Appeal No. UKEAT/0282/12/SM

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

	At the Tribunal
	On 27 September 2012

Before
HIS HONOUR JUDGE McMULLEN QC
MR T STANWORTH
MS P TATLOW

BRITISH TELECOMMUNICATIONS PLC	APPELLANT

MR J ADAMSON & OTHERS	RESPONDENTS

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR ROHAN PIRANI
(of Counsel)
Instructed by:
British Telecommunications Plc
Legal Services
Post Point LF19 CCD
82 Tavistock Street
Bletchley
Milton Keynes
MK2 2AP
	
For the Respondents	MR CHARLES PRIOR
(of Counsel)
Instructed by:
Messrs Thompsons Solicitors
Martins Building
Water Street
Liverpool
L2 3SX

SUMMARY
TRANSFER OF UNDERTAKINGS
Dismissal/automatically unfair dismissal
Pensions and other terms
On a service provision change to which TUPE applied, the Employment Tribunal found, following a correct self direction on the law, the reason for the dismissal of the transferor’s staff was redundancy and the transferee was liable. This finding of fact would not be disturbed.  It was entitled to award compensation to include loss of pension since it heard evidence that incoming employees’ benefits were customarily honoured (Regulation 10 otherwise excluding automatic transfer).

HIS HONOUR JUDGE McMULLEN QC

1.	This case is about the dismissal of a group of employees following a service provision change under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).  Its essence is the designation of the reason for their dismissal and the value of certain parts of the compensation which they were awarded.  

2.	This is the Judgment of the court to which all members appointed by statute for their diverse specialist experience have contributed.  We will refer to the parties as the Claimants, led by Mr Adamson, who spoke up for his three colleagues, although his interest in one aspect has diminished, but essentially the four Claimants are together, and the (now sole) Respondent, British Telecommunications Plc.

Background
3.	It is an appeal by the Respondent in those proceedings against a reserved remedy Judgment of an Employment Tribunal sitting at Liverpool under the chairmanship of Employment Judge T V Ryan, sent with reasons on 11 July 2011.  The parties were represented by Mr Charles Prior and Mr Rohan Pirani, both of counsel.  The Claimants had made claims of unfair dismissal and other breaches.  A preliminary hearing was set up and determined after a two‑day hearing before Employment Judge Ryan.  The Judgment let out the original first Respondent, Atos Origin IT Services (UK) Limited, and it has played no further part in the proceedings.  The Pre‑Hearing Review established that there was a service provision change for the purposes of TUPE from Atos to BT.  The employees formed part of an organised grouping of employees assigned to a database project.  The proper Respondent, therefore, was BT.  The Judge then left open the treatment of the claims of unfair dismissal and so on for another hearing. There has been no appeal against that Judgment, sent on 6 January 2011.

4.	By the time of the reserved remedy Judgment the Respondent had conceded that the Claimants were automatically unfairly dismissed for a reason connected with the TUPE service provision change.  There were still issues to be determined, and they were these:

“1.2.1. Whether the reason for the dismissals was that the claimants were redundant, or whether the reason was the respondent’s ignorance that they were entitled to transfer under the provisions of TUPE;
1.2.2. Whether the claimants had mitigated their respective losses including in respect of the notice period, ill‑health absence insurance benefits;
1.2.3. Whether the claimants were entitled to an uplift in respect of any part of their award to reflect the respondent’s alleged failure to follow an applicable code of practice;
1.2.4. Whether the claimant’s [sic] are entitled to claim pension losses on the basis of terms no less favourable than their pre‑TUPE transfer entitlements or whether any loss should be assessed by reference to the pensions scheme applicable to employees of the respondent.”

5.	Thus those four issues formed the sole subject matter of the hearing, but the three‑person Tribunal was at pains to point out that some of the material adduced in the judge-alone PHR would be read into the subsequent remedy Judgment.  It will be recalled that Judge Ryan had been in both stages and thus the reasons of the three‑person Tribunal included by incorporation a fuller statement of the facts found in the PHR.

6.	The Employment Tribunal found that the Claimants were dismissed on the ground of redundancy; they were awarded past and future losses, but they were not entitled to any uplift on awards because of failure to comply with the relevant code. They could claim pension losses in line with the loss of benefits under the former Atos policies or on terms no less favourable, notwithstanding that the benefit of those policies did not transfer by operation of TUPE.

The legislation
7.	So far as is relevant, TUPE provides as follows:

“In these Regulations – 
‘relevant transfer’ means a transfer or a service provision change to which these Regulations apply...
3 A relevant transfer
(1) These Regulations apply to—
(a) ...
(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.”

8.	Although the remedy Judgment takes in references to a transfer of an undertaking, it is agreed by counsel before us that the finding is one of a service provision change.

9.	Section 139 of the Employment Rights Act 1996 (ERA) defines redundancy:

“(1) For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to—
(a) the fact that his employer has ceased or intends to cease—
(i) to carry on the business for the purposes of which the employee was employed by him, or 
(ii) to carry on that business in the place where the employee was so employed, or
(b) the fact that the requirements of that business—
(i) for employees to carry out work of a particular kind, or
(ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer,
have ceased or diminished or are expected to cease or diminish.
(4)  Where—
(a) the contract under which a person is employed is treated by section 136(5) as terminated by his employer by reason of an act or event, and 
(b) the employee’s contract is not renewed and he is not re-engaged under a new contract of employment, 
he shall be taken for the purposes of this Act to be dismissed by reason of redundancy if the circumstances in which his contract is not renewed, and he is not re-engaged, are wholly or mainly attributable to either of the facts stated in paragraphs (a) and (b) of subsection (1).
...
(6) In subsection (1) ‘cease’ and ‘diminish’ mean cease and diminish either permanently or temporarily and for whatever reason.”

10.	Section 136 (above) deals with the act of an employer. The effect of a relevant transfer or service provision change is set out in Regulations 4 and 7, so that on a service provision change the rights and obligations of the transferor are passed to the transferee.  A dismissal in connection with the change is laid at the door of the transferee, and that is why in these proceedings BT is the Respondent now and not Atos.

The facts
11.	There are two statements of the facts in this case, which involve the provision of IT services to National Health Service bodies.  The Employment Judge decided at the PHR that there was a set of activities providing a service that was in place as at 31 January 2010 run by Atos.  BT was also running certain services.  The description of Atos’ activity is as follows:

“5.7. It follows that the intrinsic nature of ATOS’s activity, what went to the very root of the contract with CFH, was the provision, maintenance and management of the database doing whatever was required to fulfil that requirement of CFH.  Notwithstanding differences in hardware and software and the reduced need to see to bulk transfers of data after February 2010, nevertheless BT’s activities were fundamentally and essentially the same; provision, maintenance and management of the database remained of the essence of the contract, its intrinsic nature.
5.8. Even on a micro level (the above description being referred to by respective Counsel as being the Macro description of activity) BT had a need to service the database, seeing to storage, maintenance, management, tracing and access, help and support, provision of reports and statistics to a greater or lesser extent but nevertheless necessarily.  A further example is that BT also operated a help desk.  The help desk is an example were BT may argue [sic] that its requirements had reduced or diminished following the transfer but that is an issue that may go to the reasons for the termination of the claimants’ employment.  Whether or not transferring employees are required in the long‑term by a putative transferee does not prevent the TUPE regulations having effect to transfer responsibilities and liabilities in respect of employment contracts.  Similarly, an employees lack of awareness [sic] of a putative transferees working practices [sic] including hardware and software cannot of itself avoid the effects of TUPE.  Following a TUPE transfer it maybe [sic] that a transferred employee undertakes duties in a different way and even some different duties but without necessarily affecting the essential and intrinsic nature of the job.”

12.	The Judge determined that there was a relevant transfer on that date, in that the Claimants were assigned to those activities and carried them out.  The reference in paragraph 5.7 to the “activities” is the matching of the activities pre‑ and post‑transfer and is a finding of fact.  The problem which faced BT is that it had received bad advice, for it considered that TUPE did not apply to the ending of the relationship with Atos and the running of the Spine system by itself.  BT had people doing the work that was done by Atos and, having done research into what Atos was doing, it realised that there would not be a service provision change because the organised grouping of workers with which we are concerned would not be doing the work they were doing under Atos. The managers at BT set their face against the application of TUPE.

13.	The consequence was that the employees left Atos on 31 January 2010 and were not taken into the employ of BT.  But, by operation of the statutory novation in TUPE, they were regarded as BT’s employees, and BT is responsible for the dismissals.

14.	The dispute in the case, as a matter of reality, is about the reason for dismissal.  The Claimants are anxious, surprisingly perhaps, not to have a finding of automatic unfair dismissal unless it is attached to redundancy. The three‑person Tribunal at the remedy hearing came to the conclusion that the dismissal had been by reason of redundancy.  The circumstances facing BT were those set out in section 139, and the mistake it made was in considering that since there was not going to be a complete matching of the work pre‑ and post‑transfer, TUPE would not apply in respect of the service provision change.  In due course BT conceded the dismissals were unfair.

15.	The Tribunal recorded succinctly the reasons for that finding:

“4.1 In respect of whether the reason for the dismissal was redundancy or otherwise:
4.1.1. The claimants transferred automatically to the respondent but the respondent had no need for them;
4.1.2. The respondent had established through its due diligence exercise that they were surplus to requirements;
4.1.3. The database still had to be managed and indeed there was some duplication of functionality from January 2010 to April 2010 when BT employees oversaw and/or managed the Atos system or characteristic functions of that system in tandem with and as back‑up to the BT system;
4.1.4. It follows that other employees were doing the claimants’ jobs or aspects of them;
4.1.5. BT concluded that its requirements for the employees to carry out work of the kind that they had performed with Atos had ceased or diminished;
4.1.6. There was therefore a redundancy situation as a consequence of the TUPE transfer whether or not BT recognised it as such or attached that label to the situation;
4.1.7. The reason BT dismissed the claimants, even if in ignorance of the legal status of the situation it found itself in, was redundancy in accordance with the definition set out in s.139 ERA;
4.1.8. BT was not in fact ignorant of the risk facing it that TUPE might apply because this was an issue with Atos who believed, correctly as it turns out, that it did apply.  BT was not therefore completely and innocently in blissful ignorance.  It took a view on advice.  That view has not been supported by the tribunal.  None of that affects the causative or effective reason for BT not retaining the claimants;
4.1.9. The reason BT did not accept that there was a TUPE transfer is that there was a redundancy situation, namely that they had no continued need to employees such as the claimants performing their work when it could be covered by longer‑serving BT employees.  Management and development of the NHS patients’ database was still required; the claimants who were involved in that function transferred; BT chose to rely on its longer‑serving employees and that the claimant’s service was not required.  BT did not apply the label but in essence decided that the claimants were therefore redundant in what we find to have been a redundancy situation;
4.1.10. The reason for the claimants’ dismissal was redundancy.”

16.	On the basis of that material the trigger for payments of very substantial additional redundancy compensation would be operated.  The above findings are supplemented by the further findings:

“2.1.3. BT concluded, prior to taking over the contract from Atos and despite Atos’ stated belief to the contrary, that TUPE did not apply to the situation;
2.1.4. BT concluded that the claimants’ services would not be required once it took over the contract because it would manage the contract in a different way to Atos and it had sufficient personnel to carry out required activities many of which would be carried out in a different way; it only needed the Atos system to shadow its system from 31st January 2010 until the end of April 2010 and that it would be able to manage with its existing employees without requiring the claimants to carry on during this interim stage while both systems were in operation and there remained some duplication of functions and tasks; […]
2.1.7. Bearing in mind that BT had a full complement of staff prior to 31st January 2010 and that fewer staff would be required to run the database after 31st January 2010 and certainly after April 2010, its requirements for employees to carry out work on the contract ceased or diminished or would do so.  BT did not want the claimants to transfer and resisted the suggestion that they would do so because they considered that they would be surplus to requirement; it was this belief coupled to differences in the way the database would be managed that led them to argue that TUPE did not apply.”

17.	The Tribunal resolved an issue relating to mitigation in favour of the Claimants; there is no appeal.  There is no appeal against an issue relating to loans and ill‑health insurance benefits, nor the refusal by the Tribunal to make any uplift.  

18.	But in respect of the pension loss there remains an issue under para 1.2.4 above. The findings were these:

“2.4.1. We accepted the respondent’s evidence that it regularly accepts employees transferred under TUPE who have enjoyed lucrative employment packages and that it, BT, honours the packages previously enjoyed and in full;
2.4.2. We accepted the respondent’s evidence in particular that it has recent, and or often, accepted employees from Credit Suisse, the Ministry of Defence and the Metropolitan Police whose full remuneration packages they have honoured albeit they were expensive but they have done so without demur;
2.4.3. We did not receive evidence on the lines suggested in submissions for the respondent that it only provides a 6% contributory stakeholder pension provision for all its staff; we find that inconsistent with the evidence we heard from the respondent’s witness;
2.4.4. It is more likely than not, based on the above findings, that BT would have given the claimants a pension provision no less favourable than that enjoyed pre‑TUPE transfer.”

19.	The reference to the Respondent’s evidence is to Ms Nerval, who gave evidence about the two issues relevant on appeal; that is, whether the Claimants were dismissed by reason of redundancy, and whether they were entitled to full pension loss compensation.

The Respondent’s case
20.	On behalf of the Respondent it is contended that the Tribunal erred in its depiction of the circumstances as redundancy; that is, the situation facing the Claimants at the end of their employment by Atos and there being no work for them at BT.  The point did not impress Langstaff P when he looked at this matter on the sift, considering it unarguable. Yet at a rule 3(10) hearing Mr Pirani was able to persuade HHJ Peter Clark that there was an arguable point on the reason for dismissal, in that there was a redundancy situation following the dismissal, but, as Judge Clark so eruditely put it: “was that the causa causans or the causa sine qua non; what was the real reason?”

21.	The Tribunal erred, Mr Pirani contends, because it had failed to consider the evidence of Ms Nerval, who is not actually cited in the Judgment.  She had given very substantial evidence.  She was not criticised as to lack of good faith, and she confirmed that redundancy had nothing to do with the reason why BT did not accept the four employees.  The reason related to the special circumstances that apply at BT.  BT has an understanding with its recognised trade unions that it will not make employees redundant, so where there is a likely redundancy they go into a transition position but they are not made redundant. Ms Nerval gave evidence that she could not make the Claimants redundant on their arrival at BT because of the reaction of the trade unions.  The reason that she gave for failing to employ the four Claimants was because their roles had ceased to exist and there was no work for them to do.  BT declined to employ them solely because BT had investigated, taken legal advice and concluded that TUPE did not apply to these four people. On that basis redundancy was denied.

22.	We have been taken in detail to the notes so that we can form a view about what matters were in issue.  Mr Pirani’s simple point is that these four Claimants were not made redundant; what happened to them, by reason of the decision of the employer, was to dismiss them because of the foregoing thought processes set out by Ms Nerval.  

23.	As to the pension loss, Mr Pirani took us through a good deal of the evidence.  The evidence had been adduced as a result of a direction of Langstaff P and, since the parties could not agree on the evidence of Ms Nerval, that the Judge should produce his note. We are grateful to him for doing so.  He has produced his notes of the evidence, and in addition an extract from the notes of the Tribunal’s deliberations and an explanatory note.  It might be said that he had gone beyond the direction of the President, but that is not said in this case; these notes were the product of the agreed position of the parties, which was that the Judge should be asked for his account.

24.	Mr Pirani contends that there was no evidence before the Tribunal as to how the Respondent deals with the incoming staff from those in businesses that are relatively well resourced. This involved a detailed analysis of Ms Nerval’s evidence.  The Employment Tribunal had erred in awarding what would become compensation for the loss of the substantial pensions that they had built up at Atos.  Of course, as the Tribunal noted, pensions do not go over on TUPE (see Reg 10), but there can be an agreement by the transferee that it will make up such terms.

The Claimants’ case
25.	Mr Prior takes a very robust submission to this case.  He contends on behalf of the Claimants that there is usually a competing reason for dismissal; is it the transfer, or is it a reason like redundancy?  There is an inextricable link in this case between the transfer and the redundancy.  On the termination of the work done by Atos on the project called Spine, the question was whether there was work for these Claimants to do. On the basis of the analysis of the service provided at Atos and the change to the service at BT, the transfer and the inevitable redundancy were linked.

26.	As to Ms Nerval, she said nothing specifically about pensions; she was not in a position to comment on the reason of the Respondent, because she had entered on the scene some ten days or so after the Claimants had been dismissed from Atos.  The question on the pensions issue is what would have happened if the Respondent had accepted the transfer.  The purpose is to consider what would have happened, as opposed to what did happen when looking at the reason for dismissal.  The Respondent had not disclosed what its own pension scheme was, how it treated comparable employees and so on. 

Discussion and conclusions
Redundancy
27.	We start with the reason for dismissal, and for this the Judgment of Cairns LJ in Abernethy v Anderson, Mott and Hay [1974] ICR 323 is of assistance:

“... A reason for the dismissal of an employee is a set of facts known to the employer, or it may be of beliefs held by him, which cause him to dismiss the employee. If at the time of his dismissal the employer gives a reason for it, that is no doubt evidence, at any rate as against him, as to the real reason, but it does not necessarily constitute the real reason. He may knowingly give a reason different from the real reason out of kindness or because he might have difficulty in proving the facts that actually led, him to dismiss; or he may describe his reasons wrongly through some mistake of language or of law. In particular in these days, when the word ‘redundancy’ has a specific statutory meaning, it is very easy for an employer to think that the facts which have led him to dismiss constitute a redundancy situation whereas in law they do not; and in my opinion the industrial tribunal was entitled to take the view that that was what happened here: the employers honestly thought that the facts constituted redundancy, but in law they did not.”

28.	Where there is a service provision change, broadly speaking a goodly body of the activities relevant to the statutory term should be carried on by the putative transferee.  There is a finding here by the Judge at the PHR about this matter.  There were plainly activities that were going on at the time and would have continued had BT not formed the view that its need for these workers had diminished or even dried up.  In our judgment, the Employment Tribunal made a perfectly permissible finding of fact as to what was the reason for dismissal; it was redundancy.  The diminution or drying up of the work of a particular kind was precisely as found by this Employment Tribunal, and so the Claimants were indeed, in the full meaning of the term, made redundant.  That was the reason for dismissal, a finding of fact.

29.	The injection of Ms Nerval’s thinking on this must be of limited value.  Looking at the cross‑examination of her through the notes, it is plain that she was not in place at the relevant time and could not give proper evidence as to the mindset of the Respondent in the circumstances.  But even if she could, the submission by Mr Prior is correct: there was a strong link between the service provision change and the dismissal by reason of redundancy.  The Respondent’s case in its written material included the assertion that the reason for dismissing the Claimants was that the Respondent genuinely believed it was not liable to employ the Claimants, as TUPE did not apply.  That belief has been confounded; TUPE did apply, and the consequence is that on there being less work for them to do at BT the only description of what would happen to them is that they were made redundant.  This ground of appeal is dismissed.

Pension loss
30.	We turn then to the pensions issue.  This is slightly more troubling, but we bear in mind that at the forefront of the remedy Judgment is a question specifically focussed on pension loss.  There is no other contentious issue.  The Tribunal in a methodical way deals with each of the issues. The reference to the Respondent’s evidence is to what Ms Nerval said.  The notes of Ms Nerval in her cross‑examination, it is true, could indicate benefits excluding or including pensions.  We have been taken with care to the way in which she put it, and it is tolerably clear to us that what she was saying was that when people came over from businesses or the public sector who had very substantial benefits and allowances that would not be an issue for BT (for it to resolve with the incoming employees).  When the members of the Tribunal retired the Judge made the following note of their discussion:

“PENSION – Evidence = honour the terms/conditions of Civil Servants and private sector.  BT would honour pensions on Nerval’s evidence.  On terms no less favourable than civil servants i.e. not 6% stakeholder minimum.”

31.	That indicates the reception by the Tribunal of Ms Nerval’s evidence.  As we have said, the use of the word “benefits”, in the context of the single dispute in this case as to benefits over pensions, can only mean that.  Without that context, we agree that it may mean either.  We consider that that is why the Tribunal, when it met in private, focussed on honouring the terms and conditions of the civil service scheme that the Claimants had.  That is the principal benefit to them; they have a defined‑benefits pension scheme which would not transfer on TUPE and a very substantial redundancy add‑on package.

32.	The Judge went on to make an explanatory note, and we consider that this does shed some light, but we treat it with some caution, as it is a further elaboration.  It could have been the Judge helpfully showing further findings in relation to what might be a Burns/Barke order, but the point is these notes were produced in response to the President and there was no objection to them.  They record what was obviously in the forefront of the evidence - this was about pension. In our judgment, the basis for the Tribunal’s finding is made out.  The simple position is that it was for the Respondent to say what its policy was on incoming TUPE transfers and how it treated them. The Tribunal heard the evidence of Ms Nerval and came to the conclusion that the pension terms would be honoured.  In those circumstances, we see no error of law.

33.	A further point was raised by Mr Prior, relating to the Judgment of the EAT, Mummery P and members, in BSG Property Services v Tuck [1996] IRLR 134; this was very much an alternative and secondary reason, and it is not necessary for us for the disposal of this appeal to deal with it. The appeal is dismissed.