Glasgow City Council & Ors v Unison Claimants & Ors [2014] CSIH 27

Appeal against the reversal of an ET judgment in which it was found that the respondents were not associated employers, nor was the first respondent the body responsible for any differences in pay. Appeal dismissed.

Parking and Cordia are 2 LLP's who took over various functions from Glasgow City Council. The claimants transferred from Glasgow to the LLP's. The issue between the parties which was the subject of this appeal was whether the female claimants should be permitted to compare their pay with that of men still working for Glasgow. The claimants' contentions depended on the proposition that Glasgow, Parking and Cordia were associated employers in terms of the 1970 Equal Pay Act and/or the proposition that Glasgow was the "single source" of the allegedly discriminatory differences in pay for the purposes of article 157 of TFEU. On its construction of the 1970 Act the tribunal held that Glasgow, Parking and Cordia were not associated employers because the tribunal was not persuaded that Parliament intended to include other legal entities such as LLPs within the meaning of "company" in the 1970 Act, notwithstanding any anomalies that might arise in consequence.  It also held that Glasgow was not the body responsible for any differences in pay and not therefore a "single source". The Appeal Tribunal, reversing the tribunal, held that Glasgow, Parking and Cordia were associated employers, holding that the word, "company" in the section 1(6) of the 1970 Act was capable of including an LLP and that therefore the respondents could compare their pay with that of men still working for Glasgow. Glasgow, Parking and Cordia appealed to the Court of Session.

The appeal was dismissed. s1(6)(c) of the 1970 Act provides:

"(c) Two employers are to be treated as associated if one is a company of which the other (directly or indirectly) has control or if both are companies of which a third person (directly or indirectly) has control."

The Court of Session rejected the respondents' argument that Parking and Cordia were not "a legal entity identified as a type of company under the Companies Act 2006. They are a body corporate regulated by the Limited Liability Partnership Act 2000". "Company" is a word having potentially a wide signification. s1(1) of the 2006 Act expressly recognises that the context might require a different meaning of "company" than "a company formed and registered under this Act". Furthermore, the Companies Acts have always permitted the formation of unlimited companies; thus any limitation to "limited" companies is plainly wrong. Section 1(2) refers both to companies registered but not formed under the Act and bodies incorporated in the United Kingdom but not registered under the Act. Section 1(3) refers to companies incorporated outside the United Kingdom (overseas companies).

___________

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2014] CSIH 27

Lord Brodie

Lord Drummond Young

Lord Phillip

XA39/13

OPINION OF THE COURT

delivered by LORD BRODIE

in the Appeal to the Court of Session under Section 37(1) of the Employment Tribunal Act 1996

by

(1) GLASGOW CITY COUNCIL

(2) CITY PARKING (GLASGOW) LLP

(3) CORDIA (SERVICES) LLP (Appellants)

against

(1) UNISON CLAIMANTS

(2) FOX CROSS CLAIMANTS (Respondents)

_______________

Appellant: Truscott QC, Simpson & Marwick

Respondent: Jonathan Mitchell QC (Fox Cross), Balfour + Manson LLP; Summers QC (Unison), Thompsons Solicitors

21 March 2014

Introduction

[1] This is an appeal from an [order and oral judgment ]()of the Employment Appeal Tribunal, as constituted by Langstaff J (President), Miss J Gaskell and Mrs Hibberd ("the Appeal Tribunal") dated 25 January 2013, allowing appeals from the judgment of an employment tribunal, as constituted by Employment Judge Frances Eccles, Mr W Stewart and Mr K Thomson ("the tribunal") sitting in Glasgow, dated 16 December 2011, as corrected in terms of certificate by the employment judge dated 16 January 2012. Leave to appeal to this court was granted by the Appeal Tribunal in terms of section 37 (1) of the Employment Tribunal Act 1996.

[2] As the Appeal Tribunal observed at the beginning of its judgment, the case is about sex discrimination and pay.

[3] The now appellants are Glasgow City Council ("Glasgow") and two limited liability partnerships ("LLPs"), City Parking (Glasgow) LLP ("Parking") and Cordia (Services) LLP ("Cordia"). Parking and Cordia were established to carry out functions which were formerly carried out by Glasgow directly. Parking carries out the car parking and parking fine enforcement services formerly carried out by Glasgow's department of Land and Environmental Services. It began trading on 1 June 2007. Cordia carries out most of the direct care services (home care, cleaning, janitorial, catering and related services) formerly carried out by Glasgow's department of Direct and Care Services. It has done so from 1 April 2009. Parking and Cordia are known as arm's length external organisations ("ALEOs"). Employees of Glasgow who had been employed to carry out the various functions were transferred incrementally to Parking and Cordia on transfer of responsibility for the functions from Glasgow to the two LLPs. All three appellants were respondents before the Appeal Tribunal and respondents in respect of claims made against them before the tribunal, by the now respondents. A further party, Culture and Sport Glasgow, a company limited by guarantee with charitable status and trading as Glasgow Life ("Life") was a respondent before the tribunal. The tribunal's determination insofar as it related to Life was not appealed to the Appeal Tribunal and accordingly Life did not participate in the proceedings before the Appeal Tribunal or before this court.

[4] The now respondents are employees of either Parking or Cordia who brought claims before the tribunal including a claim for equal pay under the Equal Pay Act 1970 and article 157 of the Treaty on the Functioning of the European Union ("TFEU"), against Glasgow and either Parking or Cordia. They are grouped as, first, the Fox Cross claimants, and, second, the Unison backed claimants, by reference to, in one case, the firm of solicitors and, in the other, the trade union, putting forward or otherwise supporting their claims. A further group of claimants, the GMB backed claimants, were represented before the tribunal and the Appeal Tribunal. The GMB backed claimants lodged answers to the present appeal but on 20 June 2013 these were allowed to be withdrawn and the GMB backed claimants have not participated further in the proceedings.

[5] In very short compass, the issue between the parties which is the subject of this appeal is whether, as the now respondents contend and as the appellants dispute, the now respondents should be permitted to compare their pay with that of men still working for Glasgow. The respondents' contentions depend on the proposition that Glasgow, Parking and Cordia are associated employers in terms of the 1970 Act and/or the proposition that Glasgow is the "single source" of the allegedly discriminatory differences in pay for the purposes of article 157 of TFEU. On its construction of the 1970 Act the tribunal held that Glasgow, Parking and Cordia were not associated employers. It held that Glasgow was not the body responsible for any differences in pay and not therefore a "single source". The Appeal Tribunal, reversing the tribunal, held that Glasgow, Parking and Cordia were associated employers and that therefore the respondents could compare their pay with that of men still working for Glasgow. It was therefore unnecessary for the Appeal Tribunal to determine whether Glasgow was a "single source". However, in deference to the argument it had heard, the Appeal Tribunal indicated that had it been necessary to decide the question of single source, it would have held that the tribunal had been in error by having failed to deal with, or to find relevant facts on the matter and, separately to deal with a significant argument, and therefore the Appeal Tribunal would have remitted the case to the same tribunal for re-determination.

Equal pay

[6] In effect, employees have the right not to be discriminated against on the basis of sex in the matter of pay. Article 157 (1) of TFEU (formerly article 141(1) of the Treaty Establishing the European Community) is in these terms:

"Each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied."

By virtue of Council Directive 75/117 (the Equal Pay Directive) the principle of equal pay means:

"For the same work or for work to which equal value is attributed, the elimination of all discrimination on grounds of sex with regard to all aspects and conditions of remuneration."

[7] In domestic legislation the principle of equal pay is now intended to be ensured by the Equality Act 2010. Formerly the relevant provision was the Equal Pay Act 1970, as amended. The 1970 Act is now repealed but there are transitional provisions and the 1970 Act continues to govern claims, such as those in the present case, which were brought before the 2010 Act came into force.

[8] Put shortly, section 1(1) of the 1970 Act provided that each contract of employment was deemed to include an equality clause, as that was defined by section 1(2).

[9] For the equality clause to operate in favour of a woman employee she must be employed on like work or work rated as equivalent to that of a man or work of equal value to a man who is "in the same employment". Clearly being in the same employment includes a situation where the woman and the man chosen as a comparator are both employed by the same employer and both work in the same establishment. However, in terms of section 1(6) of the 1970 Act, men shall also:

"... be treated as in the same employment with a woman if they are men employed by her employer or any associated employer at the same establishment or at establishments in Great Britain which include that one and at which common terms and conditions of employment are observed either generally or for employees of the relevant classes."

Paragraph (c) of section 1 (6) gave the meaning of "associated employer":

"(c) two employers are to be treated as associated if one is a company of which the other (directly or indirectly) has control or if both are companies of which a third person (directly or indirectly) has control..."

[10] The now respondents rely on article 157 (1) of TFEU as well as the 1970 Act.

[11] In Lawrence v Regent Office Care Ltd Case C-320/00 [2003] ICR 1092, the Court of Appeal made a reference to the Court of Justice of the question whether in the circumstances of that case, article 119 of the EC Treaty, subsequently article 141 EC (the predecessor of article 157 of TFEU) was directly applicable, so that it could be relied on by the applicants in the national proceedings to compare their pay with that of men working in the employment of a local authority. The applicants were school catering and cleaning staff who had been transferred from the employment of the local authority to an entirely separate commercial company after a process of compulsory competitive tendering. The Court of Justice answered the referred question in the negative on the facts of the case before it, but it did so in terms which indicated that article 141 might be relied on where allegedly discriminatory differences in pay could be attributed to "a single source". Paragraphs 17 to 19 of the Court's judgment were in the following terms:

"17. There is, in this connection, nothing in the wording of article 141(1) EC to suggest that the applicability of that provision is limited to situations in which men and women work for the same employer. The court has held that the principle established by that article may be invoked before national courts in particular in cases of discrimination arising directly from legislative provisions or collective labour agreements, as well as in cases in which work is carried out in the same establishment or service, whether private or public: see, inter alia, Defrenne [1976] ICR 547, 568, para 40; Macarthys Ltd v Smith (Case 129/79) [1980] ICR 672, 690, para 10, and Jenkins v Kingsgater (Clothing Productions) Ltd (Case 96/80) [1981] ICR 592, 613-614, para 17.

  1. However, where, as in the main proceedings here, the differences identified in the pay conditions of workers performing equal work or work of equal value cannot be attributed to a single source, there is no body which is responsible for the inequality and which could restore equal treatment. Such a situation does not come within the scope of article 141(1) EC. The work and the pay of those workers cannot therefore be compared on the basis of that provision.
  1. In view of all of the foregoing, the answer to the first question must be that a situation such as that in the main proceedings, in which the differences identified in the pay conditions of workers of different sex performing equal work or work of equal value cannot be attributed to a single source, does not come within the scope of article 141(1) EC."

The Court's conclusion reflected the opinion of Advocate General Geelhoed at para 52 et seq:

"52. ... Article 141 EC is addressed to those who may be held responsible for the unauthorised differences in terms and conditions of employment. ...They may be held accountable in this regard. On the other hand, if differences in pay arise as between undertakings or establishments in which the respective employers are separately responsible for the terms and conditions of employment within their own undertaking or establishment, they cannot possibly be held individually accountable for any differences in the terms and conditions of employment between those undertakings.

...

  1. It is clear from the foregoing that the direct effect of article 141 EC extends to employees working for the same legal person or group of legal persons, or for public authorities operating under joint control, as well as cases in which, for purposes of job classification and remuneration, a binding collective agreement or statutory regulation applies. In all those cases the terms and conditions of employment can be traced back to a common source."

[12] What was required for attribution to a single source was considered by Mummery LJ when Department for Environment, Food and Rural Affairs v Robertson [2005] ICR 750 was before the Court of Appeal. The issue in that case was whether male civil servants employed by DEFRA could compare their pay with female civil servants working in other government departments. The Crown was the employer of both the men and the women. However, the Minister for the Civil Service had delegated the power to negotiate and set most aspects of pay to the department concerned. Pay and conditions of civil servants were no longer negotiated or agreed centrally on a Civil Service wide basis. This was a deliberate change in policy. Individual departments were free to negotiate and agree most terms and conditions of employment and actively use their discretion to introduce pay systems and negotiate pay settlements that best suited their particular needs. In those circumstances, the court concluded that there was no single source to which the differences identified in the pay and conditions of service of workers from different departments could be attributed and no single body which could remedy the discrepancy in pay. At para 29 of his judgment Mummery LJ said this:

"The opinion of the Advocate General in Lawrence supports the view that article 141 is addressed generally to those who may be held responsible for unauthorised differences in terms and conditions of employment and that it is not sufficient simply to look at who are the employers of the applicants and the comparators and to proceed to consider 'single source' only if they are in not common employment. It is necessary to consider in each case whether the terms and conditions are traceable to one source ... I agree with the appeal tribunal ... that the Court of Justice was setting out a justification in the form of a 'principled basis upon which responsibility for difference and discrimination can be pinned' and that the justification is in the 'single source' rather than in common employment. The Court of Justice made it clear that it is not necessarily the person with whom the workers have contracts of employment that determines comparability. The relevant body is the one, 'which is responsible for the inequality and which could restore equal treatment'. The body responsible for the state of affairs will often be the same employer of both the applicants and the comparators, but that is not necessarily so. It depends on the circumstances of the particular case as to whether further inquiry may be necessary. If that were not the case [the submission of counsel for the appellants] would tend to have the extravagant consequence that every civil servant would be entitled to compare himself or herself with any other civil servant of the opposite sex; subject only to objective justification by the employer of differences in pay. That does not seem to be a sensible or practical approach to the preliminary task of identifying appropriate workers in circumstances comparable to the applicants. In my judgment the tribunals below were right to reject it. On my reading of Lawrence ... the approach of EC law is to locate the single source with the body responsible for setting the relevant terms. This is not determined by only addressing the formal legal question of the identity of the employer."

And at para 41 Mummery LJ continued:

"Retention of power by the Crown after delegation to the department means that there is a theoretical legal possibility of the Crown exercising its power some time in the future, but the retention of a legal power, which has not in fact been exercised by the Crown over pay conditions in the particular case, does not make the Crown 'the body responsible' for the actual negotiations and decisions on pay by individual departments resulting in the pay differences of which complaint is made."

Limited liability partnerships

[13] The Limited Liability Partnership Act 2000 received the Royal Assent on 20 July 2000. It came into force on 6 April 2001: The Limited Liability Partnership Act (Commencement) Order 2000 SI 2000/3316. Inter alia the Act provides:

"1 Limited liability partnerships.

(1)There shall be a new form of legal entity to be known as a limited liability partnership.

(2) A limited liability partnership is a body corporate (with legal personality separate from that of its members) which is formed by being incorporated under this Act;

...

(3) A limited liability partnership has unlimited capacity.

(4) The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act.

(5) Accordingly, except as far as otherwise provided by this Act or any other enactment, the law relating to partnerships does not apply to a limited liability partnership.

...

2 Incorporation of documents

(1) For a limited liability partnership to be incorporated-

(a) two or more persons associated for carrying on a lawful business with a view to profit must have subscribed their names to an incorporation document,

(b) there must have been delivered to the registrar either the incorporation document or a copy authenticated in a manner approved by him,

...

4 Members.

(1) On the incorporation of a limited liability partnership its members are the persons who subscribed their names to the incorporation document (other than any who have died or been dissolved).

(2) Any other person may become a member of a limited liability partnership by and in accordance with an agreement with the existing members.

(3) A person may cease to be a member of a limited liability partnership (as well as by death or dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members.

(4) A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.

5 Relationship of members etc.

(1)Except as far as otherwise provided by this Act or any other enactment, the mutual rights and duties of the members of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its members, shall be governed-

(a) by agreement between the members, or between the limited liability partnership and its members, or

(b) in the absence of agreement as to any matter, by any provision made in relation to that matter by regulations under section 15(c).

(2) An agreement made before the incorporation of a limited liability partnership between the persons who subscribe their names to the incorporation document may impose obligations on the limited liability partnership (to take effect at any time after its incorporation)."

The limited liability partnership is a completely new type of entity so far as the United Kingdom is concerned. The 2000 Act was passed largely as a result of pressure from professional firms who wished to attain the structure of a partnership, which is inherently simple, but to obtain the benefit of limited liability to give some protection against professional negligence claims. Before 2000 limited liability partnerships had been possible under the law of Jersey and some other jurisdictions. The 2000 Act has proved very successful, largely, it seems, because of the extreme simplicity of its structure and procedures; these stand in stark contrast to the Companies Act in its latest (2006) form. The limited liability partnership has, of course, certain important features in common with a Scottish partnership, notably the existence of separate legal personality.

Companies Act 2006

[14] Section 1 of the Companies Act 2006 provides:

"Companies

(1) In the Companies Acts, unless the context otherwise requires-

"company" means a company formed and registered under this Act, that is-

(a) a company so formed and registered after the commencement of this Part, or

(b) a company that immediately before the commencement of this Part-

(i) was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii) was an existing company for the purposes of that Act or that Order.

(2) Certain provisions of the Companies Acts apply to-

(a) companies registered, but not formed, under this Act (see Chapter 1 of Part 33), and

(b) bodies incorporated in the United Kingdom but not registered under this Act (see Chapter 2 of that Part).

(3) For provisions applying to companies incorporated outside the United Kingdom, see Part 34 (overseas companies)"

Procedure before the tribunal

[15] The now respondents and the GMB backed claimants brought claims against Glasgow and one of either Parking, Cordia or Life. The claims included a claim for equal pay. The claims were for a period following implementation by Glasgow of a job evaluation scheme known as the Workforce Pay and Benefits Review ("WPBR"). During the case management of the claims, as is provided for by rule 10 of the Employment Tribunals Rules of Procedure, Glasgow applied for dismissal of the equal pay claims against it where the claimant's employment had been transferred to Parking, Cordia or Life, in terms of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"). The now respondents and Life objected to the application. The tribunal accordingly directed that there should be a Pre-hearing Review under rule 18 of the Rules of Procedure to consider Glasgow's application. In addition, the parties also identified the following issues for consideration by the tribunal:

"(i) For those claimants that have transferred to an "arms length" company is the Council an associated employer to that company, and if so, what is the consequence of such associated employer status?

(ii) Is the Council a single source for the relevant WPBR terms and conditions and if so, what is the consequence of such a finding?

(iii) Are claimants who transferred entitled to rely on terms related to comparators who did not transfer to the same company as them, either because the comparator stayed with the Council or transferred to a different company, and if so to what extent and for what period?"

Facts found by the tribunal

[16] The Pre-hearing Review was held in Glasgow on 31 October and 1 to 4 November 2011. Parties were represented by senior counsel. Evidence was led from witnesses and in the form of agreed statements. In the light of that evidence and submissions from the parties, the tribunal found, inter alia, the following facts:

"(5)...

[Glasgow] is a local authority in terms of the Local Government etc. (Scotland) Act 1994. It is the duty of [Glasgow] under the Local Government in Scotland Act 2003 ("the 2003 Act") to make arrangements for the provision of public services which secure best value. Prior to the implementation of the 2003 Act, [Glasgow] provided various public services through Significant Trading Organisations ("STOs"). [Glasgow's] STOs included (i) Direct and Care Services ("DACS") which provided home care, cleaning, janitorial catering and related services; (ii) Culture and Sport which provided culture and sporting services and (iii) Land & Environmental Services which provided car parking and parking fine enforcements.

(6) [Glasgow] had concerns about the performance of their STOs. The Chief Executive reported to [Glasgow's] Executive Committee on the performance of the STOs on 7 March 2006. The decision was taken by [Glasgow] to identify alternative arrangements for the delivery of public services. [Glasgow] decided to establish ALEOs for the delivery of services. [Glasgow] is one of a number of local authorities in Scotland to use ALEOs as an alternative vehicle for the delivery of public services.

...

(20) [Parking] was incorporated...on 23 March 2007 and began trading on 1 June 2007. It is a Limited Liability Partnership ("LLP") incorporated under the Limited Liability Partnerships Act 2000. The original LLP Agreement is dated 31 May 2007 between Glasgow City Council LLP Investments Ltd and [Parking]. The LLP Agreement provided that:

(i) [Glasgow] is entitled to 99.999% of the profits and Glasgow City Council LLP Investments Ltd to 0.001% of the profits under Clause 8;

(ii) [Glasgow] exercises agreed business controls under Clause 12.4, so that [Parking] requires its approval for a number of matters including changing the nature of the business, the place of the business, the appointment or removal of a member, purchasing items or changing tariffs at a percentage higher or lower than that contained in the business plan, amending policies for employee's remuneration and pension schemes, appointing the Chairperson or Managing Director or embarking on any litigation in relation to an amount in excess of £5,000;

(iii) In terms of Clause 12.7 Glasgow City Council LLP Investments Ltd may appoint each and any of [Glasgow's] Chief Executive, Solicitor or Director of Land and Environmental Services to act as its corporate representative;

(iv) In terms of Clause 13.1, the Board consists of 3 elected members of [Glasgow], [Glasgow's] Director of Land and Environmental Services and [Parking's] Managing Director (if appointed).

(v) In terms of 13.10.2, the approval of the Business Plan is a reserved matter for Members and not the Board and any matters not envisaged as forming part of the business of [Parking] as set out in the Business Plan which (a) may be significant in the context of [Parking's] operations and trading or (b) might reasonably be considered to be of fundamental strategic importance in respect of [Parking].

(vi) In terms of Clause 13.12, the Board is required to implement any determination of [Glasgow]. An example of this restriction on the power of the Board to manage the affairs of [Parking] was the refusal of [Glasgow] to allow [Parking] to enter into a sponsorship agreement with a drinks' company.

(vii) In terms of Clause 13.7 Glasgow shall be entitled, from time to time, to appoint and/or remove from office any member of the Board to Act as Chairperson. Councillors are appointed as Directors of [Parking] without any consultation with the Managing Director or the Board. An example of [Glasgow] exercising this power was the removal of Councillor O'Rourke as a Director of Parking.

(21) [Parking] carries out the car parking and parking fine enforcement services formerly carried out by [Glasgow's] Land & Environmental Services in terms of a Services Agreement....

(22) [Parking] leases car parks from [Glasgow] at market rates. [Parking] obtained a bank loan to fund the leases. [Glasgow] acts as guarantor in relation to the bank loans for which [Parking] is charged a fee by [Glasgow]. [Parking] is responsible for the maintenance of the car parks. [Parking] uses the services of [Glasgow's] Shared Services Centre which includes HR and financial services. It pays [Glasgow] for these services.

(23) Employees involved in off street parking transferred to the employment of [Parking]...

(24) On 16 October 2008, the LLP Agreement was varied to delete the restriction on varying employees' terms and conditions of employment without [Glasgow's] consent...

(25) [Parking] is not a member of COSLA. It is not bound by collective bargaining between the trade unions and COSLA. [Parking] has agreed pay deals which mirror those reached between COSLA and the trade unions to avoid industrial unrest. [Parking] is responsible for setting the terms and conditions of its employees....[Parking] is offering voluntary redundancy to its employees. It has requested that [Glasgow] meets the costs of any such exercise.

(26) In March 2008, Grant Thornton UK LLP ("Grant Thornton") delivered a report to [Glasgow] entitled "Future Options for the Delivery of Direct and Care Services". The purpose of the report was to provide information to [Glasgow] for the purposes of reviewing future options for delivery of DACS. The report reviewed the history of DACS, the performance of its various divisions, the commercial and social drivers and market environment. The report identified that the current trading operation structure of DACS was not sustainable. Grant Thornton identified the establishment of a Limited Liability Partnership ("LLP") as an independent entity wholly owned by [Glasgow] as the preferred option to replace DACS. Grant Thornton recommended the establishment of an LLP for a number of reasons including; control by [Glasgow]; tax advantage; compatibility with procurement rules and the transfer of employees to the LLP under TUPE.

...

(28) An LLP Agreement among [Glasgow], Glasgow City Council LLP Investments Ltd ("GCC LLP Investments") and [Cordia] was signed on 31 March 2009 and 3 April 2009 ("the LLP Agreement").

The members of the LLP are [Glasgow's] and GGC LLP Investments. [Cordia] is an LLP incorporated under the Limited Liability Partnerships Act 2000. The LLP Agreement provides:-

(i) In terms of Clause 7, [Glasgow] is entitled to 99.999% of any profit and GCC LLP Investments to 0.001%

(ii) In terms of Clause 11.2, the Board is to comprise a maximum of 8 Members as follows;

(i) 1 elected member of [Glasgow] as Chairperson;

(ii) the Managing Director of [Cordia];

(iii) 2 Executive Directors of [Glasgow] drawn from the senior management team;

(iv) 3 further elected members of [Glasgow] and

(v) 1 senior officer of [Glasgow] as nominated from time to time by [Glasgow's] Chief Executive.

(iii) In terms of Clause 11.10, [Glasgow], in its capacity as a Member of [Cordia], is entitled to issue directions to [Cordia's] Board from time to time and the Board shall be bound to comply promptly with any such direction.

(iv) The powers of the Board are restricted at Clause 13 to the extent that [Glasgow's] prior written consent is required before [Cordia] can take any of the following steps;

a. change the nature of the business;

b. admit a new member to the LLP;

c. exceed certain financial limits in loans and contracts;

d. dispose or acquire any business;

e. join a different pension scheme;

f. appoint or remove the Chairperson;

g. appoint or remove the Managing Director;

h. settle any litigation over £5,000, or in the case of employment claims, £25,000.

i. go into liquidation or administration.

(v) The matters referred to in Clause 13 rest with [Glasgow] in terms of Clause 14 and include any other step which might reasonably be considered to be of fundamental strategic importance in respect of [Cordia].

(vi) In terms of Clause 15, GCC LLP Investments can nominate each and any of [Glasgow's] Chief Executive, Finance Director and Solicitor as its corporate representative.

(29) [Cordia's] Board is obliged to prepare a Business Plan containing its core business, not less than 16 weeks before the start of each financial year. It has to be approved by [Glasgow]. [Cordia] cannot carry on any business which, if carried out by [Glasgow], would be ultra vires or any business outwith the Business Plan with [Glasgow's] prior written consent. Services are provided to [Glasgow] by Cordia (Care) LLP. In turn Cordia (Care) LLP subcontracts to [Cordia].

(30) [Cordia] carries out most of the services formerly carried out by DACS. ...85% of [Cordia's] turnover is generated by its services supplied to [Glasgow] and within this, 84% of the cost base is payroll (paragraph 3.3).

(31) All employees, other than the staff in the Corporate Procurement and Hostels divisions, who remained within [Glasgow's] employment, transferred to the employment of [Cordia]...[Cordia] is allowed to, and does, trade on the open market.

(32) Councillors are appointed by [Glasgow] as Directors of [Cordia] without consultation with the Managing Director of [Cordia] or its Board. They can be removed by [Glasgow] at any time.

(34) [Cordia] is not a member of COSLA. It attends a separate trade union forum. It is not bound by collective bargaining between the trade unions and COSLA. Cordia's employees have a separate pay award to that of [Glasgow's] employees as a result of negotiations between the trade unions and [Cordia]. [Cordia] is responsible for setting the terms and conditions of its employees. Variations to terms and conditions of employment by [Cordia] do not require the approval of [Glasgow]....

(35) [Glasgow] provides services to [Cordia] including: IT (Access), Legal Services, Security Services, Corporate Procurement, Repairs Maintenance and Shared Service Unit. [Cordia] is charged around £4m from central support functions for the following services; The Chief Executive and Public Relations, Legal Services, Personnel and Administration, ICT, DRS, Finance, Shared Service and Office Accommodation.

(36) [Glasgow's] External Governance and Asset Management Unit (GAMU) holds quarterly meetings with the ALEO's which are also attended by representatives from its Finance, Corporate and Internal Audit Divisions. The performance of ALEOs is also subject to the scrutiny of [Glasgow's] External Governance Scrutiny Committee ("the Committee") which sits every 6 weeks and from the City Treasurer (whose role incorporates Service Reform) and Deputy Leader (whose role includes External Governance)....[Glasgow] has granted the ALEOs indemnities in connection with the current proceedings.

....

(38) The terms and conditions of employment for employees of [Glasgow] and ALEOS, subject to any subsequent variations referred to above, were issued to employees following [Glasgow's] WPBR. ALEO employees have the opportunity to join the Local Government Pension scheme of [Parking] and [Cordia] have the same opportunities to join.

(39) [Glasgow] and ALEOs have entered into a Memorandum of Understanding for the purpose of working efficiently together to maximise the effectiveness of budgets and efficiency of services. The Memorandum of Understanding states that the ALEOs have 'separate management teams and governing Boards with clearly specified remits'.

The decision of the tribunal in respect of Parking and Cordia

[17] The tribunal began by considering whether Glasgow and, respectively, Parking and Cordia, were associated "companies" in terms of section 1(6)(c) of the 1970 Act. It had not been suggested by any party that Glasgow was a "company" but that was not critical. As had been held by the Court of Appeal in Northern Ireland in Hasley v Fair Employment Agency [1989] IRLR 106 in respect of the equivalent Northern Ireland provision, it was sufficient for the purposes of section 1(6)(c) that there is one (employer) company of which the other employer (not necessarily a company) has control. However, Parking and Cordia were not companies. They were LLPs. Accordingly, they were not legal entities of the sort identified as companies by the Companies Act 2006; they were bodies corporate regulated by the Limited Liability Partnership Act 2000. In Gardiner v London Borough of Merton [1980] IRLR 472 Griffiths LJ had read "company" where it appeared in section 153(4) of the Employment Protection (Consolidation) Act as meaning a limited company in terms of the Companies Acts. LLPs and companies, while they share similar characteristics, are separate types of legal entity. The tribunal was not persuaded that Parliament intended to include other legal entities such as LLPs within the meaning of "company" in the 1970 Act, notwithstanding any anomalies that might arise in consequence. It followed that Parking and Cordia, on the one hand and Glasgow, on the other, were not "associated employers".

[18] The tribunal went on to consider whether the now respondents employed by Parking and Cordia were able to rely on comparators who remained in Glasgow's employment by establishing a "single source" for the purpose of article 157 of TFEU, in other words whether the now respondents had shown that there was one body which was responsible for the inequality and which could restore equal treatment: Lawrence supra. On its understanding of the decision in The Department for Environment, Food and Rural Affairs v Robertson, the tribunal considered that it was not enough that one body retained legal power to remedy disparity if that power was not in fact exercised. Applying these principles to the facts of the present case the tribunal was not satisfied that Glasgow was the single source of, on one hand, the terms and conditions of the now respondents and, on the other, the terms and conditions of Glasgow's employees.

[19] For the tribunal the salient factors when considering whether Glasgow was to be regarded as a "single source" were the following:

"Since the date of transfer, the ALEOs had been responsible for setting the claimants' terms and conditions. The claimants transferred to the ALEOs with WPBR terms and conditions from their employment with Glasgow. The ALEOs did not require the consent of Glasgow to vary those terms and conditions or, in the case of Parking, had not required such consent since 16 October 2008. Cordia had varied the terms on which the claimants transferred to their employment. The variations were not made on the instructions of Glasgow. Parking had not, to date, varied the terms and conditions of employees. That is due to concerns over industrial relations and not as a result of any instructions from Glasgow. The decision to pay employees the Glasgow Living Wage was made by the ALEOs on commercial grounds and not in compliance with an instruction from Glasgow. Arrangements between the respondents with regards to legal indemnities and representation before the Tribunal did not assist the Tribunal in its considerations as to whether Glasgow retained control of setting the claimants' terms and conditions.

...

The ALEOs had separate pay bargaining arrangements with the trade unions. They were not obliged to adopt any pay agreements reached between COSLA, of which Glasgow is a member, and the trade unions."

[20] The tribunal stated its conclusion on single source at para 101 of its judgment in these terms:

"It was not in dispute that [Glasgow] retains control of the ALEOs. This was described by the respondents as strategic control and control and implementation. [Glasgow] exercises this control through ownership; the appointment of directors; funding and scrutiny of performance through the acquisition of services. This is consistent with the relationship of [Glasgow] with the ALEOs as their service providers. The tribunal was satisfied that this was consistent with the type of control described by Mr Melvin in his evidence. The respondents have satisfied themselves that it is a sufficient level of control to comply with EU procurement regulations. It has resulted in [Glasgow] exercising control over the ALEOs in connection with such matters as their presence at political events and the behaviour of elected board members. It is the claimants' position that this is also sufficient control to establish that [Glasgow] is a 'single source'. In the context of control for the purposes of establishing a 'single source' and the facts of this case, however, the tribunal was not persuaded that the level of control exercised by [Glasgow] over setting the claimants' terms and conditions is sufficient to make them a 'single source'. The tribunal was not persuaded that such control has in fact been exercised by [Glasgow] to set or vary the claimants' terms and conditions. As in Robertson, in which the Crown was the common employer and retained the power to vary terms and conditions set by individual departments, [Glasgow] has not exercised any such power. It is a power that is exercised by the ALEOs and over which [Glasgow] plays no direct part. [Glasgow] is not the body responsible for any differences in the pay of their employees and the claimants. Such differences are attributable to the ALEOs and their responsibility. In the above circumstances, the tribunal was unable to conclude that the [Glasgow] is a 'single source'."

The decision of the Appeal Tribunal

[21] The Appeal Tribunal reversed the tribunal decision. It held that the word, "company" in the section 1(6) of the 1970 Act was capable of including an LLP. Accordingly, as it had not been in dispute before the tribunal that Glasgow had control of Parking and Cordia and there was no requirement for the purposes of section 1(6) that in order for two employers to be treated as associated that they both be companies, Glasgow was to be treated as an associated employer of Parking and Cordia and therefore the claimants who were employees of Parking and Cordia were to be treated for the purpose of comparison of pay as being in the same employment as employees of Glasgow.

[22] The need to determine whether any discriminatory differences in pay could be attributed to "a single source" for the purpose of article 157 was therefore superseded, but had the Appeal Tribunal required to decide the question of single source, it would have held that the tribunal was in error in failing to deal with, or to find facts with respect to, the second part of the Lawrence formula (ie whether Glasgow was a body "which could restore equal treatment"), and both for that reason, and separately because it identified what might be thought to be a failure to deal with a significant argument the Appeal Tribunal would have remitted the case to the tribunal for re-determination.

[23] The significant argument to which the Appeal Tribunal drew attention is recorded in paragraphs 46, 47, 57 and 75 of the tribunal's judgment. For the sake of brevity it was referred to as the "Teckal exemption". It was derived from the public procurement regime established in terms of Council Directive 2004/18/EC and the Public Contracts Regulations 2006, which is intended to ensure that public bodies award certain contracts only after fair competition and that the award is made to the person offering the lowest price or making the most economically advantageous offer. The regime only applies to contracts awarded to external contractors and is not intended to prevent a public authority from procuring the relevant goods or services from its own resources. In Case C-107/98 Teckal Srl v Comune di Viano [1999] ECR I 8121 the Court of Justice considered what constituted a public supply contract for the purposes of the procurement regime (then constituted in terms of Directives 92/50/EEC). The Court determined that in principle it is sufficient if the contract is concluded between, on the one hand, a local authority, and, on the other, a person legally distinct from that local authority. However (and this is what has become known as the Teckal exemption") the position can be otherwise where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority. In the present case the Teckal exemption argument was to the effect that it was inconsistent to accept, on the one hand, that the ALEOs were sufficiently under the control of Glasgow as to be the equivalent of in-house organisations thereby taking the contracts between and each of the ALEOs out of scope of Council Directive 2004/18/EC), while, on the other hand, not accepting that Glasgow had sufficient control over the ALEOs to constitute it as a "single source".

The grounds of appeal

[24] The appellants' grounds of appeal to this court are as follows:

  1. The Employment Appeal Tribunal erred in law in reversing the judgment of the Employment Tribunal that the word "company" in section 1(6) of the Equal Pay Act 1970 did not extend to include the Arm's Length External Organisations ("ALEOs") which were limited liability partnerships. The Employment Tribunal was correct to find that the definition was confined to a limited company or companies.
  1. The Employment Appeal Tribunal erred in law in, albeit on an obiter basis, concluding that the Employment Tribunal should not have found that a single source, as found in Lawrence v Regent Office Care Ltd Case C-320/00 [2003] ICR 1092, was not present because they had not considered whether [Glasgow] could remedy the pay inequality in practical terms. The Employment Tribunal considered all the evidence and their conclusion should not have been reversed by the Employment Appeal Tribunal.
  1. The Employment Appeal Tribunal erred in law in substituting their own views for that of the Employment Tribunal in circumstances where the latter tribunal had made findings on the structure of the ALEOs and had not erred in law. In particular, the Employment Appeal Tribunal seemed to place reliance on lay members' general knowledge of the operation of ALEOs to support their substitution. The judgment of the Employment Tribunal was not perverse or erroneous in law, consequently it should not have been disapproved.
  1. The Employment Appeal Tribunal erred in law in determining, albeit on an obiter basis, that because [Glasgow] had structured its relationship with the ALEOs deliberately in order to take advantage of what was known as the Teckal exemption, this was in some way relevant to the issue of single source and the Employment Tribunal [failing] to make relevant findings. The finding of the Employment Tribunal is sufficient where it says: "The respondents have satisfied themselves that it is a sufficient level of control to comply with EU procurement regulations."
  1. The Employment Appeal Tribunal erred in law in concluding that section 1(6) of the Equal Pay Act was an anti-avoidance measure and relying, to any extent, on a concession said to have been made by counsel for the appellants. It was conceded by counsel for the appellants that [Glasgow] has strategic control at a level sufficient to comply with the European procurement regulations as defined in Teckal and subsequent cases and also if the ALEOs were properly to be treated as companies, [Glasgow] would have sufficient shareholding to have control of that company. No other concession was made by counsel for the appellants. The Local Government (Scotland) Act 2004 (Remuneration) Amendment Regulations 2011 SSI 2011/264 were never referred to in the [tribunal].
  1. The judgment of the Employment Tribunal discloses no error of law and accordingly should be restored.

Submissions

Appellants (Glasgow)

[25] On behalf of the appellants Mr Truscott submitted that the appeal should be allowed and the decision of the tribunal restored. However, Glasgow should be allowed to remain as a party to the proceedings.

[26] There is no definition of the word "company" in the Equal Pay legislation. It is however defined by section 1 of the Companies Act 2006 as a company formed and registered under that Act. With a view to achieving consistency across employment legislation, that is the meaning which should be adopted when interpreting the 1970 Act: cf London Borough of Merton v Gardiner supra and Hasley v Fair Employment Agency supra. Control in this context meant shareholder control: Washington Arts v Forster [1983] ICR 346. Section 1(6)(c) of the 1970 Act has not been amended, despite opportunities having arisen for it to have been with a view to making clear that an association such as an LLP is a company for the purposes of this provision. It had not, for example had been amended when the Equality Act 2010 was enacted, notwithstanding the enactment of the 2000 Act. That was an indication that Parliament was content with the law as stated in Gardiner and did not intend that LLPs be included within the concept of a company. Section 1(6) was not, as the Appeal Tribunal had regarded it, an "anti-avoidance measure". It simply delineated what Mr Truscott described as "the arc of comparison". To achieve the rights conferred by article 157 it was not necessary that the meaning of "company" includes LLPs. The Appeal Tribunal therefore erred in concluding that "company" in section 1(6) was capable of including an LLP.

[27] Whether there is a single source for the purpose of a claim under reference to article 157 of TFEU is a question of fact and degree: North Cumbria Acute Hospitals NHS Trust v Potter and Others [2009] IRLR 176 at paras 107 and 109. Accordingly, it was a matter for the tribunal as fact-finder and its decision must be respected unless it is found to have erred in approach or its conclusion is perverse. The tribunal's judgment had not been erroneous or perverse. The Appeal Tribunal had substituted their own views for those of the tribunal.

[28] Mr Truscott emphasised that one must distinguish between strategic control and operational control. Glasgow has never denied that it has strategic control over the ALEOs in the sense of a sufficient level of control to comply with EU procurement regulations. As the tribunal found, Glasgow had "strategic control and implementation. [It] exercises this control through ownership; the appointment of directors; funding and scrutiny through the acquisition of services ..." In this respect the relation between Glasgow and the ALEOs is no different from the relationship between shareholders and directors of a UK corporate entity. However, operational control is managed by ALEO boards and not Glasgow and this is highlighted by the fact that Glasgow do not control important day to day decisions such as setting employees' terms and conditions.

[29] In relation to the Teckal exemption it is sufficient for the tribunal to say, as it did, at paragraph 101: "The respondents have satisfied themselves that it is a sufficient level of control to comply with EU procurement regulations."

First respondents (Fox Cross)

[30] Mr Mitchell for the first respondents submitted that the court should refuse the appeal with the practical effect that the tribunal should thereafter proceed to consider the complaints.

[31] On the matter of the construction of section 1(6) of the 1970 Act, the analysis and conclusion of the Appeal Tribunal were entirely correct subject to the principles derived from Case C-106/89 Marleasing SA v La Comercial Internacional de Alimentacion SA [1990] ECR 4135 also being supportive of this result. As "company" was not defined in the 1970 Act section 1(6) the word had to be construed purposively in the context of the anti-avoidance measure that the relevant provision was. The mischief at which section 1 aims is plain: systematic discrimination on the ground of gender. Section 1(6) was an anti-avoidance measure in the sense of avoiding displacement of equal pay protection by means of adopting a particular form of business organisation. However, debating whether or not the relevant provision was or was not properly to be regarded as an anti-avoidance measure was less helpful than recognising that it was designed to strike at systematic discrimination, without regard to the form of business organisation adopted by the employer. As the explanatory notes to the 2000 Act point out, an LLP is more closely akin to a company than to a partnership. An LLP can accordingly, without doing violence to the words of the statute, be properly be described as a company. Having regard to the objective of the legislation, there is no obvious reason why Parliament should exempt a business organisation such as an LLP from the purview of the section. The definition of "company" adopted by the tribunal and contended for by the appellants was unduly restrictive. It did not correspond to the much wider connotation of the word in general usage, as can be demonstrated by reference to the Oxford English Dictionary and the introductory paragraph of the article on companies in Halsbury's Laws of England (4th edit) cited in Hasley v Fair Employment Agency supra. The definition of "company" in the 2006 Act is only for the general purposes of that Act and it may be contrasted with section 154 of the Companies Act 1948, which was in force when the 1970 Act was enacted and which provided that "'company' includes any body corporate". The appellants' definition, restricting "company" to a company incorporated under the 2006 Act would exclude, for no obvious reason, many corporate bodies operating in the United Kingdom, for example companies incorporated in Northern Ireland or sociétés anonymes established according to French law.

[32] Although the Appeal Tribunal had dealt with the matter only briefly, it was open to this court to hold, on the facts found by the tribunal that Glasgow was a "single source" for the purposes of article 157. The central element was that of control: Allonby v Accrington & Rossendale College [2001] IRLR 364. It was obvious that, in the ordinary sense of control, Glasgow controlled the ALEOs. Regard had to be had to reality: cf Aberdeen Asset Management v HMRC 2014 SLT 54. Glasgow owns the ALEOs. As found by the tribunal at para 36 the ALEOs are subject to scrutiny by a committee of Glasgow. Given the findings of primary fact the decision of the tribunal was perverse.

[33] It is fundamentally contradictory to say that the ALEOs are under Glasgow's control in the same way as its former departments were for the purposes of the Teckal exemption but to maintain that the ALEOs are not under Glasgow's control when it comes to determining the terms and conditions of employees: see R (Risk Management) v Brent London Borough Council [2011] 2 AC 34 at paras 17, 74 and 92. The degree of control necessary to establish a single source might not necessarily go the distance of satisfying the requirements for the Teckal exemption but if the Teckal requirements are satisfied it follows that there must be a single source. The question of who has the responsibility in the sense of restoring equal pay cannot be separated from the question of who has the power to do so. That Glasgow could restore equal pay is sufficient: Armstrong (No 1) v Newcastle-upon-Tyne NHS Hospital Trust [2006] IRLR 124. The fact that the power had not been exercised was not to the point. Department for Environment, Food and Rural Affairs v Robertson is a different case. There the relevant power and the relevant responsibility had been surrendered by means of subordinate legislation. Thus while it may be that a decision as to single source is fact-specific and therefore a matter for the finder of fact, in the circumstances of the present case, given the findings of primary fact made by the tribunal, a finding that Glasgow was not the single source was absurd. It is not clear what benefit there would be in remitting back to the tribunal. However, if an alternative view were to be taken, the tribunal having failed to give proper reasons for ignoring the implications of the Teckal exemption, the matter should be remitted to the tribunal for re-determination.

Second respondents (Unison)

[34] The submission on behalf of the first respondents was adopted by Mr Summers on behalf of the second respondents. The appeal should be refused for the reasons put forward on behalf of the first respondents and for the additional reasons advanced on behalf of the second respondents.

[35] The word "company" is not defined in the 1970 Act; its meaning must therefore be settled by construing the word according to its general legal usage within the context of equal pay legislation. "Company" readily comprehends an LLP. A LLP is a body corporate with a legal personality separate from that of its members. That a partnership is a legal person distinct from its members is of course no novelty in Scots law: Partnership Act 1890 sections 1 and 4(2).

[36] Such an interpretation coincides with the objectives of Council Directive 75/117/EE C, which in turn gives effect to what was article 119 and then article 141 of the Treaty and now article 157 TFEU. That it is legitimate to take into account the terms of the Council Directive follows from Marleasing.

[37] The tribunal failed properly to dispose of the second respondents' submissions on "single source" as that concept is articulated in Lawrence. The appellants accept that they have "strategic control" over the ALEOs. While it may be that they do not involve themselves in the mechanics of setting the pay and conditions of employees of Parking and Cordia, their influence over them justifies the conclusion that if the appellants wished to procure pay equality as between Glasgow and Parking and Cordia, they could do so. Particular reference was made to paragraphs 20(vi) and 24 of the tribunal's judgment in respect of Parking from which it was clear that in substance the truth was that Glasgow had complete control; and paragraphs 28(iii) and 34 in respect of Cordia from which it was clear that the power to control lies with Glasgow, albeit that the reins are loose. The principle of equal pay for equal work forms part of the foundation of the European Union: Case C-43/75 Defrenne v Sabena [1976] ICR 547 at 566 para 12. It is part of the broad principle that unless unequal treatment is capable of objective justification it is unlawful: Cadman v Health and Safety Executive Case C-17/05 [2006] ECR I-9583 at paras 27-28. It is submitted that this principle should dispose a court to look narrowly at arrangements where the power to set wages policy has not been transferred completely but remains subject to either formal or informal controls by the original employer. If the appellants are in a position to exercise control over wages policy in practical terms then they ought to be regarded as a single source: North Cumbria Acute Hospitals NHS Trust v Potter supra at para 107, City of Edinburgh Council v Wilkinson [2010] IRLR 176 at paras 80-87. The tribunal had misread Robertson and therefore fallen into error of law.

Discussion

[38] As is very familiar, notwithstanding that an intervening appeal to the Appeal Tribunal has been determined, the question for this court is whether the tribunal erred in law: Scottish Midlands Cooperative Society Ltd v Cullion [1991] IRLR 261.

[39] The issue for determination by the tribunal was whether men employed by Glasgow came within what Mr Truscott described as the "arc of comparison" with employees of Parking and Cordia for the purposes of claims for equal pay. On behalf of the now respondents it was argued that employees of Glasgow were proper comparators with employees of Parking and Cordia because (1) in terms of section 1(6) of the 1970 Act, the employees of Glasgow, Parking and Cordia were to be treated as in the same employment and, separately, (2) Glasgow was to be regarded as the single source of the terms and conditions of employment for employees of Glasgow, Parking and Cordia. The tribunal rejected both grounds of argument. In our opinion it was wrong to have done so.

[40] We turn first to "treated as in the same employment". In terms of section 1(6) men will be treated as in the same employment with women if they are employed by the same employer or any associated employer and other specified requirements are met. For present purposes the other specified requirements are not of concern. Neither is the notion "employed by her employer"; the now respondents accept that they are employed by Parking or Cordia and not by Glasgow. What is of interest is "employed by...any associated employer"; the contention of the now respondents being that Glasgow is an "associated employer", of, respectively, Parking and Cordia. That brings us to the disputed issue of statutory construction on which the now respondents' first ground of argument turns. It was agreed between the parties that an exhaustive definition of "associated employer" was to be found in section 1(6)(c) of the 1970 Act. As has already been noted, that paragraph provides:

"(c) Two employers are to be treated as associated if one is a company of which the other (directly or indirectly) has control or if both are companies of which a third person (directly or indirectly) has control."

Before the tribunal it had been argued that for employers to be associated both had to be companies and that as, on any view, Glasgow was not a "company" it could not be an "associated employer". Rightly in our opinion, the tribunal rejected that argument as being based on an erroneous construction of paragraph (c) (and see Hasley v Fair Employment Agency supra at 110 para 13). This argument was not repeated before the Appeal Tribunal nor before this court. The argument that was maintained by the now appellants was that for employers to be associated for the purposes of section 1(6)(c), at least one had to be a "company" and in the present case neither Parking nor Cordia, being LLPs, were companies and therefore neither could be associated employers with Glasgow.

[41] As appears from paragraph 96 of its judgment, the tribunal accepted the now appellant's argument because, in its opinion, Parking and Cordia were not "a legal entity identified as a type of company under the Companies Act 2006. They are a body corporate regulated by the Limited Liability Partnership Act 2000". By "types of companies" we take the tribunal to have been referring to the overlapping classifications of companies formed and registered under the 2006 Act which are described at sections 3 to 6 of the Act (the gloss suggested by the appellants' first ground of appeal that the tribunal had found that "the definition was confined to a limited company or companies" would not seem to be warranted).

[42] We do not have to go further than section 1 of the 2006 Act to see that the definition of "company" adopted by the tribunal was a restricted one. Section 1(1) expressly recognises that the context might require a different meaning of "company" than "a company formed and registered under this Act". Furthermore, the Companies Acts have always permitted the formation of unlimited companies; thus any limitation to "limited" companies is plainly wrong. Section 1(2) refers both to companies registered but not formed under the Act and bodies incorporated in the United Kingdom but not registered under the Act. Section 1(3) refers to companies incorporated outside the United Kingdom (overseas companies). "Company" is a word having potentially a wide signification. As the Appeal Tribunal correctly observed, companies existed long before the Companies Acts (the Joint Stock Companies Act 1844, applying only to England; and the Joint Stock Companies Act 1856 and subsequent legislation also applying to Scotland) were first enacted; corporate status being conferred by Act of Parliament, letters patent or Royal Charter: cf Partnership Act 1890 section 1(2)(b). Joint stock companies were reorganized, which were in effect large partnerships with transferable equity stock. These were usually statutory in origin, and Companies Clauses Acts, such as the Companies Clauses Consolidation (Scotland) Act 1845, were passed to facilitate their formation. Reflecting this is what appears at the beginning of the title, Companies, in the current (5th) edition of Halsbury's Laws of England, volume 14:

"The general sense of the word 'company' denotes an association of individuals formed together for some common purpose."

In the supporting footnote there is this:

"For present needs, there is an implication in the word 'company' that the purpose for which the individuals have joined together is of a more or less permanent character. Companies, particularly those formed under the Companies Acts, typically provide for investment in trade with a view to generating profits in order to benefit their proprietors: see eg Re a Company (No 00709 of 1992) O'Neill v Phillips [1999] 1 WLR 1092 at 1098 per Lord Hoffman: ('A company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality')."

[43] The tribunal did not explain in terms why it felt constrained to adopt the restricted meaning of "company" as a company formed and registered under the 2006 Act but it does refer to Gardiner v London Borough of Merton supra at 287D where, speaking of section 153(4) of the Employment Protection (Consolidation) Act 1978, a provision in substantially the same terms as section 1(6) of the 1970 Act, Griffiths LJ said this:

"The Act does not contain the definition of 'company' but I read it as meaning 'limited companies' as did Slynn J in Wynne v Hair Control [1978] ICR 870, 875, and I am satisfied that a local authority is not a 'company' within the meaning of section 153(4)".

Before the tribunal counsel for the now appellants had submitted that the tribunal was bound by the Court of Appeal's decision in Gardiner and that while LLPs as constituted by the 2000 Act did not exist at the time of that decision, Parliament's failure to amend the law by extending the definition of "company" and, in particular, by expressly providing that it included LLPs, should be regarded as an indication that Parliament intended that the word should continue to be understood as it had been interpreted in Gardiner. Before this court Mr Truscott, on behalf of the appellants, also referred to Gardiner and commended Griffiths LJ's dictum as indicating how "company" should be interpreted in employment legislation.

[44] In Hasley v Fair Employment Agency supra, Lord Lowry CJ cited Gardiner as supporting the proposition that the word "company", unless specifically defined, does not normally extend to cover all bodies corporate. We would see that as correctly identifying the ratio in Gardiner and it is that ratio which was applied in Hasley in finding that two statutory bodies, the Fair Employment Agency and the Equal Opportunities Commission were not within the meaning of "company" as used in the relevant Northern Ireland legislation. As is pointed out by the Appeal Tribunal at paragraph 60 of its judgment, in Hasley Lord Lowry did not suggest that the expression "company" was restricted in meaning to limited companies. Moreover, strictly, the reference to "limited companies" (as opposed to "company" in the general sense identified in Halsbury and therefore including unlimited companies) in the Gardiner dictum is obiter. It was unnecessary for the conclusion that a local authority is not a "company" in terms of section 153(4) of the 1978 Act that a "company" must be understood as a body enjoying limited liability. Indeed, we would respectfully question whether Griffiths LJ in Gardiner or Slynn J in Wynne v Hair Control by employing the expression "limited companies" were doing other than using it as a convenient shorthand for something like the longer formulation adopted by Lord Hoffmann in O'Neill and set out in the footnote to Halsbury.

[45] Therefore, there is nothing either in the statutory provisions or in the authorities to which we were referred which requires a narrower meaning of "company" where it appears in section 1(6) of the 1970 Act than would be suggested by the ordinary use of language, having regard to the context. It respectfully appears to us that the ordinary meaning of the word was well expressed by Lord Hoffman in O'Neill. Construing section 1(6) by reference to that ordinary meaning of company is consistent with what we would see to be the purpose of the provision which is to determine who are the employees whose terms and conditions fall within what Mr Truscott referred to as the appropriate arc of comparison, these being the employees of employers one of whom is controlled by the other or both of whom are controlled by a third party. As Mr Mitchell on behalf of the first now respondents submitted, control is the key concept; a company is a form of business organisation which in both a legal and a practical sense is capable of controlling and being controlled. It would be remarkable, to say the least, if by using the word "company" Parliament intended to bring the employees of some business organisations having all or most of the characteristics of companies formed and registered under the 2006 Act and capable of controlling and being controlled, but not others. The restricted definition adopted by the tribunal would exclude, for example, an overseas company, such as a French sociètè anonyme which was carrying on business in the United Kingdom. Mr Truscott could not suggest any reason for Parliament wishing to do so.

[46] Once it is accepted that "company" where it appears in section 1(6) of the 1970 Act is to be construed according to its ordinary meaning as set out by Lord Hoffmann in O'Neill, it would seem clear that an LLP must be included within that construction. An LLP is an association of persons (natural or juristic). It has an economic purpose (see in particular, section 2(1)(a) of the 2000 Act). There are formal requirements for its constitution (including registration with the Registrar of Companies). It is a corporate body with a legal personality separate from its members and having limited liability. We should point out that all of the foregoing features exist in an ordinary (unlimited) Scottish partnership. Historically, partnerships were frequently referred to in Scotland as "companies". It may be, therefore, that a Scottish partnership is also a "company" for the purposes of the equal pay legislation. A decision on that point is not necessary for the purposes of the present case, however, and we express no concluded view on the matter. Mr Truscott referred to the following passage in the judgment of the Employment Appeal Tribunal in Washington Arts Association Ltd v Forster supra:

"In the law of companies the word 'control' has acquired a technical meaning; it means the power exercised, or capable of being exercised, by those who are members of the company and who are able to vote in general meetings."

Mr Truscott submitted that it was by reference to this technical meaning that "control" was to be understood where it appears in section 1(6) of the 1970 Act. We did not hear detailed argument on this and would accordingly reserve our opinion, but assuming for present purposes that "control" in section 1(6) has to be given that meaning, that is the sort of control which a LLP can exercise or have exercised over it. In the course of discussion Mr Truscott was asked by the court to suggest a rational basis for not including an LLP within the definition of "company" as it appears in section 1(6). He was unable to do so. No more are we.

[47] It follows that Glasgow is to be treated as an associated employer of both Parking and Cordia and that therefore subject to the other requirements of the legislation, men employed by Glasgow are to be treated as in the same employment with women employed by the ALEOs. The respondents have thus been successful in resisting the appeal. However, it is appropriate that we say something about their alternative argument: that the principle of equal pay, now set out in article 157 of TFEU has not been applied because Glasgow is the single source of unauthorised differences in terms and conditions of employment as between its employees, on the one hand, and the employees of Parking and Cordia, on the other.

[48] The question as to whether Glasgow is the single source of what the now respondents seek to demonstrate is discrimination in contravention of the principle of equal pay is a matter of fact and, as such, within the province of the tribunal as the tribunal of the fact. The appellants found on that and criticise the Appeal Tribunal for substituting its own views where the tribunal had made sufficient findings in fact, had not erred in law and had not come to a perverse conclusion. However, findings of fact may be set aside and relevant matters required to be reconsidered where the tribunal of fact has misdirected itself in law or failed to give due consideration to a relevant factor. In the present case, agreeing with the Appeal Tribunal, we consider that the tribunal's decision on single source is vitiated both by an error of law and failure adequately to demonstrate that a relevant factor has been taken into account.

[49] The tribunal made very full findings of fact which clearly demonstrate why, as the tribunal stated at paragraph 101 of its judgment, it was not in dispute between the parties that Glasgow retained control of the ALEOs. There was plenty of material which would permit the conclusion that it was open to Glasgow to direct the affairs of Parking and Cordia at every level. Indeed it was very important that Glasgow should have a high degree of control over the ALEOs in order to benefit from the Teckal exemption from the requirement to comply with Council Directive 2004/18/EC and the Public Contracts Regulations 2006. However, while recognising the extent of Glasgow's power over Parking and Cordia, the tribunal, founding on its understanding of the judgment of the Court of Appeal in Department for Environment, Food and Rural Affairs v Robertson supra, did not find Glasgow to be the body responsible for setting the terms and conditions of both its employees and the employees of the ALEOs. According to the tribunal, it was not enough to be a single source that a body retained legal power to remedy disparity in pay if that power was not in fact exercised. As the tribunal had found that Glasgow had, as a matter of practice, restricted its control over the ALEOs to a strategic level, it was to be regarded as the equivalent of the Crown in Robertson. In our opinion the tribunal's decision is based on a misreading of Robertson and the decision of the Court of Justice in Lawrence v Regent Office Care Ltd supra, upon which Robertson is based. As Mummery LJ explained in Robertson supra at para 29 the correct approach is to determine whether there is a single source setting the relevant terms for the relevant employees. The single source is the body "which is responsible for the inequality and which could restore equal treatment". Consideration must be given to "responsible for the inequality" but for present purposes the focus is on "which could restore equal treatment". Based on its reading of Robertson, the tribunal took the view that, irrespective of whether it had power to do so, if in practice Glasgow did not concern itself with the terms and conditions of those employed by Parking and Cordia then it could not be held to be a single source. That is not what was said in Lawrence and it is to fail to have regard to the facts in Robertson where the power to negotiate and set most aspects of pay of the civil servants employed in DEFRA was specifically delegated by the Minister for the Civil Service by statutory instrument.

[50] The importance of Teckal was that there is at least an apparent inconsistency as between the assertion that Glasgow, on the one hand, and the ALEOs, on the other, are sufficiently close to avoid the need to comply with the public procurement regime and yet sufficiently distant to avoid the conclusion that Glasgow is the single source of any differences in the terms and conditions of the relevant employees. The tribunal recorded the arguments that it had heard under reference to Teckal but entirely failed to disclose what it made of them beyond the frankly uninformative sentence: "The [now appellants] have satisfied themselves that it is a sufficient level of control to comply with EU procurement regulations". Whatever the merits of the argument based on the Teckal exemption, it raised factual questions as to the closeness of the relationship between Glasgow and the ALEOs and the degree of control that Glasgow exercised, which the tribunal, as finder of fact, required to address and evaluate. In our opinion, looking at the judgment of the tribunal, one cannot be satisfied that it did so.

[51] Before the tribunal, Glasgow applied to have the claims against it dismissed. Consistent with its decision on the substantive issues and the fact that Glasgow did not seek to be joined as a party to the proceedings in terms of rule 10(2) of the Rules of Procedure, the tribunal granted that application. Before the Appeal Tribunal Glasgow maintained the position that it had taken before the tribunal in the face of its submission on behalf of the GMB backed claimants that the proceedings as against Glasgow should not be dismissed. The Appeal Tribunal held that because the tribunal had based its decision to dismiss the proceedings in part upon its view that Glasgow was neither an associated employer nor a single source, a view which the Appeal Tribunal considered wrong, the Appeal Tribunal accepted that the tribunal must be taken to have exercised what was a discretion upon an erroneous foundation. However, exercising that discretion of new the Appeal Tribunal determined the matter in the same way as had the tribunal, that is by dismissing the proceedings against Glasgow, notwithstanding that the Appeal Tribunal took a different view from that of the tribunal on the associated employer and single source points. Before this court, Mr Truscott, on behalf of Glasgow indicated that it was his position that in the event of dismissal of the appeal Glasgow should be allowed to remain as a party to the proceedings. We did not understand that there was any objection to this on behalf of the now respondents and we accede to Mr Truscott's motion. As the case will require to be remitted to the tribunal to proceed as accords, it would seem appropriate that Glasgow be a party to these further proceedings.

Decision

[52] Accordingly we refuse the appeal; answer the five questions in the appeal in the negative; and remit to the employment tribunal to proceed as accords, reserving all questions of expenses before this court.

Published: 24/03/2014 11:55

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