was one of fact and degree, and, indeed, mixed fact and law. The matter should be looked at in a purposive way reflecting what the Regulations were designed to achieve. While he recognised the distinction between asset-reliance and labour-intensive activities, he maintained here, that even if it was asset-reliant, there was a sufficient transfer of assets, together with the workforce, to achieve a transfer. The Tribunal had not misdirected itself, particularly, taking into account, the continuing period of 13 years, during which the parties in question had been involved in the joint operation. It was quite misleading to refer to this as a specific works contract because one contract followed another. Sequence was important. This contrasted with the position in Rygaard which was simply one contract for the construction of a building. He also regarded it as significant, if not conclusive, that upon the evidence, just before the effective date, an employee of the appellants informed the workforce that TUPE would apply to the intending arrangements.
8. We approach this matter upon the basis that it is important to keep in mind the main purpose of the Regulations, namely, the protection of employment rights in transfer situations. We use that phrase diffidently but mainly to identify the position. It is not appropriate, in our opinion, to compare a single works contract such as a construction of a house which is completed when the house is completed, and the ongoing arrangements which existed over the relevant period in the present case, involving precisely the same activity, namely, the extraction of coal involving the appellants and Crouch. It is wholly artificial to regard each contract as a separate works contract. What was ongoing was the removal of coal which continued after the transfer. We recognise that the activity was asset-reliant but we consider that, observing the position upon the evidence before the take-over or cessation, there was sufficient to identify within Crouch's activities a stable economic entity which was asset-reliant, i.e., heavy plant provided and buildings custom built for the purpose.
9. We recognise that in Oy Liikenne, the fact that the buses were not transferred was regarded as conclusive by the ECJ in relation to whether or not there had been a transfer when the contract ceased, but we do not consider that that case properly can be compared with the circumstances of the present one. Here, the men were, on the evidence, highly skilled, and were carrying on the same activity before as afterwards. It is plain that the appellants wanted the workforce to continue, and, indeed, sought to acquire the heavy equipment but were unsuccessful in persuading Crouch to sell it to them. To our mind, if they had achieved the obtaining of that equipment, there could be no doubt a relevant transfer within the meaning of the Regulations had been effected.
10. At the end of day, the sole question for us, seems to be, against the background of our view that an identifiable, stable economic entity existed before the transfer in respect of the activities of Crouch, whether such as was transferred was sufficient to effect a TUPE transfer. That question always seems to us to be a matter of degree. The various authorities at each end of the spectrum, posing an extreme situation, are identified by Abler supra. While the Tribunal may have attached too much emphasis on one view to the decision in Cheesman, we do not think their approach should be vitiated simply because that was a labour-intensive case. The questions posed by the Tribunal seem to us to be relevant and admit an answer they were entitled to achieve upon the evidence. An examination of what was going on after the transfer, reveals identical activity, the only difference being that the equipment now belonging to the appellants was being used instead of that being formerly operated by Crouch. Applying the purposive approach, as we feel obliged to do, we, therefore, conclude that the Tribunal were entitled to reach the decision that a relevant transfer had taken place, thus effecting protection of workers' rights and achieving the purpose behind the Regulations. We consider that, if the proper approach has to be whether or not assets were transferred, sufficient assets were transferred to effect a relevant transfer.
11. For these reasons this appeal will be dismissed and the case remitted back to the Employment Tribunal for further procedure.