Melon v Hector Powe Ltd
| Jurisdiction | Scotland |
| Judgment Date | 14 November 1979 |
| Date | 14 November 1979 |
| Docket Number | No. 15. |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
Master and servantContract of employmentRedundancyDismissal by reason of redundancyWhether transfer of lease of factory together with machinery and workforce constituted a change in the ownership of part of a businessMeaning of expression "change in the ownership of part of a business"Redundancy Payments Act 1965 (cap. 62), secs. 3 (2)1, 132.
A company which carried on business as clothing manufacturers and retailers manufactured suits in a factory at Blantyre until 17th January 1977. On that date the company terminated the contracts of employment of its employees who immediately commenced employment with another company (Executex) to whom the company had assigned the lease of the Blantyre factory and had sold certain of its contents including the manufacturing machinery. Executex took over and began production at the Blantyre factory on 17th January 1977 and from that date employed the whole of the workforce previously employed
by the company at the same machines and on no less favourable terms. Certain of the workforce applied to an industrial tribunal claiming redundancy payments on the ground that on 17th January 1977 they had been dismissed by the company by reason of redundancy. The claims were resisted by the company on the ground that on 17th January 1977 ownership of the part of its business in which the workforce was employed passed to Executex and that, in accordance with the provisions of sees. 3 (2) and 13 of the Redundancy Payments Act 1965, none of the workforce fell to be taken as having been dismissed for the purposes of Part I of that Act. The industrial tribunal held that there had been no transfer of any part of the company's business to Executex who had merely acquired from the company the means of carrying on business and that accordingly the workforce were entitled to a redundancy payment. The company appealed to the Employment Appeal Tribunal who held that the only reasonable inference which could be drawn from the evidence was that there was a sale by the company of part of their business to Executex and allowed the appealHeld (1) that the industrial tribunal, in deciding whether there had been a transfer of part of a business, had applied the correct test in asking whether there was a transfer of a going concern which could be carried on without interruption by the transferee, as opposed to a disposal of a portion of manufacturing capacity; (2) that in applying that test the industrial tribunal was entitled to ask whether the factory transferred had been a separate and self-contained part of the transferor's business; and (3) that the industrial tribunal was entitled on the evidence to hold that no transfer of any part of the company's business had occurred; and appeal allowed.
Clara Melon, Robert M'Donald and Marion M'Millan claimed redundancy payments from Hector Powe Limited on the ground that they had been dismissed by them by reason of redundancy. The facts of the case are set out in the opinion of the Lord President. On 9th September 1977 the industrial tribunal found in favour of the applicants on the ground that no part of the respondents' business had been transferred to Executex.
The respondents appealed to the Employment Appeal Tribunal which allowed the appeal. The following judgment was delivered by Lord M'Donald on 1st February 1978:"On 16th September 1977 an industrial tribunal decided that the three respondents were each entitled to a redundancy payment from the appellants. The decision in this case governs applications for similar payments made on behalf of over 120 employees of the appellants. The overall sum is substantial. We were informed that it came approximately to 80,000. The appellants have appealed to this Appeal Tribunal against the finding that they were liable to make redundancy payments.
"Until January 1977 the appellants made made-to-measure suits for their retail outlets in two factoriesone at Dagenham and the other at Blantyre. Owing to the falling-off in demand for such garments the prospect of redundancies at the Blantyre factory became imminent. This was staved off for some time with the assistance of a temporary employment subsidy and by the making of ready-made suits at Blantyre for an associated company.
"The demand for made-to-measure suits continued to fall and on 12th January 1977 the appellants' solicitors sent a written offer to solicitors acting on behalf of a firm called Executex Manufacturing Ltd. to dispose of their enterprise at Blantyre. This offer was accepted.
"The contract which took effect from 17th January 1977 provided for an assignation of the existing lease of the Blantyre premises by the appellants to Executex. It provided for the work in progress to be taken over at valuation and contained a provision whereby Executex were to offer a contract of employment to all persons employed at Blantyre with the exception of the general factory manager on terms no less favourable than those in which they were employed immediately preceding the date of takeover. The respondents and other employees were offered such employment by Executex and accepted it. There was a further provision in the contract whereby the appellants guaranteed to order a certain number of ready-made suits during the period from the date of the take-over until 31st August 1977 at certain agreed prices.
"These missives followed upon a less formal exchange of letters from which it is apparent that Executex were willing to provide continuity of employment to the workforce at Blantyre and indicated that they would accept responsibility for future redundancy payments if these should arise. This was also the understanding of the appellants as appears from this correspondence. It was suggested to us by counsel for the respondents that this earlier correspondence was superseded by the missives and that we could not therefore have regard to anything contained in it. We do not consider that in a question of this nature such a legalistic approach is appropriate. The earlier correspondence indicates what the parties thought they were doing. Of course that is in no sense conclusive of the legal question as to whether or not the respondents are entitled to a redundancy payment from the appellants at the date of takeover.
"It is not disputed that the respondents were dismissed by the appellants within the meaning of the Redundancy Payments Act 1965 at that date. It is also not disputed that the respondents were immediately re-engaged by Executex under a new contract on terms and conditions which did not differ from the corresponding provisions of their service with the appellants. The question which fell to be decided by the tribunal was whether or not there had occurred a change in the ownership of the appellants' business or of a part thereof within the meaning of section 13 (1) of the Redundancy Payments Act 1965. If there was, then a redundancy payment would not be immediately payable in respect of any member of staff who accepted a new contract under Executex. If there was not, then redundancy payments were properly payable by the appellants at the date of takeover.
"The industrial tribunal have held that after the takeover 70 per cent of the production at Blantyre continued to be made for the appellants and their associated company. The remaining 301 per cent consisted of work on ready-made suits and other garments for other customers.
"It was argued before the tribunal that what had occurred here on the facts was that there had been a sale of part of the appellants' business as a going concern. The tribunal have held that they were unable to see how a part of the appellants' manufacturing capacity, comprising as it did two factories, one at Dagenham and one at Blantyre, could be sold as a going concern. This conclusion was criticised by counsel for the appellants as containing a manifest error in law. The tribunal took the view that the factory at Blantyre was an integral part of the manufacturing side of the appellants' organisation. They attached importance to the fact that the work carried out there was not controlled locally but by the headquarters of the manufacturing side at Dagenham.
"It was submitted on behalf of the appellants that the proper inference from the facts established was that the factory at Blantyre was a separate and self-contained part of the enterprise of the appellants and that its disposal had therefore amounted to the sale of a part of their business. This is a test which was applied by Diplock L. J. in G. D. Ault (Isle of Wight) Ltd.UNK, (1967) 2 I.T.R. 301. It was also pointed out that it was a substantial part of the appellants' organisation and that this was important in considering whether or not it was a separate and severable part of the business that had been transferred. In Dallow Industrial Properties Ltd. v. ElseUNK, [1967] 2 All E.R. 30 the same test as set forth in the case of Ault was applied. In that case it was held that there had been no transfer of part of a business and one significant feature of that case was that there were only two employees concerned. In M'Leod v. John Rostron & Sons Ltd.UNK,(1972) I.T.R. 144 the size of the unit involved was considered to be material. There were 80 employees involved in that case and although the conclusion of the National Industrial Relations Court was disapproved in a subsequent case, that part of the judgment which relates to the size of the unit does not appear to have been affected. Where as in the present case some 120 employees are involved some importance falls to be attached to the scale of the enterprise. The test of distinctness and severability was also applied in the case of Secretary of State for Employment v. RooneyUNK, (1977) I.T.R. 117.
"It was argued on behalf of the respondents that the question of whether or not part of a business had been transferred within the meaning of section 13 of the Redundancy...
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...if the tribunal misdirected itself as to the test to apply when looking for perversity. Reference was made to Melon v. Hector Powe Ltd., 1980 S.C. 188, at page 198 (Lord President Emslie) and 1981 I.C.R. 43, at page 48 (Lord Fraser of Tullybelton); and to McGregor v. Intercity East Coast Li......
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...are those which are associated with an alleged error of law. The matter was explained by Lord President Emslie in Melon v Hector Powe Ltd [1980 SC 188 at 198]. It hardly requires to be mentioned that an appeal lies only upon a question of law. The law is clear that where it cannot be shown ......
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