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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Meter U Ltd v Ackroyd & Ors (Transfer of Undertakings : Economic technical or organisational reason) [2012] UKEAT 0206_11_2802 (28 February 2012) URL: http://www.bailii.org/uk/cases/UKEAT/2012/0206_11_2802.html Cite as: [2012] ICR 834, [2012] UKEAT 0206_11_2802, [2012] UKEAT 206_11_2802, [2012] IRLR 367 |
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Appeal No. UKEAT/0206/11/CEA
EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON, EC4Y 8JX
At the Tribunal
On 7 February 2012
Judgment handed down on 28 February 2012
Before
THE HONOURABLE MRS JUSTICE SLADE DBE
MR A HARRIS
MS L ACKROYD
AND OTHERS RESPONDENTS
MR M L HARDY AND OTHERS RESPONDENTS
Transcript of Proceedings
JUDGMENT
APPEARANCES
(One of Her Majesty’s Counsel) & MR JAMES BOYD (of Counsel) Instructed by: HBJ Gateley Wareing (Manchester) LLP Ship Canal House 98 King Street Manchester M2 4WU
|
|
For Ms L
For Mr M L Hardy & Others |
(of Counsel) Instructed by: Thompsons Solicitors Churchill House 17 Wellington Street Leeds LS1 4DL
MR JAMES LADDIE (of Counsel) Instructed by: ![]() Legal Services
130 Euston Road London NW1 2AY |
SUMMARY
TRANSFER OF
UNDERTAKINGS
– Economical technical or organisational reason
‘Workforce’ in Regulation 7(2) of the Transfer
of Undertakings
(Protection of Employment) Regulations 2006 does not
include corporate franchisees. The Respondent’s business model of
using
franchisees to carry out
meter
reading rather than employees was long
established and made the Respondent more competitive in winning contracts. The
Employment Tribunals erred in holding that the dismissal of employee
meter
readers transferred to the Respondent
under
TUPE was not for an economic,
technical or organisational reason entailing changes in the workforce. Subject
to determination in the Hardy cases of whether the franchise agreements were a
sham, no other conclusion could be reached other than that the dismissals in
both cases were for an economic, technical or organisational reason entailing changes
in the workforce and were by reason of redundancy.
THE HONOURABLE MRS JUSTICE SLADE DBE
1.
Meter
U
Limited (‘the Respondent’) appeal from the judgments of
two Employment Tribunals which held that the Claimant employees had been
unfairly
dismissed. The dismissals in each case had been of employees whose
contracts of employment had been transferred to the Respondent on a transfer of
an
undertaking
within the meaning of the Transfer of
Undertakings
(Protection of Employment) Regulations 2006 (‘TUPE’). The Tribunals held
that the employees had been dismissed for a reason relating to the transfers
and the Respondent had ‘not established an economic, technical or
organisational reason entailing changes to the workforce’ within the meaning of
Regulation 7(2) of TUPE. Accordingly the dismissals were held to be
‘automatically
unfair’.
The Respondent contends that the Employment Tribunals
erred in so holding.
2.
The dismissal of an employee for a reason connected with a TUPE
transfer is automatically unfair
unless
the transferee establishes that the
reason for the dismissal was an economic, technical or organisational reason entailing
changes in the workforce (‘an ETO reason’). If such a reason is established,
the dismissal will be regarded as having been for redundancy where Employment
Rights Act 1996 (‘ERA’) section 98(2)(c) applies or otherwise for a
substantial reason of a kind such as to justify the dismissal of an employee
holding the position which that employee held within the meaning of section 139(1).
The Employment Tribunal will then, applying ERA section 98(4), consider whether
the dismissal was fair or
unfair
in all the circumstances.
3.
By a judgment sent to the parties on 23 February 2011 Claimants
who transferred to the Respondent from N Power Yorkshire Limited (‘the Ackroyd
Claimants’) an Employment Tribunal sitting in Leeds (‘the Leeds Tribunal’) held
that the Claimants were not dismissed for an ETO reason and were automatically
unfairly
dismissed by the Respondent.
4.
By a judgment sent to the parties on 27 January 2011 determining claims
by five Claimants who transferred from the Respondent from G4S Utility
Services
(
UK)
Limited (‘the Hardy Claimants’) an Employment Tribunal sitting in Exeter
(‘the Exeter Tribunal’) held that the Claimants were not dismissed for an ETO
reason and were automatically
unfairly
dismissed.
Outline facts
5.
The Respondent provides meter
reading services across the
United
Kingdom to suppliers of electricity whether by direct contract with suppliers or by
sub-contracts. It has carried on this business since 1999 and since that date
has done so by means of franchises with independent franchise limited companies,
typically owned by individual
meter
readers. The Respondent does not employ
meter
readers. Its only employees are about twenty administration staff.
6.
The Claimants in the Hardy appeal were, prior to 1 December
2009, employed as meter
readers by G4S
Utility
Services (
UK)
Limited (‘G4S’)
servicing a contract for Scottish Power. Siemens were awarded that contract
following a re-tendering process. Siemens sub-contracted the
meter
reading work
to the Respondent. A service provision change from G4S and the Respondent took
place on 1 December 2009 and the contracts of employment of ten
meter
readers
employed by G4S on the Scottish Power contract transferred on that date to the
Respondent by operation of TUPE.
7.
The Respondent undertook
consultations with transferring
employees and with their
union
representatives. The franchise model was
explained to transferring employees. They were offered the opportunity of
forming franchise companies but only one, Mr Milne, did so. On 6 April 2010 the
employment of the transferred
meter
reader employees was terminated by reason
of redundancy. Mr Hardy appealed his dismissal but the appeal was dismissed.
8.
The Claimants in the Ackroyd
appeal were prior to 1 December 2009
employed by N Power Yorkshire Limited as
meter
readers servicing a contract for
Scottish Power. Siemens were awarded that contract following a re-tendering
process. Siemens sub-contracted the
meter
reading work to the Respondent. A
service provision change took place on 1 December 2009 and the contracts of
employment of 109
meter
readers transferred on that date to the Respondent.
9.
The Respondent undertook
consultations with transferring
employees and their
union
representatives. As were the Hardy Claimants they
were offered the opportunity of forming franchise companies but none did so. On
6 April 2010 their employment was terminated on grounds of redundancy. Where
requested appeals from dismissal were considered. They were not
upheld.
Redundancy payments were made.
Relevant statutory provisions
10.
The Transfer of Undertakings
(Protection of Employment)
Regulations 2006 are the current domestic law implementation of Council Directive
2001/23/EC (‘the Directive’).
11.
Transfer of Undertakings
(Protection of Employment)
Regulations 2006
Regulation 7:
“(1) Where
either before or after a relevant transfer, any employee of the transferor or
transferee is dismissed, that employee shall be treated for the purposes of
Part X of the 1996 Act (unfair
dismissal) as
unfairly
dismissed if the sole or
principal reason for his dismissal is—
…
(b)a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.
(2) This paragraph applies where the sole or principal reason for the dismissal is a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer.
(3) Where paragraph (2) applies—
(a)paragraph (1) shall not apply;
(b)without prejudice to the application of section 98(4) of the 1996 Act (test of fair dismissal), the dismissal shall, for the purposes of sections 98(1) and 135 of that Act (reason for dismissal), be regarded as having been for redundancy where section 98(2)(c) of that Act applies, or otherwise for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held.”
12. Employment Rights Act 1996
Section 139:
“(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—
…
(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.”
Section 230(1):
“In
this Act “employee”
means an individual who has entered into or works under
(or, where the
employment has ceased, worked
under)
a contract of employment.”
13. Directive 2001/23/EC
Preamble:
“(3) It is necessary to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded.”
Article 2:
“1. For the purposes of this Directive:
…
(d) "employee" shall mean any person who, in
the Member State concerned, is protected as an employee under
national
employment law.”
Article 4:
“1. The transfer of the undertaking,
business or part
of the
undertaking
or business shall not in itself constitute grounds for
dismissal by the transferor or the transferee. This provision shall not stand
in the way of dismissals that may take place for economic, technical or
organisational reasons entailing changes in the workforce.”
Relevant findings of the Employment Tribunals
14. Both the Exeter (by majority) and the Leeds Tribunals held that the dismissals of the Claimants were for ‘a reason connected with the transfer’. There is no appeal and now no cross appeal from that decision.
The Exeter Tribunal (Hardy Claimants)
15. It was contended on behalf of the Hardy Claimants that the franchise agreement was a sham. In paragraph 22 of its judgment the Employment Tribunal record that it was argued that
“in reality the status of the meter
readers
under
the
franchise agreement, as properly interpreted, is that of an employee rather than
an independent contractor.”
The Employment Tribunal did not think it necessary to consider the issue of whether or not the franchisees were employees as the Claimants’ claims would be determined by the decision as to whether the term ‘workforce’ in TUPE Regulation 7(2) included franchisees as well as employees. If so there would be no reduction in the workforce on the dismissal of the employees and Regulation 7(2) would not apply.
16.
The Exeter Tribunal, referring to Berriman v
Delabole Slate
Ltd [1985] ICR 546 and Crawford
v
Swindon Insurance Brokers Ltd
[1990] IRLR 42 observed at paragraph 23 of their judgment:
“It is well established that if an ETO is to involve changes to the workforce this must be something more than just the terms and conditions involved…”
The Tribunal observed that neither the Directive nor TUPE give a definition of the term ‘workforce’ although TUPE contains a definition of the term ‘employee’ ‘which is essentially the same as that contained in the Employment Rights Act 1996’.
17. The Exeter Tribunal held at paragraph 23:
“[The Directive] requires Member States to put in place
effective provisions to ensure the rights of employees on the transfer of
undertakings
and we do not lose sight of the fact that the
underlying
purpose
of the Directive and the Regulations is to preserve employment.”
They continued:
“In our judgment, it must have been the intention of
the Directive to include a wider class of persons other than employees [having
included] [in] the term ‘workforce’ and the Regulations replicate this. Our
conclusion as to the meaning of the word ‘workforce’ is that it would encompass
all persons working in the respondent’s business whether as employees,
franchisees or otherwise. In our judgment the term would include franchisees
such as Mr Milne and the remaining claimants, had they taken up
the offer…”
At paragraph 24 the Exeter Tribunal held:
“It is the unanimous
conclusion of the Tribunal that
since there would be no changes to the workforce, there being no reduction in
the number of
meter
readers required, the respondents have not established an ETO
reason for the dismissals. It must follow therefore that the dismissals are
automatically
unfair
under
Regulation 7.”
The Leeds Tribunal (Ackroyd
Claimants)
18. The Leeds Tribunal expressed surprise that the Claimants’ representatives alleged that the franchise agreement was a sham. They held at paragraph 8:
“It is clear that the franchise business model has been in operation for many years and documentation relating to the franchises in this case gives a clear indication that [the] real position is what it says it is; that is a contractual relationship between the Respondent and franchise companies, rather than an employment relationship between the Respondent and employees…”
The Tribunal set out particular aspects of the relationship between the Respondent and franchisees which led them to that conclusion.
19. The Leeds Tribunal held in paragraph 11.2 that their duty was to consider the purpose of TUPE and the Directive. They accepted that redundancy is a clear example of an ETO. Further they found that the Respondent had acted thoroughly and prima facie fairly in their collective and individual consultation processes. However they found in paragraph 11.2 that
“…in this particular case, the process was unrealistic.
The Respondents knew that the Claimants would have one choice and that was for
their employment to be terminated and for them to agree to the franchise option
or alternatively for them to receive their entitlements…’
The Leeds Tribunal held that ‘it was appropriate to take a purposive approach in this case’.”
They held:
“11.3 …The appropriate purposive approach, taking into
account the reason for the Regulations and the Acquired Rights Directive, was
for the Tribunal to conclude unanimously
that, when the Claimants’ employment
was brought to an end, then this was for a reason connected with the transfer
that is not an economic, technical or organisational reason entailing changes
in the workforce.
…
11.4 …The Tribunal accepted the submission by Mr Boyd that the Claimants’ employment was potentially redundant within the definition contained in the Employment Rights Act, so far as the Respondent were concerned. However, the Tribunal, taking the purposive approach, was not prepared to say that this was an economic, technical or organisational reason entailing changes in the workforce.”
The Tribunal continued:
“…if it did not make the decision it makes, it gives an
opportunity for the purpose of the Transfer of Undertakings
Regulations to be
ignored and for the Claimants’ security of employment and terms and conditions
to be lost as a result of transfer.”
20.
The Leeds Tribunal concluded that the Ackroyd
Claimants had been
unfairly
dismissed.
The submissions of the parties
21.
Andrew Stafford QC with James Boyd for the Respondent contended
that the change of contractual arrangements from employment to franchise was an
economic and organisational reason which entailed changes in the workforce. The
Exeter Tribunal was wrong in its interpretation. ‘Workforce’ does not extend to
the workforce of third party franchise companies to which meter
reading has
been contracted.
22.
The franchise agreements for meter
reading were with limited
companies not individuals. To treat employees of those companies as part of the
Respondent’s workforce would be to pierce the corporate
veil
when there was no
warrant for doing so. The Leeds Tribunal held that the franchise agreement with
limited companies were not a sham. There was no warrant for including their
employees in the Respondent’s workforce. Although there was no such express
finding by the Exeter Tribunal the same reasoning applied and there should have
been such a finding.
23. Mr Stafford contended that there was no proper basis for including limited companies in a ‘workforce’. The concern of the Leeds Tribunal that to hold that franchisees were not included in the workforce would give an opportunity for the purpose of TUPE to be ignored is met by the possibility of a conclusion that a franchise arrangement is a sham and the reality is that former employees continue to be employed by the Respondent.
24.
Mr Stafford contended that on the facts of these cases it was
clear that economic or organisational reasons entailed changes in the workforce
of the Respondent. As the Leeds Tribunal found the franchise model enables the
Respondent to operate with a very
low cost base so that it can tender for
contracts offering competitive prices. The Tribunal accepted evidence that the future
loss of revenue to the Respondent of changing from a franchise model to
directly employed
meter
readers would be in the region of £15 million. Mr Stafford
submitted that on the evidence, the requirement set out in Berriman
v
Delabole Slate at page 551B that in order to fall within Regulation 7 it
must be an objective of the economic or organisational reason for the dismissal
to achieve changes in the workforce was satisfied. Further, the reason for
effecting change was to make the Respondent competitive in bidding for
contracts. This was a reason related to the conduct of the business as is
required for economic reasons for change in the workforce to fall within TUPE
Regulation 7(2).
25.
It was submitted that the dismissal of the Claimants was for
redundancy. The Leeds Tribunal recognised that there was a redundancy
situation. The Respondent no longer required employees to carry out meter
reading. Mr Stafford referred to Bromby & Hoare Ltd
v
Evans and
another [1972] ICR 113 in which the NIRC held that employees dismissed
to be replaced by self-employed workers and to Hodgkins and others
v
CJB
Development Ltd (1984, EAT/948/83) in which employees dismissed and
replaced by sub-contract labour were in each case held to have been dismissed
by reason of redundancy.
26. The Leeds Tribunal held that in general the Respondent had carried out thorough and fair consultations with individuals. They held that realistically employees were presented with one choice: for them to agree to the franchise option when their employment terminated.
27. Mr Stafford contended that the decision of each Tribunal that the Claimants were not dismissed for an ETO reason entailing changes in the workforce was not soundly based. He submitted that sufficient findings of fact had been made for a decision to be substituted that the Claimants in each case were dismissed for an ETO reason, that they were dismissed for redundancy and their dismissals were fair.
28.
For the Hardy Claimants Mr Laddie contended that it is
established by Delabole Slate and Crawford that an
ETO reason entails a change in the workforce within the meaning of TUPE
Regulation 7(2) when it entails a change in the overall numbers of the
workforce or a change in the functions of members of the workforce. Delabole
Slate established that a mere change in the terms and conditions of the
contract under
which employees work does not amount to a change in the
workforce. Mr Laddie submitted that dismissing a transferred employee in order
that he can be re-engaged
under
a different commercial arrangement is a
dismissal in order to change terms and conditions of service. It is not a
change in the workforce.
29. Mr Laddie submitted that the term ‘workforce’ is not to be limited to ‘employed workers’. In this regard he relied on a number of dictionary definitions which referred to workers. For example the Oxford English Dictionary defines ‘workforce’ as
“the workers or employees, collectively, usu.
of a
particular firm or industry.”
He contended that before their dismissals the Claimants carried
out meter
reading as employees.
Under
the franchise model the same work would
be carried out and was likely to be performed by the same people.
30.
Mr Laddie contended that in this case excluding franchisees from
the ‘workforce’ would open the floodgates to similar measures being implemented
by unscrupulous
transferees. Further, to exclude franchisees from being held to
be part of the Respondent’s workforce would be inconsistent with the Directive.
The purpose of the Directive is to safeguard employees’ rights on a transfer of
undertaking.
31.
Mr Laddie drew attention to certain terms in the standard form
Franchise Agreement to which ‘the Individual’, who was likely to be a former
employee of the Respondent, was a party. Tribunals should consider the
practical realities of who and how individuals carried out work when deciding
their status. However if the Tribunal erred in treating corporate franchisees
as part of the workforce, rightly Mr Laddie did not suggest that this
Employment Appeal Tribunal should uphold
the decision of the Exeter Tribunal on
the basis that the franchise arrangements with the corporate franchisees were a
sham. The Answer to the Notice of Appeal does not seek to
uphold
the decision
of Exeter Tribunal on that basis. Rather, Mr Laddie submits that if the appeal
were to be allowed there would have to be a remission to the Tribunal to decide
whether the franchise arrangement was a sham.
32.
As for the contention of the Respondent that the Claimants were
dismissed by reason of redundancy, Mr Laddie accepted that on the authority of Bromby
the dismissal of an employee and engagement of self-employed workers who carry
out the same work is dismissal for redundancy. The submission in Mr Laddie’s
skeleton argument that Bromby was wrongly decided was not
developed orally. However he contended that the Hardy and Ackroyd
cases are to
be distinguished from Bromby as in these cases the requirements
for the same individuals to carry out the same work had not ceased or
diminished. Mr Laddie relied on the following line of reasoning: ERA section
139(1)(b)(i) provides that a dismissal is by reason of redundancy where it is
wholly or mainly attributable to ‘the fact the requirements of that business
for employees to carry out work of a particular kind…have ceased or diminished or
are expected to cease or diminish.’ ERA section 230(1) provides that ‘employee’
means ‘an individual who has entered into or works
under
(or, where the
employment has ceased, worked
under)
a contract of employment’. Accordingly the
term ‘employee’ includes a former employee. Therefore a dismissal is not by reason
of redundancy where the requirements of the business for former employees to
carry out work of a particular kind have not ceased or diminished. In these
cases each of the Claimants could have been taken
up
a franchise. Therefore
there was no diminution in the requirement for employees, which term included
former employees, to do the work of
meter
reading.
33.
The Exeter Tribunal did not consider the fairness of the
dismissals under
ERA section 98. Mr Laddie accepted that if they had erred in
law considering the dismissals took to be for an ETO reason and therefore
automatically
unfair,
the Hardy cases would have to be remitted.
34.
Mr Allen for the Ackroyd
Claimants adopted Mr Laddie’s arguments
save for that on redundancy. The Leeds Tribunal relied on a purposive approach
to decide that the dismissal of the
Ackroyd
Claimants were not for an ETO
reason entailing changes in the workforce. Mr Allen rightly recognised that the
Tribunal did not set out the interpretation of TUPE and the Directive which led
to their conclusion.
35.
Mr Allen agreed with Mr Laddie that it may not be necessary to
adopt a purposive approach to reach the conclusion that ‘workforce’ can include
a wider range of people than employees. He recognised that the term ‘workforce’
suggested that it is made up
of individuals rather than corporate entities. In
this regard he drew attention to certain provisions of the Franchise Agreement
which highlighted the importance of the individual in the Respondent’s
franchise model. He referred in particular to clauses 7.3.7, 11.1 and 11.2
including that in 11.2 by which the Franchisor, the Respondent, has the power
to decide whether, on the death of an Individual named in the agreement, a
relative or beneficiary is acceptable to take over the franchise company and
retain the franchise. This provision indicated the importance of the Individual
in the franchise arrangements. However Mr Allen did not seek to go behind the
finding of the Leeds Tribunal that the franchise business model was not a sham.
36.
If the Leeds Tribunal were to have erred in holding that the
dismissals of the Ackroyd
Claimants were not for an ETO reason, Mr Allen
submitted that the issue of whether the dismissals were fair in all the circumstances
would have to be remitted to the Tribunal.
Discussion and conclusion
37. The central point in these appeals is whether the Employment Tribunals erred in law in holding expressly by the Exeter Tribunal and implicitly by the Leeds Tribunal that the ‘workforce’ of the Respondent included not only employees but also the individuals employed by the franchise companies or, possibly, the franchisee companies themselves.
38.
The term ‘workforce’ is not defined in either TUPE or the
Directive. Counsel for the Claimants did not consider that any assistance could
be drawn from the definition of ‘worker’ in domestic employment legislation.
However we note that, unsurprisingly,
those definitions refer to an
‘individual’. Even if it were helpful to base a construction of ‘workforce’ on
the dictionary definitions relied
upon
by Mr Laddie they all define ‘workforce’
by reference to people, workers or employees. Applying an ordinary common sense
use
of the word ‘workforce’ it does not include limited companies. These have
an identity separate from their directors or controlling shareholders. They are
not people, workers or employees although they will employ or engage them.
Employees of corporate franchises are part of their employer’s workforce.
39. The Court of Appeal in Delabole held:
“14. …the phrase “economic, technical or organisational reason entailing changes in the workforce” in our judgment requires that the change in the workforce is part of the economic, technical or organisational reason. The employer's plan must be to achieve changes in the workforce. It must be an objective of the plan, not just a possible consequence of it.
15. Secondly, we do not think that the dismissal of one
employee followed by the engagement of another in his place constitutes a change
in the “workforce”. To our minds, the word “workforce” connotes the whole body
of employees as an entity: it corresponds to the “strength” or the
“establishment”. Changes in the identity of the individuals who make up
the
workforce do not constitute changes in the workforce itself so long as the
overall numbers and functions of the employees looked at as a whole remain
unchanged.”
Changes in the terms and conditions of employment of transferred employees to those of existing employees were held not to be a change in the workforce. In Crawford the EAT held at paragraph 30:
“We are satisfied that there will be a change in the workforce if the same people are kept on but they are given entirely different jobs to do.”
40.
In our judgment changes in numbers of employees or in their
duties are not the only changes which may constitute ‘changes in the workforce’
within the meaning of TUPE Regulation 7. However on the basis of the findings
of fact by the Tribunals it is not necessary for us
to decide whether a change
in status, for example from employee to independent contractor, is a change in
the workforce within the meaning of Regulation 7.
41. Neither the Exeter Tribunal nor the Leeds Tribunal held that the Respondent’s franchise business model was a sham. The Leeds Tribunal held:
“So far as the allegations that the Respondent’s franchise business model was a sham is concerned, the Tribunal considered that the decision was straight-forward and is surprised that the Claimants’ representatives took the point. It is clear that the franchise business model has been in operation for many years and documentation relating to franchises in this case gives a clear indication that [the] real position is what it says it is; that is a contractual relationship between the Respondent and franchise companies, rather than an employment relationship between the Respondent and employees…”
42. The Leeds Tribunal was bound to apply their finding of fact that the franchise business model was not a sham. They held that franchisees were limited companies, not employees.
43.
The Exeter Tribunal did not think it necessary to address the
issue of whether or not the franchisees are properly to be regarded as
employees because they held that franchisees were to be included in the
‘workforce’ in considering Regulation 7. Having concluded that persons carrying
out meter
readings for franchise companies, or the companies themselves were
part of the workforce, the Exeter Tribunal concluded that there was no
reduction in the numbers in the workforce when the Claimants were dismissed as
their work would be carried out by franchisees as part of the workforce. Since
on their dismissals there was no reduction in numbers in the workforce the
Claimants were not dismissed for an ETO reason.
44.
In our judgment both Employment Tribunals erred in holding that
franchisees were included in the Respondent’s workforce. Since their decision
that there was no change in the workforce was based on the premise that a
change from engaging employees to using
corporate franchisees to carry out
meter
reading work was not a reduction in the workforce, the decisions in each
case must be set aside.
45.
The Leeds Tribunal held at paragraph 5.5 that there was a
continued requirement for franchisees but not for employees to carry out meter
reading work. To continue with the Claimants as employees they held:
“[would] be totally at odds with their business model and have serious implications in relation to costs. The Tribunal accepted [by] Mr Barnett’s estimate that future loss of revenue resulting from any such changes would be in the region of £15 million.”
46.
We have held that on its proper construction ‘workforce’ does not
include limited companies. It follows that on the dismissal of the Ackroyd
Claimants there was a reduction and therefore a change in the workforce.
47.
On the findings of fact made by the Leeds Tribunal the only
conclusion is that the Ackroyd
Claimants were dismissed for economic and
organisational reasons entailing changes in the workforce.
48.
The Exeter Tribunal did not decide the issue of whether the
franchise arrangement was a sham. On the facts found, the same conclusion as in
the Ackroyd
cases would be reached
unless
the Tribunal were to conclude that
the franchise arrangement was a sham.
49. By reason of our conclusion that franchisees are not to be included in computing the Respondent’s workforce, the submissions made by Mr Laddie that the dismissal of ten employees does not constitute a change in the workforce within the meaning Regulation 7 because such a change must be to the whole workforce or be significant falls away. Nor is it of legal significance that on their dismissal the Respondent’s workforce was reduced to the number of administrative staff of twenty.
50. In his skeleton argument, Mr Laddie made submissions in support of a proposition that the Claimants were not dismissed for redundancy. It appears that the submission was made in anticipation of the Respondent contending that because the Claimants were dismissed for redundancy they were dismissed for an ETO reason. That is not how submissions on appeal were developed by Mr Stafford. He submitted that if he succeeded in overturning the decision of the Tribunals that the dismissals of the Claimants were not for an ETO reason, on the facts the only correct conclusion was that the Claimants were dismissed for redundancy.
51.
Mr Laddie contended that on its proper construction dismissal of
an employee by reason of redundancy within the meaning of ERA section
139(1)(b)(i) of the business had a continuing requirement for former
employees to carry out work of a particular kind. He relied upon
the definition
of ‘employee’ in section 230(1) which includes an individual who worked
under
a
contract of employment, a former employee. Even if such a construction of section
139(1)(b)(i) were correct it would only apply to negate redundancy where an
employee was dismissed because there were no future requirements for employees to
carry out work of a particular kind but the employer had a requirement for
former employees to do so. On Mr Laddie’s construction, in order not to fall
within the definition of redundancy the employer’s requirement for workers to
perform work would have to be specifically for former employees to do
so. This was not so in these cases. Only one of the Hardy Claimants and only
two of the
Ackroyd
Claimants formed limited companies which entered into
franchise agreements. All other franchises were to be taken
up
by companies in
which the controlling shareholder was not a former employee of the Respondent.
The Respondent did not have a continuing requirement for former employees to
carry out
meter
reading work. They had a requirement for franchisees to do so
whether or not they had any connection with former employees of the Respondent.
52.
Unless
the franchise arrangements were found to be a sham in the
Hardy cases, on the facts found, a Tribunal properly directing themselves would
inevitably hold that, applying Regulation 7(3)(a) the dismissals of the
Claimants are to be regarded as having been for redundancy.
53.
Although Mr Stafford submitted that we should substitute a
finding that the dismissals of the Claimants were fair within the meaning of
ERA section 98(4), such an assessment is for an Employment Tribunal to make
having heard the evidence. Whilst the Leeds Tribunal made findings of fact
regarding the consultation process undertaken
by the Respondent in the
Ackroyd
cases we consider that in those cases as well as in the Hardy cases the
decision as to the fairness of the dismissals should be taken by the Employment
Tribunals after hearing further evidence if necessary.
Summary conclusion
54.
(1) The appeals are allowed and the findings of automatic unfair
dismissal set aside.
(2) The Ackroyd
cases are remitted
to the Tribunal for determination of whether the dismissals of the Claimants
were fair or
unfair
within the meaning of the Employment Rights Act 1996
section 98(4).
(3) The Hardy cases are remitted to
the Tribunal for determination of whether the Respondent’s franchise business
model was a sham, and, if it is found not to be a sham, for determination of
whether the dismissals of the Claimants were fair or unfair
within the meaning
of the Employment Rights Act 1996 section 98(4).
(4) The Ackroyd
and the Hardy claims
are remitted on the basis that the dismissals of the Claimants were for
economic and organisational reasons entailing changes in the workforce within
the meaning of Regulation 7 of the Transfer of
Undertakings (Protection of
Employment) Regulations 2006 and were for redundancy within the meaning of
the Employment Rights Act 1996 section 139(1)(b)(i).
(5) The claims are to be remitted to the same Employment Tribunals if reasonably practicable. If not, to those selected at the direction of the relevant Regional Employment Judge.