HOUSE OF LORDS
LITSTER AND OTHERS
(APPELLANTS)
v.
FORTH DRY DOCK & ENGINEERING COMPANY LIMITED
(IN RECEIVERSHIP) AND ANOTHER
(RESPONDENTS)
(SCOTLAND)
Lord Keith of Kinkel
Lord Brandon of Oakbrook
Lord Templeman
Lord Oliver of Aylmerton
Lord Jauncey of Tullichettle
LORD KEITH OF KINKEL
My Lords,
I agree with the speeches of my noble and learned friends
Lord Oliver of Aylmerton and Lord Templeman, which I have had
the opportunity of reading in draft, and will add only a few
observations of my own.
In Pickstone v. Freemans Plc. [1989] AC 66 there had been
laid before Parliament under paragraph 2(2) of Schedule 2 to the
European Communities Act 1972 the draft of certain Regulations
designed, and presented by the responsible ministers as designed, to
fill a lacuna in the equal pay legislation of the United Kingdom
which had been identified by a decision of the European Court of
Justice. On a literal reading the regulation particularly relevant
did not succeed in completely filling the lacuna. Your Lordships’
House, however, held that in order that the manifest purpose of
the Regulations might be achieved and effect given to the clear
but inadequately expressed intention of Parliament certain words
must be read in by necessary implication.
In the present case the Transfer of Undertakings (Protection
of Employment) Regulations 1981 (S.I. 1981 No. 1794) were
similarly laid before Parliament in draft and approved by
resolutions of both Houses. They were so laid as designed to give
effect to Council Directive (77/187/E.E.C.) dated 14 February
1977. It is plain that if the words in regulation 5(3) of the
Regulations of 1981 “a person so employed immediately before the
transfer” are read literally, as contended for by the second
respondents, Forth Estuary Engineering Ltd., the provisions of
regulation 5(1) will be capable of ready evasion through the
transferee arranging with the transferor for the latter to dismiss
its employees a short time before the transfer becomes operative.
In the event that the transferor is insolvent, a situation commonly
forming the occasion for the transfer of an undertaking, the
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employees would be left with worthless claims for unfair dismissal
against the transferor. In any event, whether or not the
transferor is insolvent, the employees would be deprived of the
remedy of reinstatement or re-engagement. The transferee would
be under no liability towards the employees and a coach and four
would have been driven through the provisions of regulation 5(1).
A number of decisions of the European Court, in particular
P. Bork International A/S v. Foreningen af Arbejdslederre i
Danmark (Case 101/87) [1989] I.R.L.R. 41 have had the result that
where employees have been dismissed by the transferor for a
reason connected with the transfer, at a time before the transfer
takes effect, then for purposes of article 3(1) of Council Directive
(77/187/E.E.C.) (which corresponds to regulation 5(1)) the employees
are to be treated as still employed by the undertaking at the time
of the transfer.
In these circumstances it is the duty of the court to give to
regulation 5 a construction which accords with the decisions of the
European Court upon the corresponding provisions of the Directive
to which the regulation was intended by Parliament to give effect.
The precedent established by Pickstone v. Freemans Plc, indicates
that this is to be done by implying the words necessary to achieve
that result. So there must be implied in regulation 5(3) words
indicating that where a person has been unfairly dismissed in the
circumstances described in regulation 8(1) he is to be deemed to
have been employed in the undertaking immediately before the
transfer or any of a series of transactions whereby it was
effected.
My Lords, I would allow the appeal.
LORD BRANDON OF OAKBROOK
My Lords,
For the reasons given in the speeches of my noble and
learned friends, Lord Keith of Kinkel, Lord Templeman and Lord
Oliver of Aylmerton, I would allow the appeal.
LORD TEMPLEMAN
My Lords,
By article 3 of the Directive (77/187/E.E.C.) dated 14
February 1977 the Council of Ministers of the European
Community directed that upon the transfer of a business from one
employer to another, the benefit and burden of a contract of
employment between the transferor (“the old owner”) and a worker
in the business should devolve on the transferee (“the new owner”).
The Directive thus imposed on the new owner liability for the
workers in the business although the member states were
authorised by article 3 to continue the liability of the old owner
– 2 –
to the workers in the business “in addition to the transferee.” The
object of the Directive was expressed to be:
“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 4(1) of the Directive provided that:
“The transfer of an undertaking, business or part of a
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.”
The result of article 4(1) is that the new owner intending to
dismiss the workers cannot achieve his purpose by asking the old
owner to dismiss the workers immediately prior to the transfer
taking place. The new owner cannot dismiss the workers himself
after the transfer has taken place. Any such dismissal, whether
by the old owner or the new owner, would be inconsistent with the
object of protecting the rights of the workers and is prohibited by
article
The Transfer of Undertakings, (Protection of Employment)
Regulations 1981 (S.I. 1981 No. 1794), were approved by a
resolution of each House of Parliament in pursuance of paragraph
2(2) of Schedule 2 to the European Communities Act 1972, for the
express purpose of implementing Council Directive (77/187/E.E.C.).
Regulation 5(1) provides, in conformity with article 3 of the
Directive, that:
“A relevant transfer shall not operate so as to terminate
the contract of employment of any person employed by the
transferor in the undertaking or part transferred but any
such contract which would otherwise have been terminated
by the transfer shall have effect after the transfer as if
originally made between the person so employed and the
transferee.”
Thus upon the transfer of a business from one employer to
another, the benefit and burden of a contract of employment
between the old owner and a worker in the business devolves on
the new owner.
Regulation 8 provides, in conformity with article 4, that:
“(1) Where either before or after the relevant transfer, any
employee of the transferor or transferee is dismissed, that
employee shall be treated … as unfairly dismissed if the
transfer or a reason connected with it is the reason or
principal reason for his dismissal.”
The result of regulation 8(1) is the same as article 4(1),
namely, that if the new owner wishes to dismiss the workers he
cannot achieve his purpose either by procuring the old owner to
dismiss the workers, prior to the transfer taking place, or by
himself dismissing the workers after the date of the transfer.
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In the present case, the old owners agreed with the new
owners to dismiss the workers. The old owners were the Forth
Dry Dock Engineering Co. Ltd. (“the Forth Dry Dock”). The Forth
Dry Dock was the subsidiary and a member of a group of
companies headed by a parent company which defaulted in
payments under a debenture issued to Lloyds Bank Plc. On 28
September 1983, Lloyds Bank Plc. appointed receivers to all the
companies in the group. The business of the Forth Dry Dock,
namely, the business of ship-repairers was carried on under a lease
of the Edinburgh dock at Leith, and this business was continued
after the appointment of receivers by 25 workers including 12 who
are the present appellants. A consultant to the parent company in
the group, on financial and personnel matters, a Mr. Brooshooft,
was minded to purchase the business of the Forth Dry Dock from
the receivers. He acted in conjunction with a Mr. Hughes, the
manager of the Forth Dry Dock and a Mr. Paterson who had
formerly been a manager of another ship-repairing company, Robb
Caledon. The workforce of Robb Caledon had been made
redundant and were sufficiently chastened by unemployment to be
offered lower wages than the wages of the workers of Forth Dry
Dock. Mr. Brooshooft formed a new company which became Forth
Estuary Engineering Ltd. (Forth Estuary). Forth Estuary declined
to purchase the lease of the Edinburgh Dock vested in the Forth
Dry Dock but took a new lease from the landlords. Forth Estuary
declined to purchase the goodwill of the Forth Dry Dock and were
only prepared to purchase the tangible assets of Forth Dry Dock
but of course possession of these assets, plus possession of a lease
replacing the lease to the Forth Dry Dock, conferred on Forth
Estuary the goodwill of the Forth Dry Dock. The object of taking
a new lease and of declining to take the goodwill expressly, was
to make it appear that the Directive and the Regulations did not
apply because the whole of the business of the Dry Dock Company
had not been transferred or because a third party, the landlords,
were involved. These arguments have rightly been rejected at ail
stages of this litigation. The workers of Forth Dry Dock were
given the impression that their employment would be continued by
a new owner. On 6 February 1984, the receivers appointed by
Lloyds Bank agreed in writing to sell to Forth Estuary “the
business assets” defined as the plant, machinery, equipment,
furniture and office equipment detailed in the schedule, “as the
same shall exist at the close of business” on 6 February 1984 in
consideration of £33,500 paid by Forth Estuary to the receivers
when the agreement was executed in the morning or early
afternoon of that day. At 3.30 p.m., the receivers appointed by
Lloyds Bank informed the workforce of the Forth Dry Dock in
writing that “no further funds can be made available to pay your
wages with effect from the close of business today” and that no
payments would be made for accrued holiday pay or damages for
failure to give the statutory period of notice. Thereafter, Forth
Estuary continued the business of the Forth Dry Dock, employed
the former dockmaster and two other employees of Forth Dry
Dock, but replaced the remainder of the workforce with former
employees of Robb Caledon at lower wages. Thus Lloyds Bank,
acting for the receiver transferred the business at 4.30 p.m. on 6
February 1984, that being the time of close of business and one
hour after the Forth Dry Dock workers had been dismissed. The
assets of Forth Dry Dock were taken by Lloyds Bank as debenture
holders so that nothing was available to pay the workers of Forth
Dry Dock either their holiday entitlement or damages for dismissal
– 4 –
without notice, or damages for unfair dismissal. It is argued that
Forth Estuary, which is solvent, is not liable to the workers
because they were dismissed one hour before the transfer of the
business. Article 3 of the Directive and regulation 5(1) of the
Regulations of 1981 were plainly intended to prevent an insolvent
old owner from dismissing a workforce at the behest of a solvent
new owner so as to deprive the workforce effectively of their
rights.
Forth Estuary appear to deny that they are liable to the
appellants for compensation for unfair dismissal pursuant to
regulation 8. The Court of Session found in favour of Forth
Estuary.
The appellants were dismissed at 3.30 p.m. on 6 February by
Forth Dry Dock and the business was transferred to Forth Estuary
at 4.30 p.m. on the same day. It is argued, on behalf of Forth
Estuary, that despite the Directive and the Regulations, they are
not liable to the appellants in respect of their unfair dismissal
because regulation 5(3) provides that:
“Any reference in paragraph (1) . . . above to a person
employed in an undertaking or part of one transferred by a
relevant transfer is a reference to a person so employed
immediately before the transfer, including, where the
transfer is effected by a series of two or more transactions,
a person so employed immediately before any of those
transactions.”
Thus, it is said, since the workforce of Forth Dry Dock
were dismissed at 3.30 p.m., they were not employed “immediately
before the transfer” at 4.30 p.m. and therefore regulation 5(1) did
not transfer any liability for the workforce from Forth Dry Dock
to Forth Estuary. The argument is inconsistent with the Directive.
In P. Bork International A/S v. Foreningen af Arbejdslederre i
Danmark (Case 101/87) [1989] I.R.L.R. 41, 44 the European Court
of Justice ruled that:
“the only workers who may invoke Directive [(77/187/E.E.C.)]
are those who have current employment relations or a
contract of employment at the date of the transfer. The
question whether or not a contract of employment or
employment relationship exists at that date must be assessed
under national law, subject, however, to the observance of
the mandatory rules of the Directive concerning the
protection of workers against dismissal by reason of the
transfer. It follows that the workers employed by the
undertaking whose contract of employment or employment
relationship has been terminated with effect on a date
before that of the transfer, in breach of article 4(1) of the
Directive, must be considered as still employed by the
undertaking on the date of the transfer with the
consequence, in particular, that the obligations of an
employer towards them are fully transferred from the
transferor to the transferee in accordance with article 3(1)
of the Directive.”
In von Colson and Kamann v. Land Nordrhein-Westfalen
(Case 14/83) [1984] ECR 1891, 1909 the European Court of
– 5 –
Justice dealing with Directive (76/207/E.E.C.), forbidding
discrimination on grounds of sex regarding access to employment,
ruled that:
“the member states’ obligation arising from a Directive to
achieve the result envisaged by the Directive and their duty
under article 5 of the Treaty to take all appropriate
measures, whether general or particular, to ensure the
fulfilment of that obligation, is binding on all the authorities
of member states including, for matters within their
jurisdiction, the courts. It follows that, in applying the
national law and in particular the provisions of a national
law specifically introduced in order to implement Directive
[(76/207/E.E.C.)], national courts are required to interpret
their national law in the light of the wording and the
purpose of the Directive in order to achieve the result
referred to in the third paragraph of article 189.”
Thus the courts of the United Kingdom are under a duty to
follow the practice of the European Court of Justice by giving a
purposive construction to Directives and to Regulations issued for
the purpose of complying with Directives. In Pickstone v.
Freemans Plc. [1989] AC 66, this House implied words in a
regulation designed to give effect to Directive (75/117/E.E.C.)
dealing with equal pay for women doing work of equal value. If
this House had not been able to make the necessary implication,
the Equal Pay (Amendment) Regulations (1983) would have failed
their object and the United Kingdom would have been in breach of
its treaty obligations to give effect to Directives. In the present
case, in the light of Directive (77/187/E.E.C.) and in the light of
the ruling of the European Court of Justice in Bork’s case [1989]
I.R.C.R. 41, it seems to me, following the suggestion of my noble
and learned friend, Lord Keith of Kinkel, that paragraph 5(3) of
the Regulations of 1981 was not intended and ought not to be
construed so as to limit the operation of regulation 5 to persons
employed immediately before the transfer in point of time.
Regulation 5(3) must be construed on the footing that it applies to
a person employed immediately before the transfer or who would
have been so employed if he had not been unfairly dismissed
before the transfer for a reason connected with the transfer. It
would, of course, still be open for a new owner to show that the
employee had been dismissed for “an economic, technical or
organisational reason entailing changes in the workforce,” but no
such reason could be advanced in the present case where there
was no complaint against the workers, they were not redundant
and there were no relevant reasons entailing changes in the
workforce. I would therefore allow the appeal and make the order
proposed by my noble and learned friend, Lord Oliver of
Aylmerton.
LORD OLIVER OF AYLMERTON
My Lords,
This appeal raises, not for the first time, the broad question
of the approach to be adopted by courts in the United Kingdom to
– 6 –
domestic legislation enacted in order to give effect to this
country’s obligations under the E.E.C. Treaty (Cmnd. 5179-11).
The legislation with which the appeal is concerned is a statutory
instrument (S.I. 1981 No. 1794) made on 14 December 1981
pursuant to paragraph 2(2) of Schedule 2 to the European
Communities Act 1972 and entitled “The Transfer of Undertakings
(Protection of Employment) Regulations 1981.” The Regulations
were made by the Secretary of State – and this is common ground
– in order to give effect to a Directive (77/187/E.E.C.) adopted by
the Council of the European Communities on 14 February 1977 to
provide for 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
question which arises is whether it has achieved this object.
The approach to the construction of primary and subordinate
legislation enacted to give effect to the United Kingdom’s
obligations under the E.E.C. Treaty have been the subject matter
of recent authority in this House (see Pickstone v. Freemans Plc.
[1989] AC 66) and is not in doubt. If the legislation can
reasonably be construed so as to conform with those obligations –
obligations which are to be ascertained not only from the wording
of the relevant Directive but from the interpretation placed upon
it by the European Court of Justice at Luxembourg – such a
purposive construction will be applied even though, perhaps, it may
involve some departure from the strict and literal application of
the words which the legislature has elected to use.
It will, I think, be convenient to consider the terms of the
Directive and the Regulations before outlining the circumstances in
which the instant appeal arises. The broad scope of the Directive
appears from the following two recitals:
“Whereas economic trends are bringing in their wake, at
both national and Community level, changes in the structure
of undertakings, through transfers of undertakings, businesses
or parts of businesses to other employers as a result of
legal transfers or mergers;
“Whereas 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.”
By article 1 it is provided that the Directive shall apply to the
transfer of an undertaking, business or part of a business to
another employer. Article 2 contains definitions, the relevant ones
for present purposes being:
“(a) ‘transferor’ means 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 business;
“(b) ‘transferee’ means 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 business.”
– 7 –
Section II is headed “Safeguarding of Employees’ Rights” and
contains five articles of which the relevant ones for present
purposes are articles 3 and 4. These provide (so far as material):
“Article 3.
“(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 within the meaning of
article 1(1) shall, by reason of such transfer, be transferred
to the transferee.”
Sub-paragraph 2 deals with the continuation of collective
agreements and sub-paragraph 3 accepts from the preceding sub-
paragraphs employees’ rights to old age, invalidity or survivors’
benefits under company pension schemes outside the member states
social security schemes. The latter part of the sub-paragraph
may, however, have a peripheral relevance in the present context,
as indicating that the expression “on the date of the transfer” and
“at the time of the transfer” are used interchangeably in the
Directive. It provides:
“Member states shall adopt the measures necessary to
protect the interests of employees and of persons no longer
employed in the transferor’s business at the time of the
transfer within the meaning of article 1(1) in respect of
rights conferring on them . . . entitlement to old-age
benefits . . . under supplementary schemes referred to in
the first sub-paragraph.”
Article 4 is, so far as material, in the following terms:
“1. The transfer of an undertaking, business or part of a
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. . . .
“2. If the contract of employment or the employment
relationship is terminated because the transfer within the
meaning of article 1(1) involves a substantial change in
working conditions to the detriment of the employee, the
employer shall be regarded as having been responsible for
termination of the contract of employment or of the
employment relationship.”
Section III contains requirements for providing information to
representatives of employees which do not need to be recited in
any detail. The provisions of sub-paragraph 1, however, ought to
be referred to in the context of the overall purpose of the
Directive of ensuring that the interests of employees are to be
safeguarded on any transfer of the undertaking in which they are
employed. It provides as follows:
“The transferor and the transferee shall be required to
inform the representatives of their respective employees
affected by a transfer within the meaning of article 1(1) of
the following:
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– the reasons for the transfer,
– the legal, economic and social implications of the
transfer for the employees,
– measures envisaged in relation to the employees.
The transferor must give such information to the
representatives of his employees in good time before the
transfer is carried out.”
Finally, article 7, which provides that the Directive shall not
affect the rights of member states to apply or introduce measures
more favourable to employees, contains the clear implication that
the protection envisaged by the Directive is the minimum
requirement for which the member states are obliged to give
effect.
Turning now to the Regulations, which came into operation
in 1982 and which represent the British Government’s perception at
that time of its obligations under the Directive, these provide for
relevant purposes as follows:
Regulation 2
“(1) In these Regulations – … ’employee’ means any
individual who works for another person whether under a
contract of service or apprenticeship or otherwise but does
not include anyone who provides services under a contract
for services and references to a person’s employer shall be
construed accordingly . . . ‘the 1978 Act,’ and ‘the 1976
Order’ mean respectively . . . the Employment Protection
(Consolidation) Act 1978 and the Industrial Relations
(Northern Ireland) Order 1976 . . . ‘relevant transfer’ means
a transfer to which these Regulations apply and ‘transferor’
and ‘transferee’ shall be construed accordingly; and
‘undertaking’ includes any trade or business but does not
include any undertaking or part of an undertaking which is
not in the nature of a commercial venture.”
Regulation 3
“(1) Subject to the provisions of these Regulations, these
Regulations apply to a transfer from one person to another
of an undertaking situated immediately before the transfer
in the United Kingdom or a part of one which is so
situated.
“(2) Subject as aforesaid, these Regulations so apply whether
the transfer is effected by sale or by some other disposition
or by operation of law. . . .
“(4) It is hereby declared that a transfer of an undertaking
or part of one may be effected by a series of two or more
transactions between the same parties, but in determining
whether or not such a series constitutes a single transfer
regard shall be had to the extent to which the undertaking
or part was controlled by the transferor and transferee
respectively before the last transaction, to the lapse of time
– 9 –
between each of the transactions, to the intention of the
parties and to all the other circumstances.”
Regulation 5
“(1) A relevant transfer shall not operate so as to terminate
the contract of employment of any person employed by the
transferor in the undertaking or part transferred but any
such contract which would otherwise have been terminated
by the transfer shall have effect after the transfer as if
originally made between the person so employed and the
transferee.
“(2) Without prejudice to paragraph (1) above, on the
completion of a relevant transfer –
-
-
-
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 -
anything done before the transfer is completed
by or in relation to the transferor in respect of
that contract or a person employed in that
undertaking or part shall be deemed to have
been done by or in relation to the transferee.
-
-
“(3) Any reference in paragraph (1) or (2) above to a person
employed in an undertaking or part of one transferred by a
relevant transfer is a reference to a person so employed
immediately before the transfer, including, where the
transfer is effected by a series of two or more transactions,
a person so employed immediately before any of those
transactions.”
Regulation 8
“(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 V of the
1978 Act and articles 20 to 41 of the 1976 Order (unfair
dismissal) as unfairly dismissed if the transfer or a reason
connected with it is the reason or principal reason for his
dismissal.
“(2) Where an economic, technical or organisational reason
entailing changes in the workforce of either the transferor
or the transferee before or after a relevant transfer is the
reason or principal reason for dismissing an employee –
(a) paragraph 1 above shall not apply to his
dismissals …”
Finally, regulation 12 provides that:
“Any provision of any agreement (whether a contract of
employment or not) shall be void in so far as it purports to
exclude or limit the operation of regulation 5, 8 or 10
above …”
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It will be seen that, as is to be expected, the scope and purpose
of both the Directive and the Regulations are the same, that is,
to ensure that on any transfer of an undertaking or part of an
undertaking, the employment of the existing workers in the
undertaking is preserved or, if their employment terminates solely
by reason of the transfer, that their rights arising out of that
determination are effectively safeguarded. It may, I think, be
assumed that those who drafted both the Directive and the
Regulations were sufficiently acquainted with the realities of life
to appreciate that a frequent – indeed, possibly, the most frequent
– occasion upon which a business or part of a business is
transferred is when the original employer is insolvent, so that an
employee whose employment is terminated on the transfer will
have no effective remedy for unfair dismissal unless it is capable
of being exerted against the transferee. It can hardly have been
contemplated that, where the only reason for determination of the
employment is the transfer of the undertaking or the relevant part
of it, the parties to the transfer would be at liberty to avoid the
manifest purpose of the Directive by the simple expedient of
wrongfully dismissing the workforce a few minutes before the
completion of the transfer. The European Court of Justice has
expressed, in the clearest terms, the opinion that so transparent a
device would not avoid the operation of the Directive, and if the
effect of the Regulations is that under the law of the United
Kingdom it has that effect, then your Lordships are compelled to
conclude that the Regulations are gravely defective and the
Government of the United Kingdom has failed to comply with its
mandatory obligations under the Directive. If your Lordships are
in fact compelled to that conclusion, so be it; but it is not, I
venture to think, a conclusion which any of your Lordships would
willingly embrace in the absence of the most compulsive context
rendering any other conclusion impossible.
My Lords, the circumstances in which the question has
arisen for decision in the instant case are these. The first
respondents, Forth Dry Dock & Engineering Co. Ltd., carried on a
business of ship-repairers at the Edinburgh Dry Dock, premises
which they held under a lease from the Forth Ports Authority. At
the material time, the 12 appellants were tradesmen employed in
that business. They were part of a permanent workforce of skilled
shipworkers of various trades who had been continuously employed
by the first respondent since 1981 or 1982. In the year 1983, the
group of companies of which the first respondent formed part, was
in financial difficulties and the receiver of the various companies
in the group (including the first respondents) was appointed by the
debenture holder, Lloyds Bank, on 28 September 1983. The
workforce was then told by the receiver’s representative, a Mr.
Page, that the intention was to sell the business as a going
concern and that their jobs would be safe. That belief may have
been genuinely entertained at the time, but it was falsified in the
event.
On 23 November 1983, the second respondents, Forth
Estuary Engineering Ltd. (“Forth Estuary”) was incorporated. A
few days before the transfer of the first respondents’ assets, which
took place on 6 February 1984, the capital of Forth Estuary was
increased from £1,000 to £20,000. Eighty-five per cent. of the
issued capital became vested in a Mr. Brooshooft, who had been a
financial adviser to the first respondents’ parent company, and 10
– 11 –
per cent. in a Mr. Hughes, who had been a director of and had
managed the business of the first respondents. On 6 February
1984, an agreement was entered into between the first
respondents, the receivers and Forth Estuary under which (a) all
the first respondents’ business assets, consisting of plant,
machinery, equipment, furniture and office equipment specified in
a schedule, were acquired by Forth Estuary at a price of £33,500
payable on execution of the agreement, (b) the first respondents
undertook to cease business at close of business on that day (at
which time the sale and purchase was to be carried into effect)
and (c) the first respondents undertook forthwith to relinquish their
rights under the lease of the dry dock which they held from the
Ports Authority. Before this – it is not clear exactly when –
Forth Estuary had obtained from the Forth Ports Authority a new
lease of the property previously let to the first respondents (with
the exception of one shed). It is interesting to note that under
clause 14 of this agreement, its construction, validity and
performance were to be governed by English law and the courts of
England were given exclusive jurisdiction. As a matter of English
law, therefore, the ownership of the assets transferred passed in
equity to Forth Estuary on the execution of the agreement and
those assets were, assuming, as we must assume, that the
consideration was then paid as provided by the agreement, then
held by the transferor as a bare trustee for the transferee. Up to
this point the appellants had continued to be employed by the first
respondents. It had, however, clearly been determined by the
receivers – and one infers by Forth Estuary – that that situation
was not to be permitted to continue and it is difficult, if not
impossible, to resist the inference that the reason why it was not
to be permitted to continue was that both parties were very well
aware of the provisions of the Regulations to which I have already
referred. It can hardly have been merely a fortunate coincidence
that officers from the redundancy payments section of the
Department of Employment were already at the dock on that
afternoon when Mr. Hughes and Mr. Page arrived at approximately
3.00 p.m. having come straight from the office of Messrs. Brodies
where the agreement had been signed. They addressed the
workforce and told them that the business was to close down at
4.30 p.m. that day and that they were dismissed “with immediate
effect.” Each of the appellants was given a letter from the
receivers under the first respondents’ letterhead which was dated 6
February 1984 and was, so far as material, in the following terms:
“We would advise you that no further funds can be made
available to pay your wages with effect from the close of
business today and accordingly we have to inform you that
your employment with the company is terminated with
immediate effect. No payments will be made in respect of
your accrued holiday pay, or the failure to give you your
statutory period of notice.
Under the insolvency provisions of the Employment
Protection Act 1978, any claim you may have for the above
will, subject to certain limitations, be paid to you by the
Department of Employment out of the Redundancy Fund. . .
. Your wages up to the date of dismissal will be paid in the
normal way and you will be issued with a P45 from the
company’s head office.”
– 12 –
One of the less creditable aspects of the matter is that one of
the appellants, Mr. Walker, who was the union shop steward, asked
specifically whether the business was being taken over by Forth
Estuary, and was told by Mr. Hughes that he knew nothing about a
new company taking over, whilst Mr. Page said that he knew
nothing about a company called Forth Estuary Engineering. This
indicates a calculated disregard for the obligations imposed by
regulation 10 of the Regulations. Within 48 hours of their
dismissal, the appellants learned, at the local job centre, that
Forth Estuary was recruiting labour and a group of them went to
fill in application forms for employment. None was successful and
indeed only three former employees of the first respondents were
taken on. Work which was in progress on the vessels on 6
February was subsequently continued and completed by Forth
Estuary, which very soon had a workforce of similar size to that
of the first respondents, embracing the same trade but recruited
at lower rates of pay elsewhere than from the existing employees.
The industrial tribunal, in their reasons for decision, commented:
“The fact that Forth Estuary, apart from the three
exceptions, has not retained or employed the former
employees of Forth Dry Dock is consistent with Mr.
Brooshooft’s decision (which he referred to in his evidence)
not to employ the existing employees as he wanted to start
‘with a clean sheet’ although he had no criticism of them.”
It is difficult to resist the inference that Mr. Brooshooft was not
unmindful of the disadvantages which might flow under the
Regulations from the continuance of the employment of the
existing workforce as compared with the advantages to be derived
from the pool of unemployed tradesmen anxious for work on any
available terms. Although the industrial tribunal made no finding
as to this, the sequence of events and the secrecy with which they
were enshrouded are such that they cannot rationally be accounted
for otherwise than by the hypothesis that the dismissal of the
existing workforce was engineered specifically with a view to
preventing any liability for the obligations incidental to their
contracts of employment from attaching to Forth Estuary, so as to
leave them with nothing but a claim for redundancy on the
Redundancy Fund under section 106 of the Act of 1978 and an
illusory claim for unfair dismissal against an insolvent company.
The appellants applied to an industrial tribunal complaining
that they had been unfairly dismissed and by an order of 28
September 1984, Forth Estuary was sisted as an additional and
second-named respondent to that application. On 27 February
1985, the industrial tribunal determined that the appellants had
been unfairly dismissed by the the first respondents and that Forth
Estuary was liable to pay monetary compensation which was
assessed on the basis of 26 weeks loss of employment. From that
decision Forth Estuary appealed to the Employment Appeal
Tribunal on the grounds, first, that there had been no relevant
transfer of the business within the terms of the Regulations;
secondly, that the appellants were not employees employed in the
business immediately before the transfer and that, accordingly, the
obligation under their respective contracts of employment were not
transferred to Forth Estuary; thirdly, that the appellants had not
been unfairly dismissed; and, fourthly, that in any event there was
no justification for the assessment of compensation on the basis of
– 13 –
26 weeks loss of employment. The appellants cross-appealed
against the decision so far as it restricted the compensation to a
figure based on 26 weeks loss of employment. On 5 December
1985, the Employment Appeal Tribunal [1986] I.R.L.R. 59 affirmed
the decision of the industrial tribunal, save that they concluded
that the onus of establishing that, if the appellants had been
employed by Forth Estuary, that company would have dismissed
them in the future for some proper reason other than for the
mere transfer of the business rested with Forth Estuary. There
was, on the evidence, no ground for limiting the appellants’ claim
to the period assumed by the industrial tribunal. They accordingly
remitted the case to the industrial tribunal to reconsider the basis
for assessment of compensation.
One of the curiosities of the appeal is that the principal
and, substantially, the only question argued before this House on
behalf of the respondents, that is to say, that adumbrated in the
second ground mentioned in the notice of appeal to the
Employment Appeal Tribunal, was not in fact relied upon there,
the principal arguments being that there had been no relevant
transfer so as to enable the appellants to invoke the Regulations
at all and that, in any event, the appellants had not been unfairly
dismissed for the reason specified in regulation 8(1). In my view,
the latter point is really unarguable on the facts. It was entirely
unsupported by any evidence on the part of the first respondent
and was rightly rejected both by the industrial tribunal and the
Employment Appeal Tribunal. Since, however, Mr. Osborne has
sought, as he did before the Court of Session, to keep the first
point alive, it may be convenient to deal with it at this point. It
has not been contested, nor could it easily be with any conviction,
that the business of the first respondents was not transferred to
Forth Estuary; but what is said is that the transfer was not a
“relevant transfer” within the Regulations, inasmuch as one of the
steps involved the concurrence of a third party, that is to say, the
Forth Ports Authority, which was involved to the extent of
accepting the relinquishment of the first respondents’ lease and
granting a new lease to Forth Estuary. What is said is that
regulation 3(4), which declares, ex abundanti cautela, that a
transfer may be effected by a series of “two or more transactions
between the same parties” rules out, by implication, as a relevant
element in the transfer, a transaction between one of the parties
and a third party. In fairness to Mr. Osborne, I should say that
he was the first to acknowledge that this argument hardly
qualified for the description of the jewel in his crown. In my
judgment, there is no substance in it. I do not, for a start,
consider that any such implication can be legitimately drawn from
the words of the regulation, but in any event, regulation 3(4) does
not purport to be anything more than declaratory and cannot be
properly construed as in any sense an exclusive definition of what
can constitute a transfer.
To continue with the history, the respondents appealed to
the Court of Session [1987] I.R.L.R. 289 which by an interlocutor
of the Second Division of the Inner House , dated 18 March 1988,
sustained the appeal and ordered that the cases of all the
appellants should be remitted to the industrial tribunal with a
direction that Forth Estuary should be dismissed from the
proceedings and that the industrial tribunal should proceed to
consider the cases against the first respondents. It is against that
interlocutor that the appellants now appeal to this House.
– 14 –
The ground upon which the Second Division of the Inner
House sustained the appeal was that although the dismissal
occurred on the same day as the transfer, regulation 5 did not
apply to continue the employment of the appellants by Forth
Estuary because the dismissal, having been effected before, albeit
only shortly before, the transfer took effect, there was, at that
point of time, no longer any contract of employment in existence
and the appellants were not therefore employed by the first
respondents at the time of the transfer. Accordingly, regulations
5(1) and (2) never operated to transfer the appellants to the
employment of Forth Estuary or to impose on that company any of
the obligations of the first respondents as employers. In so
deciding, the Second Division followed the decision of the Court of
Appeal in England in Secretary of State for Employment v. Spence
[1987] Q.B. 179, which was decided on 15 May 1986, that is to
say, after the date of the decision of the Employment Appeal
Tribunal. At the date of that decision the point was generally
thought to be concluded against the respondents by two decisions
of the Employment Appeal Tribunal in England in Alphafield Ltd,
(trading as Apex Leisure Hire) v. Barratt [1984] 1 W.L.R. 1062,
and Secretary of State for Employment v. Anchor Hotel (Kippford)
Ltd. [1985] I.C.R. 724 In Spence‘s case the Court of Appeal
overruled those decisions. Your Lordships are now invited to
overrule Spence’s case.
There is, I think, a serious question whether, on the facts of
the instant case, the question of the correctness of the decision in
Spence’s case arises at all. Having regard both to the terms of
the agreement to which I have referred and to those of the letters
of dismissal received by the appellants, there appear to be
respectable arguments in favour of a contention that the
appellants’ employment was not, in fact, determined until after, or
eo instante with, the transfer of the business. The point has,
however, not been fully argued and your Lordships have been
invited to approach the appeal on the footing that the dismissals
took effect at about 3.30 p.m. on 6 February and that the transfer
did not take place until 4.30 p.m. on that day. I therefore make
that assumption.
Two questions then arise. First, was the time which elapsed
between the dismissals and the transfer of so short a duration
that, on the true construction of regulation 5, the appellants were
“employed immediately before” the transfer, as required by sub-
paragraph (3) of that regulation? Secondly, if the answer to that
question is in the negative, what difference (if any) does it make
that the reason, or the principal reason, for the dismissals was, as
it clearly was, the imminent occurrence of the transfer so that
the dismissals were, by regulation 8(1), deemed to be unfair
dismissals?
The expression “immediately before” is one which takes its
meaning from its context, but in its ordinary signification it
involves the notion that there is, between two relevant events, no
intervening space, lapse of time or event of any significance. If,
for instance, the question is whether a deceased person was seized
of property immediately before his death, attention is focussed
upon the very instant at which the death occurred. In construing
the Regulations with which this appeal is concerned, one gets little
– 15 –
help from the terms of the Directive to which they were intended
to give effect. Article 3, as has been seen already, refers to an
employment relationship existing “on the date of the transfer,” but
this expression seems to be used interchangeably with the
expression “at the time of the transfer” – in the French text “au
moment du transfert” – which appears to embrace the notion that
what has to be regarded is the status of the employee vis-à-vis his
employer at the very instant at which the employer’s business is
transferred.
As will already have become apparent, there have been a
number of decisions in which the provisions of regulation 5 have
fallen to be construed and your Lordships’ attention has, in
addition, been drawn to a number of decisions in which articles 3
and 4 of the Directive have fallen to be interpreted by the
European Court of Justice. Before referring to these, however, it
may be helpful to consider the Regulations without the assistance
of authority, but bearing in mind their overall purpose of giving
effect to the provisions of the Directive. To begin with, it is to
be noted that the reference in regulation 5(1) to “a contract which
would otherwise have been terminated by the transfer” is, strictly
speaking, a mis-description. The reason why a contract of
employment is said to “terminate” on a transfer of the employer’s
business is simply that such a transfer operates as a unilateral
repudiation by the employer of his obligations under the contract
and thus as a dismissal of the employee from his service. Because
the relationship between employer and employee is of an
essentially personal nature, the repudiation severs the factual
relationship resulting from the contract, since the primary
obligations on both sides are no longer capable of being performed.
The contract itself, however, is not, strictly speaking, terminated
but remains in being and undischarged so far as the enforcement
of secondary obligations are concerned. This may seem a truism
but it has, I believe, an importance in the analysis, in particular in
relation to the meaning to be ascribed to the words “terminated
by the transfer” in regulation 5(1) and the words “immediately
before the transfer” in regulation 5(3). The necessary assumption
in paragraph (1) of the regulation is that the contract of
employment to which the consequence stated in the paragraph is
to attach, is one which, apart from the transfer, would have
continued in force and that what “terminates” it, or would, apart
from the regulation, have terminated it, is the repudiatory breach
constituted by the transfer. That paragraph can, therefore,
operate only upon a subsisting contract. There is nothing in the
terms of paragraph (2), if it stood alone, which necessarily involves
the same restriction. It is, however, clearly intended merely to
supplement the provisions of paragraph (1), and paragraph (3)
supplies the connection by expressly limiting the operation of both
paragraphs (1) and (2) to the case where the relevant employee is
employed in the undertaking “immediately before the transfer,”
that is to say, to the circumstances envisaged in paragraph (1) in
which, apart from the regulation, the event producing the
termination is the transfer. The crucial question, therefore, is
what is meant by the reference to a contract being terminated
“by” a transfer.
This could embrace a number of different possibilities. If
nothing at ail occurs to disturb the relationship of master and
servant apart from the simple unannounced fact of the transfer of
– 16 –
business by the employer, it is the transfer itself which constitutes
the repudiatory breach which, apart from regulation 5(1),
“terminates” the contract. If, however, the employer,
contemporaneously with the transfer, announces to his workforce
that he is transferring the business and that they are therefore
dismissed without notice, it is, strictly, the oral notification which
terminates the contract; yet it could not, as a matter of common
sense, be denied that the contract has been “terminated by the
transfer” of the business, particularly when reference is made to
the supplementary provisions of paragraph (2) of regulation 5 when
read in conjunction with paragraph (3). Similarly, if the employer,
a week, or it may be a day, before the actual transfer, hands to
each employee a letter announcing that he is proposing to transfer
his undertaking at the close of business on the transfer date, at
which time the employees are to consider themselves as forthwith
dismissed, it could hardly be contended under the Regulations that
their employment had not been terminated by the transfer, even
though, at the date of the notice, the dismissal might be capable
of taking effect independently, in the event, for instance, of the
actual transfer of the business being postponed to a date or time
later than the expiry of the notice. In each hypothetical case the
employer’s repudiation of the contract of service is differently
communicated but its essential quality of a repudiation by the
transfer of the undertaking remains the same and the contract can
quite properly be described as having been terminated by the
transfer. If, by contrast, the employer announces to his workforce
that he is transferring his business to another person at 5.00 p.m.
on the following Friday and that they are to consider themselves
dismissed from his employment at 4.59 p.m. on that day, it is
difficult to see any reason why the interposition of a one-minute
interval between the express repudiation becoming effective and
the transfer which would, in any event, have operated as a
repudiation if nothing had been said, should invest the breach of
contract by the employer with some different quality. In each
case the effective cause of the dismissal is the transfer of the
business, whether it be announced in advance or
contemporaneously, or whether it be unannounced, and it would be
no misuse of ordinary language in each case to speak of the
termination of the contracts of the workforce as having been
effected by the transfer. It is absurd to suggest that there is any
distinction in substance between any of the hypothetical cases
which I have envisaged. Can it, then, one asks, possibly have been
the intention of the Secretary of State in framing legislation
expressly directed to safeguarding the rights of employees when an
undertaking is transferred, to make its effectiveness depend upon
whether the transferor, as a result perhaps of a collusive bargain
with the transferee, allows a scintilla temporis to elapse between
the operation of a notice dismissing his workforce and the
completion of the legal formalities of the transfer which is the
true cause of their dismissal, particularly having regard to the
provisions of regulation 8, which were clearly intended to have the
same effect as article 4 of the Directive? My Lords, I should be
reluctant so to construe the Regulations, quite apart from any
authority. When, however, they are considered in the light of the
interpretation placed by the European Court of Justice on the
provisions of the Directive, it becomes, I think, clear that your
Lordships are not compelled to do so.
– 17 –
In the case of Wendelboe v. L. J. Music ApS. (Case 19/83)
[1985] E.C.R. 457, the original employer company was on the brink
of insolvency. So far as appears, no transfer of their undertaking
was in contemplation when financial stringency compelled closure
of the business and the dismissal of the major part of the
workforce with immediate effect. That occurred on 28 February
1980. On 4 March 1980, the company was declared insolvent and
a little over three weeks later an agreement was concluded
transferring the business to a purchaser with effect from 4 March,
the court having conduct of the insolvency having authorised the
(then prospective) purchaser to use the company’s premises and
equipment from 5 March onwards. The three plaintiffs were part
of the original workforce and had in fact been engaged by the
purchaser on 6 March but on terms that they lost their rights to
seniority. They sued the original employer for damages for
wrongful dismissal and arrears of holiday pay and were met with
the defence that under the Danish legislation, which had been
passed to give effect to the Directive, all liabilities in respect of
their employment had been transferred to the purchaser. The
question submitted by the Danish court to the European Court of
Justice, pursuant to article 177 of the E.E.C. Treaty, was whether
the Directive required member states to enact provisions under
which the transferee of an undertaking became liable in respect of
obligations concerning holiday pay and compensation to former
employees who were not employed in the undertaking on the date
of the transfer. That question was answered in the negative, as
might indeed have been surmised purely from a textual
interpretation of article 3(1) of the Directive. The following
extract from the judgment of the court, at pp. 466-467 is,
however, of interest in relation to the question of the relationship
between articles 3 and 4 of the Directive (which are reflected
substantially in articles 5 and 8 of the Regulations):
“That interpretation of the scope of article 3(1) is also in
conformity with the scheme and the purposes of the
Directive, which is intended to ensure, so far as possible,
that the employment relationship continues unchanged with
the transferee, in particular by obliging the transferee to
continue to observe the terms and conditions of any
collective agreement (article 3(2)) and by protecting workers
against dismissals motivated solely by the fact of the
transfer (article 4(1)). Those provisions relate only to
employees in the service of the undertaking on the date of
the transfer, to the exclusion of those who had already left
the undertaking on that date.
The existence or otherwise of the contract of
employment or an employment relationship on the date of
the transfer within the meaning of article 3(1) of the
Directive must be established on the basis of the rules of
national law, subject however, to observance of the
mandatory provisions of the Directive and, more particularly,
article 4(1) thereof, concerning the protection of employees
against dismissal by the transferor or the transferee by
reason of the transfer. It is for the national courts to
decide, on the basis of those factors, whether or not on the
date of the transfer, the employees in question were linked
to the undertaking by virtue of a contract of employment or
employment relationship.”
– 18 –
What is of particular interest here in relation to the questions
raised by this appeal, is the statement that article 4(1), as well as
article 3(1), “apply only to employees in the service of the
undertaking on the date of the transfer” and the observation that
the determination according to the rules of national law is “subject
to observance of the mandatory provisions of article 4(1).” There
is clearly scope here for the view that where the employment has
been determined by the transferor solely on the ground of the
transfer, which article 4(1) states is not “to constitute grounds for
dismissal by the transferor or transferee” (emphasis added) the
employee is to be treated as if he had continued to be employed
at the date of the transfer. That was a point which did not in
fact arise in the Wendelboe case but which is reflected in the
following passage from the opinion of the Advocate General, Sir
Gordon Slynn, at p. 460:
“Whether or not a contract of employment or an
employment relationship is terminated at the time of
transfer is of course for national law to determine.
However, the first sentence of article 4(1) provides that ‘the
transfer of an undertaking, business or part of a business
shall not in itself constitute grounds for dismissal by the
transferor or transferee.’ . . . Where employees are
dismissed, with a view to and before, a transfer falling
within the Directive and are re-engaged immediately by the
transferee thereafter, their dismissal must be regarded as
contrary to article 4(1), subject to the exceptions specified
in that paragraph. Whether the remedy for such unlawful
dismissal consists in a court order declaring that dismissal
to be a nullity or the award of damages or some other
effective remedy is for the member states to determine. In
any event the member states are required to provide for a
remedy which is effective and not merely symbolic … If
the remedy consists in treating the dismissal as a nullity,
then it would follow that the rights and obligations of the
employee concerned are transferred to the transferee.”
The proposition that article 4(1) operates, in effect, to
prohibit the exclusion of the rights conferred by article 3 by
dismissal of the employee immediately before the transfer, except
for one of the reasons specified in the second sentence of the
article, receives some further support from the opinion of the
Advocate General Sir Gordon Slynn in the later case of Foreningen
af Arbejdslederre i Danmark v. A/S Danmols Inventar (Case
105/84) [1985] ECR 2639, in which he commented on the
Wendelboe case and observed, at p. 2641:
“in Wendellboe v. L. J. Music … it was held that only the
persons employed by the transferor at the moment of a
transfer fall within the provisions; it was also pointed out
that article 4(1) prohibits an employee from being dismissed
by reasons solely of such a transfer, subject however to
certain exceptions. The effect of the Directive, in my
opinion, is that an employee of the transferor at the time
of the transfer is entitled to insist, as against the
transferee, on ail the rights under his existing employment
relationship. By virtue of article 3 he can thus claim to
continue to be employed by the transferee on the same
terms as he was employed with the transferor, or if the
– 19 –
transferee refuses or fails to observe those terms, he can
bring a claim for breach of contract or the relationship
against the transferee. Under article 4, the transfer does
not by itself justify its dismissal by the transferor or the
transferee unless such dismissal is for economic, technical or
organisational reasons entailing changes in the workforce . .
. The employer who dismisses an employee for one of the
reasons specified in article 4(1) can thus justify the
dismissal. Otherwise if the dismissal or purported dismissal
is based on the transfer of the undertaking or business, the
employee can insist on his rights under article 3.”
The prohibitory nature of article 4 was emphasised again in
the case of Foreningen af Arbejdslederre i Danmark v. Daddy’s
Dance Hall A/S (Case 324/86) [1988] IRLR 315, 317 where the
court in the course of its judgment observed:
” … Directive [(77/187/E.E.C.)] aims at ensuring for
workers affected by a transfer of undertaking the
safeguarding of their rights arising from the employment
contract or relationship. As this protection is a matter of
public policy and, as such, outside the control of the parties
to the employment contract, the provisions of the Directive,
in particular those relating to the protection of workers
against dismissal because of transfer, must be considered as
mandatory, meaning that it is not permissible to derogate
from them in a manner detrimental to the workers.” (See
also Landsorganisationen i Danmark v. Ny Molle Kro (Case
287/86) [1989] I.R.L.R. 37).
In a subsequent case: P. Bork International A/S v. Foreningen af
Arbejdslederre i Danmark (Case 101/87) [1989] I.R.L.R. 41. the
question arose whether the Directive applied to a situation where
the workforce had been dismissed upon the termination by the
employee of the lease of the premises on which the undertaking
was carried on, the assets of the business having been purchased
shortly afterwards by the new lessee of the premises, which re-
engaged over half the original workforce. The court held that the
Directive applied and in relation to the question of whether
workers dismissed before the transfer could claim the benefit of
the Directive as against the transferee, said, at p. 44:
“the only workers who may invoke Directive [(77/187/E.E.C.)]
are those who have current employment relations or a
contract of employment at the date of transfer. The
question whether or not a contract of employment or
employment relationship exists at that date must be assessed
under national law, subject, however, to the observance of
the mandatory rules of the Directive concerning the
protection of workers against dismissal by reason of the
transfer. It follows that workers employed by the
undertaking whose contract of employment or employment
relationship has been terminated with effect on a date
before that of the transfer, in breach of article 4(1) of the
Directive, must be considered as still employed by the
undertaking on the date of the transfer with the
consequence, in particular, that the obligations of an
employer towards them are fully transferred from the
transferor to the transferee, in accordance with article 3(1)
– 20 –
of the Directive. In order to determine whether the only
reason for dismissal was the transfer itself, account be must
taken of the objective circumstances in which the dismissal
occurred, and, in particular, in a case like the present one,
the fact that it took place on a date close to that of the
transfer and that the workers concerned were re-engaged by
the transferee. The factual assessment needed in order to
determine the applicability of the Directive is a matter for
the national courts, and having regard to the interpretative
criteria laid down by the court.” (Emphasis added).
It does not appear that the impact of article 4 (and thus of
regulation 8) on the construction and effect of article 3 (or
regulation 5) in relation to the employee’s rights has previously
fallen to be considered in any of the reported cases in the United
Kingdom. In Alphafield Ltd, (trading as Apex Leisure Hire) v.
Barratt [1984] 1 W.L.R. 1062, the receiver of an undertaking,
having negotiated a transfer of the undertaking to be completed on
Monday, 17 January 1983, dismissed the workforce at the close of
business on the previous Friday, the 14 January, at the same time
requesting them to report for work on the following Monday with
a view to re-engagement by the transferee. On the afternoon of
17 January, the applicant was told that his services would not be
required. He claimed that the effect of regulation 5 was that his
employment had been continued with the transferee and that he
had, therefore, been unfairly dismissed by the transferee as a
result of the latter’s refusal to employ him. The principal
question argued was whether he had been employed “immediately
before” the transfer. Both the industrial tribunal and the
Employment Appeal Tribunal held that he was. The decision of
the Employment Appeal Tribunal was delivered by Tudor Evans J.
who said, at pp. 1066-1067:
“It seems to us to be a question of fact in each case
dependent upon the particular circumstances whether or not
a person was employed “immediately before’ the transfer. It
seems to us quite impossible, however desirable and helpful
it might be, to say what period does and what period does
not qualify. It must depend on the circumstances of each
particular case whether dismissal is sufficiently proximate to
the transfer. We think that, apart from analysis of the
words used, it has to be remembered that if the words are
construed in the strictest sense, as contended by the
employers, it would be very easy for a transferor without
funds to agree with a transferee, for reasons convenient to
them both, that employees should be dismissed a short time
before transfer, thus leaving them with a worthless remedy
and so defeating the protection afforded by the
Regulations.”
In Secretary of State for Employment v. Anchor Hotel (Kippford)
Ltd. [1985] I.C.R. 724, the question was whether the original
employer, who had given his employees a notice to terminate their
employment which expired upon the same date as that on which
the transfer of the business took effect and who had made
redundancy payments to them following the transfer, was entitled
to claim a rebate from the Redundancy Fund pursuant to section
104 of the Act of 1978. The argument on behalf of the Secretary
of State, which was accepted by the Employment Appeal Tribunal,
– 21 –
was that no rebate was due inasmuch as the claimant was never
liable to make the redundancy payments, since his liability had
been transferred to the transferee of the business pursuant to
regulation 5, the employees having been employed “immediately
before” the transfer. In giving the decision of the tribunal, Waite
J. observed that it would serve no purpose to remit the case to
the Industrial Tribunal for a determination of the precise order in
which the relevant events took place, since that was irrelevant,
adding, at p. 729:
“We hold that when a dismissal notice given by the
transferor expires on the same day as the transfer date,
then it matters not for the purposes of the Regulations in
precisely which order on that day the two events have
occurred or whether they have occurred exactly
simultaneously. The result will in every case be the same –
a substitution of the transferee for the transferor as the
party responsible for the dismissal and so liable to make a
redudancy payment to the employee.”
The decisions in both the Apex and Anchor Hotel cases
were, however, disapproved by the Court of Appeal in England in
Secretary of State for Employment v. Spence [1987] Q.B. 179,
which was followed and applied by the Second Division of the
Inner House in the instant case. In that case the transferor
company was in receivership and the receivers had been
negotiating a transfer of the business under a threat by the
company’s major customer to withdraw its work unless a transfer
of the business had been agreed by 24 November 1983. No sale
had been agreed by that date and although on 28 November 1983
the negotiations were continuing, the receivers had to decide
whether it was proper in the interests of the debenture holders to
continue to employ the workforce and to continue trading. Since
there was no guarantee that the negotiations would be successful,
the decision was taken to cease trading immediately and, at 11.00
a.m. on that morning the employees were notified that they were
dismissed with immediate effect. In fact, the negotiations were
successful and an agreement for the sale of the undertaking was
signed at 2.00 p.m. on that day. The employees were in fact re-
employed by the transferee but claimed redundancy payments from
the Redundancy Fund under section 106 of the Act of 1978. The
claim was resisted on the ground that, since the claimants were
employed “immediately before the transfer” their employment was
continued with the transferee of the business by regulation 5(1),
following the decision in the Anchor Hotel case [1985] I.C.R. 724.
It is worth noting that it was found as a fact by the industrial
tribunal, first, that the sequence of events was the result of
independent action by the receivers and the transferees and that
there was no collusion between them and, secondly, that the
reason why the receivers decided to dismiss the workforce was
that, until a contract could be renegotiated with the company’s
principal customer, there was no prospect of any work for the
business. It follows from these findings that the reason for the
dismissal was not one connected with the transfer but was due to
economic considerations, with the result that regulation 8(1) did
not render the dismissals unfair. The only question for decision,
therefore, was whether having regard to the very short time which
in fact elapsed between the dismissals taking effect and the
conclusion of the transfer agreement, the workforce was employed
– 22 –
“immediately before the transfer.” After a careful analysis of the
cases, the Court of Appeal rejected the approach of the
Employment Appeal Tribunal in Apex [1984] 1 W.L.R. 1062 and
Anchor Hotel [1985] I.C.R. 724 and held that regulation 5(1) can
apply only where, at the very moment of transfer, the contract of
employment (in the sense of the existing relationship of employer
and employee) is still subsisting. If it is not, then there is nothing
upon which the regulation can bite, even though the employment
has been determined only a matter of minutes (or, it may be,
seconds) before the transfer. My Lords, for my part, I can detect
no flaw in the reasoning by which Balcombe L.J., who delivered
the leading judgment in the Court of Appeal, reached the
conclusion on the facts of that case that regulation 5(1) did not
operate to transfer the obligations of the original employer to the
transferee. Where, before the actual transfer takes place, the
employment of an employee is terminated for a reason
unconnected with the transfer, I agree that the question of
whether he was employed “immediately” before the transfer cannot
sensibly be made to depend upon the degree of temporal proximity
between the two events, except possibly in a case where they are
so closely connected in point of time that it is, for practical
purposes, impossible realistically to say that they are not precisely
contemporaneous. Either the contract of employment is subsisting
at the moment of the transfer or it is not, and if it is not, then,
on the pure textual construction of regulation 5, neither paragraph
(1) nor paragraph (2) (which is clearly subsidiary to and
complementary with paragraph (1)) can have any operation. But
Spence‘s case [1987] Q.B. 179 was decided – and quite properly
decided – entirely without reference to the effect of Regulation
8(1) and in the context of the two important findings of fact by
the Industrial Tribunal to which I have drawn attention.- The
Court of Appeal did not consider, and was not called upon to
consider, a position where, whether under a collusive bargain or
otherwise, an employee is dismissed from his employment solely or
principally because of the prospective transfer of the undertaking
in which he is employed, so that his dismissal is statutorily
deemed to be unfair; and, of course, the case was decided without
reference to the important Bork case [1989] I.R.L.R. 41 already
referred to which had not been decided at the date of the Court
of Appeal’s judgment and which had not been reported at the time
when the instant case was argued before the Court of Session.
It is, I think, now clear that under article 4 of the
Directive, as construed by the European Court of Justice, a
dismissal effected before the transfer and solely because of the
transfer of the business is, in effect, prohibited and is, for the
purpose of considering the application of article 3(1), required to
be treated as ineffective. The question is whether the Regulations
are so framed as to be capable of being construed in conformity
with that interpretation of the Directive.
This cannot, I think, be effected by adopting the flexible
construction of the words “immediately before” suggested in the
Apex case [1984] 1 W.L.R. 1062, for the meaning to be given to
those words, taken alone, cannot sensibly be made to depend upon
whether the reason for the determination of the employment was
the transfer or something else. Such an approach would involve
the conclusion that the obligations of the transferor would be
transferred to the transferee even in the case where, as in
– 23 –
Spence’s case [1987] Q.B. 179, the employment had been
terminated for economic, technical or organisational reasons. That
cannot, I think, have been intended, and I, for my part, agree with
the rejection by the Court of Appeal in Spence’s case of the
reasoning of the Employment Appeal Tribunal in Apex [1984] 1
W.L.R. 1062 and Anchor Hotel [1985] I.C.R. 724. Nor do I find a
solution in the suggestion canvassed by Mr. Edwards that a
dismissal accepted by the transferor solely because of the
impending transfer is to be treated as ineffective by some form of
estoppel on the ground that the parties to the transfer cannot be
permitted to take advantage of their own wrong. A termination
for economic reasons, for instance, if effected without proper
notice, would be as much a “wrong” as a termination by reason of
the transfer and, in any event, a termination effected without the
collusion of the transferee could not be a “wrong” on the part of
the transferee, to whose benefit the termination of the
employment would enure.
The critical question, it seems to me, is whether, even
allowing for the greater latitude in construction permissible in the
case of legislation introduced to give effect to this country’s
Community obligations, it is possible to attribute to regulation 8(1)
when read in conjunction with regulation 5, the same result as
that attributed to article 4 in the Bork case [1989] I.R.L.R. 41.
Purely as a matter of language, it clearly is not. Regulation 8(1)
does not follow literally the wording of article 4(1). It provides
only that if the reason for the dismissal of the employee is the
transfer of the business, he has to be treated “for the purposes of
Part V of the 1978 Act” as unfairly dismissed so as to confer on
him the remedies provided by sections 69-79 of the Act (including,
where it is considered appropriate, an order for reinstatement or
re-engagement). If this provision fell to be construed by reference
to the ordinary rules of construction applicable to a purely
domestic statute and without reference to Treaty obligations, it
would, I think, be quite impermissible to regard it as having the
same prohibitory effect as that attributed by the European court
to article 4 of the Directive. But it has always to be borne in
mind that the purpose of the Directive and of the Regulations was
and is to “safeguard” the rights of employees on a transfer and
that there is a mandatory obligation to provide remedies which are
effective and not merely symbolic to which the Regulations were
intended to give effect. The remedies provided by the Act of
1978 in the case of an insolvent transferor are largely illusory
unless they can be exerted against the transferee as the Directive
contemplates and I do not find it conceivable that, in framing
Regulations intending to give effect to the Directive, the
Secretary of State could have envisaged that its purpose should be
capable of being avoided by the transparent device to which resort
was had in the instant case. Pickstone v. Freemans Plc. [1989]
A.C. 66, has established that the greater flexibility available to
the court in applying a purposive construction to legislation
designed to give effect to the United Kingdom’s Treaty obligations
to the Community enables the court, where necessary, to supply by
implication words appropriate to comply with those obligations.
See particularly the speech of Lord Templeman at pp. 120-121.
Having regard to the manifest purpose of the Regulations, I do
not, for my part, feel inhibited from making such an implication in
the instant case. The provision in regulation 8(1) that a dismissal
by reason of a transfer is to be treated as an unfair dismissal, is
– 24 –
merely a different way of saying that the transfer is not to
“constitute a ground for dismissal” as contemplated by article 4 of
the Directive and there is no good reason for denying to it the
same effect as that attributed to that article. In effect this
involves reading regulation 5(3) as if there were inserted after the
words “immediately before the transfer” the words “or would have
been so employed if he had not been unfairly dismissed in the
circumstances described in regulation 8(1).” For my part, I would
make such an implication which is entirely consistent with the
general scheme of the Regulations and which is necessary if they
are effectively to fulfil the purpose for which they were made of
giving effect to the provisions of the Directive. This does not
involve any disapproval of the reasoning of the Court of Appeal in
Spence’s case [1987] Q.B. 179 which, on the facts there found by
the industrial tribunal, did not involve a dismissal attracting the
consequences provided in regulation 8(1).
The only reservation that I have with regard to that case is
in relation to the approval by the Court of Appeal of a passage
from the judgment of the Employment Appeal Tribunal in Premier
Motors (Medway) Ltd, v. Total Oil Great Britain Ltd. [1984] 1
W.L.R. 377, in which, after correctly pointing out that where an
employee’s contract is continued by virtue of regulation 5, the
transferee who plans to employ him, will be liable for a
redundancy payment, Browne-Wilkinson J. observed, at p. 382:
“To protect himself, the transferee must agree with the
transferor either that the transferee will dismiss the
employee before the transfer or will indemnify the
transferee against redundancy payments and other
employment liabilities.”
It follows from the construction that I attach to regulation 5(3)
that where an employee is dismissed before and by reason of the
transfer the employment is statutorily continued with the
transferee by virtue of the Regulations and the first of the two
options referred to in the passage quoted above is not, therefore,
one which will effectively protect the transferee from the
employee’s claim for a redundancy payment. It also follows that
both Apex [1984] 1 W.L.R. 1062 and Anchor Hotel [1985] I.C.R.
724, in each of which the employment was clearly terminated by
reason of the impending transfer, were correctly decided on their
respective facts albeit not for the reasons given.
In the instant case it is quite clear that the reason for the
dismissal of the appellants was the transfer of the business which
had just been agreed and was going to take place almost at once.
The effect of regulation 5, construed as I have suggested that it
should be, is that their employment continued with Forth Estuary.
I would therefore allow the appeal. On behalf of the respondents,
Mr. Osborne has submitted that in the event of the appeal being
allowed, the order of the Employment Appeal Tribunal should be
varied so as to remit back to the industrial tribunal the question
whether the receivers had acted reasonably in dismissing the
workforce in the context of section 57(3) of the Act of 1978. The
respondents had the opportunity before the industrial tribunal of
demonstrating, if they could, that there were some economic,
technical or organisational reasons for the appellants’ dismissals
and it was therefore reasonable. They did not do so and I see no
– 25 –
grounds now for allowing that question to be reopened. I would
accordingly reverse the interlocutor of the Second Division of the
Inner House and restore the Order of the Employment Appeal
Tribunal.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
I have had the advantage of reading in draft the speeches
prepared by my noble and learned friends Lord Keith of Kinkel,
Lord Templeman and Lord Oliver of Aylmerton. I agree with
them and for the reasons given therein I would allow the appeal
and make the order which they propose.
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