House of Lords
|Session 2005 - 06|
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North Wales Training and Enterprise Council Limited v. Astley and others
LORD BINGHAM OF CORNHILL
1. I have had the advantage of reading in draft the opinions of my noble and learned friends Lord Hope of Craighead, Lord Rodger of Earlsferry and Lord Mance. I am greatly indebted to them for their summary of the facts, materials and decisions relevant to this appeal, which I need not attempt to repeat. I shall for convenience refer throughout to Celtec, since nothing turns on the transfer from Newtec to it.
2. If an employer transferred his business undertaking to another party, the position at common law of an employee who worked for the first employer before the transfer and for the new employer after it was in principle clear. His previous contract of employment was not varied, because the second contract was made between different parties. But the first contract was the subject of an express or implied novation, involving the termination of the first contract and its replacement by a new contract. This was a readily intelligible and rational analysis. But it could work disadvantageously to the employee in any situation where his rights depended on showing that his employment had been continuous for a given period, since a novation necessarily involved a discontinuity. It was this disadvantage which the legislation now under consideration was intended to obviate. The benign intent of the legislation is not in question. But its effect is, inevitably, to introduce a fictional element into this tripartite relationship, since (where the legislative conditions are satisfied) the employee is treated as having been employed by the new employer all along and ex hypothesi such is not the case. The European Court of Justice  IRLR 647 acknowledges this in para 43 of its judgment on the reference in this case, when it rules that
In legal parlance, a matter is only deemed to be the case when it is not, or may not, in fact be so, or would not or might not be thought to be so if not deemed to be so. The complexity of this case, I think, derives from the fiction which underlies it.
3. Certain very important questions, which were the subject of discussion and argument below, have effectively ceased to be controversial. The employment tribunal began, in a logical way, by seeking to define the undertaking whose transfer was in issue. Its answer (in para 11 of its reasons) was clear:
It went on (para 12) to observe that the undertaking in question was a "labour intensive" undertaking, and therefore the movement of staff from the Department to Celtec was an important defining part of the undertaking and transfer. The Employment Appeal Tribunal  IRLR 788 did not understand Celtec to attack this description (para 46 of its judgment) and thought the tribunal's description could not be faulted. The Court of Appeal  ICR 1289, para 7 took the same view.
4. The employment tribunal then asked (para 13) whether the individual respondents were assigned to the undertaking at the time of the transfer commencing. In its view they clearly were. The Court of Appeal considered (para 30) that the tribunal had been fully entitled to conclude that the management skills of such of the Department's employees as were happy to continue in work under the supervision of Celtec formed part of the undertaking which was being transferred.
5. It was of course necessary for the employment tribunal to decide whether the undertaking it had defined had been transferred. It concluded (paras 11-12) that it had. In the EAT (paras 3 and 43) Celtec accepted that there had been a transfer of an undertaking. In the Court of Appeal (para 7(ii)) it was effectively agreed that the undertaking had been transferred.
6. What was and remains the divisive question is when the transfer occurred. The employment tribunal (para 20) assumed that September 1990 when Celtec commenced business was the date on which the transfer commenced, but thought transfer was a long process "starting some time in 1990 as affects these applicants and ending on a national basis some time in 1996". In the EAT the majority view (para 99) was that the tribunal, rightly directing itself, would have concluded that the transfer was probably completed in about September 1990 and certainly long before 1993. The Court of Appeal (para 32) accepted the tribunal's test and its conclusion. In the statement of facts and issues agreed in the House (para 12) it was accepted that Celtec became operational in September 1990. In summarising the essential facts agreed between the parties in its reference to the ECJ the House recorded in para (13) that the respondent employees were "full-time employees whose work was dedicated to the undertaking and they were therefore assigned to the undertaking prior to the transfer", and the summary continued in para (14):
In its written case on this appeal Celtec affirms that Celtec "commenced operations in September 1990 when it took over the premises, information systems and databases of the DoE area offices".
7. As the opinions of my noble and learned friends make clear, the arguments of the parties were advanced below on a basis somewhat different from that which they now put forward. Celtec said that the transfer was in September 1990; but the respondent employees were not (in effect) part of what was then transferred; so they cannot gain the benefit of the legislation. The respondent employees contended that the transfer took place over a period, and each of the respondent employees was part of what was transferred from time to time, so that they could claim the benefit of the legislation. The ECJ accepted neither of these approaches, ruling (if I understand the judgment correctly) that transfer must take place on a single date on which responsibility as employer for carrying on the business transferred moves from the transferor to the transferee and that this date cannot be postponed to another date at the will of either. It seems to me to follow inexorably that the transfer took place in September 1990 and the later dates of transfer agreed with the individual respondent employees are to be disregarded.
8. In agreement with my noble and learned friend Lord Hope I conceive it to be the duty of this House to give effect to the law as declared in Luxembourg. But I agree, of course, that if it would unfairly prejudice Celtec to do so without giving it an opportunity to adduce further evidence or argument that course would have to be followed, however reluctantly after the lapse of so many years. In this instance, I agree with my noble and learned friend that such a course need not be followed, for two main reasons:
I readily accept that the respondent employees did not think that they became employees of Celtec in September 1990, and it was not intended that they should become employees then. There are other potential difficulties and problems in concluding that they did. But these spring from the fiction to which I alluded at the outset, and from the Government's decision to structure the transfer in this unusual way.
9. For the reasons given by Lord Hope, and these brief reasons of my own, I would dismiss this appeal and invite written submissions on costs within 21 days.
LORD HOPE OF CRAIGHEAD
10. This case arises out of a dispute between the appellant, North Wales Training and Enterprise Ltd, trading as Celtec ("Celtec"), and a group of its employees about the length of their continuous employment with the company for the purpose of establishing redundancy entitlements and other accrued rights. The dispute relates to the interpretation and application of article 3(1) of Council Directive 77/187/EEC on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses ("the Acquired Rights Directive"), which has now been consolidated with subsequent amendments and repealed by Council Directive 2001/23/EC.
11. The respondents, John Astley, Julie Owens and Deborah Lynn Hawkes, were all employed by the Department of Employment ("the DoE") as civil servants before they took up direct employment with a predecessor of Celtec following the transfer of part of the DoE's undertaking to the predecessor as part of a privatisation initiative. They contend that their periods of continuous employment with Celtec and its predecessor should include their periods of service with the civil service prior to the date when they entered into the direct employment of the predecessor. Celtec contend that the respondents' periods of service with the civil service should be excluded from the computation. The respondents raised proceedings for determination of this issue in the employment tribunal as representatives of the group of employees to which they belong. The issue affects a large number of other civil servants who transferred from the civil service to other employers in the private sector during the early 1990s in similar circumstances.
12. Until 1989 the DoE managed the training of young people and unemployed adults in England and Wales through about 60 local area offices. These area offices were all staffed by civil servants. In December 1988 the government published a White Paper entitled "Employment For the 1990s" (Cm 540) which set out an agenda for action for the next decade. Among the changes which it envisaged was the transfer of part of the DoE's vocational training responsibilities to bodies to be known as training and enterprise councils ("TECs"). The TECs were to plan and deliver training and to promote and support the development of small businesses and self-employment within their area under contracts with the government. They were to take over all the training work that had previously been carried on in the area offices. These proposals were put into effect, and 82 TECs were set up. By November 1991 all the TECs in England and Wales had become operational.
13. It was understood from the outset between the TECs and the DoE, on whom the TECs were dependent for the funding of their operations, that the TECs were to be entitled to recruit their own staff. Most of them did so from the date they became operational. But they were new organisations, and the work to be undertaken required an understanding of the government policy that the contracts were designed to deliver. So the DoE, with the agreement of the TECs, issued an invitation to staff in its area offices to volunteer for secondment to the newly created TECs. They were invited to do so initially for a period of three years. Those who wished to volunteer were told that during the secondment period they would continue to be civil servants employed by the DoE. As such, they would retain their normal pay and terms and conditions of employment as embodied in the department's personnel handbook. They were also told that they could, if they wished, accept additional payments and benefits offered to them by the TEC, but that the right to any such payments or benefits would cease at the end of their secondment. They would not form part of their terms and conditions of employment as civil servants.
14. The TECs welcomed the contribution made by the seconded staff. But they made it clear that, as private companies, they wanted to employ all their own staff on terms and conditions determined by them. In 1991 discussions took place with the TECs, seconded staff and the relevant trade unions about future staffing arrangements. All seconded staff were informed that they would be free to choose any offer of employment that a TEC might make or, if they preferred, to return to the DoE or the wider civil service for redeployment. In December 1991 the Secretary of State announced that secondments would be phased out by the end of each TEC's fifth year of operation. The DoE agreed with the TECs that it would reimburse them should a court or tribunal decide, in the case of a dismissal of a former civil servant, that his or her period of employment with the TEC must be deemed to have been continuous with that in the civil service for the purpose of calculating that person's rights on redundancy.
15. The area offices of the DoE in Wrexham and Bangor were taken over by the North East Wales TEC ("Newtec"). It had a board of directors drawn from local businessmen. It became operational in September 1990. On 1 April 1997 Newtec and the TEC for North West Wales, called Targed, were merged by the creation of a new body called Celtec. 43 civil servants were initially seconded to Newtec. When the secondments ended 18 of them resigned from the civil service and took up employment with Newtec. 10 chose to remain as civil servants, and they were redeployed. 13 resigned from the civil service, and 2 left the civil service for other reasons. Of the 40 civil servants seconded to Targed, 10 resigned to take up employment with the TEC, 9 retired and the rest left for other reasons.
16. Mr Astley, Ms Hawkes and Ms Owens entered the civil service on 31 August 1973, 4 November 1985 and 21 April 1986 respectively. As civil servants they were responsible for vocational training in North Wales. Their work was entirely devoted to that service prior to its transfer to Newtec. They were all seconded to Newtec when it commenced operations on 17 September 1990. There was no difference between the work they did before and after the date of their secondment. They worked from the same desks in the same building. This arrangement ensured that there was a seamless transition from the old system to the new in the provision of the programmes which the government had undertaken to provide for the trainees. Towards the end of the period of their secondment they resigned from civil service to become direct employees of the TEC. Ms Hawkes and Ms Owens resigned from the civil service on 30 June 1993. Mr Astley resigned on 31 August 1993. Ms Hawkes' and Ms Owens' contract of employment with the TEC commenced on 1 July 1993. Mr Astley's contract commenced on 1 September 1993. There was no gap in time between their resignations from the civil service and their employment by Newtec.
17. In 1998 Ms Hawkes was dismissed by Celtec on the ground of redundancy. The DoE took the view that there was no continuity of service between the periods of her employment with the civil service and the TEC, as she had chosen freely to resign from the civil service to take up employment with an employer in the private sector. Mr Astley and Ms Owens feared that they too were at risk of being dismissed for redundancy. All three sought a determination by the employment tribunal as to the length of the period of continuous employment on which they were able to rely. Their argument was that it should include their periods of employment with the civil service as well as those with Newtec and Celtec.
18. The respondents all rely on the provisions of the Acquired Rights Directive and section 218 of the Employment Rights Act 1996. Mr Astley also relies on regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794) ("TUPE"), as amended by section 33 of the Trade Union Reform and Employment Rights Act 1993 with effect from 30 August 1993. As from that date, which was the day before Mr Astley resigned from the civil service, the definition of the expression "undertaking" in regulation 2(1) of TUPE which had previously been restricted to commercial organisations was amended to include any trade or business. It is common ground however that Celtec fails to be treated as an emanation of the state for present purposes and that Mr Astley's primary claim is under the Directive.