Warner v Adnet Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HENRY,LORD JUSTICE MUMMERY,LORD JUSTICE POTTER |
| Judgment Date | 26 February 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0226-4 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | FC3 98/5050 CMS3 |
| Date | 26 February 1998 |
[1998] EWCA Civ J0226-4
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
Royal Courts of Justice
Strand, London WC2
Lord Justice Henry
Lord Justice Potter and
Lord Justice Mummery
FC3 98/5050 CMS3
EATRF 97/0022 CMS3
MR G WIGNALL (instructed by Messrs Bruce, Lance & Co, High Wycombe) appeared on behalf of the Appellant.
MR N VICKERY (instructed by Messrs B P Collins & Co, Gerrards Cross) appeared on behalf of the Respondent.
Thursday, 26th February 1998
I will ask Lord Justice Mummery to give the first judgment.
In a decision sent to the parties on 21st August 1995 the Industrial Tribunal unanimously held that Mr Philip Warner was fairly dismissed on 27th July 1994 by receivers of the first respondent, Microsystems Centre (Slough) Limited. The tribunal also held that Mr Warner failed in his claim for unfair dismissal against the second respondent, Adnet Limited, transferees of Microsystems' undertaking. That claim was made pursuant to the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981.
Mr Warner appealed to the Employment Appeal Tribunal, who dismissed the appeal on 7th October 1996, but on 23rd December 1996 granted leave to appeal to this court.
The Facts
The factual background may be stated briefly. Microsystems was incorporated in 1982. It carried on business dealing in computer hardware, software and related services. At one time it employed up to 33 people. Mr Warner was, from August 1986, employed as company accountant. The company fell on hard times. On 22nd July 1994, a Friday, Barclays Bank, acting under a debenture granted by Microsystems on 24th December 1987, appointed two accountants, Messrs Roberts and Kenningham, to be joint administrative receivers.
The circumstances of the appointment were that on 11th July 1994 Mr Warner informed Microsystems' managing director, Mr Collinson Jones, that the company would shortly be unable to meet its debts as they fell due. At the request of the directors of Microsystems, an outside firm of accountants, Messrs Haines Watts, were approached to make a report on the company's financial position. That was done expeditiously. A report was delivered to Mr Collinson Jones on 15th July 1994. The draft report had been discussed the previous day at a meeting between the company directors and the company accountants. The report anticipated that four employees would have to be made redundant by the end of the month; that administrative receivership would be proposed as a step to allow the company to trade in the short term; and that the business of the company would be offered for sale as a going concern. Mr Warner was aware from 11th July onwards that there were financial problems and that staff redundancies were a live issue.
Before the receivers were appointed on 22nd July there was a meeting at which possible redundancies, including that of Mr Warner, were considered. On the afternoon of 27th July, a Wednesday, the receivers dismissed all the staff of Microsystems with immediate effect. Mr Warner was told of his dismissal at a private meeting, as was his co-applicant in the Industrial Tribunal, Mr Woodford. They both cleared their desks and left the premises. The remaining staff of Microsystems were told at a separate meeting of the possibility of salvaging the business so that trading could continue. They were informed of the possibility of future employment, if negotiations with the receivers were successful. Mr Warner and Mr Woodford were not told this and did not know of that meeting.
Negotiations took place on 28th and 29th July with the receivers for the sale of Microsystems' business to another company, Adnet Limited. The negotiations were carried on by two of the directors, including Mr Collinson Jones, and by a former director of Microsystems. An agreement was reached on 3rd August for the transfer of the undertaking to Adnet. All former staff, with the exception of the four made redundant, including Mr Warner, were told that they were re-engaged from 4th August 1994, when Adnet commenced trading. After that date the duties which Mr Warner had previously performed were done within Adnet by an existing staff member over part of one day every week.
Decision of Industrial Tribunal
The tribunal found that the dismissal of Mr Warner was fair for these reasons. First, there was no dispute that there was a relevant transfer within the meaning of the 1981 Regulations. Secondly, the majority of the Industrial Tribunal held that the transfer to Adnet or a reason connected with the transfer was the reason or the principal reason for Mr Warner's dismissal. It followed that the dismissal was automatically unfair under Regulation 8(1), unless there was an economic, technical or organisational reason established by Adnet as the reason or principal reason for the dismissal in accordance with Regulation 8(2). Thirdly, the majority of the Industrial Tribunal were of the view that the reason for dismissal was economic. Redundancies of non-essential staff would be required in any event, quite apart from the transfer of the undertaking. Mr Warner's role was not an essential one. He was not replaced after the transfer as company accountant. His duties were then carried out by existing staff at Adnet. To continue trading retaining all the staff would have aggravated an already perilous financial position. The dismissal of Mr Warner was by reason of redundancy, a potentially fair reason. Fourthly, it was held that the dismissal had been reasonable and fair in the circumstances. The redundancies were inevitable. Formal consultation and the establishment of objective redundancy criteria had not taken place. But they were not essential, the tribunal held, in the context of a failing business of a small concern when formal consultation would not have made any difference to the decision to dismiss Mr Warner.
Appeal to Employment Appeal Tribunal
The appeal to the Employment Appeal Tribunal failed because, in the view of the Appeal Tribunal, there was no error of law in the decision of the Industrial Tribunal. An appeal to that tribunal, as to this court, can only be on a question of law: misconstruction of the relevant legal provisions, misapplication of the relevant law to the facts of the case, or a perverse decision, one that no reasonable tribunal could have reached on a proper appreciation of the case.
The Employment Appeal Tribunal made these points. First, the majority of the Industrial Tribunal were entitled to come to the conclusion that the transfer of the undertaking was the principal reason for the dismissal. Secondly, the reason for dismissal could be brought, on the facts of the case, within Regulation 8(2) as an economic reason. Thirdly, a reasonable employer would not in this case regard the consultation process as capable of achieving anything. It was futile. There was no other employment which Mr Warner could be offered within the undertaking. The receivers were unlikely to be dissuaded from following the terms of the accountants' report. No amount of consultation would have made any difference to the decision to dismiss.
The Law
The starting point is the 1981 Regulations. Regulation 5(1) provides that:
"… a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee."
Regulation 5(2) provides that:
"… on the completion of the relevant transfer —
(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract, shall be transferred by virtue of this Regulation to the transferee; and
(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee."
Regulation 5(3) provides that:
"Any reference in paragraph ( 1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer …"
As Mr Wignall points out on behalf of Mr Warner, that Regulation was the subject of the decision of the House of Lords in Litster v. Forth Dry Dock & Engineering Co. Ltd [1989] IRLR 161. Those Regulations form the legal background to the transfer of the undertaking from Microsystems to Adnet.
The key provisions on this appeal are paragraphs 8(1) and (2) of the Regulations:
"(1) 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 V of the 1978 Act and Articles 20 to 41 of the 1976 Order (unfair dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal.
(2) Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee —
(a) paragraph (1) above shall not apply to his dismissal; but
(b) without prejudice to the application of section 57(3) of the 1978 Act … the dismissal shall … be regarded as...
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