APPEARANCES
| For the Appellants |
MR MOHAMMED HAY
(of Counsel)
Instructed by:
Beecham Peacock Solicitors
(Employment Law Dept)
7 Collingwood Street
Newcastle Upon Tyne
NE1 1JE |
| For the Respondent |
MR ASHLEY SERR
(of Counsel)
Instructed by:
The Treasury Solicitor Employment Team
Queen Anne's Chambers
28 Broadway
London SW1H 9JS |
SUMMARY
Practice & Procedure: Contract of Employment -&- Unfair Dismissal
ET upheld DTI's refusal to pay balance of claims by employee against insolvent employer for (i) compensatory award for unfair dismissal (ii) protective award under TUPE (iii) balance of protective award under TULRCA, over and above ceiling imposed by DTI of 8 weeks at £270 per week for arrears of pay, within ss 184-6 of ERA. Held: DTI in compliance with ERA and not liable in respect of (i) and (ii) and had paid all due in respect of (iii), and entitled to rely on ceiling, and no non-compliance with the Directive or uncertainty as to interpretation or construction of the ERA.
THE HONOURABLE MR JUSTICE BURTON
- This is an appeal by two of the five Claimants before the Employment Tribunal at Newcastle-upon-Tyne (Mr Connor and Mrs Hine) against the decision of the Chairman, Mr Garside, at the Newcastle-upon-Tyne Employment Tribunal in a judgment sent to the parties on 27 May 2005.
- Mr Mohammed Hay of Counsel has appeared for the Claimants before me today. He did not appear below, when the Claimants were represented by Mr Cross, a solicitor. Mr Serr of Counsel appeared before me although I have not, in the event called on him, save for helpful interventions during the course of Mr Hay's submissions, and he also appeared below.
- There was no evidence called below, because the facts were agreed by the parties, and each of the representatives set out their submissions in written Skeleton Arguments, which I have seen. In addition, there have been further Skeleton Arguments lodged before me today and a substantial bundle of authorities.
- The factual background to this case is short. The Claimants were employed by a company called RJL Engineering Services Ltd, (RJL) which closed down on 25 September 2002, resulting in the dismissal of all employees, and it entered into what I have been informed was a creditors' voluntary arrangement on 14 October 2002.
- In the meanwhile, one of the directors of RJL, a Mr Orwin, attempted to keep the business going by employing some, but not all, of the employees of RJL, and he set up a new business, Ray Orwin Services Ltd (ROS) for that purpose.
- On 15 October 2002 the Claimants submitted forms RP1 to the Secretary of State which were forms pursuant to which they sought recovery from the Secretary of State of amounts owing to them by RJL which, pursuant to the legislation to which I will refer, the Secretary of State was to guarantee.
- On 7 July 2003 it was found by a decision of a further Employment Tribunal that there had been a TUPE transfer from RLJ to ROS. Application was made, as a result, to the Employment Tribunal for further payments as against ROS, by a number of applicants including the two Claimants.
- Unfortunately, ROS could not survive and it went into voluntary liquidation on 20 January 2004 which was, as it happened, the first day of the hearing before the Employment Tribunal at Newcastle chaired by Dr Watt in relation to the question of liability of ROS.
- Dr Watt delivered the Tribunal's judgment to the parties on 8 March 2004, against which there has been no appeal. The decision of Dr Watts was as follows: that, among others, the two Claimants were unfairly dismissed by ROS, and that because those dismissals were in connection with a transfer of an undertaking they were, therefore, automatically unfair, and so ROS was ordered to pay to the Claimants specific sums. In the case of Mrs Hine there was a basic award of £560 and a compensatory award of something over £7,000. In the case of Mr Connor there was a basic award of £750 and a compensatory award of something getting on for £20,000.
- Dr Watt's Tribunal further declared that the Claimants were entitled to a declaration that RJL was in breach of the requirements of s188 of the Trade Union and Labour Relations Consolidation Act 1992 (TULRCA), and a protective award was made in favour of the Claimants in respect of the maximum period of 90 days, commencing on 25 September 2002.
- So far as the TUPE position was concerned, the Claimants were found to be entitled to a declaration that ROSL, the transferee, had acted in breach of the requirements of Regulation 10 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE")in failing to consult with them regarding the proposed transfer of undertaking. Dr Watt however continued as follows:
"The Tribunal has decided to make no award in respect of the breach of the obligations under [TUPE], because that period of time is concurrent with the consultation period pursuant to the obligations arising under [TULRCA] and it would not be just and equitable for the applicants to be compensated twice in respect of the same period of time and in relation to substantially similar obligations."
and the Secretary of State for Trade and Industry ("DTI") was dismissed from the proceedings.
- That was the setting for the claim for further sums to be paid, heard before Mr Garside, sitting as Chairman alone, on 18 March 2005 against whose judgment this has been an appeal. The decision of Mr Garside was that the Claimants were not entitled to any further sum against the DTI or to any declaration that the DTI had failed to fulfil its obligations under s182 of the Employment Rights Act 1996 (the ERA).
- The issues related to recovery as against the DTI of:
(1) the compensatory award for unfair dismissal
(2) what was said to be a protective award for failure to comply with Regulation 10 of TUPE; and
(3) The balance of the protective award under s.189 of TULRA insofar as it had not already been paid.
- Mr Hay before me, as Mr Cross before Mr Garside, has addressed the Tribunal on what he submits to be a dichotomy, or a dilemma, or a contradiction or a conflict. On the one hand, there are the obligations placed by various directives upon the United Kingdom Government as a Member State of the European Union and imposed, by virtue of legislation passed by Parliament as a result, upon employers to compensate their employees and, in the case of protective awards under TULRCA, to be penalised for failure to comply with those obligations; and, on the other hand, the obligation of the guaranteeing institution or entity - in the case of United Kingdom, the DTI - to make payment to an employee, where the employer, who has been under the primary obligation by virtue of one or more of those directives or regulations has become insolvent Mr Hay submits there to be parallel obligations. There is, however, no doubt that the obligation of the guaranteeing institution (in this case the DTI) is not co-extensive with the obligation of the employer.
- The relevant sections of the Employment Rights Act 1996 ("ERA") are those between s182 and 186, namely Part XII of ERA, which were implemented by this country pursuant to its obligations to put into effect what has been called the Insolvency Directive, and certain European decisions which followed.
- So far as the Insolvency Directive is concerned, namely, 80/987/EEC of 20 October 1980 "on the protection of employees in the event of the insolvency of their employer", that has been amended with effect, in this country, since 8 October 2005. Its amended form is thus not relevant to the matter before me.
- I turn to the relevant Directive (that is the 1980 Directive) There is a preamble which reads as follows:
"Whereas it is necessary to provide for the protection of employees in the event of the insolvency of their employer, in particular in order to guarantee payment of their outstanding claims while taking account of the need for balanced economic and social development in the community".
I interpose that that preamble has been of some importance, because of the requirement to take account of the "need for balanced, economic and social development in the community" and that leads forward, in due course, to the issue about a ceiling to the liability of the government or the guaranteeing institution, with its diverse obligations in that sphere..
- Article 1 of the Directive reads, in material part, as follows:
"1. This Directive shall apply to employees' claims arising from contracts of employment or employment relationships and existing against employers who are in a state of insolvency within the meaning of Article 2(1)".
Article 2(1) defines insolvency, and it is not necessary for me to recite that Article for the purposes of this dispute. Article 2(2) reads as follows:
"This Directive is without prejudice to national law as regards the definition of the terms 'employee', 'employer' 'pay'…."
Article 3 provides as follows:-
"1. Member States shall take the measures necessary to ensure that guarantee institutions guarantees, subject to Article 4, payment of employees' outstanding claims resulting from contracts of employment or employment relationships and relating to pay for the period prior to a given date.
2. At the choice of the Member States, the date referred to in paragraph 1 shall be-
- either that of the onset of the employer's insolvency;
- or that of the notice of dismissal issued to the employee concerned on account of the employer's insolvency;
- or that of the onset of the employer's insolvency or that on which the contract of employment or the employment relationship with the employee concerned was discontinued on account of the employer's insolvency".
Article 4 reads:
"1. Member States shall have the option to limit the liability of guarantee institutions referred to in Article 3.
2. When Member States exercise the option referred to in paragraph 1, they shall [and given that the United Kingdom has exercised the option dealt with in the third indent pursuant to Article 3(2), I read only the part of Article 4 which relates thereto]….ensure the payment of outstanding claims relating to pay for the last 18 months of the contract of employment or employment relationship preceding the date of the onset of the employer's insolvency or the date on which the contract of employment or the employment relationship with the employee was discontinued on account of the employer's insolvency. In this case, Member States may limit the liability to make payment to pay corresponding to a period of eight weeks or to several shorter periods totalling eight weeks".
3. However, in order to avoid the payment of sums going beyond the social objective of this Directive, Member States may set a ceiling to the liability for employee's outstanding claims. When Member States exercise this option, they shall inform the Commission of the methods used to set the ceiling".
- That latter Article, 4(3), is plainly a cross-reference back to the preamble, to which I have referred. In the decision of the House of Lords in Mann v Secretary of State for Employment [1999] IRLR 566. Lord Hoffmann, giving the only speech on behalf of the House of Lords, said at paragraph 23:
"While the main object of the guarantee is to achieve both these purposes [that is purposes to protect and improve the standard of living of workers] by requiring a minimum level of guarantee protection, the purpose of paragraph 3 of article 4 is presumably to enable member states to limit the burden on the social welfare budget by confining the benefit of the guarantee to employees who would be likely to suffer hardship from the loss of the wages due to them".
- In the recent decision of the European Court in Barsotti & Others C-19/01; 50/01; 84/01, the European Court, in its judgment, said this:
"34. The first subparagraph of Article 4(3) of the directive provides the Member States with an option to set a ceiling to the liability for employees' outstanding claims in order to avoid the payment of sums going beyond the directive's social objective.
35. That social objective is to guarantee employees a minimum level of Community protection in the event of the employer's insolvency, through payment of outstanding claims resulting from contracts of employment or employment relationships and relating to pay for a specific period."
The European Court then makes reference to four authorities, which have been put before me, and to which both sides wish attention to be drawn, namely Maso & Others [1995] ECRI-4051; Regeling [1999] IRLR 379, Gharehveran [2001] ECR I-7687 and Walcher [2003] ECRI-8827. All those cases refer to the minimum level of Community protection, which is summarised in that paragraph of the judgment in Barsotti. The Court continues, in paragraph 36 of Barsotti:
"While the Member States are entitled to set a ceiling to the liability for outstanding claims, they are bound to ensure, within the limit of that ceiling, the payment of all the outstanding claims in question".
- I have indicated that Part XII of ERA was intended to implement the United Kingdom's obligations under the relevant provisions of the Insolvency Directive. Section 182 reads as follows:
"If, on an application made to him in writing by an employee, the Secretary of State is satisfied that-
(a) the employee's employer has become insolvent,
(b) the employee's employment has been terminated, and
(c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies,
the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt".
- Section 183 defines insolvency which, I have already indicated, is not in dispute in this case. Section 184 is directly material. It reads as follows under the heading "Debts to which Part Applies"
"(1) This Part applies to the following debts-
(a) any arrears of pay in respect of one or more (but not more than eight) weeks,
(b) any amount which the employer is liable to pay the employee for the period of notice required by section 86(1) or (2) or for any failure of the employer to give the period of notice required by section 86(1),
(c) any holiday pay…
(d) any basic award of compensation for unfair dismissal or so much of an award under a designated dismissal procedures agreement as does not exceed any basic award of compensation for unfair dismissal to which the employee would be entitled but for the agreement, and
(e) any reasonable sum by way of reimbursement ….of the ….. premium paid by an apprentice or articled clerk".
(2) For the purposes of subsection (1)(a) the following amounts shall be treated as arrears of pay-
(a) a guarantee payment,
(b) any payment for time off …..
(c) remuneration on suspension on medical grounds…. and remuneration on suspension on maternity grounds….
(d) remuneration under a protective award under section 189 of [TULRCA]"
- By s185 there is a provision as to what the appropriate date is and, by subsection (a)
"…in relation to arrears of pay not being remuneration under a protective award made under [s189 of TULRCA]…the date on which the employer became insolvent".
By subparagraph (b):
"in relation to a basic award of compensation for unfair dismissal and to remuneration under a protective award so made, [that is a reference to the TULRCA protective award] means whichever is the latest of-
(i) the date on which the employer became insolvent,
(ii) the date of the termination of the employee's employment, and
(iii) the date on which the award was made".
- Finally, s186 provides that the total amount payable to an employee in respect of any debt to which Part XII applies (where the amount of the debt is referable to a period of time) shall not exceed, by subparagraph (a), in respect of any one week the sum now of £280 but, at the material time in relation to this case, £270.
Compensatory Award
- I turn, then, against that background, to the three issues. The first is the compensatory award for unfair dismissal. Mr Hay submits that there ought to be recovery by an employee of an insolvent employer against the guarantee institution of the compensatory award for unfair dismissal. Part XII specifically provides for unfair dismissal in s184(1)(d), which I have read and the words are clear that the limit as to what is covered by Part XII is a "basic award of compensation for unfair dismissal". Mr Hay has sought to submit that, in some way, the subparagraph can be read so as to allow for some construction favourable towards the purposes, as he submits them, of European Directives protecting employees, so as to import into that subparagraph an obligation to guarantee the compensatory award in addition. But it is quite plain that the language totally excludes that possibility and is made even clearer by the additional words added to the subsection by the Employment Rights (Dispute Resolution Act) 1998, which I have cited, with regard to designated dismissal procedures which, once again, specifically limit the guarantee obligation to the basic award.
- The other argument that Mr Hay puts forward is that the definition under s184 of the debts to which Part XII applies is not an exclusive one. Thus, s184 should be read as if it applies Part XII and the obligation of the guaranteeing institution to the listed debts among others. That is, again, plainly an impossible construction. It is quite clear that the only obligation that the guaranteeing institution has is in respect of the five categories of debts defined in subparagraph 1 of s184.
- There is clearly a deliberate exclusion by the United Kingdom legislation of the compensatory award. The basic award gives an employee a minimum amount of compensation for loss of employment, by reference to the number of years for which the employee has worked for the employer. But, of course, by reference to the other provisions of s184, the employee, faced with an insolvent employer will want to have satisfied his or her wages, including any unpaid wages and any unpaid notice, and, subject to the terms of the Act, any protective award in favour of the employee. It is quite plain that what has been excluded by the Act is the open-ended concept of compensation for the future which, in the case of ordinary unfair dismissals, is limited to some £58,000 or £59,000 but is potentially unlimited in other situations and, in any event, reflects possibly, in certain circumstances, lifetime loss of earnings.
- Mr Hay submits that what Parliament will thus have done is impermissibly in breach of the Directive and/or in breach of the purposes both of that Directive and of other directives for the protection of employees, and further creates an unfair differentiation between the treatment of employees of solvent employers and those of insolvent employers. So far as the latter argument is concerned, it is totally clear that if there is to be any limit on the obligation of the guarantee institution or government, then there will thereby be an automatic differential between those employees who can recover the monies owed to them against a solvent employer and those who cannot, because their employer is insolvent, recover any of their loss, and cannot recover the whole of their loss if the guarantee is not to cover the entirety of that loss. If the obligation imposed by the Directive upon a Member State were to ensure that all sums owed by insolvent employers to employees are paid by a guarantee institution, then, of course, there could not be any proper or fair distinction between one and the other. But the minute it is permissible to limit the liability of the guarantor, there will be an inevitable difference between the treatment of such employees in such a situation.
- It is clear from the Directive, which I have read, that that is expressly enshrined in the Directive itself, not only by reference to the balancing act in the preamble, or the reference in Article 4 to the ceiling and limit (to which I shall return), but also in the provision under Article 2(2) that the definition of "pay" is expressly left to the national law; and the United Kingdom has defined that pay which will be covered by the guarantee obligation in s184 of ERA. Mr Hay submits that such definition of pay may consequently lead to a different result from obligations pursuant to the Equal Treatment Directives under Article 141, if pay is differently defined for the purpose of the implementation of this Directive, as compared with that of Article 141. But that difference is clearly permitted by the Insolvency Directive, and, as this Appeal Tribunal made clear in Benson v Secretary of State for Trade & Industry [2003] IRLR 748, upon which Mr Serr relies, it is not a valid objection that "pay" may have a wider meaning for the purposes of Article 141 than for the purpose of a Directive such as this: see, in particular, paragraph 17 of my judgment in that case, in which I said:
"The Directive itself quite plainly…gives a broad discretion by way of a balancing act to the national state in introducing provisions to protect employees in that situation and certainly, entitles the national state to set a ceiling to liability (see Article 4) or to define which claims do and do not fall within the relevant protection".
- Mr Hay has drawn my attention, as the attention of the Employment Tribunal was drawn, to two parallel decisions of the European Court, namely Caballero v Fogasa [2003] IRLR 115, (Fogasa being the Spanish guarantee institution) and Valero v Fogasa C-520/03. In both of those cases, the European Court was addressing a situation in which, whereas under Spanish law, a particular kind of unpaid compensation was otherwise recoverable against an employer and guaranteed by Fogasa in the event of insolvency, there was a difference as between Fogasa's liability under the guarantee and the liability of a solvent employer by reference to the method by which such compensation arose. It was made, by Spanish legislation, a precondition of recoverability against Fogasa that the unpaid compensation had been found due by a Spanish Court or legal process, whereas if it had simply been the subject of agreement or compromise, it was not recoverable against Fogasa. That was found by the Employment Tribunal, to be an unjustified distinction; if there were any concern in Spain about possibly sham compensation agreements, then Article 10(1) of the Directive would enable steps to be taken to avoid such abuse; but not by ruling out the entirety of any claims not covered by Spanish Court procedures.
- The passage in the judgment in Caballero is at paragraphs 33 and 34 of the judgment of the Court:
"33. It is clear from both the grounds of the order for reference and the written observations of the Spanish Government that, under Spanish law, all workers who are unfairly dismissed are in the same situation in the sense that they are entitled to 'salarios de tramitación'. However, in the event of the employer's insolvency, Article 33(1) of the Workers' Statute treats dismissed workers differently to the extent that the right to payment by Fogasa of claims relating to 'salarios de tramitación' is acknowledged only in respect of those determined by judicial decision.
34. Such a difference in treatment can be accepted only if it is objectively justified".
A similar result was achieved by the disapproval of the European Court in Valero. It is quite plain that that is a wholly different situation. That is a case in which the definition of pay was, by the national law, the same in each case. The kind of compensation that is recoverable was identical in both circumstances. But an unjustifiable trammel was placed in the one case and not in the other. It is plain that the justification for the distinction in this case is simply one of limiting, or putting a ceiling upon, the quantum of compensation guaranteed by the government, whereas no such justification was put forward in the Spanish case. The only justification that was put forward, as appears from paragraph 35 of the judgment in Caballero was the risk of abuses which the Court found could, and should, have been dealt with in some other way, and did not justify the distinction.
- Mr Hay complains that there was no evidence called before the Employment Tribunal to put forward that justification. This is a point which, it appears to me, is difficult for him to run, given that it was by agreement that there was no evidence and that the facts were taken as agreed by the parties. But leaving that aside, it is quite plain what the case for the DTI was, namely reliance upon the preamble, and the balancing of the purposes of protecting employees with the limited nature of the National Insurance Fund and the other purposes to which it could and should be applied.
- In that regard, Mr Garside, in paragraph 52 of his judgment, says this:
"I cannot, therefore, find that compensation for unfair dismissal and compensation payable under Regulation 10 of the Transfer Regulations is a payment that can be sought from the Secretary of State under the insolvency provisions in the 1996 Act. They have not been defined in the Act as pay. The Directive allows Member States to define, in national law, what is included in pay for the purposes of the insolvency guarantee. It is subject to some control by the Commission who, as far as I am aware, have not sought to require the United Kingdom to include compensation for unfair dismissal and the Regulation 10 protective award as a recoverable debt. There is a balance to be achieved between the calls on the National Insurance Fund, being tax payers' money and what employees of insolvent companies are entitled to. Employees of insolvent companies are not entitled to receive the full amount that they would have received if they had been dismissed by a solvent employer. The Directive gives Member States power to limit what is paid from the insolvency guarantee fund".
I see no reason to dissent from that careful analysis by the Tribunal.
TUPE
- I turn to what was described by the Tribunal and by Mr Hay as the second of the three issues, although I do so with considerable scepticism. It is said to be the issue of recoverability from the guarantor institution of the protective award in respect of the failure to comply with Regulation 10 of TUPE. In so far as the same conclusion follows as in relation to the compensatory award, as Mr Garside himself found in paragraph 52, just quoted - excluded as a TUPE protective award is from the definition under s184 - I need to add nothing. However, it is clear to me that, in fact, this issue does not arise, on the facts of this case. I have already referred to the finding of Dr Watt's Tribunal in his judgment. He made no TUPE protective award. There is therefore no TUPE protective award for the guaranteeing institution, the DTI to guarantee. There was no attempt to appeal. The matter is therefore entirely academic and hypothetical. Even if there had been such an award made, it was sought, and would have been ordered, had it been ordered, against ROS, and the only declaration that was made by the Tribunal was against ROS, and not against RJL. Consequently, for that reason also, even had there been a protective award made, as sought from Dr Watt, it would not have been a relevant matter arising in respect of the question before me, namely as to how far the DTI is liable to guarantee sums unpaid by RJL.
- However, I would wish, after canvassing matters in the course of argument, to make two comments which, though obiter, may be of some general interest in regard to this. First, it does appear unwise of Dr Watt and his Tribunal not to have made an award. It may well be that he was not invited to do so, and, therefore, that any responsibility lay squarely with the parties at the end of the hearing. It would, however, it seems to me, have better articulated the intention of the Tribunal if it had made an award, but expressly indicated that there should not be double recovery, and consequently that, if one was recovered in full, then the other was not to be recovered. I say this, because if it had come about that ROS had remained solvent, then it might well have been possible for the Claimant to recover the TUPE protective award against ROS, while it has not, in the event, been possible for them to recover, at any rate in full, in respect of the TULRCA protective award ordered against RJL because of the insolvency of RJL. This would be the best course in future.
- Of course, as it turns out, ROS was known to be insolvent, having become insolvent on the very day of the hearing, either at that hearing, or certainly by the time the Tribunal delivered its judgment; and so it may be that recovery against a solvent party was known not to be a possibility. However, if there had been a separate TUPE award, the argument that Mr Hay is now making might at least have been available to him, whereas without it, it is not.
- Secondly, I take the opportunity to speculate as to why it might be that whereas the TULRCA protective award is in s184, the TUPE protective award is not. It may be that this is because in many cases, if not in the majority, the party who will be liable in respect of the TUPE protective award will not be, at any rate, in the first instance, the employer of the employee, and it is, of course, the insolvent employer, as specifically stated by the heading to Part XII of ERA, whose obligation the legislation is dedicated to guaranteeing.
- In those circumstances, if TUPE were an issue, (and I am satisfied that it is not) in any event the Claimants fail on their appeal in respect of it.
The ceiling
- I turn finally to the third issue, which is the attempt by the Claimants to recover, as against the DTI, more than has already been paid with regard to the TULRCA protective award. That arises in this way. I have indicated that there was a first form RP1 submitted to the DTI after the initial insolvency of RJL, and sums were paid by the DTI, inter alia in respect of arrears of pay. There was then a subsequent form RP1 submitted after the TUPE finding and at that stage, there was a claim in respect of the TULRCA protective award. The DTI took the position, by reference to s184(2)(d), which I have read, that entitlementunder a TULRCA protective award fell within the category of, and was to be treated as, arrears of pay and that arrears of pay were, by s184(1)(a), limited to a maximum of eight weeks at, by s186(1)(a), £270 per week. Thus, in paying out under the second RP1, the DTIt took credit for what it had already paid by way of arrears of pay, in making the subsequent payment.
- Mr Hay submits that his clients can and should be entitled to recover the entirety, or at any rate much, of the balance of the protective award of 90 days. He submits that on two general bases. First, there ought not to be any limit in respect of a TULCRA protective award, and thus the eight-week limitation (which would amount to 56 days) should not fall to be taken account of, where what is sought to be recovered is a protective award for 90 days. Secondly, and in any event, his fallback is that even if the protective award is limited to 56 days, being eight weeks, at least that sum should be payable in full, and without giving credit for the sums that have already been paid by the DTI in respect of arrears of pay.
- The first argument is that, because of the importance of the Council Directive 98/59 EEC relating to collective redundancies, there should be no diminution of the entitlement of employees to receive the penal award of 90 days by reason of the limitation of eight weeks. That, of course, on the face of it, flies in the face of the express permitted limitation, to which I will return, contained in the Insolvency Directive, but he submits that it is nevertheless correct, and he refers to a decision of the Employment Appeal Tribunal given by Cox J in Smith v Cherry Lewis Ltd [2005] IRLR 86, where she dismissed an argument that a protective award should not be made against an insolvent employer or, at any rate, should be reduced because its penal intention would be ineffective as a sanction, because the company had become insolvent, and therefore the only likely target, if at all, would be the DTI.
- Cox J concluded that that was an irrelevance, and that the protective award should be judged on its own merits as they were at the time of the redundancy, and an appropriate award made, irrespective of the subsequent insolvency of the respondent. That appears, if I may so with respect, to be clearly right, but it does not have any bearing on the position here. There is no effect on the imposition of a sanction against an insolvent employer if the protective award which is made, reflecting the appropriate factors as they were at the time, cannot be recovered against that insolvent employer, and falls to be paid by the DTI, but subject to a permitted ceiling. I see no basis upon which, in some way or other, not only the ERA but even the Insolvency Directive itself should be ignored or re-written so as to provide that there should be no limit on liability in respect of protective awards.
- His fallback argument postulates that Parliament was wrong in allocating the TULRCA protective award by section 184(2) of the ERA to the category of arrears of pay under s184(1)(a). If, as he submits, the protective award stood on its own, and outside arrears of pay, then, if there fell to be a ceiling, the award could at least have its own separate ceiling of eight weeks and would not fall, as he put it in his written submissions (and as appears to have been argued below) by way of set off against the sums of money otherwise payable as genuine arrears of pay. I am satisfied that this is not a question of set-off at all; this is what I called, in the course of argument, a running account. If the DTI has already paid some arrears of pay, then, if a protective award is properly defined as arrears of pay, when it comes to a further claim for guaranteed payment of such further arrears of pay, the DTI will only be liable up to a total limit of eight weeks at £270, including what it has already paid.
- But the issue which Mr Hay relies upon is that there should have been such a separate category. I see no basis, by reference to the Directive, upon which that can or should be so. It is quite clear that the eight-week limit that can be placed by Article 4 is in respect of "claims relating to pay" and a protective award, or a claim for a guarantee for a protective award is a claim relating to pay. A sensible way of dealing with that statutorily was for ERA to define a protective award as falling within the category of arrears of pay. Another way of doing it would have been to make it a different category from arrears of pay, and yet impose the same eight-week limit cumulatively on all categories, all claims relating to pay, counting a protective award, like arrears of pay, as a claim relating to pay.
- On that basis, I am satisfied that the argument that the eight-week limit which, Mr Hay accepted, is permitted by Article 4(2) (third indent) of the Directive does apply to the total of arrears of pay, including the TULRCA protective award. It is quite plain to me that a ceiling can be imposed by a Member State, and that that ceiling is expressly permitted to be eight weeks by virtue of Article 4(2) and 4(3).
- Article 4(3) requires that the Commission be kept informed as to the methods used to set the ceiling. It would in any event be strongly capable of inference that the Commission has been kept informed, by virtue of the public nature of the legislation which has been passed in order to comply with the Directive; and Mr Hay himself points to Article 11(2) of the Directive in that regard. Lord Hoffmann, however, in paragraph 25 of his speech in Mann specifically stated, no doubt on the basis of evidence before him in that case, that:
"The criteria in s.148(2) [which was the then relevant section] have been notified to the Commission and it has made no objection."
- In those circumstances I turn briefly to the more general point that Mr Hay makes, by attacking the imposition of the limit of eight weeks and £270 in respect of the totality of the claim in respect of arrears of pay (whether or not including the protective award). He first submits, as I have earlier indicated, that, because this can only be done for the purpose of the balancing act referred to in the preamble and Article 4(3) of taking into account the social objective of the Directive, that that can only be arrived at by evidence, and that there was no evidence in this case. I have already rejected that proposition.
- Further, he submits that in some way the case of Barsotti, to which I have referred, militates against the position taken by the DTI in this case. It is, perhaps, from Barsotti that the mistaken reference to set-off has been drawn. I have already indicated that, in my judgment, set-off does not arise, but that this is simply a question of totalling up the amounts that have been paid out in respect of arrears of pay so that the Department does not pay more than a total sum in accordance with its statutory obligation. This is an approach which is referred to in the Court of Appeal decision in Potter v Secretary of State of Employment which is the case which went to the House of Lords as Mann) [1997] IRLR 21, where Neill LJ referred to a payment "going towards" satisfying the obligation to guarantee payment of up to eight weeks' arrears of pay under the Directive.
- The factual context of Barsotti, however, was quite different. That is a situation in which the Italian government sought to avoid liability on the guaranteeing institution by claiming credit for payments previously made to the employee by the employer. That is clear from paragraph 18 of the European Court's judgment in which it is stated:
"The Corte Suprema di Cassazione states that its case law… is to be interpreted as meaning that the Fund is liable for payment of the sum which remains due… after deduction from the ceiling of the payments actually received on account of remuneration…That court considers that such interpretation is in accordance with the social objective of the Directive… by which the employee's needs are protected within limits compatible with the financial resources provided."
- The answer is given by the Court in paragraph 32 and following.
"32. Those questions [that is the questions referred to the European Court] must be understood as asking whether Article 3(1) and the first subparagraph of Article 4(3) of the directive are to be interpreted as meaning that they allow a Member State to limit the liability of the guarantee institutions to a sum which covers the basic needs of the employees concerned, and from which are to be deducted payments made by the employer during the period covered by the guarantee".
The answer given, after paragraphs 34 and 35, which I recited at the outset of this judgment, and which permit the setting of a ceiling on liability is as follows:
"37. Any part payments received on account by the employees concerned on their claims in respect of the guarantee period must be deducted therefrom in order to determine the extent to which they are outstanding.
38. On the other hand, a rule against aggregation according to which remuneration paid to the said employees during the period covered by the guarantee must be deducted from the ceiling set by the Member State to the liability for outstanding claims directly undermines the minimum protection guaranteed by the directive."
That is a perfectly understandable conclusion and the DTI in this case does not seek to claim any such credit for any payment made by others so as to reduce the ceiling; it simply seeks to avoid paying more under its guarantee obligation than the total amount of its permitted ceiling.
- In those circumstances, I am satisfied both that the eight-week limit on the total sum payable in respect of claims relating to pay (or arrears of pay) as defined by s184(2) of the Act must not be exceeded, and that the DTI is entitled to stand on that limit, as it is entitled to rely upon the ceiling of £270 per week set out by s.186 and the relevant statutory instrument. There is no basis, therefore, for challenge to the decision of the DTI and, consequently, to the conclusion of the Employment Tribunal.
- I have set this matter out at length out of respect for the arguments put before me, but none of them has caused me any doubt whatsoever and, as I have indicated, I did not call upon Mr Serr. I have no doubt whatever that the conclusions to which I have come entitle me to say that the matter is acte clair, and that there is no basis upon which there is any doubt in my mind which might be resolved by referring the matter to Europe. I consequently decline the invitation by Mr Hay that I should do so. If he wishes to take the matter further then that is his prerogative, but I give no permission to do so.
