Secretary of State for Employment v Mann
| Jurisdiction | England & Wales |
| Judge | LORD SLYNN OF HADLEY,LORD JAUNCEY OF TULLICHETTLE,LORD HOFFMANN,LORD HOPE OF CRAIGHEAD,LORD HOBHOUSE OF WOODBOROUGH |
| Judgment Date | 15 July 1999 |
| Judgment citation (vLex) | [1999] UKHL J0715-2 |
| Date | 15 July 1999 |
| Court | House of Lords |
[1999] UKHL J0715-2
HOUSE OF LORDS
Lord Slynn of Hadley
Lord Jauncey of Tullichettle
Lord Hoffmann
Lord Hope of Craighead
Lord Hobhouse of Woodborough
and Others
My Lords,
For the reasons given by my noble and learned friend Lord Hoffmann, whose speech I have had the advantage of reading in draft, I, too, would dismiss the appeal.
My Lords,
I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend Lord Hoffmann. I agree with it, and for the reasons which he has given I too would dismiss the appeal.
My Lords,
This is a claim against the Secretary of State for Employment, as statutory guarantor of the obligations of an insolvent employer, for payment of remuneration awarded to employees on account of the employer's breach of its statutory obligation to consult with their union before dismissing them as redundant. Both the liability of the Secretary of State as guarantor and the obligation of the employer to consult are contained in statutes which give effect to European Council Directives. The employees say that the Secretary of State has misconstrued his obligations under both Community and domestic law and has not paid them the full amount to which they are entitled.
My Lords, I shall start by summarising the statutory provisions which create, first, the obligation of the employer to consult before dismissing for redundancy and, secondly, the liability of the Secretary of State as guarantor. But rather than encumber this speech with citation, I have set out the relevant provisions in an appendix to which reference may be made.
The employer's obligation to consult before dismissal for redundancy is contained in Chapter II of Part IV of the Trade Union and Labour Relations (Consolidation) Act 1992. The Chapter has the heading "Procedure for Handling Redundancies." It gives effect in the United Kingdom to Council Directive (75/129/E.E.C.) "on the approximation of the laws of the member states relating to collective redundancies." This provides in very general terms that member states should require an employer who is contemplating collective redundancies to consult with the workers' representatives about ways and means of avoiding or reducing them and mitigating their consequences with a view to reaching an agreement: see article 2, paragraphs 1 and 2.
The Act of 1992 gives effect to the Directive by imposing a statutory obligation to consult: section 188(1). If it is proposed to dismiss more than 100 employees, consultation must begin at least 90 days before the first dismissal takes effect: section 188(2)(a). If the employer does not comply with his obligations under section 188, the trade union may present a complaint to an industrial tribunal: section 189(1). The tribunal may make a "protective award" by which it orders the employer to pay remuneration to the employees for the "protected period:" section 189(2) and (3). The protected period begins on the date when the first dismissal takes effect or the date of the award, whichever is the earlier, and continues for whatever period the tribunal considers just and equitable, subject to a maximum of 90 days: section 189(4). If a protective award is made, each employee is entitled to remuneration at a rate calculated in accordance with the Act during the protected period: section 190(1), (2) and (5).
As originally enacted, the Act of 1992 contained provisions in section 190(3) (which are printed in italics in the appendix to this speech) by which remuneration payable pursuant to a protective award could be set off against payments due under the contract of employment or as damages for its breach. However, in Commission of the European Communities v. United Kingdom( Case C-383/92) [1994] I.C.R. 664 the European Court of Justice decided that the set-off provisions of section 190(3) were in conflict with Directive 75/129. Paragraph 42 of the judgment said, at pp. 725-726:
"By providing that a 'protective award' may be set off in full or in part against any amounts otherwise payable by an employer to an employee under the latter's contract of employment or in respect of breach of that contract, the United Kingdom legislation largely deprives that sanction of its practical effect and its deterrent value. Moreover, an employer will not be penalised even moderately or lightly by the sanction except and only to the extent to which the amount of the 'protective award' which he is ordered to make exceeds the sums which he is otherwise required to pay to the person concerned."
In anticipation of this decision, section 190(3) was repealed by section 34(3) of the Trade Union Reform and Employment Rights Act 1993. By virtue of article 2(1) of and Schedule 1 to the Trade Union Reform and Employment Rights Act 1993 (Commencement No. 1 and Transitional Provisions) Order 1993 ( SI 1993 No. 1908 (C.34)) the repeal took effect on 30 August 1993. Schedule 9, paragraph 1(1), to the Act of 1993 gave the Secretary of State power to include in a commencement order such transitional provisions as appeared to him to be appropriate. Article 3 of the Order contained such provisions, including paragraph (12):
"the amendments set out in section 34 (redundancy consultation procedures) of the 1993 Act shall not have effect in relation to any dismissal which takes effect within 90 days after section 34 comes into force."
My Lords, I next summarise the statutory provisions which create the statutory liability of the Secretary of State for Employment as guarantor. They give effect to Council Directive (80/987/E.E.C.), "on the approximation of the laws of the member states relating to the protection of employees in the event of the insolvency of their employer." The Directive recites the need for the protection of employees in the event of the employer's insolvency, particularly in respect of unpaid claims, "while taking account of the need for balanced economic and social development in the Community." It applies to employers in a "state of insolvency" within the meaning of the Directive (paragraph 1 of article 1). Such a state is defined by reference to the making of a request to an authority for the opening of proceedings to satisfy collectively the claims of creditors out of the employer's assets. The Directive then requires member states to take measures necessary to ensure the existence of guarantees of employees' claims for pay for various periods ascertained in accordance with articles 3 and 4.
Even before Directive 80/987, United Kingdom law had contained provisions for a state guarantee of certain liabilities of insolvent employers. This was contained in section 122 of the Employment Protection (Consolidation) Act 1978. These provisions were afterwards substantially amended to comply with the Directive and the relevant provisions appear in the appendix. For the moment, the important point to notice is that United Kingdom law employed a much wider definition of insolvency than the Directive. It used the definition in section 127 of the Act of 1978, which includes a case in which a receiver has been appointed by the holders of debentures secured by a floating charge. In such case, there is of course no request to any authority for the opening of proceedings. The appointment is made out of court under powers conferred upon the debenture holder by contract. Nor is the purpose of the appointment a collective satisfaction of the claims of creditors. It is to realise the security of the debenture holder.
My Lords, that is enough of the statutory background to enable me to explain the principal issue in this appeal. On 13 May 1993 Swan Hunter Shipbuilding & Engineering Group Ltd. ("Swan Hunter") went into administrative receivership. The administrative receivers, acting as agents of the company, closed down the business and on 28 May 1993 dismissed 408 employees on the grounds of redundancy. They made no attempt to consult with the union. This is commonly the case when the business of a company in administrative receivership is closed down. The duty of the administrative receivers is to protect the interests of the debenture holder who appointed them. The protective award is a debt of the insolvent company. The debenture holder will have a charge that, subject to preferential claims, takes priority over the company's unsecured debts. Employees have preferential claims over property subject to a floating charge, but only in respect of remuneration accrued before the appointment of the administrative receivers: Insolvency Act 1986, Schedule 6, paragraph 9. So liability for a protective award cannot fall upon the debenture holder and there is normally no effective sanction against failure by the administrative receiver to consult.
The union duly made a complaint to an industrial tribunal, which on 21 September 1993 made a protective award for the maximum period of 90 days beginning on 28 May 1993 and ending on 25 August 1993. Swan Hunter, being insolvent, was unable to pay any part of this award. It had actually paid the employees their wages for 28 May 1993, the day of dismissal, but that was all. The employees therefore applied to the Secretary of State as guarantor under section 122 of the Act of 1978. Directive 80/987 allows member states to decide what should be treated as "pay" for the purpose of the guarantee obligation (paragraph 2 of article 2) but the United Kingdom has elected in section 122 to include remuneration due under a protective award within the definition of "arrears of pay:" subsection (4)(d). On the other hand, subsection (3)(a) limits the guarantee of arrears of pay to eight weeks and...
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