Appeal No.UKEAT/0380/04/ILB

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 16 September 2004

Before
HIS HONOUR JUDGE McMULLEN QC
MRS R CHAPMAN
MR D NORMAN

CARLISLE FACILITIES GROUP 	APPELLANT

(1) MATRIX EVENTS & SECURITY SERVICES  
(2) SEA FRANCE LTD  
(3) MR C CARR & OTHERS	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Final

	APPEARANCES

For the Appellant	MS V VON WACHTER
(of Counsel)
Instructed by:
Ms Jenny Bradic
The Bell
Cottered
Herts SG9 9PT	
For the First Respondent

For the Second  and Third Respondents

	MR B GARDINER
(of Counsel)
Instructed by:
ASB Law
Solicitors
12 Mill Street
Maidstone
Kent ME15 6XU

No appearance or representation
by or on behalf of the Respondents

SUMMARY

Transfer of undertakings, transfer.

HIS HONOUR JUDGE McMULLEN QC

1	This case is about the application of TUPE, when the contract for security guarding functions is removed from one firm and given to another.  The judgment represents the views of all three members who pre-read the relevant papers.  We will refer to the parties as the Applicants; Matrix (for Matrix Events & Security Services), Carlisle (for Carlisle Facilities Group) and Sea France for Sea France Ltd, who were the three Respondents to the proceedings at the Employment Tribunal.  

Introduction
2	It is an appeal by Carlisle, which would be the transferor, if TUPE applied, of an undertaking.  Its appeal is supported by the Applicants, although they do not themselves appeal.  There were, we were told, 32 employees at the relevant time, and we understand the instant proceedings involve 27.  

3	The appeal is against the Decision of an Employment Tribunal sitting to hear a preliminary point at Ashford, Kent, Chairman Mr G W Davis, over two, registered with Extended Reasons on 11 March 2004.  The Applicants there were represented by Counsel.  Carlisle was represented there and here by Ms Victoria Von Wachter, and Matrix by Mr Bruce Gardiner, both of Counsel.  

4	The Applicants were claiming unfair dismissal and breaches of the TUPE Regulations.  Matrix and Carlisle were Respondents, as was Sea France.  Carlisle contended that the TUPE Regulations applied, as did the Applicants; Matrix denied that.  The Tribunal decided that there was no transfer of an undertaking.  The appeal therefore is by Carlisle. The essential issue was to determine whether there was an undertaking and whether there was a relevant transfer.  Directions sending this appeal to a full hearing were given by His Honour Judge Birtles, in Chambers.

The legislation
5	The relevant provisions of the legislation are as follows: The Transfer of Undertakings (Protection and Employment) Regulations 1981, which were not cited expressly by the Tribunal but which plainly emerged from its consideration of the relevant authorities provide as follows in Regulation 2(1):
“ …..”relevant transfer” means a transfer to which these Regulations apply and “transferor” and “transferee” shall be construed accordingly; and “undertaking” includes any trade or business.”
6	By Regulation 5 it is provided as follows:
“[Except where objection is made under paragraph (4A) below,] 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.”
There are other provisions which area not directly relevant to the preliminary hearing with which we are concerned.  

7	The Tribunal directed itself in accordance with nine authorities which had been put before it jointly by Counsel, and in particular, the Tribunal considered itself directly to be applying the judgment of the Court of Appeal in ADI (UK) Ltd -v- Willer [2001] IRLR 542 and the guidelines given by the EAT, Lindsay J President, and members in Cheesman -v- R Brewer Contracts Ltd 2001 IRLR 144, which we hold to be the relevant authorities.

The facts
8	The Tribunal found as follows:
 “3  Sea France is a wholly-owned subsidiary of Sea France SA, which is based in France and is in turned owned by SNCF French Railways.  Sea France is a provider of cross-channel ferry services and, depending on the time of year, if operated between 30 and 50 sailings per day.
…
5.  Sea France had a requirement for guarding services, and Carlisle provided such services.  It had held the contract for about eight years.  At the relevant time, there were approximately 32 security officers employed by Carlisle specifically and exclusively to provide the guarding services on the cross-channel ferries.  The duties of the guards were mainly to endeavour to prevent theft and smuggling and to assist in the apprehension of any illegal immigrants.
6.  Bernard Leupe became dissatisfied with the general level of performance by Carlisle, he was concerned at the behaviour of some of the guards, and particularly concerned that the staffing levels were poor.
…
10.  Mr Leupe had decided to terminate the contract with Carlisle and wrote to Mrs Cook on 11 April to that effect.”

9	In due course there were discussions about the poor performance of Carlisle and it was made clear by Mr Leupe that he did not wish any Carlisle staff to be employed on the new contract because of problems of their reliability.  Matrix took over the guarding duties with effect from 19 May 2003.  The Tribunal found that these duties were the same as those performed by Carlisle, but since Matrix took over, a number of practical measures had been taken to improve the performance.  

10	The Tribunal then went on to find that the security services performed both before and after 19 May were similar.  The Tribunal noted that this was a business which consisted entirely of the provision of guarding services - see paragraph 5, to which we referred above.  It held as follows:
“In relation to the first issue, we have to consider whether or not there was a sufficiently identifiable economic entity.  We have reminded ourselves of the judgment in Suzen, and we are satisfied that the provision of the guarding services by Carlisle was an economic entity which can be regarded as an “undertaking”.  It was in fact the provision of specific guards, who had no other work, who were employed to carry out duties on the cross-channel ferries of Sea France.”
It addressed its mind to the judgment in ADI.  It decided that since there were no assets, and none of the employees had transferred to Matrix, the Regulations were not satisfied.  It took an excursion, quite properly, to examine the reason why the employees were not taken on.  It was contended in submissions, but the point had not been put in cross-examination, that the reason for that decision by Matrix was to avoid the application of TUPE.  

11	As to that, however, the Tribunal acquitted Matrix of any such avoidance strategy, holding that the decision was not a ploy to avoid the Regulations.  The reason the Tribunal found for the refusal to employ the Applicants was as follows: 
“35  We therefore direct our kinds to the reason why the employees in this case were not transferred.  There has been ample evidence to show that Carlisle were not providing the manning levels required, and we find that Mr Leupe was dissatisfied with the performance of Carlisle, both as to the manning levels and to the general performance of some of the guards.  We accept the evidence we heard that he did not want any of the Carlisle guards employed under the Matrix contract.
36  Having looked at the relevant documents and having analysed the evidence presented to us, we are in no doubt that the reason why the guards were not transferred was because of the dissatisfaction of Sea France.  It was not a ploy by Matrix to avoid the impact of the Regulations.  We note in fact that it would have been easier for Matrix to have employed some of the Carlisle guards, rather than to have to go to the market place and advertise for new labour.”
In those circumstances, the Tribunal decided the preliminary point against Carlisle.  

12	In its judgment, it also referred to what is known as the ECM point, deriving from ECM (Vehicle Delivery Services) -v- Cox [1999] ICR 162 CA, which is authority for the proposition that an employer who, in order to avoid TUPE applying in an essentially labour-intensive undertaking, refuses to accept incoming employees is to have that fact treated as a relevant factor, in deciding whether or not there was a transfer.

Carlisle’s case
13	Carlisle submitted that the Tribunal had erred in law in its decision in relation to the transfer point.  Having found that there was an economic entity, the Tribunal had failed in its exercise of discovering the reason for the refusal to take on staff. By accepting the diktat of Sea France, that none of Carlisle’s employees should be taken over to Matrix, Matrix was itself responsible.  There was the transfer of an economic entity which retained its identity, since the Tribunal had found that the provision of service pre and post transfer was the same or similar.  

14	Applying the multiple factors, which a Tribunal is required to consider pursuant to the judgment of the European Court of Justice in Spijkers -v- Gebroeders Benedik Abattoir [1986] ICR 296 the Tribunal’s Decision was perverse.  The Tribunal had misdirected itself in its understanding of the effect of Matrix’s decision which was to avoid TUPE applying, if not expressly, then at least by implication.  

Matrix’s case
15	On behalf of Matrix, it is contended that the Tribunal had directed itself to the correct legal authorities.  The submissions of Carlisle confused two questions: whether there was an entity and whether it retained its identity, post-transfer.  The Tribunal had correctly applied ADI, which full took account of recent developments in Luxembourg jurisprudence, and was bound by that.  The mere fact that security services were provided pre and post the change in contractor was not conclusive.  The fact that it might have been easier for Matrix to have taken on some of the staff of Carlisle was not a conclusive factor either.  

The legal principles
16	The legal principles have been clearly set out by the Court of Appeal in ADI, where in a majority judgment of May and Dyson LJ, Simon Brown LJ dissenting, an approach was given for the handling in today’s world of these difficult problems.  May LJ said as follows:
32	As I have indicated, in my view confusion and uncertainty have arisen because the need for a legal transfer or merger, still present in the Directive, has been eliminated by purposive judicial interpretation, yet the perceived need to find a transfer of some kind remains. The problems are compounded by attempts to reconcile disparate decisions of the European Court of Justice. There has also been a search for factors indicative of a transfer not all of which are, in my view, always as helpful as has sometimes been thought. Few of the cases which have caused difficulty have involved a true transfer of anything between a first and second employer. The suggestion that intangible assets are transferred sometimes amounts to no more than the fact that the same or similar work is carried out at the same place. 
33	It might have been possible to legislate to the effect that employees' rights are protected whenever essentially the same job continues to be carried on by a different person or employer. The facts and decision in Schmidt come quite close to this, but the Directive does not on any view say this and the authorities taken as a whole do not justify that conclusion. The cases are unanimous to the effect that the facts have to be taken as a whole and not considered individually in isolation. In my view, Mr Randall is correct in submitting that the case of Allen indicates that the European Court of Justice continues to adhere to its decision in Süzen in so far as that case might represent something of a retreat from earlier cases including Schmidt. 
34	In my view, the present case is to be regarded as an example of a labour intensive case, such as was Süzen. The case of Betts was rather different, since the undertaking in that case included substantial equipment, such as helicopters, and infrastructure. In the present case, ADI had a contract for services which they decided to relinquish. Firm Security Group were engaged in their place to provide essentially the same services in the same place for the same employer, but it is, in my view, something of a fiction to say that assets, even intangible assets, were transferred. There was a right to use premises and equipment, but that fact does not, I think, really add anything to the proposition that each contractor was providing the same services at the same place. Adopting what was said by the European Court of Justice in Süzen, I consider that the mere fact that the service provided by ADI and Firm Security Group was similar does not support the conclusion that an economic entity was transferred. An entity cannot be reduced to the activity entrusted to it and the mere loss of a service contract to a competitor cannot by itself indicate the existence of a transfer within the meaning of the Directive. The same, I think, should apply to the 1981 Regulations. The identity of the economic entity and its transfer also has to emerge from other factors and these include the question whether or not the majority of the employees were taken over by the new employers. In the present case, they were not and I agree with the EAT that, apart from the ECM point, there was no relevant transfer in the present case. 
…
36  In my judgment, Mr Randall was correct to accept that there would have been a transfer in the present case for the purpose of the 1981 Regulations if the nine security officers had been taken on by Firm Security Group, and that there would also be a transfer if the reason why they were not taken on was in order to avoid the application of the Regulations. More generally, it seems to me that if, as in the present case, the economic entity is labour intensive such that, applying Süzen, there is no transfer if the workforce is not taken on, but there would be if they were, there will be a transfer if, although the workforce is not taken on, it is established that the reason or principal reason for this was in order to avoid the application of the Regulations. I take this form of expression from paragraph 8 of the 1981 Regulations, recognising that it is used there in a slightly different context. I do not accept Mr Jeans' submission that there should be a positive burden on the person arguing against the transfer to establish the reason for not taking on the workforce, failing which a transfer should be found. Nor do I consider that the reason or principal reason for not taking on the employees has to be limited to an economic, technical or organisational reason entailing changes in the workforce of the transferee, failing which a transfer will be found. There may, depending on the facts, be other possibilities. 
37  It follows that, in my judgment, there would be a transfer in the present case, if the reason or principal reason for Firm Security Group not taking on the employees was in order to avoid the application of the 1981 Regulations: but that otherwise there was no transfer. Since, as I have indicated, I do not consider that the Employment Tribunal majority decided this issue, it is necessary for the case to be remitted to an Employment Tribunal to reconsider that matter.”

Dyson LJ agreed with May LJ and added his own propositions.  We do not cite them but they may be found in paragraphs 43, 51 and 52, and having reviewed the authorities about deeming provisions and avoidance of TUPE, he concluded that it was necessary to create a fiction in order to protect employees, which is the purpose of these Regulations -  see paragraphs 58 and 59.  That account of the law is relied upon by Matrix in support of its resistance to this appeal.  

Conclusions
17	In our judgment, Mr Gardiner is correct to rely upon ADI.  That judgment, it has to be said, was the culmination of three tiers of adjudication, where a majority decision prevailed at each level.  Nevertheless, we are bound by it, as was the Employment Tribunal.  It is clear that in a situation such as ours, where a labour-intensive economic entity is the subject of a claim under TUPE, it is relevant to consider whether any or none of the employees has been transferred.  Plainly, if they have, the task of finding a transfer from one contractor to another is made easier.  It cannot help in our case, for none of them was transferred.  In such a situation, the task for the Tribunal is to determine the reason for that fact.  

18	If it is an ECM reason – a TUPE avoidance reason - that is a very relevant factor in deciding the central question of whether there has been a transfer.  The continuation of the same services in the same place on successive days is not conclusive as to whether or not there has been a relevant transfer under the Regulations.  It is plain from May LJ’s judgment, cited above, that a reason may be put forward by a putative transferee, indicating why a transfer has not occurred, and explaining why it did not take on the workforce.  

19	The only ground which as a matter of law is clearly relevant is where there has been an ECM style TUPE avoidance strategy.  No other illustrations are given of reasons which would assist, but it is plain from May LJ’s judgment that it is open to an employer to put forward a reason, not an ECM reason, for not taking on the workforce.  Since that is the law, the Tribunal was bound to apply it, and in this case came to the conclusion which it did in its Reasons, paragraph 35.  

20	It may seem surprising that an outside party, in this case, Sea France, could determine the internal policy of recruitment of a company like Matrix, with whom it sought to enter into a business contract.  Matrix complains that it followed the conditions set by Sea France, but of course ultimately it is the responsibility of Matrix to determine whether it could live with that condition or whether it would accept liability, if there were found to be a relevant transfer.  

21	The Tribunal therefore was bound by the judgment in ADI to consider the reason.  It cannot be said that it failed to give an answer to that, nor that it did so without evidence.  We have seen the Chairman’s Notes: the evidence is there, together with the witness statements which were prepared in advance.  It was its duty to determine what the reason was and its conclusion is one which is the working out of the legal provisions set out in the authorities which were cited to it, to the facts as found.  

22	The preliminary point, having been decided against Carlisle, Matrix was discharged from further proceedings and this case awaits a hearing before the same Employment Tribunal on the substantive issue, which presumably will be maintained by the Applicants against Carlisle.  

23	We would like to thank both Counsel for the time they have given to this case and for the arguments which they have put to us.  The appeal is dismissed.