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United Kingdom Employment Appeal Tribunal


You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Pannu & Ors v Geo W King Ltd & Ors (Transfer of Undertakings : Service Provision Change) [2011] UKEAT 0021_11_2112 (21 December 2011)
URL: http://www.bailii.org/uk/cases/UKEAT/2011/0021_11_2112.html
Cite as: [2011] UKEAT 21_11_2112, [2011] UKEAT 0021_11_2112

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Appeal No. UKEAT/0021/11/DA

UKEAT/0022/11/DA

UKEAT/0023/11/DA

 

EMPLOYMENT APPEAL TRIBUNAL

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

 

At the Tribunal

On 14 October 2011

Judgment handed down on 21 December 2011

 

Before

HIS HONOUR JUDGE PETER CLARK

BARONESS DRAKE OF SHENE

MRS A GALLICO

 

UKEAT/0021/11/DA

 

 

MR H PANNU AND OTHERS APPELLANTS

 

 

GEO W KING LTD (IN LIQUIDATION) AND OTHERS RESPONDENTS

 

 

UKEAT/0022/11/DA

 

MR S AHMED AND OTHERS APPELLANTS

 

 

GEO W KING LTD (IN LIQUIDATION) AND OTHERS RESPONDENTS

 

 

UKEAT/0023/11/DA

 

MR D GRACE APPELLANT

 

 

GEO W KING LTD (IN LIQUIDATION) AND OTHERS RESPONDENTS

 

 

Transcript of Proceedings

 

JUDGMENT

 

 


 

 

 

 

 

 

APPEARANCES

 

 

 

 

 

For Mr H Pannu & Others

MR C MacNAUGHTON

(Solicitor)

EAD Solicitors – Employment Law Unit

Prospect House – Columbus Quay

Liverpool

L3 4DB

For Mr S Ahmed & Others & Unite

MR R HITCHCOCK

(of Counsel)

Instructed by:

Thompsons Solicitors

Congress House

Great Russell Street

London

WC1B 3LW

 

For Mr D Grace

MS C RAYNER

(of Counsel)

Instructed by:

Gelbergs Solicitors

188 Upper Street

Islington

London

N1 1RQ

 

For Geo W King (In Liquidation) & Others

No appearance or representation

For IBC and Premier

MR JAMES GOUDIE

(One of Her Majesty’s Counsel)

&

MISS H STOUT

(of Counsel)

Instructed by:

EMW Picton Howell LLP Solicitors

Seebeck Place

One Seebeck Place

Knowhill

Milton Keynes

MK5 8FR

 

 

 


SUMMARY

TRANSFER OF UNDERTAKINGS – Service provision change

 

Potential SPC under TUPE 2006, reg. 3(1)(b).  Whether Employment Tribunal entitled to find that reg. 3(3)(b) exclusion (potential transferor’s activities consisted wholly or mainly of the supply of goods rather than services) applied.  They were.  Appeals dismissed.

 

 

 


HIS HONOUR JUDGE PETER CLARK

 

1.            This appeal raises a question as to the proper meaning and effect of a Service Provision Change (SPC) operating as a relevant transfer of employment in accordance with regulation 3(1)(b), read with reg. 3(3) and in particular reg. 3(3)(b) of the TUPE Regulations 2006.

 

Background

2.            The Claimants before the Bedford Employment Tribunal, Mr Pannu and others, all worked on the First Respondent GWK’s X83 axle assembly line at their factory premises at Letchworth until their dismissal by GWK on 30 April 2009.  On that date all production at the factory finished – GWK has gone into liquidation.

 

3.            GWK supplied the product of the Claimants’ work to the Third Respondent, IBC Vehicles Ltd, who manufactured commercial vehicles at their Luton plant, under a contract for the supply of goods and services.  After production ceased at GWK’s plant, IBC entered into a contract with the Second Respondent, Premier, for the assembly of parts formerly manufactured by GWK, at IBC’s Luton premises.

 

4.            Following termination of their employment the Claimants commenced these proceedings.  An Employment Tribunal chaired by Employment Judge Adamson heard the case over 5 days and then deliberated for 2 days in private.  By a Judgment with Reasons promulgated on 14 October 2010 they held that the Claimants’ employment did not transfer to either Premier or IBC.  Their claims for unfair dismissal, lack of consultation with the recognised unions, GMB and Unite, redundancy pay, holiday pay and notice pay succeeded against GWK in liquidation only. 

 

5.            Against the finding of no transfer the Claimants now appeal.  They do not challenge the ET’s finding that no old style transfer took place under reg. 3(1)(a) TUPE: the issue is whether the ET was entitled to conclude that the activities involved consisted wholly or mainly of the supply of goods rather than services by GWK to IBC, such that an SPC under reg. 3(1)(b) was excluded by the terms of reg. 3(3)(b).

 

Service Provision Change

6.            In replacing the 1981 TUPE Regs, as amended, Parliament retained the old style, EU driven concept of a transfer of an economic entity in reg. 3(1)(a) of the 2006 Regulations and added, as a matter of purely domestic law, the concept of an SPC to cover grey areas not catered for by the old style transfer, particularly in circumstances where the holder of a service contract, e.g. cleaning work, changed on the termination by the client of one contract and the awarding of a new contract to a different contractor.  That is a generalisation; such a transfer may arise under reg. 3(1)(a) or (b).  We are not here concerned with that scenario.  The focus is solely on reg. 3(1)(b) read with reg. 3(3)(b).

 

7.            In Metropolitan Resources Ltd v Churchill Dulwich Ltd [2009] IRLR 700 (EAT) HHJ Burke QC, sitting alone, considered the effect of reg. 3(1)(b).  He was not, on the facts of that case, required to consider the reg. 3(3)(b) exclusion which is in play in this case.  However he observed (para. 27), that the new SPC provisions appear to be straightforward and their application to individual cases is essentially one of fact for ETs.  We respectfully agree and would apply the same observation to the operation of the reg. 3(3)(b) exclusion. 

 

8.            The scheme of an SPC transfer, on the present facts, lies first in reg. 3(1)(b)(ii), that is where activities are said to cease to be carried out by a contractor (here GWK) on a client’s behalf (that is IBC) and are carried on instead by a subsequent contractor (Premier) on behalf of IBC. 

 

9.            However, a relevant transfer will only take place where the activities concerned do not consist wholly or mainly of the supply of goods for, here, IBC’s use (reg. 3(3)(b)).

 

10.         Pausing there, the expression ‘wholly or mainly’ is a familiar one to ETs.  The Redundancy Payments Act 1965, s.1(2) provided that an employee shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to cessation of a business or a diminution in the requirements of the business for employees to carry out work of a particular kind, etc (see now Employment Rights Act 1996, s.139(1) and Murray v Foyles Meat, [2001] 1 AC 51).  Similarly, at the time when Carver v Saudi Airlines [1999] ICR 991 was decided by the Court of Appeal, no claim arose under the Sex Discrimination Act 1975 if the claimant employee did his or her work wholly or mainly outside Great Britain.  In Carver, Mantell LJ suggested that ‘mainly’ be given its literal meaning of for the most part (p. 1003D). 

 

11.         In the present case the ET at Bedford set out the factual background, particularly the financial difficulties into which GWK fell in 2008, leading up to its closure and the effect this had on the supply of parts to IBC.  Gradually the supply dwindled (see para. 22).  The parts were sourced from a Spanish supplier during this period, with the added shipping costs; IBC funded the supply of parts to GWK from its suppliers directly, until following closure of GWK, IBC entered into the new arrangement with Premier, who employed just one of the GWK assembly workers, the Claimant Mr Grace, a supervisor.

 

12.         On the facts found the ET concluded in relation to the SPC transfer, at paras. 40-43:

 

“40. We considered whether there had been a service provision change.  The activity carried out by the first Respondent was not simply the assembly of modules, but the sourcing and acquisition of component parts as referred to before albeit the assembly line was a part of that overall activity.  The assembly line was an organized grouping of employees, which had the principal purpose of assembling the modules being built by the first Respondent.  Those modules were then, however, sold by the first Respondent to its client the third Respondent.  We considered whether activities were transferred which did not consist wholly or mainly of a supply of good for the third Respondent’s use.  The manufacture of any goods requires a process where activities are carried out.  The purpose of the first Respondent in assembling the components was to supply and sell those goods to the third Respondent.

41. In respect of the argument the assembly line was providing a service in that it had to ensure that the goods were safe to use, we accept that to be the case, but, that again was only part of the overall responsibility of the first Respondent, who had to ensure the product it sold was safe, not only once assembled, but also in respect of each module’s constituent parts.  The first Respondent’s overall process was more than one of assembly.

42. We find that although that there was activity involved in assembling those goods, Regulation 3(3)(b) TUPE applies and the employees on the assembly line do not have the benefit of the protection potentially provided by Regulation 3(1)(b).  We find that the Claimants did not transfer from the first Respondent to the second or third Respondent.

43. In so far as the third Respondent entered into arrangements with the first, and the majority of that Respondent’s suppliers to pay for the components, their transportation and in the process to acquire title to those components, does not affect our conclusion as the principal purpose of that exercise was one of expediency to secure the supply chain to the third Respondent and not to change the fundamental position between the parties.”

 

The appeals

13.         For the purposes of the proceedings here and below the Claimants are divided up as follows.  First, Mr Pannu and others, all members of the GMB Union (the GMB Claimants) represented by Mr MacNaughton.  Secondly, Mr Ahmed and others, members of Unite the Union (the Unite Claimants) represented by Mr Hitchcock.  Thirdly, Mr Grace, to whom we have referred, represented by Ms Rayner.

 

14.         Finally, Mr Goudie QC appears with Ms Stout on behalf of Premier and IBC.  The Liquidator of GWC takes no active part in the proceedings. 

 

15.         In advancing these appeals each of the Claimants’ advocates takes a slightly different line.  Ms Rayner, for Mr Grace, submits that the ET’s conclusion that for the purposes of reg. 3(3)(b) the activities concerned consisted wholly or mainly of the supply of goods for IBC’s use was legally perverse.  She argues that the facts found by the ET point inexorably to the conclusion that the activities in question consisted of the supply of services, such that the reg. 3(3)(b) exception is not engaged.

 

16.         In support of that submission she relies on the proposition that the assembly process on GWK’s X83 axle assembly line was plainly a service performed by the Claimants.  Further, when GWK fell into difficulties IBC arranged to pay GWK’s “tier two” suppliers direct for the parts which they supplied to GWK so that all GWK was providing in the run up to the relevant date, 30 April 2009, was the service of assembling the axles, using parts paid for by IBC.  After that date, under the terms of the VAASA Agreement (Value Added Assembler Services Agreement) made between IBC and Premier, Premier provided its services to IBC in the same way as had GWK.  Mr Grace was employed by Premier as a supervisor on that process.  The activities were the same pre and post the relevant date. 

 

17.         Mr MacNaughton prefers to focus on the scheme of the SPC provision in reg. 3.  He contends that the activities formerly carried out by GWK was the service of assembling axles in which these Claimants were engaged.  The relevant Agreement prior to the 30 April 2009, dated 19 November 2008, which described GWK as a “supplier of goods and services (production of axle assemblies)” had attached to it a Schedule headed ‘Added Value’ which set out the prices to be paid by IBC in respect of axles, struts and corners produced by GWK.  After the relevant date the VAASA Agreement delivered purely a service; before that date GWK provided more service than goods.

 

18.         Mr Hitchcock’s submission on behalf of the Unite Claimants focuses on the activities carried out by the contractor, GWK, and subsequently by Premier which can only be the activities of the organised group of employees working on the X83 assembly line prior to the relevant date, that is these Claimants.  Looked at in that way the ET applied the wrong test to the question under reg. 3(3)(b), whether the overall process/contract was wholly or mainly for the supply of goods.  On the facts found it was plainly for the supply of services.

 

19.         In response, Mr Goudie takes issue with the proposition that the activities concerned are those carried out by the employees of the contractor, the Claimants, prior to the relevant date, rather than those of the contractor.  Whilst those employees provide their services to the contractor, the contractor, on the facts so the ET were entitled to find, carried out the activity, wholly or mainly, of supplying goods, the assembled axles, struts and corners to its client, IBC.  Further, the ET was entitled to find (para. 43), that the alteration in late 2008, whereby IBC paid GWK’s tier two suppliers direct, did not alter the nature of the activity, which was mainly the supply of goods, the completed parts, to IBC.

 

20.         Mr Goudie also submits that the arrangements with Premier after the relevant date are strictly irrelevant to the reg. 3(3)(b) question.  If at all times up to the 30 April 2009 GWK were wholly or mainly supplying goods rather than services to IBC then that is the end of the SPC transfer argument for the Claimants; what happened after that date cannot affect that position.  In short, the reg. 3(3)(b) question was essentially one of fact for the ET.  Its conclusion cannot be characterised as perverse.

 

Conclusion

21.         Overall we prefer the submissions of Mr Goudie on the particular facts of this case.  We deal first with the admirably succinct submission of Mr Hitchcock, that the focus must be on the activities of the relevant organised group of employees.  Identifying an organised grouping of employees carrying out the activities concerned on behalf of the client is a pre-requisite of an SPC under reg. 3(1)(b) by virtue of reg. 3(3)(a).  Without that feature the SPC transfer falls at the first hurdle.  However, the fact that that organised group provide a service (directly to their contractor employer) cannot answer, of itself, the separate reg. 3(3)(b) question.  We consider that some assistance may be derived from the example given in the BIS guidance on the supply of goods exception.  The example is that of a contractor engaged to supply sandwiches and drinks to a client’s canteen for sale by the client’s own staff.  That would not give rise to an SPC when the contract is awarded elsewhere, even where the first contractor has a dedicated team assigned to making the sandwiches for that particular contract.  It may be otherwise where the contractor provides not only the sandwiches and drink (the goods) but also the canteen staff to dispense it at the client’s premises.

 

22.         Similarly, in this case, although GWK employed an organised group of workers on the X83 assembly line dedicated to producing axles, struts and corners for use in IBC’s van manufacturing process, GWK’s activity was the supply of those finished goods to IBC.  Whether the position materially changed after the relevant date under the terms of the Agreement between IBC and Premier is nothing to the point; either the nature of the activities changed, in which case the requirements in reg. 3(1)(b) are not met, or they remain the same, in which case a permissible finding that the GWK activities involved wholly or mainly the supply of goods rather than services to IBC takes the case outside the SPC regime by virtue of reg. 3(3)(b).

 

23.         Nor do we believe that the change in funding arrangements in late 2008 alters the position.  That does not simply flow from business expediency, although that forms part of the commercial background to the factual matrix in this case; the fact remains that GWK’s activities remained the same, however the raw materials used in producing the finished goods were paid for.  To conclude otherwise would be to divert attention from the relevant activities to the nature of the contract between GWK and IBC which, although again forming part of the factual matrix is not, of itself, the focus of reg. 3.

 

24.         Finally, perversity.  We need hardly mention the high hurdle faced by appellants relying on this ground of appeal: see Yeboah v Crofton [2002] IRLR 634.  Suffice it to say that, having considered the detailed argument presented by all sides on the evidence before the ET, this challenge fails. 

 

25.         It follows that these appeals are dismissed.

 

 


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URL: http://www.bailii.org/uk/cases/UKEAT/2011/0021_11_2112.html