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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Complete Clean Ltd v. Savage & Ors [2002] UKEAT 668_01_2011 (20 November 2002) URL: http://www.bailii.org/uk/cases/UKEAT/2002/668_01_2011.html Cite as: [2002] UKEAT 668_01_2011, [2002] UKEAT 668_1_2011

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APPEARANCES

 

For the Appellant	MR F AGHORIA (of Counsel) Instructed by: First Business Support 12 Westminster Court Hipley Street Old Woking Surrey GU22 4AB
For the Second Respondent	MR A SOLOMON (of Counsel) Instructed by: Messrs Vizard Wyeth Solicitors Riverbridge House Anchor Boulevard Crossways Dartford Kent DA2 6SL


 


JUDGE D SEROTA QC

1. This is an appeal by Complete Clean against a Decision of the Employment Tribunal at London Central chaired by Mr D H Roose which was promulgated on 5 April 2001. The Employment Tribunal held on the determination of a preliminary issue that there had been no transfer of an undertaking involving the Applicant, Ms K Savage, from Complete Clean to Design and Clean Services. Accordingly the Applicant remained an employee of Complete Clean.
2. We now set out the factual background as found by the Employment Tribunal, or accepted to be accurate. Buffer Bear Nursery Ltd runs a number of nurseries. In about November 1999, Buffer Bears entered into a contract with Complete Clean whereby Complete Clean were to provide cleaning services for Buffer Bear's nursery in Acton. Ms Savage worked part-time for Complete Clean. She was generally at the Buffer Bear Acton nursery, but on occasions, other employees of Complete Clean had attended. Buffer Bear maintained that during the last three months of the contract between Buffer Bear and Complete Clean, cleaning services were provided by another lady sent by Complete Clean and were not performed by Ms Savage. We were told that this evidence was unchallenged at the Employment Tribunal. Complete Clean provided Ms Savage with cleaning materials and recovered them from her when its contract was terminated as we shall now recount.
3. Buffer Bear was dissatisfied with the service provided by Complete Clean. The nursery consisted of two baby units where children were aged three months to one year old and the provision of a clean working environment and general cleanliness were regarded as crucial. Buffer Bear became unhappy with the service provided by Complete Clean as the cleaning service provided was not done to a sufficiently high standard. Buffer Bear complained that on occasion Complete Clean failed to provide any cleaning services at all and there were occasions when neither Ms Savage nor any other cleaner attended the nursery in Acton. On those occasions Buffer Bear's own staff would have to clean the nursery themselves which it regarded as unsatisfactory. Buffer Bear made a number of complaints to Complete Clean about the standard of cleaning services supplied by both Ms Savage and her colleagues on behalf of Complete Clean.
4. Buffer Bear determined, therefore, to tender for a new contract but chose not to invite Complete Clean to tender. A new contract was placed with Design and Care Cleaning Services (which we shall refer to as DCCS) on or about 6 October 2000 to take effect at the beginning of November. The Applicant was informed by Complete Clean of what had happened. DCCS knew nothing of the Applicant nor of the background which had led to the tender and it had no intention of employing Ms Savage.
5. On 23 October 2000 Complete Clean wrote to DCCS and suggested that employees of Complete Clean at the Acton nursery would be transferred to DCCS but no details were given. We assume that Complete Clean was acting on the advice of First Business Support. This was the first knowledge that DCCS had of Ms Savage's presence at the Acton nursery. On the same date Complete Clean wrote to Ms Savage to tell her that her employment would be continued with DCCS by virtue of TUPE. On 26 October DCCS wrote to Complete Clean and informed Complete Clean that it did not agree that TUPE applied as there was no transfer of any undertaking. On 30 October 2000 Complete Clean wrote to DCCS and stated that TUPE applied:

"…..when an economic entity is involved. A contract is an economic entity.

I will be instructing our member of staff Kissu Savage to turn up for work, as normal, on Wednesday 1 November"

Ms Savage did attend but was sent home. She was told that she would be telephoned by Complete Clean but apparently this did not happen.

6. At the time of the termination of Complete Clean's contract Ms Savage was pregnant and she claimed discrimination on the grounds of sex also. This issue has yet to be determined. Ms Savage did not appear in this appeal as the outcome of the appeal was of no consequence to her. Further, Buffer Bear did not oppose the appeal, so the issue has been litigated between Complete Clean and DCCS.
7. We note that Complete Clean has been represented from an early stage by First Business Support which completed Complete Clean's ET3. A representative of First Business Support represented Complete Clean both at the Employment Tribunal and before the Employment Appeal Tribunal.
8. The Employment Tribunal directed itself by reference to Regulation 5 of TUPE and to a number of cases including Suzen -v- Zehnacker Gebaude [1997] IRLR 255 (ECJ) ECM (Vehicle Delivery Service) Ltd -v- Cox [1999] IRLR 559 (CA), and Cheesman -v- R Brewer Contracts Ltd [2001] IRLR 144, (EAT). The Employment Tribunal came to the following conclusion:

"We have considered all the facts characterising the transaction in question, including, in particular, the type of undertaking or business, whether or not its potential assets such as buildings and moveable property are transferred and the value of its intangible assets at the time of transfer, whether or not the majority of its employees were taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities was suspended. The result of those considerations is that this Applicant is providing a one woman service to the Third Respondent [Buffer Bear] on a part-time basis and the activity is essentially based on manpower or, in this case, womanpower. The activity of itself is not an entity and while indeed she might receive minimal supervision, the rest of the organisation is engaged on other activities. We were told that the performance of the work was inadequate and the Applicant has told us of friction, which arose from the fact that the spokesman for the Third Respondent required her to do cleaning which was not covered by the contract. The fact that the cleaning is done by first one firm and then another does not necessarily go to prove that there was a transfer of undertakings. When the Second Respondent tendered for the work it did so in ignorance of the Applicant and it has, at all times, strenuously opposed the idea that this was a situation where the Applicant's contract was protected by a transfer. Our finding is that the work of the Applicant at these premises does not constitute an economic entity or even part of one. That being the case, there can be no transfer and the Applicant, at the date of her dismissal, remained an employee of the First Respondent ………."

Complete Clean maintain that the Employment Tribunal placed too great a reliance on the decision in Suzen. It is clear that the reasoning of the Employment Tribunal which we have cited are taken from the judgment of the ECJ in Suzen (see paragraph 14 of the decision as reported in the IRLR). It was submitted that the Employment Tribunal had failed to apply the principles set out in Cheesman -v- Brewer and to have regard to the decision of the ECJ in Oy Likenne -v- Liskojarvi & Juntenen [2001] IRLR 171. It was submitted that the Employment Tribunal should have held that there was a TUPE transfer and that the case should be remitted to a direction to that effect. Alternatively, it was submitted that the matter should be remitted for rehearing by the Employment Tribunal

9. The case came before the EAT by way of preliminary hearing on 13 November 2001. His Honour Judge Peter Clark who presided over the EAT considered that there was an arguable point as to whether the Employment Tribunal was correct in finding that there was no economic entity capable of being transferred. His Honour Judge Clark considered that the judgment of Simon Browne LJ in ADI (UK) Ltd -v- Willer [2000] IRLR 542 favoured the approach of the Employment Tribunal but that his was

"5………a lone voice in the wilderness that is the judicial learning on TUPE. The majority of the Court of Appeal, May and Dyson LJJ took a different view, one which, if correct, arguably renders this Employment Tribunal's decision that there was no economic entity to be transferred wrong in law, or at any rate subject to the need to determine as a fact why the new contractor did not take on the Applicant. See ECM v Cox [1999] IRLR 559.

6. ADI was decided after the present case. It will therefore have to be reviewed at a full hearing in the light of the ADI decision and any other, perhaps different view taken by the Court of Appeal subsequently, or better still the House of Lords."

10. We now turn to consider the law and it is an area of law which we have to say is wholly unsatisfactory as has been noted by the Courts on numerous occasions. Thus in ADI -v- Willer [2001] IRLR 542 May LJ had this to say at paragraph 20:

"Authorities

It is clear that the state of the European and domestic authorities is unsatisfactory. I think that the underlying reason for this is that there has, as I have said, been judicial emasculation of the concept of legal transfer, but the language of transfer is retained. It is not necessary for there to be anything which would normally be described as a transfer of an undertaking between a first and subsequent employer. Speaking generally, the Regulations can apply when work or services cease to be carried out by one organisation and begin to be carried out by another. The change can be effected by the person benefiting from the work or services. The Council Directive and the 1981 Regulations have a general purpose of protecting the employment of the employees of the first organisation. The definition of when this is achieved and when it is not has lost such clarity as might originally have been achieved from the concept of legal transfer or merger. The concept of an economic entity which retains its identity and is capable of being transferred within the Directive and the Regulations now resides in para 1(b) of Article 1of the Amended Directive. Unfortunately, the amendment scarcely achieves the declared objective of clarifying 'the legal concept of transfer'."

There are numerous authorities including a number of decisions of the ECJ which are impossible or extremely difficult to reconcile without extremely fine distinctions. The result is that the law is in a state of critical uncertainty and it is almost impossible to give accurate advice to employees, trades unions, employers or others involved in possible transfers with any degree of certainty.

11. The relevant Council Directive is the 1977 Directive as amended by the Council Directive 98/50/EC 29 June 1998. (We note that the Directive has since been replaced in 2001 but in similar language). Article 1 of the 1977 Directive reads:

"1(a) This Directive shall apply to any transfer of an undertaking, business or part of an undertaking or business, to another employer as a result of a legal transfer or merger (b) subject to subparagraph (a) in the following provision of this Article there is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains it identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary."

The majority in ADI (May and Dyson LJJ) held, and we quote from the headnote:

"If the circumstances of an alleged transfer of an undertaking are such that an actual transfer of labour would be a relevant factor to be taken into account in deciding whether there has been a TUPE transfer, an employment tribunal is obliged to consider the reason why the labour was not transferred, in accordance with the Court of Appeal's decision in ECM (Vehicle Delivery) Service Ltd v Cox which held that a transferee who does not take on employees of the transferor in order to avoid the application of TUPE cannot rely on the fact that the employees were not taken on as a factor going to the question of whether there was a TUPE transfer. If the economic entity is labour intensive such that, applying Suzen, there is no transfer if the workforce is not taken on, but there would be if they were, the tribunal is obliged to treat the case as if the labour had transferred if it is established that the reason or principal reason for this was in order to avoid the application of TUPE."

12. It was conceded in ADI that there would have been a TUPE transfer if the security officers had been taken on by the transferee and that there would also have been a transfer if the reason they were not taken on was in order to avoid the application of TUPE. Simon Brown LJ dissented on the basis that the decision in ECM (Vehicle Delivery) Service Ltd -v- Cox could not be reconciled with the jurisprudence of the ECJ. It is correct that the Employment Tribunal did not consider ECM (Vehicle Delivery) Service Ltd -v- Cox specifically. However, it seems to us that the Employment Tribunal did direct itself correctly in determining firstly whether there was a relevant and sufficiently identifiable economic entity before going on to consider whether there had been a relevant transfer of that entity; see the judgment of the EAT (Burton J) in Whitewater Leisure Management -v- Barnes [2000] IRLR 456. (See also Kennedy LJ in Betts -v- Brintel Helicopters [1997] IRLR 361 at page 363).It is clear that in the present case the Employment Tribunal found that there was no sufficiently identifiable economic entity. It was, therefore, unnecessary to go on to consider questions of transfer and the issues raised in ECM (Vehicle Delivery) -v- Cox.
13. We have considered the latest decision of the ECJ on the topic, Temco Service Industries -v- Imzilyen [2002] IRLR 214 in paragraphs 23 - 26:

"23 In that connection it must be observed that the Directive is intended to ensure continuity of employment relationships existing within an economic entity, irrespective of any change of ownership. It follows that the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the business in question retains its identity (see, in particular, case 24/85 Spjikers [1986] ECR 1119, paragraph 11). The transfer must therefore relate to a stable economic entity whose activity is not limited to performing one specific works contract (case C-48/94 Rygaard [1996] IRLR 51, paragraph 20). The term 'entity' thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective (case C-13/95 Suzen [1997] IRLR 255, paragraph 13).

24 In order to determine whether the conditions for the transfer of an economic entity are met, it is necessary to consider all the facts characterising the transaction in question, including in particular the type of undertaking or business, whether or not its tangible assets, such as buildings and movable property, have been transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of employees have been taken over by the new employer, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, for which those activities are suspended. However, all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation (see, in particular, Spijkers, cited above, paragraph 13, and Suzen, cited above, paragraph 14).

25 In its judgments in case C-392/92 Schmidt [1994] IRLR 302, Suzen, and joined cases C-127/96, C-229/96 and C-74/97 Hernandez Vidal and others IRLR 132, the Court has already  had to consider the question of the transfer of an economic entity in the cleaning sector. It took the view that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of the Directive will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business. Thus, where, in particular an economic entity is able, in certain sectors, to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction affecting it cannot, logically, depend on the transfer of such assets (Suzen, paragraph 18).

26 Thus, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity. Such an entity is, therefore, capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task (Suzen, paragraph 21). Thus, an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity (Hernandez Vidal and others, cited above, paragraph 26)."

14. The ECJ then concluded at paragraph 33:

"The answer to the first question referred for a preliminary ruling should therefore be that Article 1(1) of the Directive must be interpreted as applying to a situation in which a contractor which has entrusted the contract for cleaning its premises to a first undertaking, which has that contract performed by a subcontractor, terminates that contract and enters into a new contract for the performance of the same work with a second undertaking, where the transaction does not involve any transfer of tangible or intangible assets, between the first undertaking or the subcontractor and the second undertaking, but the second undertaking has taken on, under a collective labour agreement, part of the staff of the subcontractor, provided that the staff thus taken on are an essential part, in terms of their number and their skills, of the staff assigned by the subcontractors to the performance of the subcontract."

It seems to us that this Decision is wholly consistent with the approach adopted by Burton J in Whitewater. The ECJ recognised that in a labour-intensive contract:

"A group of workers engaged in a joint activity on a permanent basis may constitute an economic entity"

(our underlining)

The Employment Tribunal in this case, sitting as an industrial jury and having correctly directed itself in accordance with Suzen came to the conclusion that there was no economic entity.

15. We would also refer the most recent decision of the Court of Appeal on TUPE RCO Support Services -v- UNISON Mummery LJ cited paragraph 23 of the judgment of the ECJ in Suzen as to the interpretation of Article 1(1) of the Directive:

"….It is to be interpreted as meaning that the Directive does not apply to a situation in which a person had entrusted the cleaning of his premises to a first undertaking, terminates his contract with the latter and, for the performance of similar work enters into a new contract with a second undertaking, if there is no concomitant transfer from one undertaking to another of a significant tangible or intangible assets or taking over by the new employer of a major part of the workforce, in terms of their number and skills assigned by his predecessor to the performance of the contract."

This passage clearly supports the approach of the Employment Tribunal.

16. Mummery LJ having considered the decisions of the ECJ subsequent to Suzen including Oy Likenne concluded (paragraph 24):

"24……..that the Court of Justice now interprets the Directive as setting limits to its application in contracting out cases, which were not expressly identified in Spijkers [1986] ICR 1119, or in Schmidt and other earlier judgments of the Court of Justice. In particular, the mere fact that the putative transferee carries on the same activities or supplies the same services as the putative transferor had done does not by itself support the conclusion that an entity retains its identity. It is not correct to treat that single circumstance as determinative in favour of a transfer. Indeed, there may be no scope for the application of a Directive in a case where, although the same labour-intensive activities have continued, or the same services are supplied by a new contractor, none of the workforce has been taken on.

25 I am, however, unable to accept RCO's submissions that the limits of the application of the Directive set in Suzen mean that, as a matter of Community law, there can never be a transfer of an undertaking in a contracting-out case if neither assets nor workforce are transferred; that the only legally permissible conclusion on the facts of this case was that as none of the workforce were taken on by RCO, no transfer could have taken place; and that the employment tribunal must have erred in law in concluding that there were in fact transfers within the meaning of TUPE."

17. Mummery LJ went on to stress the question of:

"26 ……. whether or not the majority of the employees were taken on by the new employer is only one of all the facts, which must be considered by the national court in making an overall assessment of the facts characterising the transaction. Single factors should not be considered in isolation"

and he went on to cite the well known passage in Spijkers [1986] ICR 119 and 1128:

"11…..[T]he decisive criterion for establishing whether there is transfer for the purposes of the Directive is whether the business in question retains its identity.

12. Consequently, a transfer of an undertaking, business or part of a business does not occur merely because its assets are disposed of. Instead it is necessary to consider, in a case such as the present, whether the business was disposed of as a going concern, as would be indicated, inter alia, by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities.

13. In order to determine whether those conditions are met, it is necessary to consider all the facts characterising the transaction in question, including the type of undertaking or business, whether or not the business's tangible assets, such as buildings or moveable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation.

14. It is for the national court to make the necessary factual appraisal, in the light of the criteria for interpretation set out above, in order to establish whether or not there is a transfer in the sense indicated above."

18. Mummery LJ went on to hold that the decision of the ECJ in Suzen did not require a national court to exclude from its consideration of all the facts characterising the transaction, the circumstances of the decision of the putative transferee not to take on the workforce. The fact that none of the workforce was taken on could not be regarded as conclusive of the question as to whether there was a transfer although it was relevant to the issue of retention of identity, but it was a factor that was relevant and the Employment Tribunal needed to assess its significance by considering the context in which the decision not to take on the workforce was made. This decision does not assist Complete Clean. The question of why the putative transferee decides not to take on employees of the transferor only arises if there was an "undertaking" capable of transfer. In this case there was no sufficiently justifiable economic entity.
19. The question raised by His Honour Judge Clark as to whether the decision in ECM is contrary to the jurisprudence of the ECJ seems to us to be relevant to the issue of whether there has been a transfer rather than to the question as to whether there was an economic entity in the first place capable of being transferred. It seems to us that the criticism made of the Decision of the Employment Tribunal is misplaced as the Employment Tribunal as an industrial jury, correctly directed itself and came to a conclusion on the facts that it was entitled to come to, that there was no economic entity capable of being transferred. It follows that in our opinion the Decision of the Employment Tribunal was correct and cannot be disturbed and the appeal must accordingly be dismissed.