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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Compass Group UK & Ireland (t/a Scolarest) v Burke & Ors [2007] UKEAT 0623_06_1505 (15 May 2007) URL: http://www.bailii.org/uk/cases/UKEAT/2007/0623_06_1505.html Cite as: [2007] UKEAT 0623_06_1505, [2007] UKEAT 623_6_1505

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APPEARANCES

 

For the Appellant	MR D MASSARELLA (of Counsel) Instructed by: Messrs Richard Hutchinson & Co Solicitors 9 College Street Nottingham NG1 5AQ
For the 1st and 2nd Respondents For the 3rd Respondent	MISS E MELVILLE (of Counsel) Instructed by: Messrs Thompsons Solicitors Congress House Great Russell Street London WC1B 3LW MR M WEST (Representative) Penninsula Business Services Ltd Litigation Department Riverside New Bailey Street Manchester M3 5PB


 


SUMMARY

Transfer of Undertakings – Transfer

In deciding whether there has been a relevant transfer of an undertaking, the finding of facts by the Employment Tribunal is subject to an overall assessment, which raises a question of law. The approach of Lord Hoffman in Lawson v Serco [2006] ICR 250 para 34 to the role of an Employment Tribunal was applied. The tribunal misdirected itself in holding that there was no stable economic entity capable of being transferred, and in holding that in making this decision it was relevant to know whether the employees were assigned to any particular entity. The judgment of the tribunal was reversed and the case remitted now for hearing on unfair dismissal against the transferee.


 


HIS HONOUR JUDGE McMULLEN QC

1. This case is about the application of the Transfer of Undertakings Protection of Employment Regulations "TUPE" when a school kitchen closed down for refurbishment and on reopening the work was done by another contractor. The judgment represents the views of all three members. We will refer to the parties in this way: the Claimants; Compass as the first Respondent; Oasis as the second Respondent.

Introduction

2. It is an appeal by the first Respondent in those proceedings against a judgment of an Employment Tribunal sitting at Watford for one day followed by a day of discussion, Chairman Mr J Metcalf, registered with reasons on 29 August 2006. The parties were professionally represented and today are represented by Miss Elizabeth Melville of Counsel for the Claimants, Mr David Massarella of Counsel for Compass and Mr Martyn West, consultant for Oasis. The Claimant's claimed dismissal automatically unfair because they were dismissed in breach of the TUPE Regulations and because the Respondent failed to go through the statutory dispute resolution procedures. The first Respondent contended it was not liable because there had been a relevant transfer from the first to the second Respondent and the second Respondent contended it was not liable because there was no such transfer or if there were, the Claimants were not assigned to the part transferred.

The issue

3. The essential issue for the Employment Tribunal, as determined at a pre-hearing review constituted as a three person Tribunal, was: whether or not there was a relevant transfer of an undertaking or part of one from the first to the second Respondent. It noted that there was no significant conflict of evidence. It decided there was no relevant transfer. The first Respondent appeals against that judgment. The Claimants and the second Respondent seek to uphold it. Directions sending this appeal to a full hearing were given in chambers by Elias P.

The legislation

4. The relevant provisions of the legislation are not in dispute and they are Regulations 3 and 5 of the TUPE Regulations 1981 which provide as follow:-

"3 A relevant transfer

(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.

5 Effect of relevant transfer on contracts of employment, etc

(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, [but subject to paragraph (4A) below,] on the completion of a relevant transfer-

(a) all the transferor's rights, powers duties and liabilities under or in connection with any such contract shall be transferred by virtue of this Regulation to the transferee; and

(b) 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 …."

The Employment Tribunal did not set out those Regulations or any of the authorities relied upon but instead said this which we reproduce without corrections:-

"The Tribunal considered the submissions made by the Representatives for the parties. Miss Melville, Counsel for the Claimants helpfully produced a written skeleton argument to which she attached the relevant authorities. The Tribunal adopted the multifactorial approach. It considered whether there was an economic entity they retained its identity. The Tribunal also considered in connection with whether a part of an undertaking have been transferred the Botzen test: that is to say, whether the Claimants, or any of them, had been assigned to the part of an undertaking transferred."

The facts

5. The first Respondent is a major provider of services to the public sector and in this case a provider of school dinners to schools maintained by the London Borough of Brent, a local educational authority in North West London. The second Respondent is in the same business although we apprehend rather smaller. The Claimant Ms Burke was employed as a general assistant and the second Claimant Ms De-Graft-Enorzah was the unit manager. The Employment Tribunal, so far as is relevant, found the following:-

"1. The Second Respondent provided a school meal service at Malorees with effect from the 1 September 2005. The Claimants presented their claims for unfair dismissal, alternatively statutory redundancy within time.

4.1 For many years up to the end of March 2005 the Claimants had worked in what was described as a production kitchen at the Malorees infant School where they provided hot food not only for the 100 children at that school but for 500 others at five different schools. The food was taken from Malorees and distributed to these other schools. The kitchen was located within the Malorees School premises and the equipment was provided by the school. Mrs De Graft Enorzah was the Unit Manager and she assigned duties to the others as well as helping in the performance of the duties. They rotated their duties week by week so that each one of them covered all aspects of the cooking for all of the Schools. In addition they all helped to serve the food at Malorees, The First Respondent had what was described as a "Costs Plus" Contract whereby they were remunerated by a percentage management fee over and above the actual costs of production. The Malorees School was reimbursed by the other schools for whom it provided a hot meal service.

4.2 At about the end of March 2005 a gas leak was detected in the kitchen which was closed immediately for the purposes of the provision of a hot meal service. As the equipment had been planned to be replaced in any event, the School was able to obtain Local Authority Funding a little sooner than it might otherwise have done for the refurbishing of the kitchen. The terms of the contract that the First Respondent had entered into with the School with effect from September 2004 until the end of August 2005 were by necessity varied. For the summer term 2005 where the Respondent continued with its service there was in legal reality a different contract under which it operated. The service that had been provided from Malorees Infant School included the provision of meals for Salusbury School. The Convent of Jesus and Mary Infant School, St Mary Magdelene RC Junior School, College Green Nursery and Carlton Vale Nursery. It was no longer possible to provide a hot meal service from Malorees and the team were split up. Mrs Sails and Mrs Agbugba went to work at Stonebridge School which it will be noted is not one of the other five Schools. From there meals were prepared for Stonebridge School and the other five schools but not the Malorees. Mrs De Graft Enorzah and Mrs Burke remained at Malorees Infant School for the duration of the Summer Term they provided sandwiches and cold puddings as obviously it was not possible to prepare hot meals. From time to time Mrs De Graft Enorzah went to help at Stonebridge School.

4.3 In July 2005 the Claimants were informed by the First Respondent that their contracts were not being renewed and that they would transfer their employment to the Second Respondent. In fact the Second Respondent did not take on any of the Claimants.

4.4 By the start of the new term in September 2005 there was a fully refurbished and functioning kitchen at Malorees Infant School.

7.1 Until the end of March 2005 there had for a good many years existed it the kitchen at Malorees Infant School a stable economic entity. The Claimants worked there for some considerable while together, performing as a team that produced hot meals not only for Malorees Infant School but serving as a. production kitchen for five other school which did not have their own kitchens. They rotated their duties on a weekly basis. None of them was assigned to produce food or meals specifically for one school or another. They functioned as a united team producing hot meals for all of the schools and also helping to serve the meals at Malorees Infant School. The First Respondent continued to provide that contractual service to the Governing Body of the school until the end of March 2005 when events took over. For the test of that term the team was dispersed.

7.2 Two went to Stonebridge School where they have provided meals for that School and the other five schools. Two remained at Malorees Infant School providing cold meals for Malorees Infant School with Mrs De Graft Enorzah occasionally going over to Stonebridge to help as well. The kitchen equipment which had been at that school was removed and entirely new equipment provided for the next term beginning in September 2005. During the Summer term of 2005 the previously stable economic entity no longer existed nor did it resurrect its existence with effect from September 2005 when a hot meal service was provided at Malorees Infant School for the children of that school only. During the Summer Term of 2005 there was no stable economic entity capable of transfer, whether as a part or as a whole. Even if the economic entity which had existed until the end of March 2005 had continued in existence throughout the summer term of 2005 there would not in any event, in the Tribunal's view applying the Botzen test, have been part of an undertaking transferred to the Second Respondent as none of the Claimants had been assigned to any part of the identifiable undertaking. For these reasons the Tribunal concluded there had not been a transfer of an undertaking or part of an undertaking from the First Respondent to the Second Respondent. That being so, the Tribunal dismissed all of the claims against the Second Respondent.

The short summary of that account is that the provision of school dinners for Malorees School and five others was undertaken at Malorees School until March 2005 when the gas leak triggered the foreshadowed refurbishment of the kitchens. From then on, Malorees children were provided with cold dinners by the two Claimants now in this appeal for the summer term. On 1 September 2005, Oasis took over and provided that service this time by way of hot meals and in due course picked up another school.

6. The work in providing meals for at least three of the original five schools was then done at Stonebridge for the summer term, but there are inconsistencies in the findings by the Tribunal as to the number of schools so provided. We have decided that the work done at Stonebridge was done by Compass for that is the only explanation for the finding by the Tribunal that the second Claimant went to help out at Stonebridge for two periods of two weeks each and there is no finding that Compass lost their work in all five of the schools. On the contrary, there is an express finding that Stonebridge provided meals to at least three of the schools. On the basis of the above findings the liability for the dismissal of the Claimant would fall to Compass. If there had been a relevant transfer it would fall to Oasis. The practical utility in this claim from the Claimant's point of view appears to us to be nugatory, Miss Melville saying her clients would prefer to sue Compass. The real dispute in this case therefore is between Compass and Oasis.

Compass's case

7. The first Respondent submitted that the Tribunal had made perverse judgments in a number of respects. The Tribunal had erred in holding that there was no stable economic entity in respect of the two person operation at Malorees School. Secondly, although purporting to adopt a multifactorial approach in accordance with the leading authority Spijkers [1986] 2 ECR 119, the Tribunal failed to have regard to relevant considerations because it did not link any of the factors in Spijkers to any of its particular findings. Thirdly, the Tribunal committed a fatal misdirection in concluding that there was no stable economic entity when it had regard to the replacement of the plant in the kitchen in the summer of 2005. Fourthly, if the Tribunal were right about the non-existence of a stable economic entity, it was incorrect in relation to its own findings for it is possible for a service to continue albeit provided from different places. Fifthly, the business was continued as it was before the gas leak, so it was when the kitchen was refurbished and that there was a stable economic entity consisting of the supply of dinners to all six schools in the Malorees group. When there was a transfer it was of a part of that undertaking from the first to the second Respondent. There was no scope for the assignment of the second Claimant on a temporary basis so as to defeat the proper analysis that they were employed in that part of the business.

The Claimants' case

8. The Claimants' case, substantially adopted by Mr West on behalf of the second Respondent Oasis, is that the appeal does not cross the high threshold for the Tribunal judgment to be condemned as perverse. The Tribunal have correctly come to the conclusion that there was no stable economic entity. There was no misdirection by the Tribunal in considering the heart of this case which is that there was a change in the plant when the kitchen was refurbished. The business changed radically both in March and in September 2005. If there were a stable economic entity, the Claimants were not assigned to it; or they were either assigned to the whole of the original operation and an individual assignment could not be cleaved out of that, or alternatively such was a temporary position.

The legal principles

9. It seems to us that the legal principles to be applied in this case can be derived from the following authorities:

1) The source for this jurisprudence is the definition of an economic entity in Suzen v Zehnaker [1997] ICR 662 as follows:

"The term economic entity refers to an organised group of persons and assets facilitating the exercise of an economic activity which pursues a specific objective."

2) It is not a fatal objection to there being a transfer that no assets are transferred: see Sanchez Hidalgo v ASASCN [1997] IRLR 136 at paragraphs 26 and 27.

3) The correct approach in deciding whether or not there has been a transfer is a multifactorial approach as set out in Spijkers above. The decisive criterion is whether the business retains its identity. In approving the mulitfactorial approach, the European Court of Justice indicated these criteria: the type of undertaking, whether the assets tangible or intangible are transferred, whether employees are taken over, whether customers are transferred, the degree of similarity between activities carried on before and after and the period of any suspension of those activities.

4) Nor is it fatal to a transfer that the principal business of the new contractor differs from that of the old, so long as the purpose of the operation remains the same, for in Merckx v Ford Motor Co Belgium SA [1997] ICR 352 the court said this:

"The purpose of an exclusive dealership for the sale of motor vehicles of a particular make in a certain sector remains the same, even if it is carried on under a different name from different premises and with different facilities."

5) In considering whether there has been an assignment of an employee to a particular place of work or to a particular part of the business transferred it is necessary to look at the judgment in Botzen v Rotterdamsche Droogdok Maatschappij BC CMLR [1986] 50:

[14] On the other hand, the Commission considers that the only decisive criterion regarding the transfer of employees' rights and obligations is whether or not a transfer takes place of the department to which they were assigned and which formed the organisational framework within which their employment relationship took effect.

[15] The Commission's view must be upheld. An employment relationship is essentially characterised by the link existing between the employee and the part of the undertaking or business to which he is assigned to carry out his duties. In order to decide whether the rights and obligations under an employment relationship are transferred under Directive 77/187 by reason of a transfer within the meaning of Article 1(1) thereof, it is therefore sufficient to establish to which part of the undertaking or business the employee was assigned.

It will be noted that this is a slightly different approach and indeed a wider approach than that foreshadowed by Advocate General Slynn in that case.

6) Whether there has been a transfer of a particular part and whether employees are assigned to it, it must be borne in mind that there can be a fragmentation of the undertaking at the time so as to create different parts and the different parts need not be identified in advance: see Fairhurst Ward Abbotts Ltd v Botes Building Ltd [2004] IRLR 304 where Mummery LJ giving the judgment with which both May and Pill LJJ agreed said this:-

"This case is concerned with the effect of partitioning the borough into two separate areas. As already explained, the Directive and TUPE are capable of applying to the transfer of 'part of an undertaking', as well as to the transfer of an entire undertaking. A part of an undertaking is simply something less than the whole of an undertaking. Neither the legislation nor the case law expressly requires that the particular part transferred should itself, before the date of the transfer, exist as a discrete and identifiable stable economic entity. Nor do I think that such a requirement is implicit in the need to identify a pre-existing stable economic entity. In my judgment, it is sufficient if a part of the larger stable economic entity becomes identified for the first time as a separate economic entity on the occasion of the transfer separating a part from the whole."

7) An employee assigned on a temporary basis only will not form part of what was described as the human stock of the enterprise: see Securiplan v Bademosi (UKEAT/1128/02) reference to human stock being a citation from the judgment of Sir Thomas Bingham MR in Gale v Northern General Hospital NHS Trust [1994] IRLR 292.

8) A list of factors was set out in Cheesman v R Brewer Contracts Ltd [2001] IRLR 144 Employment Appeal Tribunal where Lindsay J (P) on behalf of the Employment Appeal Tribunal said this:-

"10. From those four cases we distil the following. We shall attempt, although it is not always a clear distinction, to divide considerations between those going to whether there is an undertaking and those, if there is an undertaking, going to whether it has been transferred. The paragraph numbers we give are references to the numbering in the IRLR reports of the ECJ's judgments. Thus:

(i) As to whether there is an undertaking, there needs to be found a stable economic entity whose activity is not limited to performing one specific works contract, an organised grouping of persons and of assets enabling (or facilitating) the exercise of an economic activity which pursues a specific objective - Sanchez Hidalgo [1999] IRLR 136 paragraph 25; Allen [2000] IRLR 119 paragraph 24 and Vidal [1999] IRLR 132 paragraph 6 (which, confusingly, places the reference to 'an economic activity' a little differently). It has been held that the reference to 'one specific works contract' is to be restricted to a contract for building works - see Argyll Training [2000] IRLR 630, infra, Employment Appeal Tribunal at paragraphs 14-19.

(ii) In order to be such an undertaking it must be sufficiently structured and autonomous but will not necessarily have significant assets, tangible or intangible - Vidal [1 999] IRLR 132 paragraph 27; Sanchez Hidalgo [1999] IRLR 136 paragraph 26.

(iii) In certain sectors such as cleaning and surveillance the assets are often reduced to their most basic and the activity is essentially based on manpower - Sanchez Hidalgo [1999] IRLR 136 paragraph 26.

(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 —Vidal [1999] IRLR 132 paragraph 27; Sanchez Hidalgo [1999] IRLR 136 paragraph 26.

(v) An activity of itself is not an entity; the identity of an entity emerges from other factors such as its workforce, management staff, the way in which its work is organised, its operating methods and, where appropriate, the operational resources available to it- Vidal [1999] IRLR 132 paragraph 30; Sanchez Hidalgo [1999] IRLR 136 paragraph 30; AlIen [2000] IRLR 119 paragraph 27."

Discussion and conclusions

10. With those authorities in mind we have formed the opinion that the arguments on behalf of Compass are correct and we will allow the appeal. Our pursuit of this matter began with an unpromising acceptance by Miss Melville that the Tribunal's judgment was Delphic and muddled and that the Tribunal had run together two separate essential parts of the test in the paragraph 7.2. Thus we consider that the Tribunal has misdirected itself.
11. The question then is: what has been found by the Employment Tribunal? We accept that the question here is one of law. The approach to be taken is obviously fact sensitive in any TUPE exercise when looking for answers to the questions: is this a stable entity? Has there been a relevant transfer? The finding of facts is within this sanctity of an Employment Tribunal's judgment and not to be overturned except on grounds of perversity. However the assessment of those facts as falling within the Regulations is one of evaluation and is a question of law. We consider that the judgment of Lord Hoffman in Lawson v Serco [2006] ICR ICR 250 HL is instructive under his heading "Fact or law?". In any event particular attention has to be given to the findings by the Tribunal since they involve questions of degree and considerable attention has to be given to the role of the Tribunal in finding the facts. But the determination of the essential questions in this case involves assessment and reaching of a legal conclusion which means it is susceptible to analysis in a jurisdiction entered only by questions of law.
12. In this case, the Tribunal made a number of inconsistent conclusions. Doing the best we can, our approach is to accept that the primary case made in this judgment was that there was no stable economic entity after March 2005. That, we hold to be a misdirection. The business relationship between the governing body of Malorees School and Compass was set out in a contract which required the supply of goods, being food for the production of meals, and the delivery of a service which was the preparation of meals. As it happened, that was not solely to Malorees School for there was some bilateral compensation between Malorees and the other schools and also compensation of Compass. The essential terms of the contract were that Malorees would provide plant for the supply of school meals to its children and in due course incidentally would facilitate the platform from which meals would be prepared there and sent to the other five schools. When the gas leak occurred it triggered the plan for refurbishment and what was left was the provision for the summer term only of cold mid-day meals for the 100 children at Malorees School. As the Tribunal noted, this necessarily varied the contract. We have not seen a varied contract. The Tribunal also notes that there was in legal reality a different contract. We sought the assistance of all representatives as to what this meant but what it seems to mean is that, on the ground, there was a changed contract or there was a changed operation. The change was to move from hot to cold meals and reduce from 600 to 100 meals, and entirely in Malorees School. So at that stage that was the nature of the relationship between the parties. The Tribunal has not indicated why that in itself is not a stable economic entity.
13. Applying the above factors in Cheesman v R Brewer Contracts Ltd it is clear that Compass was engaged in the exercise of an economic activity pursuing a specific objective. It was supplying meals albeit cold and serving them to the children of Malorees School. It was sufficiently structured and autonomous, that is it had a unit manager, one of the Claimants here, and an assistant and it had use of the kitchen albeit not for cooking hot food and it obviously had the wherewithal to provide this service to the 100 children.
14. It is common ground that the service provided was not one that was regarded as essentially based on person-power and factor iv seems not relevant either, but applying the essential ingredients of the Cheesman judgment it seems to us that there was a misdirection by the Tribunal in holding that there was an insufficient stable economic entity. We accept the submission that in order to make a value judgment as to stability it will often be useful to look at the matters raised in a multifactorial approach, as to whether there has been a transfer and for this again we readily adopt the aggregation as the factors as set out by Lindsay J at paragraph 11 in Cheesman based as it is principally upon the judgment in Spijkers.
15. When we try to match those against the factors in the present case, it is plain that the customers remain the same. It was the school itself, the children and its staff. The nature of the business remains the same, preparation of meals albeit in a different form. The change in the menu was held by the Tribunal not to matter and so we take it that the change from hot to cold did not matter. The premises were the same and the equipment which was provided by the school remained the same. Nor was there any gap in the activities. So with those factors in mind one can approach the question of stability and it seems to us therefore that the Tribunal again committed an error in failing to analyse those factors correctly in accordance with the law. Thus there was a stable economic entity.
16. It goes without saying that the two Claimants were assigned to it. There was no evidence that they could be required to work anywhere else, the temporary departure for two periods which we understood of two weeks of Miss De-Graft-Enorzah does not detract from that. They were the human stock running the operation of the provision of meals at Malorees School and they were properly assigned to it. On this basis therefore the appeal must succeed as Miss Melville conceded.
17. We further hold that the Tribunal gave attention improperly to the large scale development of the kitchen equipment. It cannot be right that when a business undergoes a refurbishment by replacing old plant with new it creates an unstable economic entity. In this case, had the work not been triggered suddenly by the gas leak there would have been a planned replacement and it would be wrong to say that a business loses its stability simply because it replaces certain parts of its plant. As is clear from the principle in Merckx v Ford Motor Co Belgium SA [1997] ICR 352 the fact that the work was done apparently by Compass at Stonebridge for the other schools does not mean that there is no stable economic entity or is incapable of being transferred.
18. Finally, we deal with the alternative submission that if we are wrong about the above there was a stable economic entity of the whole of the operation at Malorees as it was visible before the gas leak in March 2005. We accept this submission. Again, for the reasons we have given above a temporary refurbishment or even adapting to a sudden crisis does not mean that the business suddenly ceases. Reasonable steps were taken by the first Respondent to ensure delivery of the meals to the schools previously served from Malorees and now from Stonebridge or at least a majority of them. We are sure that as at the time the refurbishment was considered, full normal working would be resumed at the end of the summer term in time for the September term to begin. The fact that that work was not given to the first Respondent but to the second Respondent and that the second Respondent inherited only a part of it does not matter. In our judgment, if wrong on the first point then we would hold that there was a stable economic entity consisting of, as the Tribunal defined it, the provision of school meals by Malorees kitchen to the six schools in total as it was before the gas leak and as it was capable of continuing at the end of the summer term. On that basis, the judgment would include a transfer of the part which consisted of the Malorees operation to the second Respondent. Again as we have held above the two Claimants were unarguably by the summer term assigned to that part.
19. We would very much like to thank all three representatives today for their concise submissions to us. The appeal is allowed.