Powerhouse Retail Ltd & Ors v Burroughs & Ors

This is an appeal against a decision of the Employment Appeal Tribunal (“EAT”), His Honour Judge McMullen QC, sitting alone, sent to the parties on 29 December 2003. The judge allowed an appeal from a decision of an Employment Tribunal held at London Central, the Regional Chairman of the Nottingham region sitting there alone, in extended reasons dated 2 August 2002. I agree with counsel for the parties, including for the Secretary of State who has been permitted to intervene, that the appeal turns on a narrow point of statutory construction but it is appropriate to make some reference to the background.

What has been described as the Preston litigation arises from thousands of equal pay claims brought by part-time workers, mainly women, in relation to denial of access to occupational pension schemes. A number of issues arose. It was held on one of them, following reference to the European Court of Justice, that the limitation period of six months for bringing proceedings under section 2(4) of the Equal Pay Act 1970 (“the 1970 Act) was not incompatible with Community law in that it did not make the exercise of the applicants rights under article 119 of the EC Treaty impossible or excessively difficult and did not breach the Community law principle of equivalence (Preston v Wolverhampton Healthcare NHS Trust (No.2) [2001] ICR 217(HL)). Other general issues have been determined in test cases before the EAT. The present appeal is in relation to a single issue upon pension claims, namely:

The relevant facts are:

The 1981 Regulations follow and, for present purposes, are accepted to be consistent with Council Directive No. 77/187 (14 February 1977) “on the approximation of the laws of member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses”. Regulation 5(1) provides, insofar as is material:

Regulation 5(2) provides:

Regulation 7 provides, insofar as is material:

It is common ground that, while at common law a change in the identity of an employer automatically terminates a contract of employment (Nokes v Doncaster Amalgamated Collieries [1940] AC 1014), the effect of Regulation 5(1) is that a relevant transfer does not terminate the contract of employment but, as put by Mr Paines QC for the Secretary of State, creates the statutory fiction that the contracts of employment have always existed between the employees and the transferee, who is both required to observe the conditions of the contracts of employment in the future and is liable, subject to the effect of Regulation 7, for breaches of contract by the transferor. It is common ground that, by virtue of Regulation 7, the employee has no rights against the transferee with respect to pension rights existing at the time of transfer.

The 1970 Act is, according to its short title, “an Act to prevent discrimination, as regards terms and conditions of employment between men and women.” Contracts of employment are deemed to include an equality clause and the present applicants seek equal access to occupational pension schemes. Section 2(4) of the 1970 Act, as amended, provided, at the material time:

The Employment Tribunal held (paragraph 86) that time began to run for claims against the TUPE transferors on the date of the TUPE transfer. The Tribunal accepted the submission of Mr Jeans QC (paragraph 72) that the effect of Regulation 7 was twofold:

The EAT held that there was jurisdiction provided the claim was brought within six months of the termination of the contract with the transferee. It was stated at paragraph 144:

At paragraph 146, the EAT stated:

The need for legal certainty in this part of the law was argued, in relation to the point of construction, both before the EAT and in this court. I will return to it. The EAT stated its order of 19 December 2003:

The EAT found of assistance, and the applicants rely on, the decision of this court in National Power plc v Young [2001] ICR 328. Mrs Young commenced proceedings in 1997 relating to a claim of unequal pay prior to 1994. She had worked for her employers in Department A until 1994 and in Department B until l996 when she left. It was held that the application had to be lodged within six months of the termination of the employment. That referred to the contract of employment and not to the actual job the employee was doing. There is jurisdiction provided the claim is brought within six months of the termination of the contract of employment (per Smith J at paragraph 18). The EAT, at paragraph 144, found the decision of assistance in that the court “took a broad view of the expression ‘employed in the employment’ ” in Section 2(4) of the 1970 Act.

The EAT also found of assistance the finding of the EAT, His Honour Judge Peter Clark presiding, that time does not begin to run against a person who is under notice but required not to work. (HQ Services Children’s Education (MOD) v Davitt[1999] ICR 978).

Submissions have rightly concentrated upon the expression “employed in the employment” in Section 2(4) of the 1970 Act. For the claimants, Mr Cavanagh QC submits that, by virtue of Regulation 5, the contract of employment does not end with the transfer. The employee has the self-same contract of employment with the transferee. It is irrelevant that a particular term in relation to pension is not transferred. The focus on pension rights is misleading, it is submitted. Emphasis is placed on the equality clause which is fundamental to the operation of the 1970 Act. It is present both before and after the transfer and holds the contract together, it is submitted. Time begins to run only when the equality clause comes to an end with the end of employment with the transferee. Regulation 7 does not terminate the relevant employment upon a TUPE transfer. The contract of employment continues, albeit shorn of pension rights. While Regulation 7 imposes a statutory deletion of the terms of the contract relating to pension, it does not follow, it is submitted, that the contract of employment referred to in Section 2(4) of the 1970 Act is terminated.

Mr Cavanagh submits that Section 2(4) of the 1970 Act must be construed on the basis that TUPE was not in mind when it was drafted. Moreover, in terms of limitation, the time limit in Section 2(4) is an unusual one in that it is related not to the breach of a contract but to its termination. TUPE also has what in conventional terms are surprising consequences in that the transferee is made responsible (though not as to pension) for the wrongs of the transferor. Against that background, it is not surprising, it is submitted, that while by virtue of Regulation 7 the transferee is not liable, a transferor may be held liable many years after the transfer.

Counsel for all parties seek to rely on the statement of Lord Slynn of Hadley when making the leading speech in the House of Lords in Preston v Wolverhampton (No.1) [1998] ICR 228 where an applicant had had a succession of contracts of employment with the same employer. Lord Slynn stated, at page 237, that the equality clause referred to in Section 2(4) “is a clause in a contract of employment which as I see it can only be the specific contract in respect of which the claim is made”.

Mr Jeans QC, for the appellants, and Mr Paines QC, for the Secretary of State, submit that the present claims relate to that part of the contract of employment kept behind by Regulation 7. That employment does not continue for the relevant purpose, that is for the purpose of these claims. The claimants seek to rely on Regulation 7 to preserve the claim against the transferor while at the same time ignoring it when considering the time limit. It is submitted that the specific contract of employment on which the claimants rely is the contract between them and the transferor but that contract only subsists until the transfer. Upon transfer, and by virtue of regulation 5, it is replaced by a contract between the employee and the transferee, the contract being deemed always to have subsisted between the employee and the transferee. All parts of the contract between the employee and the transferor are either transferred or terminate so that there can be no employment relationship for the purposes of Section 2(4) between the transferor and the employee after the transfer.

Regulation 7 excludes the application of Regulation 5 in so far as the contract relates to an occupational pension scheme but that does not have the effect, as regards pension claims, it is submitted, of deeming the employees still to be employed by the transferor and the EAT did not find otherwise. The EAT are in error, it is submitted, in holding, in paragraph 146, that because there is a contract of employment with the transferee, shorn of pension rights, a claim against the transferor may be maintained for so long as the employee remains within the transferee’s employment, plus six months.

Reliance is also placed by the appellants on the conferring in Section 2 of the 1970 Act of rights of action on the employer and on the Secretary of State, as well as the employee. It is submitted that there would be no point in such powers with respect to pension rights surviving the transfer. That suggests a cut-off, as to pension rights, at the date of transfer. As to that, I see force in Mr Cavanagh’s point that the 1970 Act was not drafted with the complexities of TUPE in mind and I do not consider the argument to be a decisive one.

Detailed submissions have been made on behalf of the appellants and the applicants as to the effect of the different constructions on the principle that parties should know where they stand. The appellants rely strongly on the open-ended commitment upon transferors if they remain liable during employment with transferees. I have referred to Mr Cavanagh’s submission that such a commitment is not surprising in the particular context. Having mentioned ways in which the transferor may be able to guard against a potential long term liability, the EAT held that the construction it preferred was not “repugnant to the doctrine of legal certainty”.

In my view, the issue is essentially one of statutory construction. It can be resolved without recourse to the concerns expressed on behalf of the appellants about the uncertainties with which they would be faced if the decision of the EAT is upheld.

I do not consider the decisions in Young and Davitt to be helpful to the applicants on this point. They were single employer cases in which the issue was a factual issue as to the terms of the contracts of employment in question. On their facts, the decisions are, with respect, unsurprising.

I accept the appellants’ submissions as summarised in paragraph 18 of this judgment as the correct analysis. Regulation 5 does not deem the contract of employment with the transferor never to have happened; it deems that what happened was between the employee and transferee. By virtue of Regulation 7, the pension terms fall out of the contract of employment with the transferee and no further pension rights can be acquired against the transferor though, at the time of transfer, there is a cause of action against the transferor with respect to pension rights.

The continuing contract of employment is deemed always to have been with the transferee but it must be acknowledged that the pension rights have been removed from it and it cannot be treated as if they have not. It cannot be regarded as the specific contract of employment, giving rise to the claim for pension rights, which existed between the transferor and the employee before the transfer took place. The employment under a contract of employment about which complaint is made is the contract between transferor and employee, with its equality clause providing pension rights, and the post-transfer contract of employment, shorn as it is by statute of existing pension rights, is not the specific contract of employment for the purposes of Section 2(4). The claim is based on the previous contract and, in so far as its terms have not been transferred, it terminated upon the transfer and time began to run. The existence, in each of the contracts, of an equality clause does not mean that they can be treated as the same contract.

I would allow this appeal.

I agree.

I also agree.