CT Plus (Yorkshire) CIC v Black & Ors UKEAT/0035/16/DM
Appeal against a decision that employees had not transferred under TUPE. Appeal dismissed.
CT Plus ran a park and ride operation, which was subsidised by the Council, after it won a tendering exercise. The Council then invited other tenders in 2013 - Stagecoach was one of the tenders. The tendering process was delayed and Stagecoach formed the view that it could run the service commercially without a subsidy. It therefore took over the site run by CT Plus and CT Plus ceased to operate the park and ride at the same time. Employees of CT Plus argued that their employment had transferred to Stagecoach. This was rejected at the ET, the EJ saying that the provisions of Regulation 3(b)(ii) were satisfied, except in one respect: Stagecoach was not carrying out the activities on behalf of a client (the Council in this case), the Council being no more than an interested bystander. The CT Plus employees appealed.
The EAT dismissed the appeal. The Employment Judge's approach focussed upon the ordinary meaning of the service provision change provisions within the Transfer of Undertakings (Protection of Employment) Regulations 2006 and applied those provisions in a commonsense and pragmatic way.
Appeal No. UKEAT/0035/16/DM
EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8AE
At the Tribunal
On 3 August 2016
HIS HONOUR JUDGE DAVID RICHARDSON
C T PLUS (YORKSHIRE) CIC (APPELLANT)
(1) BLACK AND OTHERS
(2) LINCOLNSHIRE ROAD CAR LTD T/A STAGECOACH (RESPONDENTS)
Transcript of Proceedings
For the Appellant MS MONA BAYOUMI (of Counsel) Instructed by: Lewis Silkin LLP 8th Floor Southgate House Wood Street Cardiff CF10 1EW
For the First Respondents First Respondents not actively participating in the appeal
For the Second Respondent MR STEFAN BROCHWICZ-LEWINSKI (of Counsel) Instructed by: Fielden Marshall Glover Strutt Solicitors 1 Middle Street Lancaster Lancashire LA1 1JZ**SUMMARY**
TRANSFER OF UNDERTAKINGS - Service Provision Change
The Appellant ran a "park-and-ride" service under a contract with the local council by virtue of which it received a substantial subsidy. The Second Respondent, having grown impatient with a tendering process, decided to run a commercial service on the same route, using its own staff and buses, without a subsidy from the Council. As a result the Council terminated its contract with the Appellant.
The Appellant's case was that the Second Respondent was a subsequent contractor carrying out the same activities "on the client's behalf", the local council being the client. The Employment Judge rejected this argument, holding that the Second Respondent was not carrying out the activities on the local council's behalf, but as a commercial venture on its own behalf.
Held: the Employment Judge did not err in law. The Employment Judge's approach focussed upon the ordinary meaning of the service provision change provisions within the Transfer of Undertakings (Protection of Employment) Regulations 2006 and applied those provisions in a commonsense and pragmatic way. Metropolitan Resources Ltd v Churchill Dulwich Ltd  IRLR 700 EAT and [Hunter v McCarrick ]() IRLR 26 CA applied.**HIS HONOUR JUDGE DAVID RICHARDSON****Introduction**
- This appeal is concerned with the service provision change ("SPC") provisions contained within the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") and in particular the question whether activities were carried out on a client's behalf.
- It is helpful to have the relevant provisions in mind from the outset. They are to be found in Regulation 3. The phrase "on the client's behalf" is to be found in Regulation 3(1)(b)(i), (ii) and (iii), though this case is concerned with Regulation 3(1)(b)(ii):
"(1) These Regulations apply to -
(b) a service provision change, that is a situation in which -
(i) activities cease to be carried out by a person ("a client") on his own behalf and are carried out instead by another person on the client's behalf ("a contractor");
(ii) activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person ("a subsequent contractor") on the client's behalf; or
(iii) activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf,
and in which the conditions set out in paragraph (3) are satisfied.
(2A) References in paragraph (1)(b) to activities being carried out instead by another person (including the client) are to activities which are fundamentally the same as the activities carried out by the person who has ceased to carry them out.
(3) The conditions referred to in paragraph (1)(b) are that -
(a) immediately before the service provision change -
(i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;
(ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and
(b) the activities concerned do not consist wholly or mainly of the supply of goods for the client's use.
(4) Subject to paragraph (1), these Regulations apply to -
(a) public and private undertakings engaged in economic activities whether or not they are operating for gain;
(6) A relevant transfer -
(a) may be effected by a series of two or more transactions; and
(b) may take place whether or not any property is transferred to the transferee by the transferor."**The Context**
- For many years there has been a park-and-ride car park at Priory Park on the western outskirts of Hull. The Kingston-upon-Hull City Council ("the Council") developed the car park. From time to time it invited tenders from bus companies to operate the park-and-ride bus service to the city centre with a subsidy from the council to offset the costs of running the service.
- CT Plus Ltd ("CT") successfully tendered for the service in 2009. It is a community interest company owned by a charity. It took over the service from another operator and accepted the employees under TUPE. The relationship between CT and the Council was governed by a contract dated 2 February 2010. The contract set out the obligations of CT in some detail, providing for a timetable and stipulating that the service must operate to the timetable unless otherwise agreed by the Council. The Council had control not only over the timetable but also over type and age of buses to be used, branding, logo and the like. In consideration of the performance of its obligations CT was entitled to receive a contract price of £235,000 per annum adjustable for inflation, though it did make a payment for use of the park-and-ride facility and was liable to share fare revenue with the Council if it exceeded £385,000. The agreement was said to be for two years with an option to extend for a further two years, but there was also a provision for 56 days' notice to be given on either side.
- It is common ground that a subsidised service of the kind that CT agreed with the Council cannot be run in competition with a commercial service. It is always open to another bus operator to decide to run a commercial service on the same route subject to giving notification to the relevant Government agency, which was then the Vehicle and Operator Service Agency ("VOSA"). If so, the subsidy will have to cease, though the operator of the subsidised service may continue to operate the service without subsidy if it considers it viable to do so. I have not been taken to the statutory provisions underlining these propositions, but they were not in dispute before the Employment Tribunal or on appeal.
- Lincolnshire Road Car Ltd ("Stagecoach"), had an extensive depot in Lincoln with a large route network, some 130 buses and 400 staff. It was a much bigger operation than CT. When the Council again invited tenders in 2013, it was one of the companies that tendered. For various reasons, the tendering process was delayed. Stagecoach formed the view that it could run the service commercially without a subsidy, albeit with a reduced service outside peak hours. In July 2013 it gave the requisite 56 days' notice to VOSA to operate the route commercially. The effect was that the Council gave notice to CT to terminate the subsidised contract. It also withdrew the tendering process for a further subsidised contract. Stagecoach began to operate the service on 29 September. CT stopped its service at the same time.
- Stagecoach provided its own buses. It took over nothing directly from CT. It had no contract similar to the one that governed the relationship between CT and the Council. It received no subsidy from the Council akin to the subsidy that CT received. It reduced the service from 10-minute intervals to 15-minute intervals outside peak periods despite the Council's misgivings. Most importantly for the purposes of this appeal, it recruited its own team of drivers, mainly by internal transfer. It declined to take on CT's drivers, saying that there was no transfer under any of the provisions of TUPE. CT did not agree. The employees were caught in the middle. Hence the proceedings brought before the Employment Tribunal to establish whether there was a TUPE transfer and who should compensate employees.
- Although it had no contract similar to that with CT, Stagecoach did have a relationship, both legal and practical, with the Council. Stagecoach used the facilities at the park-and-ride site pursuant to a non-exclusive licence, for which it paid a monthly sum. Stagecoach liaised with the Council over a range of matters concerned with the service.
- A Preliminary Hearing took place on 1 and 2 September 2015 before Employment Judge Forrest, sitting in the Employment Tribunal at Hull, to determine whether there was a transfer of undertaking or a service provision change as between CT and Stagecoach. CT was represented by Ms Bayoumi and Stagecoach by Mr Lewinski. The Employment Judge heard evidence and had a substantial bundle of documents. He reserved judgment. By his Judgment dated 24 September 2015 he decided that there was no such transfer or service provision change. The appeal concerns only his decision in respect of service provision change. Having regard to Oy Liikenne Ab v Liskojärvi and Anor  IRLR 171 ECJ, there would be formidable difficulties in the face of any appeal concerning the transfer of undertaking point.
- In his lucid and thoughtful Written Reasons the Employment Judge set out facts on which I have already drawn in this Judgment. He dealt with the question whether there was a transfer of undertaking in paragraphs 16 to 33. He turned to the question of service provision change in paragraphs 34 to 49. He found that the activities in question constituted the running of a park-and-ride bus service from Priory Park to the centre of Hull. He found that prior to 29 September the activities were carried out by CT, a contractor, on behalf of the Council and the Council was the client for the purposes of Regulation 3(b)(ii). He found that the same activities were carried out from 29 September by Stagecoach, a subsequent contractor. So, the provisions of Regulation 3(b)(ii) were satisfied, except in one respect. He found that after 29 September Stagecoach was not carrying out the activities on behalf of a client. He found that the Council was no more than an interested bystander.
- The Employment Judge's reasoning appears in the first place from paragraphs 38 to 44. These paragraphs deserve to be set out in full:
"38. Moreover, I find within Regulation 3(3)(a)(ii) that the client, Hull City Council for whom the First Respondent had operated the service until 28 September, wished and expected that the same activities, the same service would be carried on after 29 September.
39. But that they wished for that outcome and had intended to achieve it through the tender process, does not mean that they remained the "client" for the purposes of Regulation 3(3)(a)(ii). They were clearly the "client" before 28 September. They were paying the First Respondent £235,000 in exchange for the operation of the service. After 29 September they were no more than an interested bystander.
40. As local authority they were routinely consulted about the proposed new service by Stagecoach, as Stagecoach would have consulted them about any service they proposed to run in Hull. Their input was welcome; they had been a contractual party to the previous services for many years. It would have been commercial folly for Stagecoach not at least to have considered their significant views and experience, backed by years of involvement in running the service. Moreover, their interest coincided: both wanted a successful service, to attract maximum passengers. It made sense to continue a distinctive brand and logo; to stick to the same service intervals, with modern buses and frequent services; and relatively low fares.
41. But when it suited Stagecoach, they went their own way: they saw significant savings to be made by cutting the frequency of service in off peak hours; and, despite Hull's reservations, went ahead. Previously the Council, as client, could have directed the First Respondent on frequency and refused the alteration. Now all they could do was voice a reservation.
42. The crucial point in this case is the identity of "the client" post transfer. This point did not arise in Enterprise [Management Services Ltd v Connect-Up Ltd and Ors UKEAT/0462/10], and so is not addressed in Judge Clarke's [sic] helpful guidance. Neither barrister was aware of any other cases in which the point had arisen at appeal level. That there should be a client is central to all 3 forms of service provision change set out in Regulation 3(1)(b). In this situation, if there is a service provision change, it falls within 3(b)(ii) where "activities ceased to be carried out by a contractor [the First Respondent] on a client's behalf [Hull City Council] … and are carried out instead by another person "a subsequent contractor [the Second Respondent] on the client's behalf" [ET's emphasis].
43. It is the last 4 words which are crucial. They did not have to be included. The subsection would have worked perfectly well if they had been omitted; and if so, this would have been a service provision change. But their inclusion makes it clear that the activities must not just be carried out by a contractor, but must be carried out by that contractor on the client's behalf.
44. In carrying out the activities subsequently, Stagecoach acted on its own behalf; it had no client for whom it was acting. There was no contract with Hull City Council, no subsidy from Hull City Council. It was purely a commercial transaction. The activities were not carried out as a result of a tendering process leading to a contract with the Council. All that Stagecoach had to do to carry out the activities was to give notice to VOSA of their intention; they were left free to run the service as they wished. There simply was no client anymore."
- On CT's behalf Ms Bayoumi argued that the Council remained the client, and she relied, at least in part, on the existence of a continuing contractual relationship between Stagecoach and the Council. The Employment Judge dealt with this as follows:
"45. I am not persuaded by Miss Bayoumi's argument that because Hull did have a contractual arrangement of sorts after 29 September with Stagecoach about the Park and Ride service, that the Council somehow remained the client. That contractual arrangement arose from the fact that the Park and Ride route started, and on return ended, on private property, the Priory Park car park, owned by Hull City Council. Stagecoach, like any other operator running on that route, therefore had to get consent from Hull City Council to use the car park.
46. In exchange for consent to use the car park, the Council had told Stagecoach that they intended to charge a departure fee each time one of their buses left the car park. Departure fees are normal practice within the bus industry when an operator uses a bus station owned by another operator. The fee was eventually set at just over 10p per departure. At the first discussions on the subject in September 2014, Hull agreed for a limited period to waive any fees. From April 2015 it appears that Stagecoach has been paying a departure fee, some 10p a departure, to Hull. The justification for the departure fee is as a contribution towards Hull's maintenance and security costs in maintaining the Priory Park facility. A formal written contract for use of the facility has never been agreed. Drafts continued to be exchanged between the parties. I was referred to the current version, dated last week, on the morning of the second day of this hearing. I derive little if any benefit from it. At most it reflects Hull City Council's current view of the position, rather than their view of the position as it existed at the time of the alleged transfer.
47. I accept that there has been a contractual relationship of sorts between Hull City Council and Stagecoach, but it is not a contract to run the Park and Ride service. At most it is a contractual licence for access to Priory Park for the purposes of running the Park and Ride service. Under that contractual licence, it is Stagecoach who are the client, paying the Council for the service provided to them by the Council, the use of Priory Park. At its highest, that still does not make the Council the client for the purposes of Regulation 3(1)(b)(ii)."
- The Employment Judge also noted an argument by Ms Bayoumi that the right to use Priory Park was granted exclusively to CT and then to Stagecoach. He did not accept that Stagecoach had an exclusive right. He found that the licence was expressly made non-exclusive. For example, if another operator applied to run a service, the Council had reserved the right to allow them to do so, and there was physically room for such a service to be operated. Finally, the Employment Judge said this:
"49. It may be that the reference to contractors in Regulation 3(1)(b) implies someone operating under a contract to supply the activities; if so, then Stagecoach were not even a contractor for that purpose. But without going that far, I find that the activities were not carried out "on the client's behalf". The client referred to is clearly the Council. Continuation of the activities clearly benefited the Council. The Council hoped and wished for the activities to be carried on but that was incidental, coincidental, to why they were carried on. They were carried on to benefit Stagecoach and no one else. Stagecoach was not acting on behalf of the Council. The transaction therefore did not fall within Regulation 3(1)(b); there was no service provision change here."**Submissions**
- On behalf of CT Ms Bayoumi submits that the Employment Judge was required by law to consider the question of service provision change in a practical and commonsense way, taking account of the position "on the ground". It would be wrong to consider the question in a narrow or legalistic way. The legal mechanisms employed by the parties should not always be determinative of the question whether there is a service provision change. She referred to recent authorities concerned with the identification of a client for the purposes of the SPC provisions (see [Duncan v Ottimo Property Services Lt]()d  IRLR 806 EAT and Jinks v London Borough of Havering . She further submitted that [Arch Initiatives v Greater Manchester West Mental Health NHS Foundation Trust and Ors ]() IRLR 406 EAT was in line with this approach.
- Ms Bayoumi then submits that the Employment Judge did not adopt that approach. She submits that he focused impermissibly on the absence of subsidy. This was an error of law. Although the Council no longer provided a subsidy, it could withdraw the licence agreement to the park-and-ride site, which would ultimately render the service impossible to run. Ultimately, the Council was pulling the strings (my words, not those of Ms Bayoumi) both before and after 29 September. If the Employment Judge had viewed the position in practical and commonsense way rather than a narrow legalistic way, he would have found that the Council always remained the client for the purpose of Regulation 3(1)(b)(ii) in that the service was being run for its benefit and in accordance with its standards.
- Ms Bayoumi further submits that the Employment Judge was perverse to find that the position of the Council after 29 September was "no more than an interested bystander" (paragraph 39). She points to the discussions between Stagecoach and the Council in July and September 2014, which related to matters such as the quality and age of buses, frequency of running, standards, qualification of drivers and the like. She points to the Council's desire to have a project board to oversee the running of the site. She points to press releases or statements that she suggests indicate that the service was run on the Council's behalf. The reality was that they ran the service in line with the Council's requirements and, she submits, identically to the way the service ran before the transfer.
- On behalf of Stagecoach Mr Brochwicz-Lewinski submitted that the Employment Tribunal approached the matter correctly in law. The SPC provisions require no special principles of interpretation; all that is required is a (Metropolitan Resources Ltd v Churchill Dulwich Ltd:
"28. … straightforward and common sense application of the relevant statutory words to the individual circumstances …"
- There is (Hunter v McCarrick  IRLR 26 CA at paragraph 22):
"22. … no room for a purposive construction with respect to the scope of reg. 3(1)(b) itself. …"
- The cases on which Ms Bayoumi relied did not contradict these principles. Moreover, they were concerned with circumstances very different to the present case. Applying that approach, Mr Brochwicz-Lewinski submitted, the Employment Judge was correct to find that this was not a case where the activities were carried out by a subsequent contractor on the Council's behalf. Stagecoach carried them out for its own benefit as an independent commercial service not as contractor of the Council or on the Council's behalf.
- Mr Brochwicz-Lewinski further submitted that the Employment Judge's findings were not perverse. He took me through them in order to make good that submission.
- The leading cases on the SPC provisions are Metropolitan Resources and Hunter. These cases explain the nature and purpose of the provisions and their relationship with the European concept of a transfer of undertaking (Regulation 3(1)(a) TUPE). The starting point in defining the scope of the SPC provisions is the natural meaning of the language used by the draftsman. In Hunter Elias LJ said (paragraph 22):
"22. … But I agree with HH Judge Burke QC that there is no room for a purposive construction with respect to the scope of reg. 3(1)(b) itself. So far as that is concerned, there is in my view no conflict between a straightforward construction and a purposive one: the natural construction gives effect to the draftsman's purpose. There are no underlying EU provisions against which the statute has to be measured. The concept of a change of service provision is not complex and there is no reason to think that the language does not accurately define the range of situations which the draftsman intended to fall within the scope of this purely domestic protection."
Thus in Hunter it was held that the language of Regulation 3(1)(b) was only consistent with the situation where there is the same client throughout. This was an essential scoping feature of the legislation.
- However, it is clear that starting with the natural meaning of the language used by the draftsman does not mean that the SPC provisions should be approached in a narrow, legalistic or pedantic manner. To the contrary, they should be approached in a commonsense and pragmatic way. In Metropolitan Resources HHJ Burke QC said (paragraph 30):
"30. The statutory words require the employment tribunal to concentrate upon the relevant activities; and tribunals will inevitably be faced, as in this case, with arguments that the activities carried on by the alleged transferee are not identical to the activities carried on by the alleged transferor because there are detailed differences between what the former does and what the latter did or in the manner in which the former performs and the latter performed the relevant tasks. However it cannot, in my judgment, have been the intention of the introduction of the new concept of service provision change that that concept should not apply because of some minor difference or differences between the nature of the tasks carried on after what is said to have been a service provision change as compared with before it or in the way in which they are performed as compared with the nature or mode of performance of those tasks in the hands of the alleged transferor. A common sense and pragmatic approach is required to enable a case in which problems of this nature arise to be appropriately decided, as was adopted by the tribunal in the present case. The tribunal needs to ask itself whether the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor. The answer to that question will be one of fact and degree, to be assessed by the tribunal on the evidence in the individual case before it."
- In Hunter Elias LJ said (paragraph 22):
"22. I do not dispute that there may be issues where a purposive interpretation is appropriate with respect to service transfer provisions and where the courts should approach matters as they would similar issues relating to transfers of undertakings. For example, it may be necessary not to be too pedantic with respect to the question whether the activities carried on before and after the transfer are sufficiently similar to amount to the same service; or to take a broad approach to the question whether an employee is employed in the service transferred: see Kimberley Group Housing Ltd v Hambley …  IRLR 682 EAT. …"
- In [Lorne Stewart plc v Hyde and Ors ]()UKEAT/0408/12, HHJ Burke QC said that the SPC provisions required the Employment Tribunal to focus upon what was actually being done before and after the claimed provision change. As he said, "To put it in the vernacular, the focus must be upon what was actually going on "on the ground" " (paragraph 34).
- These seem to me to be the essential principles. It is also clear from recent authorities that starting with the natural meaning of the language does not require the scope of the SPC provisions to be determined narrowly. They can apply even where a person carrying out activities has no direct relationship with a putative client, at least if that person is a subcontractor (see Jinks); they can apply to multiple clients acting together (see Duncan); and to activities that are a subset of a larger set of activities (see Arch). It remains the position, however, as held in Hunter, that the language of Regulation 3(1)(b) requires a client that remains the same throughout.
- I should say a word about the meaning of "client". In everyday parlance, this means the beneficiary or end-user of a service. We speak of a social worker's client or a solicitor's client. But this is not its meaning in the context of the SPC provisions. They apply where a client contracts out a service, takes it back in-house or transfers the service from one person to another (see Hunter at paragraph 11). "Client" here means an organisation that is in a position to carry out activities either itself or by commissioning them from others to carry out those activities on its behalf.
- I part company with Ms Bayoumi's submissions when she argues that the Employment Judge did not adopt this approach. I can see no sign of an unduly narrow, legalistic or pedantic approach in the reasons he gave. To my mind, his reasons show that he did consider the position on the ground in a broad, pragmatic way. Paragraphs 40, 41, 46, 48 and 49 all show that he considered the position on the ground. He did not, for example, hold that there must be a contract between Stagecoach and the Council before the Council could be considered a client. He did not hold that there had to be a subsidy from the Council before the Council could be considered a client. He took into account that Stagecoach had disregarded the reservations of the Council in determining the frequency of service. This was an on the ground feature to which he was entitled to attach importance. He took into account that Stagecoach ran the route as a commercial venture. That was an important pragmatic point to which he was entitled to attach importance. I do not accept Ms Bayoumi's submission that the Employment Judge focused impermissibly on the removal of subsidy. It is plain that he had regard to the overall picture. I see no error of law in his approach.
- This leaves Ms Bayoumi's submission that the Employment Judge reached a perverse conclusion. This is always a difficult submission, for the Employment Appeal Tribunal hears appeals only on a question of law and a perversity argument usually relates to findings of fact or questions of assessment, which are matters for the Employment Tribunal (see, for the principles, the well known judgment of Mummery LJ in Yeboah v Crofton .
- I do not think that the Employment Judge's findings, taken individually or in the round, can be characterised as perverse. In particular, I do not think that the Employment Judge's finding that the Council was an "interested bystander" was perverse when it is read in context. The Employment Judge was well aware that the Council continued to be an interested party. His point was that it had ceded control of the carrying out of the activities. He did not forget that the Council remained in control of the park-and-ride site. He dealt later in his Reasons with the licence relating to it: see paragraphs 45 to 47, which I have already quoted. There is nothing perverse in his conclusions on that matter.
- The minutes on which Ms Bayoumi relied demonstrate the Council's interest in the operation and desire to make it succeed at a time when it was about to start, but they do not begin to demonstrate that the service was being run on the Council's behalf.
- Nor do the press statements upon which she relied have this effect. One of them says:
"Stagecoach will take over the running of the Priory Park service from Hull City Council on September 29."
- Another says, "Hull City Council will relinquish control of Hull Park and Ride with effect from September." There is nothing in these press statements that demonstrates that the Employment Judge's reasoning was perverse.
- The Employment Judge stated a clear conclusion on the critical question in the case. He found that after 29 September the activities in question were not carried out on the client's behalf as required by Regulation 3(1)(b). To my mind, he reached that conclusion without any error of law or perversity. So the appeal will be dismissed.
Published: 05/09/2016 14:19