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European Commission v Italy

European Communities – Application of Community law in national courts – Community obligation – Directive – Implementation – Incorrect implementation – Pre-litigation procedure – Directive amended between issue of formal notice and issue of reasoned opinion – Reasoned opinion relying on non-compatibility of domestic law with amended Directive – Validity of reasoned opinion – EC Treaty, art 226 – Council Directive 77/187/EEC.

The European Commission issued a letter of formal notice alleging that Italy had failed properly to implement Council Directive 77/187/EEC (on the approximation of laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses). The letter referred to a proposed amendment to the Directive that was more similar to Italian law but expressed the opinion that the Italian laws in question would still require alteration to meet the requirements of the amendment. The Directive was subsequently amended (Council Directive 98/50/EEC) in terms that brought it closer to the impugned Italian laws. The Commission then issued a reasoned opinion maintaining that Italian law had failed properly to implement the amended Directive 77/187/EEC. The Commission applied for a declaration under art 226 EC that Italy had failed to fulfil its obligations under the Directive. An issue arose as to whether the application was flawed on the basis that, given the intervening amendment to the Directive, the formal notice, and reasoned opinion and application, set out different complaints.

The court ruled:

The purpose of the pre-litigation procedure was to give the member state concerned an opportunity to comply with its Community obligations, to identify the subject-matter of the dispute and to enable it to prepare its defence. In the instant case, the amendment had been in force for over a year at the time compliance fell to be assessed, but the preceding letter of formal notice could not contain any analysis of the Italian legislation in the light of that amendment, since the amendment did not exist at the time of that notice. In those circumstances, the reasoned opinion and the application to the Court was flawed with regard to the rights of the defence because: (i) it referred to rules of Community law other than those cited in the letter of formal notice; and (ii) the intervening amendment was likely to have affected the compatibility of the national legislation.

Tibbitt v Wagon plc and others McNabb v Wagon plc and others

Employment – Continuity – Transfer of undertakings – Correctness of tribunal’s decision.

The applicants were engaged within different roles in three companies, HW Holdings Ltd (Holdings), HW Engineering Ltd (Engineering) and HW Environmental Ltd (Environment). The first respondent company set up a new company, H Ltd, in order to purchase Engineering from receivers. The applicants had been engaged in different positions within the various companies. The first applicant commenced employment with Engineering in September 1989, and was promoted to director in 1996. He resigned in 1998 and became a director of Environment. In November 2000, at the time of the sale to H Ltd, Engineering employed about 400 people and Holdings about 30. Almost all were transferred by reason of the Transfer of Undertaking (Protection of Employment) Regulations 1981 (TUPE). Both the applicants were engaged on a project known as EVEC, concerning exhaust emissions from internal combustion engines. Neither was transferred to the first respondent, although certain other employees working on EVEC were transferred. Both applicants continued to work and to be paid until May 2001, when they were refused admission to the premises. They issued complaints in the employment tribunal, contending that the sale of the business and assets of Engineering and Holdings amounted to a transfer for the purposes of TUPE and the refusal by the respondents to recognise that fact entitled the applicants no longer to consider themselves employed. The respondents maintained that the applicants had not been engaged in that part of the undertakings which were transferred by the receiver. The tribunal ruled that there had been no transfer for the purposes of TUPE, on the grounds, inter alia, that Environment had been set up deliberately as a separate company with the first applicant as its managing director; that Environment was not a wholly-owned subsidiary; and that in the circumstances the respondents had not purchased the assets of Environment, nor had there been a transfer of an undertaking of Environment. The applicants appealed.

The appeal would be dismissed.

The tribunal had been correct that it did not defeat the respondents’ case that there was no transfer of the part in which the applicants worked simply because other employees engaged upon EVEC were transferred. It provided no conclusive answer. In all the circumstances, the tribunal had applied the law correctly to the facts as found, and there was no error in its reasoning.

McIntosh and another v Victoria & Albert Museum and another

Employment – Employment tribunal – Jurisdiction – Tribunal finding existence of relevant transfer – Tribunal concluding it had no jurisdiction to hear employees’ claim for unfair dismissal – Correctness of decision – Employment Rights Act 1996, s 111(3).

The appellant employees were employed as warders at the first respondent museum. From 1984 onwards, employees of the museum were employed by the museum’s trustees, who were established under the National Heritage Act 1983. On 1 September 2000, security services at the museum became the obligation of a division of the second respondent. The employees continued their employment with the second respondent, however, two weeks before the transfer the employees submitted their originating applications for breach of contract and unfair constructive dismissal by the museum. The employees presented their second claim against the second respondent for ‘breach of statutory provisions by going under the Transfer of Undertakings (Protection of Employment Regulations) 1981’. The tribunal concluded that it had no jurisdiction to hear the case of breach of contract or unfair dismissal against the museum because the application was premature. Further, there had been a transfer pursuant to the 1981 Regulations and hence no dismissal of the employees. Accordingly, there could be no claim for unfair dismissal and no linked breach of contract claims. The employees accepted that the tribunal did not have a jurisdiction to deal with straight breach of contract claims in circumstances where the employees remained employed by the employer concerned, however, they appealed against the conclusion of the tribunal that it had no jurisdiction to hear the unfair dismissal claim. Specifically, the employees contended that the tribunal should have exercised its jurisdiction pursuant to s 111(3) of the Employment Rights Act 1996, which provided: ‘where a dismissal is with notice, a [tribunal] shall consider a complaint under this section if it is presented after the notice is given but before the effective date of termination’.

The appeal would be allowed.

The tribunal found, in the instant case, that there had been a transfer under the Regulations. It might have been for that reason that they had not considered it necessary to consider the potential applicability of s 111(3) of the 1996 Act. In the circumstances, the question was whether the tribunal had properly reached a conclusion on the employees’ appeal point. The appeal tribunal were satisfied that it had not. Accordingly, justice required that the single point of whether or not, on the facts, there was a relevant transfer should be remitted to the same or a different tribunal.

Mansi and another v Warne and others

Employment – Unfair dismissal – Compensation – Calculation – Employee’s duty to mitigate – Employee having second job – Tribunal reducing employee’s award of compensation due to second job – Correctness of tribunal’s approach – Employment Rights Act 1996, s 123(4).

The applicants were employed by the first respondent as a bar manager and barmaid. The first respondent arranged to sell the business to the second and third respondents, and informed the applicants that the second and third respondents wished to employ family members. He accordingly gave the applicants one week’s notice of the termination of their employment. The applicants issued a complaint in an employment tribunal alleging unfair dismissal and breach of contract. The tribunal concluded that there had been a transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981 and that the second and third respondents were liable to pay the applicants compensation for their dismissal by the first respondent. The tribunal awarded compensation accordingly, but made no separate award for the failure to consult in accordance with regs 10 and 11 of the regulations. The tribunal also reduced the first applicant’s loss by taking into account his income from another job. Finally, the tribunal did not make any award of costs. The applicants appealed on the grounds, inter alia, (i) that the tribunal should have made a separate award of compensation for the failure to consult as reg 11(4) of the regulations provided that, where there had been a failure to consult, ‘[a] tribunal … may—(a) order the employer to pay appropriate compensation …’; (ii) that the tribunal had been wrong to make no order as to costs; and (iii) that the tribunal had been wrong to reduce the first applicant’s loss.

The appeal would be allowed in part.

(1) Parliament was to be taken to have been well aware of the difference between the mandatory ‘shall’ and the permissive ‘may’ as used in reg 11(4) of the regulations, and the tribunal had, on the facts of the case, been fully entitled not to make an award of compensation under reg 11(4)(a) if it thought it could do justice to the case by taking it into account in its award of the compensatory element of dismissal.

(2) The tribunal had applied its mind to the relevant issues, and there had been no error of law in its approach to the matter of costs.

(3) The first applicant’s pay and employment in his other job had nothing to do with the respondents. The common law duty to mitigate loss, provided for by s 123(4) of the Employment Rights Act 1996, could not operate so as to enable a tribunal to reduce compensation payable in such circumstances. The duty to mitigate loss under s 123(4) of the Act had to apply only to employment which commenced after dismissal. To do otherwise would be to unjustly reward an employer for dismissing an employee who had the initiative and energy to have had alternative employment which predated the dismissal. That could not be just and equitable, and the tribunal had made an error of law in adopting the approach that it had.

Graham and others v Glendale Managed Services

Employment – Contract of employment – Terms of employment – Remuneration – Particulars of employment stating pay ‘normally in accordance’ with nationally negotiated rates – Employer not paying nationally negotiated rates – Lawfulness of employer’s stance.

The employees had been employed by a local authority. Their particulars of employment stated, at para 3 ‘… your rate of pay … will normally be in accordance with the National Joint Council for Local Government Services (the NJC) as adopted by the authority from time to time …’ A transfer of undertakings, within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981, occurred, and the employees were transferred to the employer. By virtue of reg 5 of the regulations, the employer took on the rights, powers, duties and liabilities of the authority under the employees’ contracts. Since that transfer, the NJC had agreed two pay increases, but these had not been passed on by the employer to the employees. The employees issued a complaint in an employment tribunal, alleging unlawful deduction of wages. The tribunal heard evidence from P, who stated that the authority had always met NJC pay increases without ever formally adopting those increases. The tribunal concluded that the word ‘normally’ within the particulars of employment meant the prevailing situation, namely that the NJC increases were met, and accordingly found for the employees. The employer appealed to the Employment Appeal Tribunal, but at a preliminary hearing the EAT held that the matter should not go to a full hearing. The employer appealed to the Court of Appeal on the grounds that the use of ‘normally’ and ‘as adopted’ within para 3 of the particulars meant that NJC increases were not automatically incorporated into the employees’ contracts, and that in any event, the tribunal had been wrong to take into account the evidence of P, as evidence of subsequent conduct was inadmissible to construe a written contract.

The appeal would be dismissed.

The terms in the particulars of employment were not to be construed as if they were agreed terms in a written, commercial contract. Particulars of employment were just that: they provided evidence of the agreement between an employer and an employee, and no more. Accordingly P’s evidence was admissible. The conduct of the parties to that agreement was also important, and P’s evidence dealt with that conduct. It was part of the relevant background knowledge that went to the interpretation of the contract. It also demonstrated how the authority and its employees regarded their contractual obligations. Taking all that into account, under the contracts in the instant case it was not a pre-condition that the employer positively approved NJC increases before they were payable to the employees. Accordingly, the employees were entitled to the two pay increases.

Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 and Carmichael v National Power plc [1999] 4 All ER 897 considered. James Miller James & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] 1 All ER 796 distinguished.

Cobley v Forward Technology Industries plc

Employment – Unfair dismissal – Reason for dismissal – Employment tribunal holding that employee dismissed for ‘substantial other reason’ – Tribunal holding that dismissal not unfair – Correctness of tribunal’s decision – Employment Rights Act 1996, s 98.

From 1980 until he was dismissed in 2000, the employee was the deputy chairman and chief executive of the company. He was also a director. His contract of service provided that in the event of his ceasing to be a director of the company, his employment would terminate automatically. In 1998 the employee spearheaded an attempted management buy-out of the company. In January 2000 the company was taken over by an American company, C, after a bidding competition. Several new directors, who controlled the board, were appointed by C, and at an EGM on 8 February, a resolution was passed by the shareholders removing the employee as a director of the company. He was then dismissed from his employment as chief executive. The employee made a complaint to an employment tribunal, claiming unfair dismissal. The tribunal held that the reason for the dismissal, namely the very fact of the acquisition of the company by C, which was entitled to choose its own board of directors, was ‘some other substantial reason’ within s 98(1)(b) of the Employment Rights Act 1996; that that reason was of a kind such as to justify dismissing the employee from the position which he held; and that in the circumstances the dismissal was fair within s 98(4). That decision was upheld on appeal by the Employment Appeal Tribunal. The employee appealed, contending that reason for dismissal found by the tribunal could not, as a matter of law, be ‘some other substantial reason’ within s 98(1)(b); and that in determining whether the dismissal was unfair, the tribunal had taken account of irrelevant factors.

The appeal would be dismissed.

(1) The tribunal was entitled, for the reasons which it had given, to conclude that there was a substantial reason, falling within the broad, residual range of reasons available to an employer under s 98(1)(b), for dismissing the employee from his position as chief executive. The reasons available to an employer under s 98(1)(b) were not limited to reasons of the same kind as those spelt out in s 98(2), nor did they require consideration of the fairness of the dismissal, which fell to be considered under s 98(4) rather than at the prior stage of identifying the reason for dismissal.

(2) There was no error of law in the decision of the tribunal on the issue of fairness. Dismissal of the employee as chief executive was within the range of reasonable responses open to the company after the take-over had been accomplished. The employee had been lawfully removed from the board and his contract of service had terminated in accordance with an express term agreed by him.

Decision of the Employment Appeal Tribunal [2002] All ER (D) 08 (Oct) affirmed.

Tucker and another v Alamo Group (Europe) Ltd

Employment – Transfer of undertakings – Transfer of liabilities – Rights to consultation and information – Employment tribunal finding transferee liable for duties and liabilities imposed on transferor – Correctness of decision – Transfer of Undertakings (Protection of Employment) Regulations 1981, regs 5, 10, 11.

The second complainant company went into administration in June 2000. In September 2000, the respondent company concluded a contract to purchase the second complainant which did not comply with reg 10 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) in relation to that particular transfer. The first complainant was an employee of the second complainant. An issue arose before the employment tribunal as to whether reg 5 of TUPE had the effect of transferring to the transferee the duties and liabilities imposed on the employer under regs 10 and 11, which concerned the duty to inform and consult trade union representatives and the failure to inform or consult. The tribunal found that reg 5 of TUPE did transfer the duties and liabilities imposed on the employer under reg 10 and 11 of TUPE. The respondent appealed against the decision that reg 5 rendered it, as transferee, liable for the default of the transferor on the ground that liability in relation to consultation and information under regs 10 and 11 of TUPE did not transfer.

The appeal would be dismissed.

Regulation 5 of TUPE was a core provision, protecting the position of employees on a transfer by transferring the rights, powers, duties and liabilities under or in connection with a contract of employment. Regulations 10 and 11 dealt with the specific situations of consultation and information. The rights and liabilities in those regulations were rights that arose in connection with the contract of employment, or from the employment relationship so that, consequently, they would be subject to reg 5 of TUPE, which had a wide application to matters arising in connection with the contract of employment or out of the employment relationship. That interpretation was consistent with the twofold general approach of the regulations, first, that their purpose was to protect employees on a transfer, and, secondly, that generally that was best achieved by a transfer of rights. The rights in regs 10 and 11 to information, consultation and compensation in default were in connection with the contract of employment and arose out of the employment relationship and were therefore subject to the transfer provisions of reg 5. There was, accordingly, no error in the way in which the tribunal had construed regs 5, 10 and 11 of TUPE and no reason to interfere with its decision.

Duke and others v Rosan Heims plc

Employment – Transfer of undertakings – Continuity of employment – Allegation that contracts tainted with illegality.

The employees were employed by companies in the J&P group. They supplied bailiff services to local authorities and certain commercial landlords. The group fell into financial difficulties and administrators were appointed. They agreed heads of terms in respect of the sale of the business of two of the companies to the appellant company. Claims for redundancy payment and unfair dismissal were brought against the appellant on the grounds that there had been a transfer of the business within the meaning of the Transfer of Undertaking (Protection of Employment) Regulations 1981. The employment tribunal concluded that there was an economic entity in the hands of the transferor which had been transferred to the appellant. On appeal it was not disputed by the appellant that that was a conclusion which the tribunal could properly reach, if it was entitled to take account of the contracts which it was alleged were tainted with illegality because some of the work done by the bailiffs was done without a certificate and therefore unlawfully. The appellant contended that the contracts of the uncertified bailiffs were void and unenforceable either by them or the company and that it was contrary to pubic policy for the tribunal to have taken them into account.

The appeal would be dismissed.

The evidence before the tribunal did no more than show that the contracts which were tainted with illegality fell into the category where the illegality was in the course of performance. On the basis of the material before the tribunal, the contracts were enforceable at the behest of the employees and were not void. It followed that if the employees could enforce rights under those contracts there was no reason why they should not have been taken into consideration in determining whether or not there was a transfer. Accordingly, there was no justification for ignoring them when determining whether an economic entity was in existence in the hands of the transferor. Moreover, even if the contracts were void and could not be enforced by the employees, that would not have prevented the tribunal from having regard to them.

Nelson v Carillion Services Ltd

Discrimination – Sex discrimination – Employment – Discrimination against a woman – Burden of proof – Equal Pay Act 1970, s 1(3).

The employee was, at the material time, being paid less than an identified male employee doing the same job. She brought a complaint under s 1 of the Equal Pay Act 1970. An issue arose as to whether the employer could defeat the presumed entitlement to equal pay by reliance on the s 1(3) defence. That subsection provided: ‘An equality clause shall not operate in relation to a variation between the woman’s contract and the man’s contract if the employer proves that the variation is genuinely due to a material factor which is not the difference of sex.’ The employment tribunal found that the variation in the contracts of employment was genuinely due to a material factor, which was not the difference of sex, and dismissed the employee’s complaint. The employee appealed unsuccessfully to the Employment Appeal Tribunal. On appeal to the Court of Appeal, the employee contended that the tribunal had erred in putting the burden of proof on the employee to establish her case of indirect discrimination. She submitted that once she had credibly raised such a case it was then for the respondent employers to disprove it.

The appeal would be dismissed.

In an indirect discrimination case the burden of proving disproportionate adverse impact lay on the complainant and merely to raise a credible suggestion that, were the relevant (valid and significant) statistics provided, those might establish disproportionate impact was not sufficient for the employee’s purposes and imposed no further burden of explanation upon the employer. There was every reason for approaching the burden of proof in indirect discrimination cases in the same way irrespective of whether they were brought under art 119 of the Treaty of Rome, or under s 1(1)(b) of the Sex Discrimination Act 1975, under which the burden rested on the complainant to establish disproportionate adverse impact, or under the 1970 Act.