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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Mears Homecare Ltd v Bradburn & Ors [2019] UKEAT 0170_18_0205 (2 May 2019) URL: https://www.bailii.org/uk/cases/UKEAT/2019/0170_18_0205.html Cite as: [2019] UKEAT 170_18_205, [2019] UKEAT 0170_18_0205, [2019] WLR(D) 503, [2020] ICR 31 |
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At the Tribunal | |
Before
THE HONOURABLE MR JUSTICE CHOUDHURY (PRESIDENT)
(SITTING ALONE)
APPELLANT | |
RESPONDENT |
Transcript of Proceedings
JUDGMENT
For the Appellant | Mr Jeffrey ![]() (of ![]() Instructed by: BPE Solicitors LLP St. James's House St James's Square Cheltenham GL50 3PR |
For the Respondent | Mr Steward Brittenden (of Counsel) Instructed by: Unison Legal Services Unison Centre 130 Euston Road London NW1 2AY |
SUMMARY
TRANSFER OF UNDERTAKINGS – Transfer
This issue in the appeal was whether, following a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations2006 ("TUPE"), the transferor continues to be bound by the duty, pursuant to s.9 of the National Minimum Wage Act 1998 ("NMWA"), to maintain wage records in respect of the transferred employees. The ET had held that the Respondent transferor continued to be bound by that duty and was therefore the appropriate subject of a production notice. The Respondent appealed.
Held: Allowing the Respondent's appeal, the said duty transferred to the transferee upon transfer pursuant to Reg 4(2) of TUPE. Accordingly, the Respondent transferor was no longer required to maintain such wage records and was not required to comply with the production notice. There was no warrant in the legislative scheme for carving out an exception from the wide scope of Reg 4(2) in respect of NMWA matters.
THE HONOURABLE MR JUSTICE CHOUDHURY
Factual Background
Legal Framework
1998 Act
"9 Duty of employers to keep records.
For the purposes of this Act, the Secretary of State may by regulations make provision requiring employers—
(a) to keep, in such form and manner as may be prescribed, such records as may be prescribed; and
(b) to preserve those records for such period as may be prescribed."
"10 Worker's right of access to records.
(1) A worker may, in accordance with the following provisions of this section,—
(a) require his employer to produce any relevant records; and
(b) inspect and examine those records and copy any part of them.
(2) The rights conferred by subsection (1) above are exercisable only if the worker believes on reasonable grounds that he is or may be being, or has or may have been, remunerated for any pay reference period by his employer at a rate which is less than the national minimum wage.
(3) The rights conferred by subsection (1) above are exercisable only for the purpose of establishing whether or not the worker is being, or has been, remunerated for any pay reference period by his employer at a rate which is less than the national minimum wage.
(4) The rights conferred by subsection (1) above are exercisable—
(a) by the worker alone; or
(b) by the worker accompanied by such other person as the worker may think fit.
(5) The rights conferred by subsection (1) above are exercisable only if the worker gives notice (a "production notice") to his employer requesting the production of any relevant records relating to such period as may be described in the notice.
(6) If the worker intends to exercise the right conferred by subsection (4)(b) above, the production notice must contain a statement of that intention.
(7) Where a production notice is given, the employer shall give the worker reasonable notice of the place and time at which the relevant records will be produced.
(8) The place at which the relevant records are produced must be—
(a) the worker's place of work; or
(b) any other place at which it is reasonable, in all the circumstances, for the worker to attend to inspect the relevant records; or
(c) such other place as may be agreed between the worker and the employer.
(9) The relevant records must be produced—
(a) before the end of the period of fourteen days following the date of receipt of the production notice; or
(b) at such later time as may be agreed during that period between the worker and the employer.
(10) In this section—
"records" means records which the worker's employer is required to keep and, at the time of receipt of the production notice, preserve in accordance with section 9 above;
"relevant records" means such parts of, or such extracts from, any records as are relevant to establishing whether or not the worker has, for any pay reference period to which the records relate, been remunerated by the employer at a rate which is at least equal to the national minimum wage."
"Non-compliance: worker entitled to additional remuneration.
(1) If a worker who qualifies for the national minimum wage is remunerated for any pay reference period by his employer at a rate which is less than the national minimum wage, the worker shall [at any time ("the time of determination")] be taken to be entitled under his contract to be paid, as additional remuneration in respect of that period, [whichever is the higher of –
(a) the amount described in subsection (2) below and.
…
(2) [The amount referred to in subsection (1)(a) above is the difference between—
(a) the relevant remuneration received by the worker for the pay reference period; and
(b) the relevant remuneration which the worker would have received for that period had he been remunerated by the employer at a rate equal to the national minimum wage."
"54 Meaning of "worker", "employee" etc.
(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.
(2) In this Act "contract of employment" means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.
(3) In this Act "worker" (except in the phrases "agency worker" and "home worker") means an individual who has entered into or works under (or, where the employment has ceased, worked under)—
(a) a contract of employment; or
(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;
and any reference to a worker's contract shall be construed accordingly.
(4) In this Act "employer", in relation to an employee or a worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed.
(5) In this Act "employment"—
(a) in relation to an employee, means employment under a contract of employment; and
(b) in relation to a worker, means employment under his contract; and "employed" shall be construed accordingly."
"59 Records to be kept by an employer
(1) The employer of a worker who qualifies for the national minimum wage must keep in respect of that worker records sufficient to establish that the employer is remunerating the worker at a rate at least equal to the national minimum wage.
…
(8) The records required to be kept by this regulation must be kept by the employer for a period of three years beginning with the day upon which the pay reference period immediately following that to which they relate ends.
"4 Effect of relevant transfer on contracts of employment
(1) Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.
(2) Without prejudice to paragraph (1), but subject to paragraph (6), and regulations 8 and 15(9), on the completion of a relevant transfer—
(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee; and
(b) any act or omission before the transfer is completed, of or in relation to the transferor in respect of that contract or a person assigned to that organised grouping of resources or employees, shall be deemed to have been an act or omission of or in relation to the transferee.
…
(6) Paragraph (2) shall not transfer or otherwise affect the liability of any person to be prosecuted for, convicted of and sentenced for any offence.
(7) Paragraphs (1) and (2) shall not operate to transfer the contract of employment and the rights, powers, duties and liabilities under or in connection with it of an employee who informs the transferor or the transferee that he objects to becoming employed by the transferee."
"1 For the purposes of this Directive:
(a) "transferor" shall mean any natural or legal person who, by reason of a transfer within the meaning of Article 1(1), ceases to be the employer in respect of the undertaking, business or part of the undertaking or business;
(b) "transferee" shall mean any natural or legal person who, by reason of a transfer within the meaning of Article 1(1), becomes the employer in respect of the undertaking, business or part of the undertaking or business...
…
(d) "employee" shall mean any person who, in the Member State concerned, is protected as an employee under national employment law."
"1 The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.
Member States may provide that, after the date of transfer, the transferor and the transferee shall be jointly and severally liable in respect of obligations which arose before the date of transfer from a contract of employment or an employment relationship existing on the date of the transfer."
"This Directive shall not affect the right of Member States to apply or introduce laws, regulations or administrative provisions which are more favourable to employees or to promote or permit collective agreements or agreements between social partners more favourable to employees."
"…the transfer of an undertaking entails the automatic transfer from the transferor to the transferee of the employer's obligations arising from the contract of employment or an employment relationship, subject however to the right of Member States to provide for joint liability of the transferor and transferee following the transfer. It follows that unless the Member States avail themselves of this possibility the transferor is released from his obligations as an employer solely by reason of the transfer and that this legal consequence is not conditional on the consent of the employee's concerns."
I should mention that the quote there was referring to a previous Directive 77/187/EEC.
"The word 'transferred' necessarily denotes that all the transferor's liabilities, whether accrued or continuing, pass to the transferee and the transferor is no longer subject to any of them. We agree with what was said by Morrison J in Ibex Trading Company Limited v Walton [1994] ICR 907 916C that 'use of the word transfer in its natural and ordinary meaning suggests [a] taking away from one and handing over to another." Indeed, we would go [further] and hold that the word cannot bear any other meaning in any other circumstances…."
Allan was cited with approval by the Court of Appeal in Bernadone v Pall Mall Services Group Limited & Others [2001] ICR 197 at [28].
The Tribunal's Decision
"43. Despite the persuasive way in which Mr Feeny presented his case I preferred Mr Brittenden's argument. Whilst regulation 4 of TUPE introduces a legal fiction that the contract has always been with the transferee, that is not a legal fiction applicable for all purposes. It is for the purpose of ensuring that the contract of employment has effect after the transfer as if it had originally been made with the transferee. Regulation 4(2) takes effect at the moment of transfer, and regulation 4(2)(b) is expressly concerned with any act or omission before the transfer is completed.
44. Importantly, I rejected Mr Feeny's argument that the UK had not adopted the model envisaged by Article 2(1) of the ARD by choosing to link the definition of the employment relationship to a contract of employment. It seemed to me that Article 2(2) gave member states a measure of discretion in relation to the characterisation of those relationships to which the domestic provisions would apply. That did not undermine the general principle in Article 2(1) that where the domestic provisions applied, the effect of a transfer would be that the transferor ceased to be the employer and the transferee became the employer.
45. Accordingly in my judgment the fourth respondent was the "employer" of these claimants within the meaning of section 54(4) NMW because they had been employed by R4, and that employment had ceased. There was no longer a contract of employment between R4 and the individual claimants. Although for the purposes of their relationship with the transferee it was deemed that their contract of employment had always been with the transferee, that did not change the underlying reality that on 31 October 2016 R4 employed the claimants and on 1 November 2016 it had ceased to do so.
46. Further, I accepted Mr Brittenden's argument that the duty to keep records in section 9 and the NMW Regs was inextricably bound up with the right of access in section 10 of the NMW and the mandatory award for a breach of that provision found in section 11. There was nothing in the NMW or the NMW Regs to suggest that the obligation to retain records came to an end when the worker transferred to a different employer under TUPE. The length of time for which records had to be kept was not defined by reference to the length of the employment relationship, but rather by reference to calendar years and the pay reference period in question (regulation 59(8)). That same period was in effect the time limit for serving a production notice by virtue of section 10(10) NMW. That being so, the right to serve a production notice after a transfer would be an empty right if the notice had to be served on the transferee who did not have the records or any obligation to keep them."
"48. The first consideration was that such a conclusion appeared to be in line with the enforcement provisions involving HMRC. An employer whose employees transfer out under TUPE remains liable to preserve its National Minimum Wage records for the period prescribed by the NMW Regs, and remains liable to criminal prosecution if it has failed to do so: section 31(2) NMW. It is in the best position to defend any such criminal proceedings by producing the records as evidence that it kept and preserved them at the relevant time. If any obligation to preserve those records vanishes at the moment of transfer of the employee to another employer, the transferor runs the risk of not being able to show retrospectively that the records were kept at all. No such difficulty arises if the obligation to preserve those records survives the termination of employment by TUPE transfer.
Policy
49. The second consideration was that there would seem to be sound policy reasons why the obligation to produce records rests with the person obliged to make and retain those records during the pay reference periods in question.
Anomalies
50. The third consideration was the anomalies which would result if the respondent's contention were correct. A transferee could become liable for a mandatory award when there was nothing it could do about it. There was nothing requiring a transferor to provide its National Minimum Wage records to a transferee upon transfer. Mr Feeny acknowledged that regulation 11 did not provide complete protection in that respect, but suggested that it provided some protection because of the obligation to notify the transferee if the transferor had reasonable grounds to believe that an employee might bring such a claim against the transferee. That seemed to me to fall a long way short of being sufficient. Although a transferee faced with an unlawful deduction from wages complaint could utilise Employment Tribunal or County Court procedures to secure disclosure of the relevant documentation by the transferor, that would not be a possibility open to a transferee where simply faced with a production notice and an employee refusing to extend the 14 days for a response.
51. Further, those difficulties would be even more acute in a service provision change as opposed to a business transfer, where there might not be any relationship at all between transferor and transferee, or in a situation (such as this) where it was disputed whether TUPE applied at all.
52. Finally, one would have expected there to have been provision in TUPE for liability arising out of a failure to produce records to be shared between transferor and transferee if the transferee was going to become liable in any way for such a failure.
53. In contrast the anomalies resulting from the interpretation for which the claimants contended appeared minor. The "windfall" argument relied upon by Mr Feeny was not a significant factor. It was open to employees of the same employer to serve a series of production notices during a year resulting in a mandatory award each time the relevant information was not supplied within 14 days. The fact these claimants faced the prospect of two awards from two different employers for the same 12 month period was not therefore material.
54. Perhaps more significant was the fact that any claim for arrears of pay based on what the records show will be pursued against a transferee if the claimant has transferred under TUPE after the pay reference periods in question, yet on the claimants' case the records will lie with the transferor. However, the law offers a clear solution to this anomaly: a transferee facing such a claim (in which it bears the burden of proof) can seek an order compelling the transferor to produce the records if unable to obtain them through other means. Again that seemed to me to be a minor matter."
Accordingly, the Claimant's claim was allowed and the award mentioned at the beginning of this Judgment was made.
Grounds of Appeal
(i) Ground 1: The Tribunal erred in treating the employment as having ceased for the purposes of s.54(1) and 54(4) NMWA. Where there has been a relevant transfer the effect of Regulation 4(1) of TUPE is that the employment does not cease.
(ii) Ground 2: The Tribunal erred in failing to consider whether the obligation to keep and preserve minimum wage records is itself an obligation that transfers where there is a relevant transfer. The further obligation to produce records, which is parasitic on the obligation to maintain records, must therefore necessarily also transfer.
Submissions
"As has been pointed out in a number of authorities that amounts to a statutory novation of the contract. It is as if, for legal purposes, the old employer and the new employer had got together with the employee and said: "do you agree to your contract being transferred with all its terms, advantages and liabilities to the new employer?" and the employee had said to both them: "yes, I do agree." That would be a novation of the contract, as it would be called legally. Article 5 has that effect where there is a relevant transfer."
Discussion
"HMRC has changed its approach to charging penalties when enforcing NMW where there has been a transfer of staff from one employer to another under TUPE Regulation 2006 Provisions[sic]. Since 2 July 2018 where TUPE applies all NMW liabilities, including the full penalty amount are applied to the new employer. HMRC previously charged the former employers all or part of the penalties where they were triggered by arrears that had accrued before workers had transferred under TUPE provisions."
Conclusion