Judgments - North Wales Training and Enterprise Council Limited v. Astley and others

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    48.  In the Mikkelsen case Mr Mikkelsen was employed by the transferor Danmols Inventar A/S as works foreman. The undertaking of that company was transferred to Danmols Inventar og Mobelfabrik A/S. He continued to carry out his duties as works foreman in the new company. He did the same work and he received the same pay in that capacity as before the transfer: para 4. But, unlike his previous situation where he doing his work under a contract of employment, he was a shareholder in the new company. He held 33% of its shares, was chairman of the Board of Directors and held 50% of its voting rights. One of the questions in the case was whether the expression "employee" in article 3(1) of the Directive must be interpreted as applying to persons who were employed by the transferor at the date of the transfer but who did not continue to work as employees of the transferee. The court answered this question in the negative. In para 16 it said that the protection which the Directive was intended to guarantee is redundant where the person concerned decides of his own accord not to continue the employment relationship with the new employer after the transfer, adding:

    "That is the case where the employee in question terminates the employment contract or employment relationship of his own free will with effect from the date of the transfer, or where that contract or relationship is terminated with effect from the date of the transfer by virtue of an agreement voluntarily concluded between the worker and the transferor or the transferee of the undertaking. In that situation article 3(1) of the Directive does not apply."

    49.  In the d'Urso case Mr d'Urso was one of a group of 518 employees of a company called EMG which was made subject to a special administration procedure in 1981 but was authorised to continue trading. In 1985 its entire undertaking was transferred to a new company called Nuova EMG. Pursuant to the contract of transfer, and in accordance with agreements reached with the trade unions, 940 of the employees of the transferor were transferred into the service of the transferee. But Mr d'Urso and the other employees in his group remained in the service of the transferor. One of the questions in the case was whether article 3(1) of the Directive was to be interpreted as meaning that all the contracts and relationships of employment existing at the date of the transfer are automatically transferred to the transferee by the mere fact of the transfer. In para 10 the court said that it followed from its case law that article 3(1) covered the rights and obligations of the transferor arising from a contract of employment or an employment relationship existing on the date of the transfer and entered into with employees who, in order to carry out their duties, are assigned to the part of the undertaking or business transferred: Arie Botzen and others v Rotterdamsche Droogdok Maatschappij BV (Case 186/83) [1985] ECR 519, para 16. In para 11 it referred to its decision in Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S (Case 324/86) [1988] ECR 739, para 14, that the rules of the Directive had to be considered mandatory. It was not possible to derogate from them in a manner unfavourable to employees. The court then added these words:

    "The implementation of the rights conferred on employees by the Directive may not therefore be made subject to the consent of either the transferor or the transferee nor the consent of the employees' representatives or the employees themselves, with the sole reservation, as regards the workers themselves, that, following a decision freely taken by them, they are at liberty, after the transfer, not to continue the employment relationship with the new employer (judgment in Case 105/84 Foreningen af Arbejdsledere i Danmark v A/S Danmols Inventar, in liquidation [1985] ECR 2639, para 16)."

In para 12 the court said that it followed that, in the event of the transfer of an undertaking, the contract of employment or employment relationship between the staff employed by the undertaking transferred may not be maintained with the transferor. It is automatically continued with the transferee.

    50.  In the Daddy's Dance Hall case Mr Tellerup was employed as a restaurant manager by the transferor, Irma Catering A/S. When its lease was terminated Irma Catering dismissed all its staff including Mr Tellerup, whose statutory period of notice expired on 30 April 1983. But it continued to run the business with the same staff until 25 February 1983, with effect from which date a new lease was concluded between the landlord and Daddy's Dance Hall A/S. Daddy's Dance Hall immediately re-employed the employees of the former lessee including Mr Tellerup to do the same jobs as before. The new management contract which was concluded with Mr Tellerup provided that his remuneration, which had previously been in the form of commission, would take the form of a fixed salary. At his request a trial period of three months was agreed on, during which either side could give 14 days' notice. This was a shorter period of notice than that to which Mr Tellerup was entitled if his employment with the transferor was taken into account. He was dismissed on 26 April 1983 with 14 days' notice. One of the questions was whether an employee may waive rights conferred on him by the Directive if the disadvantages resulting from his waiver are offset by such benefits that, taking the matter as a whole, he is not placed in a worse position. The court gave a qualified answer to this question. In para 14 it said that the purpose of the Directive is to ensure that the rights of employees affected by the transfer of an undertaking are safeguarded, adding that:

    "Since this protection is a matter of public policy, and therefore independent of the will of the parties to the contract of employment, the rules of the Directive, in particular those concerning the protection of workers against dismissal by reason of the transfer, must be considered to be mandatory, so that it is not possible to derogate from them in a manner unfavourable to employees.

In para 15 the court said that it followed that employees are not entitled to waive the rights conferred on them by the Directive, and that those rights cannot be restricted even with their consent. But in para 16 the court said that the Directive could be relied on only to ensure that the employee is protected in his relations with the transferee to the same extent as he was in his relations with the transferor under the legal rules of the Member State. In para 17 it said:

    "Consequently, 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."

    51.  Mr Millar referred to two other cases to illustrate the application of these principles. These were Berg v Besselsen (Joined Cases 144 and 145/87) [1988] ECR 2559 and Katsikas v Konstantinidis (Joined Cases C-132/91, 138/91 and 139/91) [1992] ECR I - 6577.

    52.  In the Berg case Mr Berg had been employed by a Mr Besselsen who operated a bar-discothèque. The operation of the establishment was taken over by a third party under a lease-purchase agreement entered into between Mr Besselsen and a commercial partnership. The agreement provided that the object sold should not become the property of the purchaser by the mere transfer. Mr Berg continued to work in the establishment following its transfer to the purchaser. The lease-purchase agreement was later terminated on the ground of the purchaser's non-performance and restored to Mr Berg's former employer. Mr Berg then applied for an order against Mr Besselsen for payment of his arrears of salary for the period while the establishment was managed by the purchaser. The court said that an analysis of article 3(1) showed that the transfer of an undertaking entails the automatic transfer from the transferor to the transferee of the employer's obligations arising from a contract of employment or an employment relationship, subject to the right of the Member State to provide for joint liability of the transferor and the transferee following the transfer. It followed that, unless the Member States availed themselves of that possibility, the transferor was released from his obligations as an employer by reason of the transfer. That consequence was not conditional on the consent of the employees: para 11. The court then said, at para 12, referring to its judgment in Daddy's Dance Hall, that the Directive was intended to safeguard the rights of workers in the event of a change of employer by making it possible for them to work for the transferee under the same conditions as those agreed with the transferor:

    "Its purpose is not, however, to ensure that the contract of employment or the employment relationship with the transferor is continued where the undertaking's employees do not wish to remain in the transferee's employ."

    53.  In the Katsikas case Mr Katsikas objected to continuing to work for the transferee after the date of the transfer. One of the questions in his case was whether he was entitled to do so. The court, referring to its judgment in Daddy's Dance Hall, said that, while the Directive allowed the employee to remain in the employ of his new employer on the same conditions as were agreed with the transferor, it could not be interpreted as obliging the employee to continue his employment relationship with the transferee: para 31. The court then went on to say this in para 32:

    "Such an obligation would jeopardize the fundamental rights of the employee, who must be free to choose his employer and cannot be obliged to work for an employer whom he has not freely chosen."

    54.  From this jurisprudence I would draw these conclusions as to the extent of the reservation. The starting point is to be found in the general rule that the contracts of employment of workers assigned to the undertaking transferred are automatically transferred from the transferor to the transferee on the date of the transfer. Then there is the fact that it is not possible for this rule to be derogated from in a manner unfavourable to the employees. The rights conferred on them by the Directive may not be made subject to the consent either of the transferor or the transferee nor the consent of the employees' representatives or the employees themselves: Daddy's Dance Hall, para 14; d'Urso, para 11. The gulf between what the parties themselves may have contemplated and what the rule requires may be quite large, as it is in this case. My noble and learned friend Lord Rodger of Earlsferry says that this puts in place a fictional version of events in place of what actually happened. But, as I read paras 37 and 38 of the court's judgment, it is the rule that must prevail. So I cannot agree with him that, to accommodate the arrangements that the parties thought they were entering into, the date of transfer must be taken to be 1 July 1993. The transfer took place in September 1990 when responsibility as employer for carrying on the business of the unit transferred moved to the TECs from the DoE.

    55.  On the other hand it is a fundamental right of the employee to be free to choose his employer. So he cannot be obliged to work for an employer whom he has not freely chosen: Katsikas, para 32. From this it follows that it is open to an employee whose contract of employment would otherwise be transferred automatically from the transferor to the transferee on the date of the transfer of his own free will to withdraw from this arrangement by declining to enter the employment of the transferee: Mikkelsen, para 16; Berg, para 12; Katsikas, para 32. That, then, is the extent of the sole reservation referred to in para 37. It does not, as my noble and learned friend Lord Mance suggests, work the other way round. It does not enable effect to be given to an employee's wish to continue to be employed by the transferor while continuing to be employed in the unit to which he has been assigned after its transfer to the transferee. But the application of the rule that he can withdraw from the arrangement depends on two things: first, that the employee is in a position to choose whether or not to enter the employment of the transferee after the date of the transfer; and second, that he in fact exercises that choice by deciding of his own free will not to do so.

(b) the facts

    56.  The crucial question then is whether, in the light of that jurisprudence, the reservation to which the ECJ referred in para 37 applies in this case. Were the respondents in a position on or after the date of the transfer to choose whether or not to enter the employment of Newtec? And did they in fact exercise that choice by deciding of their own free will not to do so?

    57.  Celtec's position before the ECJ, as noted by Advocate General Poiares Maduro in para 45 of his opinion, was that the respondents implicitly refused to allow their contracts of employment to be transferred to Newtec. This was because they entered into a voluntary agreement with the DoE that they were to be seconded to the TECs whilst remaining DoE employees. This, Celtec argued, must be taken as a refusal by them to transfer their contracts of employment to the TECs. In para 46 the Advocate General said:

    "Such an analysis cannot be accepted, since Celtec acknowledged at the hearing that the Department of Employment employees had not been offered a contract of employment with the TECs in September 1990. In any event, to accept that employees can tacitly refuse to transfer their contracts of employment would run counter to the spirit of Directive 77/187, which instead provides for the automatic transfer of contracts of employment as the consequence of the transfer."

    58.  I have not been able to find anything in the material before your Lordships that is inconsistent with the opinion on this issue which was formed by the Advocate General. The arrangements for the setting up of the TECs are described in a note by Andrew Tabor of the Operations Directorate in the Department for Education and Employment, which was formed on the merger of the DoE and the Department of Education in 1996. He makes it clear in para 8 of this note that the arrangement which led to the invitation to staff in the DoE's area offices to volunteer for secondment was arrived at by agreement between the Department and the TECs. There is no suggestion that it was envisaged that the staff were to be presented with the option of taking up employment direct with the TECs at that stage. Nor is there any mention in the letters which were issued to the staff, of which the letter written to Mr Astley on 3 September 1990 is an example, of any such option. The only choice that he was offered was whether or not to apply for secondment.

    59.  The letters did not address the problem about continuity of employment that would arise in the event of the staff being involved in a TUPE transfer of the unit to which they were assigned to Newtec. But the effect of what the letters did say ought not to be underestimated. Mr Astley was told that he would continue to be a civil servant during the secondment period, and he appears to have acted on this assurance. It was not suggested at any time during the hearing before your Lordships that giving effect to the judgment of the ECJ in the way I have indicated would deprive the staff of the benefit of any pension rights accrued between September 1990 and the summer of 1993. That is not surprising, in view of the assurances they were given that they would retain their normal pay and conditions during that period. It should be noted too that the judgment of the ECJ does not affect those civil servants who decided in September 1990 to be deployed elsewhere rather than volunteer for secondment to a TEC. They had no need of the continuity of employment that the judgment gives to employees who are involved in a TUPE transfer. It is to employees in that position, and to them only, that the concept of the deemed transfer applies.

    60.  Of course it can be said that the respondents were in a position on the date of the transfer to choose not to work for Newtec. They could have made their position plain by declining to accept secondment. The effect of the DoE's invitation was that they were free to decline secondment if they wished. They could also have withdrawn from their agreement to accept secondment by refusing to work for Newtec as soon as the management of the area offices in which they were employed were transferred to it by the Department. But it is equally plain that this was not what they chose to do. They continued to work in the area offices after the date of the transfer. The arrangement which the DoE had entered into with the TECs that their services were made available to them not as direct employees but under secondment did not affect the respondents' right to continuity of employment under the Directive, as their contracts were transferred to Newtec automatically on the date of the transfer.

    61.  It seems to me to be plain in these circumstances that the sole reservation to the general rule to which the ECJ referred in para 37 of its judgment does not apply in this case. The respondents were in a position on or after the date of the transfer to choose of their own free will not to work for Newtec. But they did not make that choice. The fact is that they continued to do the same work in the area offices after the transfer of the undertaking to Newtec, albeit in the belief that they remained in the employment of the DoE. This leads inevitably to the conclusion that their contracts of employment were transferred automatically to Newtec with continuity of employment on the date of the transfer.

Conclusion

    62.  I would hold that it is not necessary for the case to be remitted to the employment tribunal for a further determination. I would affirm the decision of the employment tribunal, although on different grounds, that the respondents had continuous employment with Celtec from the start of their employment with the civil service by virtue of the Acquired Rights Directive. I would dismiss the appeal.

LORD RODGER OF EARLSFERRY

My Lords,

    63.  The respondents in these appeals worked at one time as civil servants in the Department of Employment ("the Department") in Wrexham. (No point is taken about the precise nature of the employment of civil servants and therefore I shall for convenience refer to the respondents as having had contracts of employment with the Department.) The respondents were subsequently employed by the North East Wales Training and Enterprise Council ("Newtec") whose successor is the appellant. The respondents each received from Newtec a Statement of Terms and Conditions of Employment as required by section 1 of the Employment Rights Act 1996. Each statement gave a date in 1993 (1 July or, in the case of John Astley, 1 September) as the date of commencement of the respondent's continuous employment with Newtec. The respondents challenged that date and, in 1998, under section 11 of the 1996 Act they required a reference to be made to the employment tribunal to determine the appropriate date of commencement of their continuous employment. In their statements of complaint they all contended that they had become employees of Newtec on 31 August 1993 but that their employment with Newtec should be regarded as continuous with their employment with the Department. Therefore the appropriate date of commencement of continuous employment was the date on which each of them had first been employed as a civil servant.

    64.  In advancing this contention the respondents argued that, when they became employees of Newtec in 1993, there had been a transfer of the undertaking in which they worked from the Department to Newtec in terms of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the TUPE Regulations"). As a result, by virtue of regulation 5(1), their contracts with the Department had effect after the transfer as if they had originally been made between the respondents and Newtec. For its part the appellant contended inter alia that, if there had been a transfer of part of the undertaking of the Department to Newtec, that transfer had taken place at the time, or over the period, when Newtec became established and operational in September 1990. The respondents became employees some three years after that time or period and accordingly could not have continuity of employment under the TUPE Regulations or the antecedent Council Directive.

    65.  The TUPE Regulations were made to give effect in United Kingdom law to Council Directive 77/187 EEC, commonly known as the Acquired Rights Directive ("the Directive"). Notoriously, regulation 2(1) of the TUPE Regulations was originally drafted so as to exclude from the definition of an "undertaking" any undertaking or part of an undertaking which was not in the nature of a commercial venture. In May 1992, however, in Sophie Redmond Stichting v Bartolo (Case C-29/91) [1992] ECR I-3189, the European Court of Justice held, at para 18, that "the fact that in this case the origin of the operation lies in the grant of subsidies to foundations or associations whose services are allegedly provided without remuneration does not exclude that operation from the scope of the Directive." The definition of "undertaking" in regulation 2 of the TUPE Regulations required to be amended to take account of that decision and this was done by section 33(2) of the Trade Union Reform and Employment Rights Act 1993 which came into force on 30 August 1993 and removed the exclusion. According to the relevant documentation, the respondent John Astley became an employee of Newtec on 1 September 1993 and therefore he can properly frame his case in terms of the TUPE Regulations - although, in my view, it ultimately falls to be determined by reference to the Directive.

    66.  According to the documentation in their cases, the respondents Deborah Hawkes and Julie Owens became employees of Newtec on 1 July 1993. So, by reason of the exclusion of non-commercial undertakings in regulation 2(1) at the time, they cannot rely on the TUPE Regulations. But the Directive was, of course, binding on the government and on any emanation of the state. So any failure to transpose the Directive correctly would make no difference to the position of the Department: the Directive bound it. Equally, it would make no difference to the position of Newtec if it was an emanation of the state in terms of decisions such as Foster v British Gas plc [1991] 2 AC 306. Although at one stage the appellant argued that Newtec had not been an emanation of the state, it now accepts that it was. It follows that at all relevant times the Department and Newtec were bound by the Directive in so far as the events in question involved, in terms of article 1(1), "the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger". In particular, they were bound by article 3, which provides inter alia:

    "1 The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of article 1(1) shall, by reason of such transfer, be transferred to the transferee.

    Member States may provide that, after the date of transfer within the meaning of article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship.

    3 [Paragraph 1] … shall not cover employees' rights to old-age, invalidity or survivors' benefits under supplementary company or inter company pension schemes outside the statutory social security schemes in Member States."

The appellant now also accepts that article 3 had direct effect and so Deborah Hawkes and Julie Owens can rely on it, so far as it may have been applicable to the events in question. In practice, the issues under the TUPE Regulations and the Directive are, for the most part, the same and so I shall concentrate on the Directive.

    67.  The events in the present case have to be seen against a somewhat wider backdrop. In 1988, as their White Paper (Employment For the 1990s (Cm 540)) explained, the then government decided that training could be better delivered and the development of small businesses and self-employment could be better promoted and supported if these activities were carried on by locally based training and enterprise councils ("TECs"), which would be companies with directors, including top-level employers, who were familiar with local conditions. Under contracts with the Department, the TECs would, for instance, run the Training Agency offices which the Department had previously run, but they would have an extended remit. Newtec was set up to carry out these functions in the area which included Wrexham. It started work in September 1990.

    68.  From the outset the policy appears to have been that, eventually, all the services would be delivered by employees of the TECs. At that stage it would be up to the individual TECs to decide how many employees they required and who they should be. To begin with, however, while the TECs recruited some staff, the people with the relevant experience in providing the core services were those who had been doing so in the Training Agency area offices as civil servants in the Department. So, if a break in the provision of the training and enterprise programme was to be avoided, these civil servants had to continue to do this work when the TECs took over.

    69.  The terms and conditions on which government civil servants are employed have been formulated in negotiations with the relevant trade unions over many years. Those which applied to Department civil servants in September 1990 were to be found in the current version of its personnel handbook. Prominent among the available benefits was, of course, an entitlement to a civil service pension. The employment tribunal made no detailed findings in fact about exactly what happened when Newtec was due to take over the Department's activities in North East Wales in 1990. But Mr Millar QC, who appeared for the respondents, did not dispute that civil servants in the Department (and their trade union representatives) would have been understandably apprehensive that, if they stopped being civil servants and became employees of the TECs, they would lose the benefit of their civil service terms and conditions. Another cause for possible concern would have been that they might face a less certain future with the untried TECs, whose financial position was not secured for the longer term and whose ethos might turn out to be rather different from that of the Department.

    70.  In fact, however, in 1990 no immediate change in the status of the Department civil servants was in contemplation, partly at least because the government had not yet worked out a scheme which would be acceptable to the TECs. Instead, the civil servants were to remain civil servants, entitled to all their existing terms and conditions, but they were be seconded to the TECs for an initial period of three years. After that, there might be a further period of secondment. For North East Wales this was spelled out, for instance, in the letter to Mr Astley of 3 September 1990 from the Head of Personnel for Wales in the Training Agency:

    "During the secondment period you will continue to be a civil servant employed by the Department of Employment and as such will retain your normal pay and terms & conditions of employment as embodied in the Department's Personnel Handbook. A summary outlining the main terms & conditions is enclosed with this letter. You may, if you wish, accept additional payments and benefits which may be offered by the TEC, but [indistinct word] will be for you to discuss and agree with the TEC. The Department of Employment accepts no liability for any agreement entered into between you and the TEC on such matters. The right to any such payments or benefits will cease at the end of your secondment and will not form part of your terms & conditions of employment as a civil servant.

    These arrangements will apply for the duration of the secondment period.

    If you are willing to accept secondment on the basis set out, please sign the Declaration form enclosed with this letter and return it to me within seven days."

At some point Mr Astley and the other respondents must have signed and returned the necessary declaration forms.

 
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