Hazel & Anor v The Manchester College  EWCA Civ 72
Appeal against ET decisions, which were upheld by the EAT, that the dismissal of the two claimants was not for an ETO reason, and thus the dismissals were automatically unfair; and that they should be re-engaged, the effect of which was to preserve the claimants’ pre-dismissal rates of pay. Appeal dismissed.
Read the background to the case [here](). On the liability issue, Counsel for the appellant argued that the Tribunal had gone wrong in focusing exclusively on the immediate reason for the claimants' dismissals - that is, their refusal to accept the new terms as regards pay - and ignoring the wider context of the appellant's cost- saving plan. It was accepted that Berriman established that dismissal for refusal to accept a change in terms and conditions designed to achieve harmonisation was not for a reason "entailing changes in the workforce"; but it was submitted that the present case was different. The attempt to harmonise terms and conditions was, as the minority member in the ET put it, "part of an overall cost saving and rationalisation that included workforce changes in the form of redundancies". The relevant "workforce" was the entirety of the appellant's employees, who were all potentially affected by the overall plan for (again in the words of the minority member) "harmonisation plus redundancies". On the issue of remedy, the appellant argued that not only was it not a proper exercise of discretion on the part of the ET to make a re-engagement order in these circumstances but also the ET had no jurisdiction to do so.
The appeal was dismissed. First, on the issue of liability, it was plain that the appellant's need for redundancies (whether or not it was still continuing), played no part in the appellant's reason for giving notice of dismissal to the claimants. The principal - and in fact the only - reason why the claimants were dismissed was that they had refused to agree to the new terms as to pay. It had nothing to do with the other elements in the package or the fact that some other employees had been, or were proposed to be, made redundant. The claimants' dismissals therefore must be characterised as being their refusal to agree to new terms and conditions, that is not, on the authority of Berriman (by which the Court of Appeal was bound), a reason which entailed changes in the workforce. The Court of Appeal also rejected the remedy appeal, saying that it would be wrong in principle if an order for re-engagement of the kind made by the Tribunal were unavailable in a case of this kind. A principal object of the TUPE regime is to ensure that the employees of a transferred undertaking should retain their existing terms and conditions following the transfer. Where an employee has been unfairly dismissed for refusing to accept an adverse change in those terms, it is entirely in accordance with the policy of the legislation that (other things being equal) he or she should be reinstated or re-engaged on the pre-transfer terms: that is the obvious primary remedy for the wrong suffered.
Neutral Citation Number:  EWCA Civ 72
Case No; A2/2012/1923
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM The Employment Appeal Tribunal
HHJ McMullen and 2 lay members
Royal Courts of Justice
Strand, London, WC2A 2LL
LORD JUSTICE MOORE-BICK
LORD JUSTICE KITCHIN
LORD JUSTICE UNDERHILL
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HAZEL & ANR (Respondents)
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THE MANCHESTER COLLEGE (Appellant)
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Mary O'Rourke QC (instructed by DWF LLP) for the Appellant
Declan O'Dempsey and Adam Ohringer (instructed by Dawson Hart Solicitors) for the
Hearing date: 5 December 2013
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Lord Justice Underhill:
- The Appellant is a provider of further and higher education courses and vocational skills-based training. Among other things it provides offender learning in prisons. In 2009 it successfully bid for contracts to provide so-called "OLASS3" services in six regions of the Prison Service. It thereby took over, under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"), the employment contracts of about 1,500 staff, in addition to about 2,000 already employed in offender learning and about 3,000 in the rest of the organisation. Among the staff transferred were the Claimants (the Respondents in this appeal), Mrs Christine Hazel and Mrs Mandy Huggins: they both worked as lecturers at HMP Elmley in Kent. The transfers took effect in August 2009.
- In January 2010 the Appellant's Board agreed to a package of proposals set out in two reports from its Principal for what were described as "staff restructuring and efficiency savings" and "contract change for Offender Learning and other related staff'. The impetus for the proposals came from a number of factors. The general economic situation facing the further education sector was challenging and there had also been changes in the funding allocation machinery, but there were particular problems in Offender Learning, where hidden costs had been encountered following the recent bid. In addition, employees in Offender Learning were on very disparate terms and conditions of employment, as a result of the Appellant having built up this part of the business by absorbing a large number of different entities whose staff brought their previous terms with them: apparently they had to deal with no fewer than 37 sets of terms. Such a state of affairs was plainly very undesirable from the point of view both of effective management and of staff relations: there was no doubt also a risk of equal pay claims. The total costs saving which it was planned to achieve from all aspects of the package was £5m.
- Against this background, the package had a number of different elements, including redundancies and other restructuring of roles, efficiency savings, and the proposed standardisation of contractual terms, including a single pay-scale, for all staff in Offender Learning. The number of potential redundancies notified to the DWP was 300. As regards the changes in terms and conditions, the plan was to ask staff to sign new contracts of employment; if they did not agree they would be dismissed and offered re-engagement on the new terms, following the procedure which has been recognised in such situations since at least the decision in Hollister v National Farmers Union  ICR 542. Although no doubt analytically distinct, the various elements in the package were in practice inter-related. The Appellant made the point in the course of the process that the introduction of the standard terms and conditions which it was offering would produce costs savings which would reduce the number of redundancies required.
- The process of implementation of the proposals was complex and required much negotiation and consultation both with the University and College Union and with individual employees. Both Claimants were initially warned that they were at risk of redundancy or a reduction in contractual hours, but in due course it became clear that they would retain their existing jobs. As for the contractual changes, on 15 June 2010 both were sent letters explaining the new terms being offered and enclosing contracts for their signature. It was explained that they were at risk of dismissal if they did not sign. The proposed salaries were 18.5% less than the current level for Mrs Hazel and 13.2% less for Mrs Huggins, though there would be a one-year period of protected pay. That was not acceptable to either of them. There was a period of further consultation, during which they in due course confirmed that they would agree to all the proposed changes except those affecting pay. Eventually on 30 September 2010 they were sent notices of dismissal with effect from 28 December; but on 20 October they accepted the new terms, albeit under protest and expressly "without prejudice". (The actual paperwork was confusingly expressed but it is common ground that that was its effect.) On that basis they continued to work for the Appellant after 28 December, but they were paid only at the reduced level.
- Both Claimants then brought proceedings in the Employment Tribunal complaining that they had been unfairly dismissed. It may seem odd to the uninitiated that such a claim could be brought while they remained in employment; but it is in fact well- established that in these circumstances the termination of the existing contract gives rise to a dismissal within the meaning of the relevant statutory provisions notwithstanding the continuation of the employment relationship (see Hogg v Dover College  ICR 39).
- The claims were heard together by a Tribunal at Ashford chaired by Employment Judge Corrigan on 26 and 27 July 2011. The Claimants were unrepresented; the Appellant was represented by Mr Martin Barklem of counsel. Up to that point the case had apparently proceeded on the basis that the claim was one of "ordinary" unfair dismissal; but the Judge raised the question whether it fell within the terms of reg. 7 (1) of TUPE, which provides (so far as material):
"Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the [Employment Rights Act 1996] (unfair dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is—
(a) the transfer itself; or
(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce."
What was suggested was that the Claimants' dismissals were for a reason connected to their transfer to the Appellant's employment in 2009. Mr Barklem at first disputed that analysis, but by the time of his closing submissions he had come to accept it (see para. 59 of the Tribunal's Reasons, which I set out below): his case was that the dismissals were for an economic technical or organisational reason entailing changes in the workforce (a so-called "ETO reason") and thus fell within the terms of the words of exception in reg. 7 (1) (b).
- The Judgment of the Tribunal, with its written Reasons, which are fully and clearly set out, was sent to the parties on 16 September 2011. The majority held that the dismissal was not for an ETO reason, and thus that the dismissal was automatically unfair. The minority member believed that an ETO reason had been established and that accordingly the fairness of the dismissal fell to be determined in accordance with the ordinary test of reasonableness under sec. 98 (4) of the 1996 Act. I set out their respective reasoning at para. 18 below. The Tribunal went on to consider what the position would be if the minority member's view were correct. It concluded (unanimously) that it would have been (just) reasonable in the circumstances to impose this level of pay cuts but that the dismissals would have been procedurally unfair; however it also found that if a correct procedure had been followed it was likely that the dismissals would have proceeded.
- There was a remedy hearing on 9 December 2011. The Claimants remained unrepresented. The Appellant was represented by Ms Mary O'Rourke QC. The Tribunal made a re-engagement order under sections 112 and 115 of the Employment Rights Act 1996, the effect of which was to preserve the Claimants' pre-dismissal rates of pay: I give further details at paras. 33-37 below.
- The Appellant appealed against both the liability and the remedy decisions. The appeals were heard by the Employment Appeal Tribunal, Judge McMullen QC presiding, on 9 July 2012. The Appellant was again represented by Ms O'Rourke. The Claimants were represented by Mr Declan O'Dempsey of counsel. Both appeals were dismissed.
- The Appellant appeals to this Court in relation to both the liability and the remedy decision. The appeal has been held up by a late application on the part of the Appellant to introduce a ground of appeal that the Employment Judge was, or may have been, a member of the same trade union as the Claimants. That led to an adjournment but the application was ultimately not pursued.
- Ms O'Rourke has appeared for the Appellant and Mr O'Dempsey, with Mr Adam Ohringer, for the Claimants.
- The principal purpose of TUPE is, as the title reflects, to protect the interests of employees in the event of the transfer of ownership of the undertaking in which they work. That involves the protection of their contractual terms. I have already set out reg. 7 (1), which provides that the dismissal of a transferred employee for a reason connected with the transfer is automatically unfair unless it is for an ETO reason. But it is important to note also reg. 4. This provides, generally, that the contracts of employment of employees in the transferred business transfer to the new owner. More particularly for our purposes, para. (4) provides that any purported variation of the contract of employment of an employee so transferred shall be void if the reason for it is the transfer, or a reason connected with it - unless, again, that reason is an ETO reason. Para. (5) spells out - though in fact this would appear necessarily to follow - that para. (4) does not preclude an employer and a transferred employee agreeing variations to the contract of employment where the reason for the variation is unconnected with the transfer or is an ETO reason.
- The language of reg. 7 derives from Council Directive 2001/23/EC, art. 4.1 of which reads (so far as material):
"The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce."
Reg. 4 of TUPE derives from art. 3 of the Directive, but that article contains no equivalent to paras. 4 (4) and (5). However, those paragraphs reflect the effect of the EU and domestic case-law. In Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S (C-324/86)  ECR 739,  IRLR 315, the ECJ said, at para. 17 (p. 754):
In so far as national law allows the employment relationship to be altered in a manner unfavourable to employees in situations other than the transfer of an undertaking, in particular as regards their protection against dismissal, such an alternative is not precluded merely because the undertaking has been transferred in the meantime and the agreement has therefore been made with the new employer. Since by virtue of article 3 (1) of the Directive the transferee is subrogated to the transferor's rights and obligations under the employment relationship, that relationship may be altered with regard to the transferee to the same extent as it could have been with regard to the transferor, provided that the transfer of the undertaking itself may never constitute the reason for that amendment."1
Although most of that passage is concerned to emphasise the freedom of the parties to renegotiate the terms of a contract following a transfer, the sting is in the proviso, which makes it clear that that is not so where "the transfer itself" is the reason. What that phrase means was considered by the House of Lords in Wilson v St Helen's Borough Council  ICR 1141, where Lord Slynn said, at p. 1165 D-E:
"I do not accept the argument that the variation is only invalid if it is agreed on as a part of the transfer itself. The variation may still be due to the transfer and for no other reason even if it comes later. However, it seems that there must, or at least may, come a time when the link with the transfer is broken or can be treated as no longer effective."
- In Berriman v Delabole Slate Ltd.  ICR 546 this Court considered the meaning of the phrase "an economic, technical or organisational reason entailing changes in the workforce", as it appeared in the equivalent provision (reg. 8 (2)) of the 1981 version of TUPE, in the context - as here - of an attempted harmonisation of terms and conditions following a transfer. The employers had acquired the business in which the employee worked. They offered him a reduced rate of pay in order to put him on the same terms as their existing workforce. He refused to accept the reduction and was (constructively) dismissed. It was held that the dismissal was for a reason connected with the transfer and that that reason did not constitute an ETO reason so as to fall within the words of exception. At p. 551 B-C Browne-Wilkinson LJ, giving the judgment of the Court, identified the reason for the dismissal as being "to produce standard rates of pay - not in any way to reduce the number in [the] workforce". He continued (pp. 551-2):
"Then, in order to come within regulation 8 (2), it has to be shown that that reason is an economic, technical or organisational reason entailing changes in the workforce. The reason itself (i.e. to produce standardisation in pay) does not involve any change either in the number or the functions of the workforce. The most that can be said is that such organisational reason may (not must) lead to the dismissal of those employees who do not fall into line coupled with the filling of the vacancies thereby caused by new employees prepared to accept the conditions of service. In our judgment that is not enough. First, the phrase "economic, technical or organisational reason entailing changes in the workforce" in our judgment requires that the change in the workforce is part of the economic, technical or organisational reason. The employers' plan must be to achieve changes in the workforce. It must be an objective of the plan, not just a possible consequence of it.
Secondly, we do not think that the dismissal of one employee followed by the engagement of another in his place constitutes a change in the "workforce." To our minds, the word "workforce" connotes the whole body of employees as an entity: it corresponds to the "strength" or the "establishment." Changes in the identity of the individuals who make up the workforce do not constitute changes in the workforce itself so long as the overall numbers and functions of the employees looked at as a whole remain unchanged.
We are supported in this view by the fact that, if [counsel for the employers] is right, any case in which an employee is dismissed for an economic, technical or organisational reason will fall within regulation 8 (2) and the words "entailing changes in the workforce" are otiose. Regulation 8 (2) is dealing exclusively with cases where an employee has been dismissed for economic, technical or organisational reasons. Therefore, by definition there has, for a short while at least, been a reduction of one in the number of people employed. If that temporary reduction falls within the words "entailing changes in the workforce" then regulation 8 (2) will cover every dismissal for an economic, technical or organisational reason and the words "entailing changes in the workforce" are given no effect whatsoever. That in our judgment could not be a proper construction of the regulation.
[Counsel for the employers] points out that, if the construction we favour is correct, following a transfer of an undertaking employers will be precluded from imposing on the employees taken over necessary changes in the their conditions of employment which, if there had been no transfer, could properly have been imposed on their existing workforce: see Hollister v. National Farmers' Union  I.C.R. 542. This, says [counsel], would be an undesirable result. We do not find this argument persuasive. Regulation 8 (1) will only render unfair a dismissal for failure to accept new conditions of service if the reason for dismissal is a reason connected with the transfer of the undertaking. If the reason for seeking to impose, say, standard conditions of service is connected with the transfer, it is far from clear that it was the intention of the legislature (or of Council Directive (77/187/E.E.C.) which required the Regulations to be made) that immediately following a transfer the employees of the transferred undertaking could be made to accept new terms of service. The purpose of the directive was "the safeguarding of employees rights in the event of transfers" and the Regulations themselves include in their name the words "protection of employment." Amongst the most crucial rights of employees are their existing terms of service. We are not satisfied that there is a clear statutory intention to ensure that, following a transfer, the transferee company can insist on equating the terms and conditions of the "transferred" employees to those of his existing employees notwithstanding the fact that such alteration may constitute a detriment to the transferred employees."
What Berriman thus establishes is that the requirement of the ETO defence that the reason in question should "entail changes in the workforce" means that it should entail changes in the actual numbers employed or in any event in the jobs which the employees do - to use the common shorthand, "redundancies or redeployment".
- Berriman has subsequently been applied in a number of decisions of the EAT, including two cases to which the ET was referred - Crawford v Swinton Insurance Brokers Ltd.  ICR 85 and London Metropolitan University v Sackur UKEAT/286/06 - but it was common ground before us that none of the subsequent cases contains anything relevant for present purposes.
- I should also note the decision of the CJEU in Martin v South Bank University (C- 04/01)  ECR 1-2859,  ICR 1234. In that case an NHS training college became part of the University in circumstances attracting the operation of TUPE. Staff at the college had different terms governing early retirement than the staff of the University. The University offered them early retirement on the same terms as their existing staff. The Court held that it was not entitled to do so. The evidence was that its only motivation was "merely to bring the terms upon which it offered early retirement to employees of [the] College into line with those offered until that time to its other employees", and in those circumstances, it held, "an alteration of the employment relationship must be regarded as connected to the transfer": see para. 44 (p. 1259). The issue there was not, as in Berriman, the scope of the ETO defence, but rather whether the change was "connected to the transfer" in the first place. But the judgment confirms the view taken in Berriman that the introduction of adverse changes in the terms of transferred staff in order to achieve harmonisation with the terms of existing staff is not, where it is connected with the transfer, consistent with the requirements of the Directive.
- There is nothing to which I need refer in the introductory passages of the ET's Reasons or in its findings of primary fact, which are sufficiently summarised at paras. 2-4 above. At paras. 46-51 it summarised the law as regards reg. 7 of TUPE. In that context it said this, at para. 48:
"'The key issue in this case was whether the reason for the dismissals, being for a reason connected with the transfer that is an economic, technical or organisational reason, was a reason entailing changes in the workforce [emphasis in original]."
It went on to refer to Berriman, Crawford and the London Metropolitan University case.
- The ET's conclusions as regards the availability of "the ETO defence" appear at paras. 57-72 of the Reasons, which can be summarised as follows:
(1) At para. 57 it correctly identified the first question as being what was the reason for the Claimants' dismissals. It answered that question at para. 58 as follows:
"We found that the reason for the Claimants' dismissal was their continued objection to the proposed change to the new salary scale and the Respondent's desire to impose the new terms, including the new salary scale, irrespective of the Claimants' disagreement."
At para. 59 it recorded Mr Barklem's acceptance that that reason was a reason connected to the transfer.
(2) At para. 60 it considered what the reasons were for the Appellant's wish to impose a new pay scale. I have, in effect, summarised its findings at para. 2 above: they comprised both the financial difficulties being faced by the business and the desire to rationalise the disparate terms and conditions of the staff in Offender Learning. At para. 61 it concluded that that constituted an "economic technical or organisational reason", but it observed that the issue was whether it "entailed changes in the workforce".
(3) As to that, it referred to the case-law, noting at para. 62 that it was common ground that "harmonisation of contracts is not enough to amount to a reason that entails changes to the workforce", since "changes to the workforce in this context means a change in numbers of the workforce or a change in the functions performed by the workforce": that is plainly a reference to Berriman. It was Mr Barklem's case, however, that this was not a straightforward case of harmonisation: "there was both a harmonisation process and redundancies", and part of the reason for harmonising terms and conditions was to reduce the number of redundancies needed (para. 63).
(4) The Tribunal was, as I have said, split as to whether the case advanced by Mr Barklem should be accepted. The reasoning of the majority decision appears at paras. 65-71. Para. 65 reads as follows:
"Dealing first with the Respondent's representative's view of the law the majority consider that the case law does not suggest that all that is required to be able to rely on the ETO defence in dismissing the Claimants for failing to agree to new terms is that the Respondent make some other employees redundant alongside the harmonisation process affecting the Claimants and other remaining employees. It is the reason for dismissal of a particular employee that must entail a change in the workforce of either number or functions. From the cases above, where harmonisation is the reason for dismissal of a particular employee that must entail a change in the workforce of either number or functions. From the cases above, where harmonisation is the reason for dismissal of a particular employee, it is not a reason entailing changes to the workforce. In our view the fact that others are dismissed for the reason of redundancy (a change in number of the workforce) does not alter the fact that the particular employee has been dismissed for the reason of harmonisation (not a change in the workforce)."
The majority then goes on to distinguish between the two elements in the Appellant's "cost saving strategy" - the redundancies and the harmonisation of terms and conditions, including a common pay-scale. It finds that the Claimants were not at risk of redundancy at the time of their dismissals and that the correspondence dealing with their unwillingness to accept the new terms was quite distinct from the previous correspondence referring to the risk of redundancy. It concludes, at para. 71:
"The reason for dismissal was the objection to and refusal to agree to the new pay scale. The majority find that the reason was harmonisation of contracts and therefore involved no change to the workforce. The new pay scale did not entail changes in function of the employees and the same number of staff were to be employed before and after the new pay scale. The fact that voluntary redundancies had been made as part of the cost saving aims does not impact on this and we consider this does not change this case from being well within the scope of the cases in relation to harmonisation. ... It follows that the majority consider that this is a case where the reason for dismissal is harmonisation of contracts and that therefore the Respondent cannot rely on the ETO defence and the dismissal from the original terms was therefore automatically unfair.
(5) The reasoning of the minority member is given at para. 72, as follows:
"The minority was persuaded by the Respondent's Representative's argument that harmonisation plus redundancies would amount to an economic, technical, or organisational reason entailing changes in the workforce. She considers that the Claimants were dismissed for refusing to accept the reduction in salary which was part of an overall cost saving and rationalisation that included workforce changes in the form of redundancies and other workforce changes. She therefore considers that the reason for dismissal was an economic, technical, and organisational reason entailing changes to the workforce. It follows that under the minority's reasoning the dismissal was for the potentially fair reason of some other substantial reason."
In summary, therefore, the majority held that the correct approach was to focus on the immediate reason for the dismissal of the Claimants themselves and that the fact that the new terms to which they refused to agree formed part of a package which involved redundancies for other staff was irrelevant.
- I need not set out the reasoning of the EAT in any detail. In short, it held that the ET's finding as to the principal reason for the dismissal was one of fact and that on the evidence it was plainly open to it to conclude that by the end of September 2010 there was no longer a question of the Claimants being made redundant and the only operative reason for their dismissals was their refusal to accept "harmonised" terms. On that basis the case fell squarely within the ratio of Berriman.
- Although Ms O'Rourke put her case in a number of ways, they ultimately rested on a single point, which is essentially the same as that taken by Mr Barklem before the ET. It was her fundamental case that the Tribunal had gone wrong in focusing exclusively on the immediate reason for the Claimants' dismissals - that is, their refusal to accept the new terms as regards pay - and ignoring the wider context of the Appellant's cost- saving plan. She accepted that Berriman established that dismissal for refusal to accept a change in terms and conditions designed to achieve harmonisation was not for a reason "entailing changes in the workforce"; but she said that the present case was different. The attempt to harmonise terms and conditions was, as the minority member in the ET put it, "part of an overall cost saving and rationalisation that included workforce changes in the form of redundancies The relevant "workforce" was the entirety of the Applicant's employees, who were all potentially affected by the overall plan for (again in the words of the minority member) "harmonisation plus redundancies", or in any event the entirety of the Offender Learning workforce. She also submitted - though if the overall submission is good I doubt if this matters - that the unchallenged evidence was that some redundancies were still taking place at the time of the Claimants' dismissals.
- In my view that challenge is ill-founded and the approach of the majority in the ET was correct. My reasons are as follows.
- In a case where reg. 7, and more particularly "the ETO defence", is in play, as a matter of analysis three questions arise:
(1) First, it is necessary to establish the reason, or in any event the principal reason, for the dismissal of the employee. This is of course an exercise required in every unfair dismissal claim: see sec. 98 (1) of the 1996 Act.
(2) Having established what the reason was, it is necessary to decide whether it is (a) the transfer itself or (b) a reason "connected with the transfer" - or, of course, neither. (We do not need to decide exactly where the dividing line between (a) and (b) falls; but I suspect that in practice cases falling under (a) will be rarer than cases falling under (b).)
(3) If the reason falls under (a), the dismissal is automatically unfair. if it falls under (b), there is a further question whether it is "an economic technical or organisational reason entailing changes in the workforce". In principle that comprises two questions - (i) whether the reason is "economic technical or organisational", and (ii) whether it "entails changes in the workforce" - and tribunals would be well-advised as a matter of prudence to address each, as the ET did here. In most cases, however, it is the second element which is likely to be decisive, and the phrase can safely be taken as a whole connoting, in effect, a requirement for redundancies or redeployment of the kind discussed in Berriman.
I take those three questions in turn, although in truth on the facts of the present case (as, I suspect, in many cases) the answer to the first in practice determines the answers to the second two.
- As to the first question, it is necessary for Ms O'Rourke to characterise the reason for the Claimants' dismissals as being the entirety of the plan adopted by the Board in January 2010, since inasmuch as it incorporated proposed redundancies that plan did plainly "entail changes in the workforce". I cannot accept that characterisation, I accept of course that the proposed harmonisation of terms was in a general sense related to the proposal for redundancies: they were adopted as part of the same package of proposals, and both were intended to contribute to the required costs savings (with the asserted corollary that the achievement of the standardisation of terms would reduce the number of redundancies needed). But the fact that there was a relationship of that kind has no bearing on the statutory question of what was "the sole or principal reason for" the Claimants' dismissals. It is trite law that for the purpose of sec. 98 of the 1996 Act (and thus also of reg. 7 of TUPE, because that plugs into the general law of unfair dismissal) what matters is the factors that operate on the employer's mind so as to cause him to dismiss the employee. In Abernethy v Mott, Hay and Anderson  ICR 323, Cairns LJ said, at p. 330 B-C:
"A reason for the dismissal of an employee is a set of facts known to the employer, or it may be of beliefs held by him, which cause him to dismiss the employee."
That formulation has been approved on many occasions, most authoritatively in Devis v Atkins  ICR 662, per Viscount Dilhorne at p. 678 B-C, and in West Midlands Co-Operative Society v Tipton  ICR 192, per Lord Bridge at p. 301 E-F.2 Adopting that approach, it is plain that the Appellant's need for redundancies (whether or not it was still continuing), played no part in the Appellant's reason for giving notice of dismissal to these Claimants in September 2010. The findings at paras. 58 and 71 of the Reasons are explicit. The principal - and in fact the only - reason why the Claimants were dismissed was that they had refused to agree to the new terms as to pay. It had nothing to do with the other elements in the package or the fact that some other employees had been, or were proposed to be, made redundant. There is nothing surprising about that finding. It is fully supported by the ET's findings of primary fact about the sequence of events leading up to the dismissals, but it is unnecessary for me to give chapter and verse since Ms O'Rourke's case is not that the finding is wrong as far as it goes but that the Tribunal was obliged as a matter of law to have regard to the broader picture. For the reasons which I have given I regard that submission as wrong.
- As for the second question, it was, as I have said, conceded in the ET that the reason for the Claimants' dismissals was connected with the transfer. No attempt was made in the EAT or before us to go back on that.
- In the circumstances of this case the answer to the third question follows from the answer to the first. If the reason for the Claimants' dismissals must be characterised as being their refusal to agree to new terms and conditions, that is not, on the authority of Berriman (by which we are bound), a reason which entailed changes in the workforce.
- For completeness, I should say that on this analysis it does not matter whether, as the Appellant says, the redundancy process was not complete as at September 2010. If what matters is the reason why the Claimants, as individuals, were dismissed, what was happening to other employees is irrelevant.
- Accordingly I would dismiss the appeal as it relates to liability. The reasoning of the majority as set out at para. 18 (4) above is unimpeachable.
- Ms O'Rourke emphasised more than once in her submissions the difficult position of employers who acquire undertakings and have a legitimate business need to bring the terms and conditions of the employees who transfer to them into line with those of their existing workforce. Unless there is a universal levelling-up, which may be prohibitively expensive, employees may not be prepared to agree to have their terms altered; and even if they, or their union on their behalf, do agree, such agreement may not be binding to the extent that it involves them accepting less favourable terms (see Daddy's Dance Hall). No doubt in principle the alternative route of "dismiss-and- rehire" is available, but if that will necessarily lead to a finding of automatic unfair dismissal, employers have nowhere to turn, however fair or necessary the proposed harmonisation may be. This is not a new concern3 and I have some sympathy with the point which Ms O'Rourke makes. But the fact is that, as Berriman, Wilson and Martin all in their different ways confirm, the effect of the Directive (and thus of TUPE) is that the right of employees to preserve their existing terms must prevail over the interest of the employer in achieving harmonisation, at least when it is "connected with the transfer". I would, however, make two points. First, the observations of Lord Slynn in Wilson quoted at para. 13 above, while certainly cautious (if not positively cryptic), suggest that there may be room for argument in at least some cases whether any proposed variations are indeed "connected with the transfer" - though that question does not arise here since the point was conceded. Secondly, it was confirmed in Wilson that a dismissal which is rendered automatically unfair by reg. 7 is nevertheless not a nullity. An employer can thus effectively dismiss an employee who refuses to accept harmonised terms, though of course at a price in terms of unfair dismissal compensation4 and the loss of that employee's services.
- The remedies available where a finding of unfair dismissal is made are prescribed by sec. 112 of the 1996 Act, the material parts of which read as follows:
"(l) This section applies where, on a complaint under section 111 [i.e. a complaint of unfair dismissal], an employment tribunal finds that the grounds of the complaint are well- founded.
(2) The tribunal shall—
(a) explain to the complainant what orders may be made under section 113 and in what circumstances they may be made, and
(b) ask him whether he wishes the tribunal to make such an order.
(3) If the complainant expresses such a wish, the tribunal may make an order under section 113.
(4) If no order is made under section 113, the tribunal shall make an award of compensation for unfair dismissal (calculated in accordance with sections 118 to 126 to be paid by the employer to the employee.
- The orders available under sec. 113 are specified as being an order for reinstatement under sec. 114 or an order for re-engagement under sec. 115. I need not set out the terms of sec. 114: in short, the effect of an order for reinstatement is to restore the employee (with retrospective effect) to the identical job and contractual terms which he or she enjoyed prior to the dismissal. As for re-engagement, sec. 115 reads:
"(1) An order for re-engagement is an order, on such terms as the tribunal may decide, that the complainant be engaged by the employer, or by a successor of the employer or by an associated employer, in employment comparable to that from which he was dismissed or other suitable employment.
(2) On making an order for re-engagement the tribunal shall specify the terms on which re-engagement is to take place, including—
(a) the identity of the employer,
(b) the nature of the employment,
(c) the remuneration for the employment,
(d) any amount payable by the employer in respect of any benefit which the complainant might reasonably be expected to have had but for the dismissal (including arrears of pay) for the period between the date of termination of employment and the date of re-engagement,
(e) any rights and privileges (including seniority and pension rights) which must be restored to the employee, and
(f) the date by which the order must be complied with.
(3) In calculating for the purposes of subsection (2)(d) any amount payable by the employer, the tribunal shall take into account, so as to reduce the employers liability, any sums received by the complainant in respect of the period between the date of termination of employment and the date of reengagement by way of—
(a) wages in lieu of notice or ex gratia payments paid by the employer, or
(b) remuneration paid in respect of employment with another employer, and such other benefits as the tribunal thinks appropriate in the circumstances."
- The procedure to be followed where - as occurred here - a successful claimant expresses a wish to be reinstated or re-engaged is set out in sec. 116. The tribunal is obliged to consider first whether a reinstatement order should be made: certain factors to be taken into account are specified in sub-sec. (1). Sub-secs. (3)-(5) read as follows:
"(2) If the tribunal decides not to make an order for reinstatement it shall then consider whether to make an order for re-engagement and, if so, on what terms.
(3) In so doing the tribunal shall take into account—
(a) any wish expressed by the complainant as to the nature of the order to be made,
(b) whether it is practicable for the employer (or a successor or an associated employer) to comply with an order for reengagement, and
(c) where the complainant caused or contributed to some extent to the dismissal, whether it would be just to order his re-engagement and (if so) on what terms.
(4) Except in a case where the tribunal takes into account contributory fault under subsection (3)(c) it shall, if it orders reengagement, do so on terms which are, so far as is reasonably practicable, as favourable as an order for reinstatement."
- It should be noted that although in form a reinstatement or re-engagement order requires the employer to reinstate or re-engage the employee, as the case may be, those orders are not in fact enforceable according to their terms. If an employer declines to comply with the order the only available sanction is an "additional award" not exceeding a year's pay: see sec. 117 (3).
- In accordance with the procedure prescribed by sec. 116 the ET considered first whether to make a reinstatement order. The effect of such an order would have been to restore to the Claimants not only their pre-dismissal rates of pay but also the other terms and conditions which they had agreed could be varied. That was, as the Tribunal observed, more than they were seeking, and on that basis it decided, plainly correctly, not to make an order.
- Accordingly the question for the ET was whether it should make a re-engagement order preserving, in whole or in part, the Claimants' pre-contractual rates of pay. The order which it made was as follows:
"1. The Respondent is ordered to re-engage the Claimants, by 1 May 2012, in their current roles as Tutors at HMP Elmley on the same terms and conditions signed on 5 October 2010 but at their former remuneration of £26,849.03 (Ms Hazel) and £31,629.00 (Ms Huggins) to be frozen at that level without a cost of living increase or incremental increase until the Respondent's new pay scale catches up with these salaries. Upon re-engagement the pension contributions paid by the Respondent for Ms Huggins shall also return to their former level prior to the reduction in pay.
- The Respondent is ordered to pay to the Claimants arrears of pay (the difference between remuneration at the rate per annum of £26,849.03 (Ms Hazel) and £31,629.00 (Ms Huggins) and the remuneration they have received for that period) and related pension contributions for the period 1 August 2011 to 1 May 2012"
Thus the Claimants would retain their pre-dismissal contractual rates of pay, but those rates would not, as might otherwise have been expected, form the basis for annual increases. The result would be that there would at first be a differential between their pay and those of comparable colleagues who had agreed to the new terms, but that - assuming that those colleagues received pay increases over time - that differential would eventually disappear.
- The Tribunal, as required by sec. 116 (3) (b), considered whether the re-engagement of the Claimants on that basis would be practicable and made an explicit finding that it would be (Reasons, para. 11). The circumstances were of course different from the usual case in which issues of practicability arise, in that the Claimants were continuing to work for the Appellant and there was no question of any difficulty in their working relationships. Any issues of practicability could relate only to the terms about pay in the new contract. As to that, the Tribunal referred to two particular arguments advanced by Ms O'Rourke.
- First, it had been asserted by the Appellant that the higher rate of pay that the Claimants would receive might cause discontent among colleagues or trouble from the union. The Tribunal rejected that argument, saying there would be no legitimate reason for any such discontent, given that other employees could have taken the same course as the Claimants but had chosen not to; and that the evidence of the Appellant's HR adviser had been that if there was trouble of this kind it could be handled (Reasons para. 12).
- Secondly, reliance was placed on "equal pay concerns" arising from the differential which the proposed terms of re-engagement would create between the Claimants and their colleagues doing equivalent work. The Tribunal pointed out that the Appellant was already operating pay protection arrangements for many employees which it evidently considered defensible from the point of view of the equal pay legislation and that there was no reason to believe that the differential to be enjoyed by the Claimants, which was itself not permanent, would not be equally defensible (Reasons para. 13).
- Again, I need not set out the reasoning of the EAT in any detail. Again, it held that the ET's conclusions on the practicability issues raised were conclusions of fact which were fully open to it on the evidence. It appears that Ms O'Rourke had argued that the "alternative finding" noted at para. 7 above - that is, that if the dismissal had been for an ETO reason it would have been procedurally unfair but substantively fair - precluded an order for re-engagement. The EAT had difficulty in understanding the argument but could not in any event see how the finding in question was material to the issue of practicability.
- The Notice of Appeal advances two challenges to the reasoning of the ET. I take them in turn.
- The first ground as pleaded reads as follows:
The Tribunal erred on the question of remedy by way of reengagement in all the circumstances where the effect of the reorganisation and harmonisation (and the Claimants' consents to new contractual terms) was that they had been re-engaged on different harmonised terms such that re-engagement as ordered by the Employment Tribunal was in all the circumstances not practicable."
That is decidedly opaque. But the essential point as developed in Ms O'Rourke's skeleton argument is that once the Claimants had signed up to the new terms on 20 October 2010, albeit "without prejudice"5, the employment relationship continued and there was no room for them to be "re-engaged". As she put it:
"It cannot be right as a matter of law that individuals can enter into a new contract and work to that contract and agree its terms and conditions and then effectively seek to have it set aside by an ET.Indeed there is arguably no mechanism for the ET to do so when reengaging and the Respondents would be obliged to resign from those contracts entered into and/or repudiate them. This would have to be prospective."
Ms O'Rourke made it clear in the course of her oral submissions that her case was not simply that it was not a proper exercise of discretion on the part of the ET to make a re-engagement order in these circumstances but that the ET had no jurisdiction to do so.
- Mr O'Dempsey submitted that that argument was misconceived because it confused termination of the contract of employment with termination of the employment relationship. He referred us to the definition of dismissal in sec. 95 (1) of the 1996 Act, which reads:
"(1) For the purposes of this Part an employee is dismissed by his employer if (and only if)—
(a) the contract under which he is employed is terminated by the employer (whether with or without notice),
(b) he is employed under a limited-term contract and that contract terminates by virtue of the limiting event without being renewed under the same contract, or
(c) the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct."
That makes it entirely clear that "dismissal" for the purpose of Part X of the Act (which of course includes the provisions relating to remedy) is concerned with termination of the contract. The notices of dismissal served by the Appellant in September 2010 were effective to terminate the contracts under which the Claimants had been working up to that date. The fact that they subsequently accepted (whether or not without prejudice) contracts on different terms did not alter the fact of the prior dismissals. Still less did it constitute an agreement not to complain about those dismissals (quite apart from the fact that any such agreement would have been ineffective by reason of sec. 203 of the 1996 Act unless embodied in a compromise agreement in proper form). As for the supposed technical problem about how an employee who is already engaged can be "re-engaged", that ignores the wording of sec. 115 (1): although the label "re-engagement" is used, the actual effect of a reengagement order is specified as being "that the complainant be engaged [my emphasis]" on the specified terms. There was no difficulty about the Appellant engaging the Claimants from the date specified in the order. The engagement is not retrospective: the employee's position in the interval between dismissal and reengagement is dealt with by an order for payment of lost benefits under sec. 115 (2) (d).
- Those points are compelling, and Ms O'Rourke made no attempt to answer them in her submissions in reply. It seems to me that it would in fact be wrong in principle if an order for re-engagement of the kind made by the Tribunal were unavailable in a case of this kind. A principal object of the TUPE regime is to ensure that the employees of a transferred undertaking should retain their existing terms and conditions following the transfer. Where an employee has been unfairly dismissed for refusing to accept an adverse change in those terms, it is entirely in accordance with the policy of the legislation that (other things being equal) he or she should be reinstated or re-engaged on the pre-transfer terms: that is the obvious primary remedy for the wrong suffered. It is true that the employer may choose not to comply with such an order and instead pay the additional award - see para. 32 above - but that should not be assumed and is in any event not a reason for not making the order in the first place.
- The second ground of appeal is the point raised in the EAT as set out at para. 38 above - that is, that it was wrong of the ET to order re-engagement in circumstances where it had held that, if the dismissal of the Claimants had not been automatically unfair under reg. 7, it would have been substantively fair. The point was not developed by Ms O'Rourke in her oral submissions, and like the EAT I have some difficulty in understanding it. The fact is that the dismissal was unfair, because it denied the Claimants their rights under TUPE to continue to be employed by the Appellant on the terms that they had enjoyed prior to the transfer. The only question for the ET was whether re-engagement was the right remedy for that wrong. For the reasons already given I believe it was right to conclude that it was. The fact that if there had been no breach of TUPE the Tribunal would have concluded, applying the ordinary test under sec. 98 (4) of the 1996 Act, that the dismissal would have been fair if it had been correctly handled from a procedural point of view is neither here nor there.
- At one point in Ms O'Rourke's oral submissions she appeared to challenge the conclusions of the ET on the particular practicability issues raised before it (see paras. 36 and 37 above), and specifically on the equal pay issue. But there is no such challenge in the grounds of appeal, and I need only say that I can see nothing wrong in the Tribunal's reasoning.
- I would accordingly dismiss the appeal as regards both the liability and the remedy decisions. As a condition of being granted a stay on the re-engagement orders made by the ET, the Appellant gave a series of undertakings designed to ensure that if the appeals failed the Claimants would forthwith be put in the financial position that they would have been in if they had been re-engaged in accordance with the original order. If my Lords agree as to the outcome of the appeals those undertakings will now take effect.
Lord Justice Kitchin
- I agree.
Lord Justice Moore-Bick
- I also agree.
Notes1 Although for convenience I have given the reference in the IRLR report, the translation used there is not the official version, and I have taken the text (and paragraph number) from the ECR.2 I have cited Cairns LJ's formulation because of its classic status. But the reference to "facts" and "beliefs" is arguably slightly limiting and may be conditioned by the particular issues in Abernethy itself. At p. 329D Lord Denning MR referred more generally to "the principal reason which operated on the employers' mind". (Another aspect of Lord Denning's formulation was criticised by Viscount Dilhorne in Devis v Atkins, at p. 677H; but the criticism does not impinge on the words which I have quoted.)3 Reg. 4 (5) of TUPE (see para. 11 above), which appeared for the first time in the revised version of TUPE in 2006. may have been intended as a nod in the direction of employers' concerns on this point, but it does not help in the paradigm case where the reason (or the variation is a wish to harmonise disparate terms and conditions and is held to be connected with the transfer.4 Even if the tribunal orders reinstatement or re-engagement the ultimate sanction remains financial: see para. 32 below.5 There was some discussion before us about what the effect was of the Claimants endorsing their acceptance of the new terms as ''without prejudice". It seems to me fairly clear that what was intended was to preserve the right to argue, as they do in these proceedings, that notwithstanding their acceptance of new terms they had been unfairly dismissed and that they were entitled to claim re-engagement on their pre-transfer terms. For reasons that appear below, this may not have been strictly necessary; but in any event no point about the effect of the endorsement was taken below or is raised in the Grounds of Appeal.
Published: 10/02/2014 10:55