Appeal No. UKEAT/0080/12/LA

EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON, EC4Y 8JX

	At the Tribunal
	On 27 September 2012
Judgment handed down on 17 October 2012

Before
THE HONOURABLE LADY SMITH
MRS C BAELZ
MR B BEYNON

DEPARTMENT FOR EDUCATION	APPELLANT

(1) MR P HUKE
(2) EVOLUTION RESOURCE LTD (IN LIQUIDATION)	RESPONDENTS

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR DAVID MITCHELL
(of Counsel)
Instructed by:
Treasury Solicitors Office
Litigation C Employment
One Kemble Street
London
WC2B 4TS	
For the First Respondent

For the Second Respondent	MR JAMES ROZIER
(of Counsel)
Instructed by:
Irwin Mitchell LLP Solicitors
Imperial House
31 Temple Street
Birmingham
B2 5DB

Debarred	

SUMMARY
TRANSFER OF UNDERTAKINGS – Transfer

TUPE. Service provision change.  Tribunal failed to provide adequate reasons, failed properly to consider the application of TUPE, and failed to consider relevant undisputed evidence. Appeal upheld and claim remitted to a fresh Employment Tribunal for a re-hearing.

THE HONOURABLE LADY SMITH 
Introduction
1.	This is an appeal from the judgment of an Employment Tribunal sitting at Watford, Employment Judge Cockburn presiding, registered on 20 November 2001 and holding that the Claimant’s employment had transferred to the Department of Education (“the Department”)  under the Transfer of Employment (Protection of Undertakings) Regulations 2006 (“TUPE”) when a service provision contract between his former employer, Evolution Resource Ltd (“Evores”) and the Department had come to an end, on 31 July 2010.

2.	The Claimant was represented by Mr Rozier of counsel before the Tribunal and before us. The Department were represented by Mr Mitchell of counsel, before the Tribunal and before us.

3.	Evores went into voluntary liquidation during the time lapse between the first two and last three days of the hearing, and were not represented thereafter. They were debarred from participating in the appeal, not having entered a response.

Background
4.	Evores were in the business of providing technical IT support. The Claimant worked for them in a period of continuous employment dating back to 1999. As from August 2004, the Department was Evores’ principal client. The Claimant was 61 years old when his employment came to an end.

5.	The original contract between Department and Evores (dated August 2004) was for the latter to provide the Department with video conferencing, telecommunications and IT support services. At that time they used a telephone service known as “MTS”. Work on the MTS system was the principal (i.e. nearly 100%) aspect of the work carried out by Evores for the Department until 2009, when they transferred most of their telephones to a VOiP system and, as a result, the need for telephone support reduced dramatically.

6.	The contract was varied by contract change notes in January 2006, April 2006, December 2006 and March 2007, in terms of which certain duties were added to the contract: second line IT support for laptops, PCs and others as advised, swapping out faulty kit and management of spare stock, extra work on docking stations, laptop fixing and PC testing, and the provision of an asset management system. Thus, by May 2007, 6 of Evores employees were assigned to the activities required by the contract with the Department.

7.	After May 2007, the work diminished. As above noted, the MTS work reduced dramatically when VoIP arrived. Also, the numbers of staff working in the Department reduced with a consequent reduction in the need for IT support. Further, one of the locations from which the Department had worked, Caxton House, in London, was closed. Thus, by April 2008, 4 Evores’ staff were assigned to the contract, 3 were assigned by August 2008, 2 were assigned by September 2008 and by July 2010, only one person, the Claimant, remained assigned to the contract.

8.	Parties were agreed that the Claimant gave evidence, which was not challenged, that by July 2010 he had “very little work to do”.

9.	The Department’s only witness was Mark Dance, Senior Executive Officer, who handled the Evores contract. His witness statement was provided to us and it was agreed that it was evidence that was before the Tribunal. Whilst it was accepted by him that the types of work performed by Evores remained, broadly, the same, he stressed that the amount of work requiring to be carried out had reduced considerably. He wrote to the Second Respondents in terms which are quoted by the Tribunal at paragraph 27 as being:

“I accept that MTS and some other work that Phil currently does will continue after the contract ends and be carried out in-house by departmental staff. However, we believe that this will amount to a fraction of what we would expect a full-time employee to perform (25% or less).”

10.	At paragraph 31 of his witness statement, he explains:

“ ..the work Phil was engaged to do under the contract with EVORES had changed so fundamentally that after 31st July 2010 we expected that work to take up only 25% of one full time member of staff’s time when in 2009 the work had taken up the time of two EVORES  employees. Secondly, I acknowledged the fact that both Phil and Chris had since 2009 done some work directly for the EFM team but this was outside the scope of EVORES’ contract with us and they had been engaged and paid separately for this work.”

11.	The reference to “Chris” was to the Claimant’s colleague Mr Sofroniou, who worked beside him until June 2010, when he left. The reference to work done directly for the EFM team for which the Claimant was paid separately by the Department appears to be a reference to a matter referred to by the Tribunal at paragraph 40 of their judgment namely that as the Department’s need for Evores to do work under their contract reduced:

“ …the DfE gave Evores staff other work of a general ICT support nature to keep its reduced level of staff properly occupied.”

12.	The contract was extended for a final one year period to expire on 31 July 2010.  As the termination of the contract approached, parties were at odds as to whether or not TUPE would apply. Mr Kidd of Evores sought to persuade the Department that it would apply and that the Claimant would, accordingly, transfer to them. The Department’s firm view was that it did not and they made that clear to Mr Kidd. Notwithstanding that, Mr Kidd wrote to the Claimant by letter dated 28 July 2010 confirming his view that from 1 August 2010, the Department would be the Claimant’s employer. The Claimant attended at the Department, for work, on Monday 2 August 2010 but was refused entry.

The Reasoning of the Tribunal
13.	When considering whether or not TUPE applied, the Tribunal focussed on the nature of the activities that the Claimant was still carrying out when the contract came to an end. They relied on three matters, as discussed at paragraphs 40–43, namely that the Department had given the Claimant (and Mr Sofroniou) other general ICT support work, that work falling under the same categories was required and that they rejected the submission made for the Department that the quantity of work was so diminished as to render the activities continued by the Department fundamentally different from the activities of Evores.

14.	Regarding the second of the above points, at paragraph 42, in concluding that the same activities continued to be carried out, the Tribunal relied on the letter from Mr Dance from which they had quoted at paragraph 27 (see above). However, they omit parts of the quotation. They omit the word “some” from before “other work” and omit the last sentence, beginning “However…” which qualified the earlier part of the quotation; that is, they omit that part of Mr Dance’s letter in which he stated that the work that would continue would be less than 25% of that which he would expect a full time employee to perform. They do not address that issue at all.

15.	Regarding the matter of diminution of work, at paragraph 45, they said:

“…We note, firstly, that this is no part of the statutory test. We note also that the number of calls received with LITS in the three months after the termination of the Evores contract was not considerably less than the combined number of calls raised with both LITS and Evores in the previous three months. We further note that, according to Mr Dance’s schedule, many of the individual activities carried out by Evores in the three months prior to the termination of its contract were also carried on by the DfE in the three months period after its termination.”

16.	Thus it was that the Tribunal found that there had been a TUPE transfer and that, accordingly, to refuse the Claimant admission to work on 2 August 2010 was an automatically unfair dismissal.

Relevant Law 
TUPE
17.	In so far as material, these regulations provide:

“2.	INTERPRETATION
(1)	In these regulations – 
…
references to “organised grouping of employees” shall include a single employee;
…
“relevant transfer” means a transfer or a service provision change to which these Regulations apply in accordance with regulation 3 and “transferor” and “transferee” shall be construed accordingly and in the case of a service provision change falling within regulation 3(1)(b), “the transferor” means the person who carried out the activities prior to the service provision change and “the transferee” means the person who carries out the activities as a result of the service provision change;
…
3. A relevant transfer
(1)	These Regulations apply to – 
(a) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity;  
(b) a service provision change, that is a situation in which –
(i) activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”);
(ii) activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf;  or
(iii) activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf, 
and in which the conditions set out in paragraph (3) are satisfied.   
…
(3) The conditions referred to in paragraph (1)(b) are that
(a) immediately before the service provision change –
(i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;  
(ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration;  and 
(b) the activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.
(4) Subject to paragraph (1), these Regulations apply to -
…
…
(c) a transfer of an undertaking, business or part of an undertaking or business (which may also be a service provision change) where persons employed in the undertaking, business or part transferred ordinarily work outside the United Kingdom.  
…
4.	Effect of relevant transfer on contracts of employment
(1)	Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.”

18.	Under these regulations, the Claimant required to establish both that there had been a relevant transfer and that that transfer had had the effect of preventing termination of his contract of employment.  To that end he required, first, to show that there had been a service provision change. He relied on regulation 3(1)(b)(iii) which he could not do unless he could show that immediately before the contract change there had been:
•	“an organised grouping of employees situated in Great Britain;
•	Which had “as its principal purpose”;
•	The carrying out of “the activities concerned”.

19.	Each of those elements required to be established by the Claimant. As for “the activities concerned” it seems plain that Parliament had in mind whatever it was that the client required of the service provider/putative transferor. That is, those activities requiring, under the contract between the service provider and the client, to be carried out “on behalf of the client”.

20.	HHJ Burke QC required to consider the application of that part of TUPE which refers to “activities concerned” in the case of Metropolitan v Churchill Dulwich Ltd [2009] ICR 1380. At paragraph 30, he said:

“A common sense and pragmatic approach is required to enable a case in which problems of this nature arise to be appropriately decided, as was adopted by the tribunal in the present case. The tribunal needs to ask itself whether the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor. The answer to that question will be one of fact and degree, to be assessed by the tribunal on the evidence in the individual case before it.”

21.	His approach to the identification of “the activities” has since been followed in a number of other cases.  Put shortly, an employment tribunal requires to recognise that the first task in a case such as the present is to identify the relevant activities  and then ask whether the activities carried out by the alleged transferee immediately after the transfer were essentially or fundamentally the same as those which the organised grouping employed by the alleged transferor required to carry out immediately before it. It follows that minor or trivial differences are to be ignored – we agree with HHJ Peter Clark’s observation to that effect in the  Enterprise Management case referred to in  footnote 2 - but, equally, it cannot be a matter of simply asking whether activities carrying the same label continue after the alleged transfer.  In the factual assessment which the tribunal requires to carry out, it seems plain that they must consider not only the character and types of activities carried out but also quantity. A substantial change in the amount of the particular activity that the client requires could, we consider, show that the post transfer activity is not the same as it was pre transfer. Thus, in the OCS Group case, the tribunal found that the contract post transfer was for a substantially reduced service which was materially different and TUPE did not apply.

22.	Assessment of the effect of a change in the quantity of the relevant activity is important for another reason. The tribunal requires to be satisfied that, immediately prior to the transfer, the organised grouping of employees had that activity as its “principal purpose”; reduction in the amount of a particular type of work could mean that the group had, prior to the transfer, reached the stage where  carrying out the relevant activity was no longer its principal purpose. In a case where there has been a substantial reduction in the quantity of work, that too is a matter which a tribunal requires, we consider, to address.

The Appeal 
Submissions for the Department
23.	Mr Mitchell had three principal submissions.

24.	First, the Tribunal’s judgment was not Meek compliant.   When setting out the reasons for their decision, they had omitted the all important last sentence from the quotation from Mr Dance (to which we refer above).  Their failure in that respect was wholly unexplained. There was no suggestion that they did not believe Mr Dance; his evidence was not challenged. Indeed, the Claimant had admitted that he had very little work to do by July 2010. The Tribunal required to but did not address the matter of his evidence about the substantial reduction in the Claimant’s work to less than 25% of a single employee.

25.	Separately, whilst Evores had, when represented, suggested that the Department had deliberately diverted work away from the Claimant and his colleague, that was not correct; a letter had been produced prior to the adjourned hearing which showed that that could not be the case, the Department having recorded more work having been carried out by them than they had claimed via their own incident reports.  The letter had been relied on by the Department but the Tribunal had made no mention of it in their reasons. They ought, however, in the circumstances, to have addressed it; it was an important issue at the time of the hearing. The Department seemed to have a lingering concern that the Tribunal might have been influenced by Evores’ case that they had been diverting work away from the Claimant.

26.	Secondly, the Tribunal had misdirected itself as to the relevance of quantitative reduction in “the activities concerned”. It was a relevant matter but the Tribunal had dismissed it as being of no significance. They had not addressed Mr Dance’s evidence on this matter as set out in the quotation in paragraph 27 and as in his witness statement at paragraph 31, particularly in the passage to which we refer above.  Mr Mitchell relied on the guidance set out by HHJ Burke QC in the Metropolitan Resources Ltd case and also referred to Clearspring Management Ltd v Ankers UKEAT/0054/08, Kimberley Group Housing, OCS Group UK Ltd, Ward, Nottinghamshire Healthcare NHS Trust and Enterprise Management Services Ltd as being demonstrative of the soundness of that guidance.  Ward in particular showed that quantity of work was a relevant factor.  It would, he said, be absurd to impose a quarter of an employee on a putative transferee.

27.	Thirdly, the Tribunal’s approach to the reduction in calls to LITS (a London IT helpdesk) was perverse. They had, on the statistics provided in evidence, reduced by 20% yet the Tribunal dismissed them as being “not considerably less”. That could not be right. On any view, 20% was a significant proportion.

Submissions for the Claimants
28.	For the Claimants, Mr Rozier submitted that TUPE worked best without considering the matter of the volume of work carried out. If a client contracts for the provision of a service and there is a re-absorption of the work, looking at volume would put the individual into “no-man’s land”.  Regarding Mr Dance’s letter, it was a statement of his view, being put forward to resist Evores’ argument that TUPE applied. The 25% or less reduction referred to was not a finding in fact of the Tribunal – he did not, however, suggest that the Tribunal had made any findings about the reduction of work matter which was plainly an issue between parties.

29.	The Tribunal had, Mr Rozier submitted, relied on the evidence of Mr Dance for the categories of work, under reference to schedules provided by him but only for guidance; they were not conclusive. That submission did not appear to relate to the volume of work issue nor, we observe, did Mr Rozier suggest that Mr Dance had not been accepted by the Tribunal as being a credible and reliable witness. There does not seem to have been any suggestion that his evidence ought to be rejected – the points argued for the Claimants were, rather, a matter of what was to be made of that evidence.

30.	Regarding the perversity argument, Mr Rozier pointed to the monthly figures as rising during the three months post July 2010 and the earlier drop being, on his assertion, due to things being quieter during the summer.

31.	Mr Rozier submitted that the Tribunal had applied the broad discretion that was available to them correctly; that said, when questioned as to how the application of the statutory test could properly be described as the exercise of a discretion, he withdrew that submission.  He invited us, however, to find that the Tribunal were entitled to conclude as they had done and observed that if a strict assessment of the volume of work at the time “the tap was turned off” was to be regarded as pivotal then someone in the position of the Department would be able to subvert TUPE by diverting the work in advance.

Discussion and Decision
32.	We are satisfied that this appeal is well founded.  As we explain in the “Relevant Law” section above, changes in volume of work are relevant when considering whether or not “the activities” carried out by the client on his own behalf from the point of change are “the activities” which were, immediately before the change, being carried out by the “organised grouping of employees”. We reject Mr Rozier’s submission that TUPE works best if volume of work is ignored; such an approach cannot be right.

33.	An “organised grouping of employees” can be a single employee and in this case, the relevant grouping was the Claimant himself. The Tribunal thus required to address the question of whether, immediately prior to the termination of the contract between the Department and Evores on 31 July 2010, the Claimant had had as his principal purpose, the carrying out of the activities contracted for by the Department and they required to do that in the light of the evidence about the reduction of work.

34.	There was clear evidence before the Tribunal of a very substantial reduction in volume of work which, in some respects, they plainly accepted – see, for instance, paragraph 40. They do not, however, deal with Mr Dance’s evidence that the reduction was so substantial as to mean that the Claimant was working no more than 25% of full time, maybe less. Indeed, when it comes to the part of their judgment in which they set out their reasons they, inexplicably, omit what we accept Mr Mitchell was entitled to characterise as being the “all important” sentence qualifying Mr Dance’s concession about work carrying on after the end of the contract. They also omit the other qualification he made, namely that “some” work carried on. Nor do the Tribunal deal with Mr Dance’s evidence at paragraph 31 of his witness statement where it explains that some of the work that the Claimant was doing latterly was not Evores contract work at all but was work in respect of which he was directly instructed and paid by the Department. Clear findings required to be made in respect of these matters.

35.	The above matters were key aspects of Mr Dance’s evidence which plainly had the potential to lead to the conclusion that TUPE did not apply. For instance, it seems difficult to regard an organised grouping of employees of one person who spends a quarter of his time or less carrying out activities required by the client contract and/or carrying out work directly instructed by the client outwith the contract as having the residual client contract activities as his “principal purpose” under his contract of employment. In such circumstances, he is spending three quarters of his time or more doing nothing (and therefore available for other work) and whilst we accept that the necessary assessment is a question of fact to be assessed according to the circumstances of the individual case, a commonsense approach would seem to indicate that it is absurd to suggest that the principal purpose of a man’s working week is that which takes up only a quarter of the hours for which he is employed, or less.  Equally, where the volume of work undergoes a substantial diminution, it may lead to the conclusion that the activities being carried out are not essentially the same as before, even if the same categories of work apply. As HHJ Burke QC observed, the assessment is a matter of both fact and degree.

36.	There was also the matter of the letter of 11 July 2011; Evores had sought to protect their interests by alleging that the Department had deliberately diverted work away from the Claimant and that had been an important issue, at least in the early stages of the hearing. The Tribunal’s reasons are, however, silent on the matter and we can understand why the Department were concerned to know what the Tribunal had made of the issue. In the circumstances, they were entitled to know what the Tribunal had made of the evidence from each side on that matter and whether or not it had influenced their decision.

37.	The Tribunal failed to address all these issues and in so doing, failed to provide adequate reasons for their decision. For that reason alone, the appeal has to be upheld.

38.	Mr Mitchell is, we consider, on weaker ground on his perversity argument but that may be because it is really just another aspect of the failure to address the assessment of relevant activities and principal purpose in the light of the whole evidence. The 20% reduction in calls was something that the Tribunal required to take account of when asking themselves whether the change in volume of work ought to lead them to conclude that TUPE did not apply.

39.	We would add an observation regarding Mr Rozier’s final plea which was to the effect that if diminution in the volume of work was relevant then clients such as the Department who were potential transferee employers could subvert TUPE by taking work back in-house prior to the end of the contract. We do not agree that there is a risk of subversion. The fundamental flaw in his reasoning is that the service change provisions of TUPE can “bite” at any time.  Termination of the contract for provision of services is not a pre-requisite to their application. It is plain from the provisions of regulation 3 that a relevant transfer occurs whenever the client contract activities cease to be carried out by the contractor’s employees and are carried out instead by the client on his own behalf; if that happens at a date prior to the end of the contract, there is a TUPE transfer at that point and the relevant employees can look to the regulations for protection at that stage.

Disposal
40.	In the circumstances, we do not consider that it would be appropriate for us to determine the case. Whilst the Tribunal appears to have accepted Mr Dance’s evidence, they have not actually made findings regarding the critical issues we refer to above, particularly relating to that of diminution in work to 25% of full time or less and whether there was included within that 25% work being performed outwith the contract. Thus, whilst we can see that there may be good arguments as to why, for the reasons we have explained, TUPE does not apply if the facts are as Mr Dance stated them to be, it would not be appropriate for us to determine the outcome.

41.	Nor, given the extent to which this Tribunal took a firm view as to the application of TUPE in what, no doubt, presented itself as a sympathetic case for a Claimant (who, at 61 years old, after 11 years of steady continuous employment and through no fault of his own, found himself without a job), do we consider it would be appropriate to remit the case to the same Tribunal.

42.	We will, accordingly, pronounce an order upholding the appeal, setting aside the judgment of the Employment Tribunal and remitting the case to a freshly constituted Employment Tribunal.