Walsh v John McDougall Flooring Ltd (... Danecourt Ltd Department for Employment and ... [2011] NIIT 01296

THE INDUSTRIAL TRIBUNALS

CASE REF: 1296/11

CLAIMANT: Aidan Walsh

RESPONDENTS: 1. John McDougall Flooring Ltd (in liquidation)

2. Danecourt Ltd

3. Department for Employment and Learning

DECISION

(A) The claimant’s claim against John McDougall Flooring Ltd (“Flooring”) in respect of wages is well-founded and it is ordered that Flooring shall pay to the claimant the sum of £866 in respect of wages.

(B) During the course of the hearing, the claimant withdrew his holiday pay claim and accordingly it is dismissed.

(C) The claimant’s claim against Flooring in respect of notice pay is well-founded and it is ordered that Flooring shall pay to the claimant the sum of £1,585 in respect of notice pay.

(D) The claimant’s claim against Flooring for redundancy pay is well-founded and it is declared that Flooring is liable to the claimant in respect of a redundancy payment of £6,800.

(E) None of the claimant’s claims against Danecourt Ltd (“Danecourt”) is well-founded. Accordingly, all of those claims are dismissed.

(F) The claimant has withdrawn his appeal against the Department’s decision in respect of holiday pay.

(G) The claimant’s appeals against the other decisions of the Department (being decisions made by the Department in its role as the statutory guarantor in respect of certain employment debts) are successful.

(H) The amounts which the Department ought to pay to the claimant in respect of wages and notice pay will be determined during the course of a future remedies hearing unless the claimant and the Department agree on the relevant amounts in the meantime.

(I) Within the context of the claimant’s appeal in respect of the Department’s decision in respect of redundancy, it is declared that Flooring is liable to make a redundancy payment to the claimant of the amount specified above.

Constitution of Tribunal:

Chairman (sitting alone): Mr P Buggy

Appearances:

The claimant appeared in person.

There was no appearance on behalf of Flooring.

Mr J McDougall appeared on behalf of Danecourt.

Mr P Curran appeared on behalf of the Department.

REASONS

1. The claimant was employed by Flooring until 24 November 2010, when that company ceased to operate. It ceased to operate because of financial difficulties. It was the subject of a voluntary winding up in January 2011.

2. By 24 November 2010, Flooring owed the claimant a substantial amount in respect of wages. No notice was given by Flooring of the purported termination of his employment with Flooring (which, subject to any transfer of undertakings law implications, took effect on 24 November 2010).

3. On that date, the claimant’s continuous service with Flooring Ltd, coupled with his continuous service previously with associated or predecessor employers, amounted to more than 16 years but less than 17 years. Accordingly, both Danecourt and the Department accept that the claimant should be deemed to have had 16 years continuous service with Flooring up to 24 November 2010.

4. Danecourt is a company which is owned jointly by the wife of Mr John McDougall (“Mr McDougall”) and by another individual who is unrelated to Mr McDougall. In these proceedings, Mr McDougall has asserted that he has no role in the governance of Danecourt, and that he is merely employed by that company as a manager.

5. The claimant was offered employment with Danecourt, with effect from 25 November 2010, and he accepted that offer. The last day he worked for Danecourt was 23 February 2011. With effect from that date, he resigned, mainly because of his dissatisfaction about the fact that he was still owed a substantial sum of money by Flooring in respect of unpaid wages.

6. On the basis of the claimant’s oral testimony, and in light of comments made by Mr McDougall, I am satisfied that the claimant was owed £866 in wages by Flooring at the end of November 2010 and that no amount has been paid, by Flooring or by anybody else, in respect of that debt.

7. I am satisfied that the claimant is not owed any wages in respect of his period of employment with Danecourt.

8. The claimant was an entirely honest witness. During the course of this hearing, it became clear, because of explanations provided by Mr McDougall, that, in reality, the claimant’s entitlements in respect of holiday pay, both in relation to his time working for Flooring and in relation to his time working for Danecourt, had already been met in full. When that became clear, the claimant withdrew his holiday pay claim.

9. I am satisfied that the claimant was given no advance notice of the termination of the operations of Flooring.

10. I am satisfied that, by 24 November 2010, the claimant, as an employee of Flooring, was entitled to weekly wages in excess of £400 gross per week.

11. The Department has resisted liability in this case, on the basis of the argument that there was a transfer of an undertaking, within the meaning of the transfer of undertakings legislation, in or about the end of November 2010, from Flooring to Danecourt. I have rejected that argument, for reasons which are set out below.

12. Accordingly, the position is as follows:

13. First, I am satisfied that Flooring owes the claimant £866 in respect of wages.

14. Secondly, I note that the claimant has withdrawn his claim for holiday pay.

15. Thirdly, I am satisfied that the claimant was not provided with due notice of the termination of his employment by Flooring.

16. Fourthly, the amount of notice pay which is due to the claimant from Flooring has to be calculated in the following manner. First, the objective is to calculate the claimant’s actual loss. Therefore, the starting-point is the amount of net pay which the claimant would have received from Flooring during the notice period. Secondly, the following deductions must be made: any wages received from Flooring in respect of any part of the notice period must be deducted; there must also be a deduction in respect of the amount of any social security payments received, or receivable, by the claimant during any part of the notice period: and, if the claimant received wages from another employer (an employer other than Flooring) during any part of the notice period, then the amount of wages thus received must be deducted, in respect of any part of the notice period, from the amount of damages, for lack of notice, which would otherwise be payable.

17. Fifthly, I am satisfied that the claimant is entitled to a redundancy payment from Flooring of £6,800 (which is based on a figure of £400 per week and a multiplier of 17).

18. Because there was no TUPE transfer (see below), from Flooring to Danecourt, all of the claims against Danecourt must be dismissed.

19. As already noted above, I have already decided that a redundancy payment of a specified amount (the amount specified above) is due to the claimant from Flooring Ltd. My conclusions in that regard are determinative of the issues which arise in the context of the claimant’s appeal against the Department’s statutory guarantee decision in relation to redundancy. Such appeals are provided for by Article 205 of the Employment Rights (Northern Ireland) Order 1996 (“the Order”). Accordingly, for the purposes of Article 205, I confirm and repeat the conclusions which I have set out at paragraph 17 above.

20. In these proceedings, the claimant also made claims against Flooring in respect of wages, holiday pay and notice pay. As already noted above, the holiday pay claim was ultimately withdrawn.

21. Because Flooring never paid him the amount of the wages claim, or the amount which he thought was due to him under the holiday pay claim, or the amount of the notice pay claim, the claimant made application to the Department (in the Department’s statutory guarantor role, which has already been referred to above) for payments in respect of wages, holiday pay and notice pay. Those applications were rejected by the Department. In these proceedings, the claimant has also, in effect, appealed against the Department’s refusals of those three applications. The appeal in relation to holiday pay was withdrawn during the course of the hearing. That leaves the appeals in respect of wages and in respect of notice pay.

22. In light of my conclusions above in relation to the claimant’s claim for wages and for notice pay against Flooring, I now declare that the Department ought to make a payment to the claimant under Article 227 of the Order, both in respect of wages which are due to him from Flooring and in respect of his notice pay entitlement against Flooring.

23. I think it is better if the Department now notifies the claimant of the amounts which it is prepared to pay in respect of wages and in respect of notice pay. If the claimant is content with those amounts, that will bring this litigation to an end. If the claimant is not content with the amounts specified by the Department, he is welcome to apply for a remedies hearing, which is unlikely to take more than an hour, and which can be held late on some afternoon. During the course of any such hearing, I will “declare the amount of any such payment which [the tribunal] finds the Department ought to make”, as provided for in Article 233(3) of the Order.

24. However, in reality, I expect that the Department and the claimant will be able to agree on the amounts due.

The TUPE transfer issue

25. Having considered the contentions of the parties, and having carefully noted the evidence which has been made available to me, it is clear that, if there was a TUPE transfer, this must have occurred on or about 24 November 2010.

26. If there was a TUPE transfer, then the effects would be as follows. First, by operation of law, at the end of November 2010, Danecourt would have become the claimant’s employer. Secondly, Flooring’s purported termination of the claimant’s employment would probably have been ineffective. Thirdly, the claimant would be entitled to regard his service with Danecourt up to February 2011 as being continuous service, with his first date of service being the date in 1994 when his employment with Flooring is deemed to have begun. Fourthly, the claimant would have been entitled, while working for Danecourt, to continue to have the benefit of the terms and conditions of employment which he enjoyed (while being employed by Flooring) prior to the relevant transfer.

27. The consequences briefly described in the last paragraph above are consequences which are provided for in regulation 4 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPER”).

28. TUPER is the principal legislative basis for transfer of undertakings law. TUPER implements the requirements of the Acquired Rights Directive 2001 (“the Directive”).

29. Those regulation 4 rights (the rights conferred by regulation 4 of TUPER) do not apply to a relevant transfer if, at the time of that transfer, the circumstances set out in regulation 8(7) apply to the transferor.

30. The regulation 8(7) circumstances are that:

“... the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner.”

31. By February 2011, the regulation 8(7) circumstances applied to Flooring. By that time, there had already been a shareholder’s meeting (held on 18 January 2011), at which it had been resolved that the company be placed into creditor’s voluntary liquidation, and at which it had also been decided that two individuals were to be appointed as joint liquidators.

32. However, the putative relevant transfer in this case did not occur in February 2011, or even in January 2011. If it occurred at all, it occurred in November 2010.

33. In November 2010, the regulation 8(7) circumstances did not apply to Flooring. (In particular, the liquidators had not yet been appointed.)

34. Accordingly, if there had been a relevant transfer in this case, the regulation 4 rights would have been conferred upon the claimant. If such rights were conferred upon the claimant, the consequences would be as follows:

(1) The liability of Flooring in respect of unpaid wages would have passed to Danecourt. As a result, Danecourt would have a liability to the claimant in respect of those unpaid wages. Furthermore, the Department would have no power to make any payment to the claimant, in its role as statutory guarantor, in respect of those unpaid wages.

(2) The claimant would have no entitlement to notice pay, or to pay in lieu of notice, in connection with the purported termination, by Flooring, (in November 2010) of his employment with that company.

(3) The claimant would have no entitlement to a redundancy payment arising out of the purported termination, by Flooring, (in November 2010) of his employment with them. He would also have no entitlement to a redundancy payment arising out of his resignation (from his employment with Danecourt in February 2011).

35. However, because no relevant transfer, within the meaning of TUPER, occurred in November 2010, the position is as follows:

(1) Danecourt have no liability in respect of the unpaid wages. Flooring has such a liability. The Department has the power and duty to make a payment in respect of the unpaid wages (because Flooring is formally insolvent).

(2) The purported termination, without due notice, of the claimant’s employment by Flooring, was legally effective. As a result, the claimant has become entitled to damages, payable by Flooring, in respect of the termination of his employment without due notice, or without pay in lieu of such notice. And the Department has the power and the duty to make a payment in respect of that unpaid notice (because of the formal insolvency of Flooring).

(3) Because the purported termination of the claimant’s employment with Flooring have been legally effective, Flooring has become liable to the claimant in the respect of a redundancy payment. Because Flooring is so liable, and because Flooring has become formally insolvent, the Department is entitled and obliged to make the claimant a payment in respect of Flooring’s redundancy payment liability.

36. Regulation 3(1) of TUPER provides that the Regulations apply to a transfer of an entity (an undertaking, business, or a part of an undertaking, or a part of a business) to “another person” where there is “a transfer of an economic entity which retains its identity”.

37. TUPER has to be construed in light of the requirements of the Directive. Article 1 of the Directive provides that it is to apply to any transfer of an entity “to another employer as a result of a legal transfer or merger”. Article 1(b) provides (subject to certain exclusions which are irrelevant in the present context) that there will be a transfer within the meaning of the Directive where there is a transfer of an economic entity which retains its identity.

38. Regulation 3(2) of TUPER defines an “economic entity” as an organised grouping of resources which has the objective of pursuing an economic activity (even if that activity is an ancillary activity). The same definition of an economic entity is to be found in Article 1 of the Directive. That Article 1 definition reflects case law of the European Court of Justice, which had developed during the period leading up to the enactment of the 2001 Directive.

39. As regulation 3(6) of TUPER makes clear, for the purposes of the Regulations, a relevant transfer may take place even if no property is transferred within the context of that transfer. However, the question as to whether or not any property has been transferred is nonetheless a matter which may be of relevance, as part of the overall assessment, in assessing whether there has been, or has not been, a relevant transfer. So the transfer of property is not a necessary condition for the existence of a relevant transfer, but the question of whether or not there has been a transfer or property is, or may be (depending on the particular circumstances of the case) a significant issue in arriving at an overall assessment. That overall assessment is of course focused on the question of whether or not there has been a transfer of an undertaking which has retained its identity.

40. In the employment appeal tribunal decision in Cheeseman v R Brewer Contracts Ltd [2001] IRLR 144, it is pointed out, at sub-paragraph (iii) and (iv) of paragraph 10:

“(iii) In certain sectors... the assets [of the business are often reduced to the most basic and the activity is essentially based on manpower... [my underlining].

(iv) An organised grouping of wage-earners who are specifically and permanently assigned to a common task may in the absence of other factors of production amount to an economic entity... [my underlining].”

41. In my view, in this case, the activity of the relevant entity cannot be regarded as being essentially based on manpower, and there were other factors of production, apart from manpower. Those other factors of production included the building in which the Flooring workers were based, and the vans which they used to travel to and from the customers of Flooring.

42. In Spijkers v Gerbroeders Benedik Abattoir CV [1996] ECR 1119, the Dutch Government submitted that, in the context of acquired rights law, the term “transfer” implies “... that the transferee actually carries on the activities of the transferor as part of the same business”. At paragraph 11 of its judgment, the Court endorsed that view, adding the following comment:

“It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the business in question retains its identity.”

43. At paragraph 12 of that judgment, the Court declared that the implication of that decisive criterion (the question of whether or not the business retained its identity) was that a relevant transfer, within the meaning of the legislation, does not occur merely because the assets of a particular business are disposed of; instead, according to the Court, what really matters is whether or not the business was disposed of as a going concern. Another way of putting this is that, what really matters is whether or not, in the hands of the putative transferee, the business has retained its identity.

44. Also at paragraph 12 of Spijkers, the Court pointed out that one relevant indicator (one indicator that the business was disposed of as a going concern and had retained its identity) will be provided by the fact, if indeed it be the fact, that (1) the operation of that business was actually continued or resumed by the putative new employer and (2) it was continued or resumed with the same or similar activities.

45. At paragraph 13 of the same judgment, the Court made the point that there has to be an overall assessment on the question of whether or not the business has been disposed of to the putative transferee as a going concern. In the course of that paragraph, the Court drew attention to certain factors which could properly be taken into account in arriving at that overall assessment. However, the Court also made the point that those factors were only appropriate for consideration as part of an overall assessment and that “... they cannot therefore be considered in isolation”. The relevant factors were as follows:

(1) The court or tribunal should pay regard to the type of undertaking or business which is involved.

(2) Were the business’s tangible assets, such as buildings and movable property, transferred to the transferee?

(3) What was the value of the intangible assets of the business (such as goodwill) at the time of the transfer?

(4) Were the majority of the employees of the business taken on by the new employer?

(5) Were the customers of the old employer transferred to the new employer?

(6) How similar were the activities carried on before and after the putative transfer?

(7) Were those activities suspended for any period?

46. As already noted above, I was impressed by the truthfulness and accuracy of the evidence of the claimant. I had reservations about the reliability of aspects of the evidence of Mr McDougall. In particular, despite written comments which Mr McDougall made during the course of pre-hearing correspondence with the Department, and despite comments which he made during the course of his oral testimony in these proceedings, I have no doubt that the relevant floor-layers (the floor-layers who were employed in Flooring on 24 November 2010) ended up being offered employment with Danecourt because Mr McDougall wanted that to happen, and because he took the necessary steps to achieve that outcome. Furthermore, I am far from being certain that I have been told the whole truth about the extent of any involvement which Mr McDougall may now have the governance of Danecourt. Nevertheless, although I had reservations about the credibility of some aspects of Mr McDougall’s evidence, I did not consider that he was an unreliable witness in relation to all aspects of his testimony.

47. On balance, and not without hesitation, I have concluded that there was no relevant transfer from Flooring to Danecourt. In other words, I have concluded that the relevant entity did not end up in the hands of Danecourt as a going concern.

48. In arriving at the latter conclusion, I have had regard to all of the Spijkers factors (which have already been listed above, at paragraph 45 above). In particular, I have noted the following. First, there was a considerable similarity between the business being carried on by Flooring up to the end of November 2010 and at least part of the business being carried out by Danecourt thereafter. (Both companies were mainly engaged in floor-laying.) Secondly, when Flooring ceased operations, at the end of November 2010, it had very limited tangible assets. In particular, it had a lease of premises, which came to an end shortly thereafter. It also had three vans. I note that two of those vans ended up in the Danecourt business. The floor-layers’ tools were of insubstantial value. Thirdly, I have concluded that the value of Flooring’s intangible assets (such as goodwill), at the time it ceased operations, was minimal. Fourthly, I note that all of the operational employees of Flooring (all of the Flooring employees who were engaged in providing direct services to customers) were offered employment in Danecourt, and that they were offered that employment without having to compete with other job applicants. Fifthly, and very significantly in my view, the customer base of Danecourt was radically different from the customer base of Flooring. In particular, 90% of the work carried out by Flooring was work carried out in Northern Ireland, whereas the vast majority of the floor-laying work of Danecourt was being carried out in Great Britain only. I am satisfied that a substantial proportion of Flooring’s work consisted of term contracts (as distinct from “one-off” projects), and that the overwhelming majority of the work of Danecourt (as carried out by the relevant floor-layers after 24 November 2010) consisted of “one-off” contracts. I have no evidence that there was any significant transfer of customers between the two companies. Sixthly, the activities carried on by the relevant floor-layers while in the employment of Flooring on the one hand, and while in the employment of Danecourt on the other hand, was practically identical. Seventhly, there was no gap between the cessation of the activities of Flooring and the commencement of the activities of the relevant floor-layers within Danecourt.

49. In arriving at my factual conclusions in relation to the customer base, I have paid careful attention both to the oral testimony of the claimant and to that of Mr McDougall.

Next steps

50. If the Department does not appeal against this decision, it will have to come to conclusions as to the amount which it regards being the proper amounts due to the claimant, pursuant to the Department’s statutory guarantee role, in respect of wages and notice pay.

51. If the amount then determined by the Department is acceptable to the claimant, there will be no need for any further hearing in this case. If that amount is unacceptable, the claimant should promptly ask for a remedies hearing. Such a remedies hearing is unlikely to last for much longer than an hour. Accordingly, it can be arranged for some evening from 4.00 pm onwards.

Postponement request

52. In an email dated 17 October 2011, Danecourt asked for the postponement of the main hearing of this case, because Mr McDougall had work commitments on 24 October. I refused that request for postponement, even though the Department had no objection to that request, because I considered it to be important that the issues, relating to the claimant’s entitlements, should be resolved with the minimum delay.

Interest

53. This is a relevant decision for the purposes of the Industrial Tribunals (Interest) Order (Northern Ireland) 1990.

Chairman:

Date and place of hearing: 24 October and 10 November 2011, Belfast.

Date decision recorded in register and issued to parties:

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	Industrial Tribunals Northern Ireland Decisions
You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> Walsh v John McDougall Flooring Ltd (... Danecourt Ltd Department for Employment and ... [2011] NIIT 01296_11IT (21 December 2011) URL: http://www.bailii.org/nie/cases/NIIT/2011/01296_11IT.html Cite as: [2011] NIIT 1296_11IT, [2011] NIIT 01296_11IT

Industrial Tribunals Northern Ireland Decisions