Appeal No. UKEAT/0267/04/TM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal
On 2 February 2005
Judgment delivered on 18 March 2005

Before
HIS HONOUR JUDGE J R REID QC
MR D J JENKINS OBE
MR J R RIVERS CBE

MR J HOPE	APPELLANT

PGS ENGINEERING LTD (IN ADMINISTRATION)	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	No appearance or representation by or on behalf of the Appellant	
For the Respondent	No appearance or representation by or on behalf of the Respondent	

HIS HONOUR JUDGE J R REID QC

1.	This appeal from a decision of an Employment Tribunal held at Birmingham on 
21 November 2003 (chairman Mr J van Gelder). The decision was promulgated on 
9 December 2003. By its decision the Tribunal held that Mr Hope was unfairly dismissed but that he had claimed against the wrong respondent. The case turned on the proper construction of the Transfer of Undertakings (Protection of Employment) Regulations 1981. It should be noted that the claim was for “(Constructive) Unfair Dismissal Redundancy Payment”. There was no claim for wrongful dismissal or breach of contract. On the appeal (in which no question as to entitlement to redundancy payment was raised) we received written submissions on behalf of Mr Hope but no representations on behalf of the Respondent (PGS).

2.	The question at issue is whether Mr Hope can obtain for compensation for unfair dismissal from PGS or whether (as the Employment Tribunal found) any such liability is that of Garfield Manufacturing Services Limited (GMS) to which the machining activities of PGS were transferred. Since PGS did not appear before the Employment Appeal Tribunal and since GMS was not a party to the proceedings the question whether neither was responsible was not raised on the appeal. 

3.	The Employment Tribunal found the relevant facts to be as follows.

4.	PGS had a small machine shop employing three machinists, including Mr Hope. Discussions for a proposed merger of the machine shop activities of PGS, Shifnal Engineering Group Limited (Shifnal) and GMS began in March 2003. The precise nature of the transaction is not clear but Shifnal had evidently purchased the assets of a predecessor company of GMS from its liquidator and it was proposed that the machining activities of all three companies should be carried on by GMS.

5.	Mr Hope was first informed of the proposal on 1 April 2003.  Shifnal appointed an independent adviser to explain the proposal to the employees. Mr Hope met him on 15 April when he was wrongly told his continuity of employment would not be preserved after the merger, that he would be entitled to a redundancy payment if he did not agree to the transfer and that he could have a one month trial period with GMS. On 1 May 2003 Mr Hope was sent a letter by PGS confirming the transfer of his employment to GMS and termination of his employment with GMS at 12 May 2003. The letter asked him to confirm acceptance of the post with GMS failing which his entitlement to redundancy and notice pay would be considered. Separately he was sent a letter dated 1 May 2003 from Shifnal also confirming the transfer and incorporating a new contract of employment with GMS for him to sign effective from 
1 June 2003. The contract contained provisions for shift work and an “opt out” to the 
Working Time Regulations. To this Mr Hope took exception as his contract with PGS did not contain such terms. The letter concluded by restating he would be eligible for redundancy in the event of refusal.

6.	Mr Hope was confused by the information he was being given. On making further inquiries he obtained details of his supposed redundancy entitlement. He was also told his employment would transfer to GMS on 13 May and that the trial period was not available. On 
9 May he met Mr Bickley of GMS who was not able to assure him as to the terms on which he would be employed. By 12 May his uncertainty and concerns over his new employment had not been resolved, so he wrote to Shifnal declining their offer of employment.  He also wrote to PGS confirming his decision and asked for his redundancy entitlement to be considered as set out in their letter of 1 May.
7.	Although the notice given by PGS expired at 12 May Mr Hope continued working for them, there having been an implied agreement to vary the termination date to a date yet to be ascertained. On 23 May he was informed of the termination of his employment at 3.30 pm the same day. He was offered 6 weeks pay in lieu of notice but no redundancy payment. The offer of employment with GMS was renewed but he did not accept it. Later the same day he received a letter from the PGS confirming termination of his employment on 11 July because of his unwillingness to transfer. He was put on garden leave until 11 July and paid weekly until that date. Evidence on behalf of PGS was that it could have recalled him to work during that period if need arose. Mr Hope understood he was free to obtain employment during his notice period and in fact did obtain some temporary employment during the period so that (as the Tribunal held) there were periods during which he had two employers. Throughout the period until 
11 July he treated himself, and was treated by PGS, as being in the employ of PGS.

8.	On 2 June Mr Hope received a letter dated 29 May from Shifnal addressing his concerns about his terms of employment with GMS. It stated that his employment would be maintained on the same terms as at PGS and that TUPE would apply. A reply was requested by 30 May. The Appellant did not reply and treated his employment as terminated by PGS at 11 July.

9.	The Tribunal held that the final date of transfer of PGS’s undertaking to GMS was at an undetermined point around the end of June and the beginning of July and Mr Hope was still an employee of the Respondent at this time.

10.	The Employment Tribunal directed itself to regulations 5(4A), 5(4B) and 5(5) of the Transfer of Undertakings (Protection of Employment) Regulations 1981(TUPE) dealing with the circumstances in which employees can object to a transfer of their employment. It referred to regulation 5(5) only to note that “he did not seek to rely on Regulation 5(5) in support of a constructive dismissal claim”. Unhappily the Tribunal was not referred to any case law and the argument before it appears to have been of a fairly limited nature.  It held that his employment was not deemed to be at an end at the conclusion of the transfer of the undertakings, but that PGS took the decision on 23 May that because of his wish not to be transferred he would be dismissed. He was therefore dismissed by PGS for a transfer-connected reason in breach of Regulation 8(1) TUPE because of his refusal to transfer.  The Tribunal then said:

“The tribunal did not conclude that the applicant’s reluctance to transfer without more detailed information brought the situation within Regulation 5(4A), but if the tribunal is wrong in its analysis, the effect would be that, in accordance with Regulation 5(4B), it would not amount to a dismissal.”

11.	At paragraph 5.3 of its decision the Tribunal concluded that, although Mr Hope was dismissed for an automatically unfair reason connected with the transfer, the liability for this dismissal had transferred to the transferee, saying:

“However, the tribunal took into account the provisions of s.5(2) [sic] that on completion of a relevant transfer all the transferor’s liabilities under or in connection with the applicant’s contract would transfer under the Regulations to the transferee.”

The Tribunal concluded that as GMS was not a party to the proceedings it could not make an award.

12.	On behalf of Mr Hope it was submitted that the Tribunal made an error of law in directing itself as to Mr Hope’s objection to transfer and its consequences.  Regulations 5(1) and (2) except situations where objection by the employee is made under Regulation 5(4A) from the transfer of liability from the transferee to the transferor. The tribunal could not properly conclude that Mr Hope’s reluctance to transfer did not bring him with regulation 5(4A) of TUPE, having found (i) that Mr Hope had written to both Shifnal and PGS on 12 May 

refusing the job with GMS; (ii) that he was given notice on 23 May because of his wish not to be transferred; (iii) that the letter from PGS gave as the reason for termination “as you are not prepared to transfer your employment.”

13.	It was pointed out that in Hay v George Hanson (Building Contractors ) Ltd [1996] IRLR 427 the EAT held at para 10:

“Having said that, it seems to us that the scheme of this particular piece of legislation is clear, and does not require to be approached in any artificial or so-called purposive way. What is intended is to protect the right of an employee not to be transferred to another employer against his will, and it is ‘against his will’ that is the executive part of the process. We, therefore, construe the word ‘object’ as effectively meaning a refusal to accept the transfer, and it is equally clear from reg. 5(4A) that that state of mind must be conveyed to either the transferor or transferee. But we do not consider it necessary to lay down any particular method whereby such a conveyance could be effected. In our opinion, it could be by either word or deed, or both, and each case must be looked at on its own facts to determine whether there was a sufficient state of mind to amount to a refusal on the part of the employee to consent to the transfer, and that that state of mind was in fact brought to the attention of either the transferor or the transferee. Furthermore, it must be so brought to their attention before the date of the transfer because, under reg. 5(4B), the transfer itself automatically terminates the contract. Accordingly, if the terms of reg. 5(4A) are not satisfied in fact, there is an automatic transfer on the appropriate date.”

In this case, it was submitted, there was a clear objection to the transfer and Mr Hope’s employment was not transferred to GMS. It had remained in existence at the time of the transfer because Mr Hope remained employed and paid by PGS, with the obligation to work if so required even after the transfer date.

14.	Thus far we are in agreement with the submissions on behalf of Mr Hope. It seems to us that the Tribunal, unaided by any reference to the decision in Hay fell into error in holding that regulation 5(4A) did not apply. There was no need for Mr Hope to object to the transfer in any particular way and he made clear that he was objecting and was not prepared to be transferred. The problem then arises as to the consequences of our conclusion. 

15.	On behalf of Mr Hope it was then submitted that the situation was governed by the decision of the Court of Appeal in University of Oxford v Humphreys and Associated Examining Board [2000] IRLR 183. This was a constructive dismissal case and not an unfair dismissal case and, again, was a case to which the Tribunal was not referred. It followed from that case, it was said, that the Tribunal should have considered whether the terms which Mr Hope had rejected were substantially and detrimentally different. If they were, it was submitted, Mr Hope was entitled to recover compensation for his dismissal from PGS. Since the Tribunal had not considered this point, the case should be remitted to the same Tribunal for further consideration.

16.	In the University case Mr Humphreys objected to his employment being transferred to the Associated Examining Board (AEB) when the University transferred its examining board functions to AEB because it would involve a substantial and detrimental change in his employment conditions (in particular he would lose the security of tenure he enjoyed to the age of 67). The University took the view that the effect of regulation 5(4B) was that as a result of his objection to the transfer his employment would be terminated without any right to compensation on the transfer taking effect. Its secondary case was that the effect of regulation 5(2) was that any liability was transferred to AEB.

17.	The Court of Appeal held that Mr Humphries’ objection under regulation 5(4A) prevented the transfer of his contract that would otherwise have taken place irrespective of the reason for his objection; that regulation 5(4B) should be read in such a way that it does not apply to an objection on the ground of detrimental change in working conditions; that regulation 5(5) preserves rights the employee has apart from the regulations and thus preserves the right to sue in respect of a constructive dismissal by the transferor; and that the University’s liability in respect of a employee never transferred remained with the University. 
18.	On behalf of Mr Hope it was submitted that following the Humphrey case Mr Hope’s objection to the transfer coupled with the transfer constituted a constructive dismissal at the point of transfer. His employment ended at the point of transfer as a result of the objection. There was no necessity in law for him to have resigned. The Employment Tribunal had failed to properly direct itself on the applicable law as set out in Hay and Humphrey in its analysis of the operation of the objection to a transfer and the consequences arising from it. Regulation 8(1) was not engaged because the objection to the transfer precluded a transfer arising contrary to the Tribunal’s conclusion.

19.	The argument proceeded that Mr Hope had objected to the transfer for cause i.e. proposed detrimental changes to his terms and conditions, and the breach of trust and confidence arising from the conduct of, and misleading information given to him during, the transfer process. Accordingly, it was submitted, his rights were preserved by regulation 5(5). However it was accepted that since the Employment Tribunal had not considered fully the basis of his objections to the transfer and his assertion that trust and confidence had been destroyed by the conduct of the information and consultation process, it was necessary for the case to be remitted to the same Employment Tribunal to re-consider the matter on a correct appreciation of the law.

20.	The trouble with this argument is that it is simply not open to Mr Hope on this appeal. The Tribunal specifically noted that Mr Hope did not seek to rely on regulation 5(5) in support of a constructive dismissal claim. He cannot now on appeal seek to take a point which was never raised below and on which the Tribunal never made (nor was asked to make) the relevant findings of fact as to whether the terms on which he would have been employed after a transfer would have been detrimentally different from those he enjoyed before the transfer. This is, however, not the end of the matter.
21.	In our judgment the proper analysis is that Mr Hope was given notice because of his objection to the proposed transfer of his employment and his refusal to sign a new contract with the proposed transferee. His employment continued (as was accepted by both Mr Hope and PGS) with PGS after the transfer date until 11 July when his notice expired. His dismissal took effect when his notice expired and, as the Tribunal rightly held, was a dismissal which was automatically unfair under regulation 8(1) because “the transfer or a reason connected with it [was] the reason or principal reason for his dismissal.” 

22.	If PGS had purported to transfer Mr Hope’s employment to GMS during the currency of the notice period, that transfer would have operated at common law as a repudiatory breach of contract: see Litster v Forth Dry Dock and Engineering Co Ltd [1989] IRLR 161 at 169 per Lord Oliver and Wilson v St Helen’s Borough Council [1998] IRLR 706 at 715 per Lord Slynn, though (if the repudiation had been accepted) his damages would have been nil because he was already under notice and was paid up for the full period of his notice. But PGS did not purport to transfer Mr Hope’s employment. It retained him in its employ though the undertaking in which he was engaged was transferred, and his employment with PGS came to an end at the expiration of his notice.

23.	In our judgment the Tribunal (which did not have the advantage of having Humphrey cited to it) fell into error in holding that liability to compensate Mr Hope for his unfair dismissal was transferred to GMS. Since Mr Hope had objected to the transfer, his employment was not transferred. In Humphrey Moore-Bick J said at para 66:

“In my judgment the position under both the [Acquired Rights] Directive and the Regulations is quite clear: if an employee objects to the transfer of his employment the transfer of the undertaking will not transfer to the transferee either the contract of employment, or any of the rights or liabilities associated with it all of which remain with the transferor”. 

Similarly Potter LJ had observed at the end of para 39:

“…the introductory wording of paragraph (4A) excludes the statutory novation under paragraph (1) and the comprehensive transfer of rights and obligations under paragraph (2): thus the remedy against the transferor employer is not transferred.” 

In our view, in line with the decision in Humphrey, the obligation to compensate Mr Hope for his unfair dismissal remained with PGS.

24.	In summary we conclude that: (a) that Mr Hope did object to the proposed transfer of his contract of employment to GMS; (b) his contract of employment was not transferred on the transfer of the undertaking; (c) he remained employed by PGS until the expiry of his notice; 
(d) regulation 8 was engaged and his dismissal was automatically unfair; (e) the liability for his unfair dismissal was not transferred to GMS but remained with PGS. In these circumstances we propose to declare that Mr Hope is entitled to compensation for his unfair dismissal from PGS and to remit the case to the Employment Tribunal to determine the question of compensation.