Regent Security Services Ltd v Power

The question is whether the employment tribunal (ET) erred in law in holding in its decision (registered on 7 July 2006) that, following the transfer on 1 July 2005 of the undertaking in which Mr Michael Power was employed to Regent Security Services Limited (Regent), the consensual variation of Mr Power’s contractual retiring age from 60 to 65 was void.

The point is obviously important for the parties: it affects Mr Power’s claim for unfair dismissal and redundancy pay of about £9,000 and Regent’s potential liability to him. It also has far-reaching consequences for employers and the workforce generally.

If the agreed variation of his retiring age to 65 is void, as the ET held, Mr Power is not entitled to pursue his claim against Regent for dismissing him on reaching 60. His original contractual retiring age of 60 would be his “normal retiring age” for the purposes of the Employment Rights Act 1996 (ERA). On Mr Power attaining 60 Regent would be entitled to “retire” (i.e. dismiss) him. As the law stood at the date of his dismissal the right not to be unfairly dismissed would be unavailable to him: section 109 ERA, which has been repealed as from 1 October 2006 by the Employment Equality (Age) Regulations 2006 Schedule 8, paragraph 25.

As Regent acted on the view that it was entitled to dismiss Mr Power at 60, it did not consider it necessary to follow, and therefore did not follow, the statutory disciplinary and dismissal procedure in the Employment Act 2002.

The Employment Appeal Tribunal (EAT-Elias J presiding) allowed Mr Power’s appeal on 29 January 2007. The EAT agreed with the ET that Mr Power’s “normal retiring age” was the same as his contractual retirement age, but held that the consensual variation in the contractual retiring age was not void. The EAT concluded that

“62 ….the employer is not entitled to refuse to give effect to the contractually agreed retiring age of 65, the normal retiring age is therefore 65, and the employee is eligible to pursue his claim for unfair dismissal. The finding of the Employment Tribunal was that the dismissal was by reason of redundancy but was automatically unfair. That has not been challenged in this appeal. Accordingly we remit the matter to the same Tribunal to consider the question of remedy.”

This appeal, for which Keene LJ gave permission, turns on the construction of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE), which were in force at the date of Mr Power’s dismissal on 19 November 2005.

With effect from 6 April 2006 the new 2006 TUPE Regulations, which implement Council Directive 2001/23/EC, came into force and replaced the 1981 Regulations. They are not materially different on the particular point raised on this appeal. One of the aims of the 2006 TUPE Regulations is to update and clarify the legal position concerning changes to terms and conditions of employment after the transfer. The 2006 Regulations include provisions which make potentially lawful variations to terms and conditions. The sole or principal reason for that variation must be unconnected with the relevant transfer, or, if the reason for the variation is connected to the relevant transfer, it must be an economic, technical or organisation reason entailing changes in the workforce (an ETO reason): see Regulation 4(4) and (5) of the 2006 Regulations. A purported variation in the terms and conditions of employment is void if the sole or principal reason for it is the transfer itself or a reason connected with the transfer that is not an ETO reason.

It is common ground that the TUPE Regulations were made in 1981 to implement the EC Acquired Rights Directive 1977/187 (the Directive). The Directive aimed at safeguarding the rights of employees in the event of transfers of undertakings and a change of employer. The purpose was to protect employees from dismissal or from changes to terms and conditions of employment by sole or principal reason of the transfer itself.

The general position stated in the Departmental Guidance issued in relation to the 2006 TUPE Regulations is broadly true of the 1981 TUPE Regulations. The underlying purpose of both sets of Regulations is to ensure that employees are not “penalised” when a transfer takes place by, for example,

“…being placed on inferior terms and conditions. So, not only are their pre-existing terms and conditions transferred across on the first day of their employment with the new employer, but employees may not validly waive their acquired rights.”

The Guidance adds that

“Changes to terms and conditions agreed by the parties which are entirely positive are not prevented by the Regulations.”

It is well established that, if it is possible to do so, TUPE must be interpreted so as to be compatible with the Directive, in this case the 1977 Directive. The recitals to the Directive say nothing about the protection of employers or about ensuring that their rights are safeguarded. Article 3 does, however, provide

“3.1

The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.”

Regulation 5(1) of TUPE states the general effect of the relevant transfer on contracts of employment. It provides, first, that a relevant transfer does not terminate the contract of employment of any person employed by the transferor; and, secondly, that any such contract has effect after the transfer as if originally made between the person so employed and the transferee.

Regulation 5(2), which reflects Article 3(1) of the Directive and is relied on by Regent, provides-

“Without prejudice to paragraph (1) above…..on completion of a 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.”

In this case there is no dispute that Regent was the transferee of an undertaking to which TUPE applied; that prior to the transfer Mr Power had a contract of employment providing for a retiring age of 60; that on the completion of the transfer the transferor’s rights, powers, duties and liabilities, including those relating to the retiring age of the employees, were transferred to Regent under Regulation 5(2)(a); that after the transfer Mr Power signed a letter sent to him by Regent agreeing to be bound by Regent’s terms of employment, as contained in its staff handbook, which provided that his retiring age would be 65; that this was the only variation in his terms and conditions of employment; and that the agreed change in the retiring age of Mr Power was for a reason connected with the transfer of the undertaking to Regent.

Regent also relies strongly on Regulation 12 of TUPE, which does not replicate any particular Article in the Directive. Regulation 12 placed a comprehensively worded restriction on contracting out of the operation of the relevant provisions of TUPE by providing that:

“Any provision of any agreement (whether a contract of employment or not) shall be void in so far as it purports to exclude or limit the operation of Regulation 5, 8 or 10 above …”

Regent’s contention, which the ET accepted, was that Regulation 12 applied to the purported consensual change of the retiring age in the transferred contract of employment; that the term as to retiring age created rights and obligations which were transferred to Regent; that the agreed variation in retiring age was void as it purported to exclude or limit the operation of Regulation 5; that Mr Power’s retiring age remained 60 after the transfer, as it was before the transfer; and that, as Regent dismissed Mr Power at 60, the right not to be unfairly dismissed was unavailable to him.

The contrary contention, which was rejected by the ET, but accepted by the EAT, was that Regulation 12 could not be invoked by Regent to avoid the contractual variation agreed with Mr Power.

The ET’s decision on the interpretation of TUPE on this point was confusingly recorded in its decision. The parties agree that this is the result of a slip on the part of the ET in the writing up of its decision. The decision sent to the parties stated that the agreed variation reduced the retiring age from 65 to 60. It should have stated that the retiring age was varied from 60 to 65. It is clear from reading the decision as a whole that there was no misunderstanding by the ET on this point and that it fully appreciated that the retiring age was raised to 65 and not lowered to 60.

This error in part of the ET’s decision, which should have been notified to it at the time so that it could have issued a formal correction, was not commented on in the judgment of the EAT. We are, however, informed that the EAT was alerted to the slip.

The ET concluded-

“26.

….We see no reason why the TUPE Regulations should not have equal force where, consequent upon a transfer, there is a purported variation of the rights of the employer as opposed to the liabilities of the employer. Mr Kohandzad [Mr Power’s then counsel] submitted that the purpose of the Regulations was to ensure that the rights of employees are protected on a transfer and therefore the Claimant should be entitled to benefit from the more advantageous provision. We do not accept that submission, even if the assumption that the new provision was beneficial is true.

27.

In these circumstances what has happened is that under the contract entered into by the Claimant with the Respondent the right of the employer to require the employee to retire at a specified age has been reduced from the age of 65 to the age of 60. Regulation 12 provides that any provision of any agreement shall be void insofar as it purports to exclude or limit the operation of regulation 5. Regulation 12 does not limit itself to outlawing any variations which are to the disadvantage of the employee: it is neutral as between the employer and the employee.

28.

The conclusion, therefore, to which we have come is that the purported variation of the contractual retirement age from 65 to 60 is void because it was entered into in connection with a relevant transfer and is void by virtue of Regulation 12.”

The ET held that, as Mr Power’s normal retiring age was 60, he was not entitled to pursue his claim for being dismissed on attaining 60.

In allowing the appeal the EAT said this in the judgment delivered by the President on its behalf.

“51.

….In our judgment there is no reason of public policy, as reflected in the Directive, why the appellant [Mr Power] should be barred from relying on this contractual amendment. On the contrary, it seems to us that it would be inconsistent with the aim of protecting the workforce to refuse them benefits contractually conferred by the transferee.

52.

The principle is that they should not be prejudiced as a result of the transfer, and yet if they were barred from enforcing more favourable terms, that would be the effect. Terms upon which they could have relied had they been agreed with the transferor prior to the transfer they will not now be able to rely upon because they have been agreed with the transferee after and by reason of the transfer. Nor is it an infringement of the principle that their rights should be safeguarded on transfer to allow them to enforce more favourable rights conferred on or after the transfer.

53.

In our view Daddy’s Dance Hall and Credit Suisse merely establish that if the employee wishes to rely upon a term originally found in the agreement with the transferor (but which will have been transferred to the transferee) rather than relying upon a term in the varied or new agreement with the transferee, he will be entitled to do so. It is not a question whether objectively viewed the original term is more beneficial or not. It is simply a question whether the employee wishes to rely upon it, although no doubt he will only do so where he thinks it is beneficial. He must be the best judge of his own interests. If he perceives it to be beneficial to seek to rely on the original term, he can seek to do so in preference to the inconsistent later term. (There is a powerful argument why it should sometimes be a condition of so doing that he gives credit for benefits derived under the new contract, but that is not an issue that arises here.)

54.

However, in our judgment there is no reason why he should not be permitted to hold the employer to the new term if he considers it to be more favourable. Again, it is immaterial whether, objectively viewed, it is more favourable. So in this case, as the Employment Tribunal pointed out, it is by no means clear whether all employees would perceive a change in the contractual retirement age from 60 to 65 as beneficial. That does not matter; it is enough that this particular employee considered that it was.

55.

Nor, in our view, does regulation 12 compel the conclusion that such variation be treated as void. In our judgment that regulation, naturally construed, simply covers the situation where an attempt is made by agreement and it will usually but not inevitably be between transferor and transferee-to prevent the transferee from refusing to employ the relevant employees or from refusing to pick up the liabilities towards them which formerly rested with the transferor..

56.

What regulation 12 does not directly deal with, and indeed what remained unclear and controversial until the decision in Daddy’s Dance Hall was whether, following the transfer, the employees could agree by contract to a variation of the employment contract with the transferee. There were powerful arguments for supposing that they could and that the purpose of the Regulations was merely to ensure that the transferee after the transfer stood in the shoes of the transferor. This would have enabled the transferee to vary the contract by agreement with the employee after the transfer in precisely the same way as the transferor could have done before the transfer.

57 Indeed, in Daddy’s Dance Hall itself that was the argument advanced on behalf of the UK Government. Daddy’s Dance Hall established that no such variation could be legally binding on the employee where the reason for the change was the transfer itself, and so regulation 12 thereafter had to be construed to give effect to that principle. But the regulation does not have to be construed so as to have any greater effect.”

The EAT summed up the position as follows-

“60.

In our judgment, therefore, it is not necessary to construe regulation 12 so as to prevent an employee from seeking to take the benefits of a contract varied with the transferee or, to put the point the other way, it is not necessary to allow an employer to raise a defence that the term on which the employee seeks to rely is void because made by reason of the transfer. The employee can object to any change which he considers to be to his detriment, and the existence of compensating advantages will not deprive him of that right (although he may well have to give up any benefits obtained under the varied contract as a condition of so doing.)

61.

In our judgment no similar right is conferred on the transferee employer. There is nothing in the case law of the ECJ, nor in the Regulations, nor in the public policy which they are designed to enshrine, which would require that the transferee employer be allowed to resile from a voluntary agreed variation to the contract, even where the transfer is the reason for the variation, as admittedly it was in this case.”

The EAT accordingly allowed Mr Power’s appeal.

As I broadly agree with the reasoning in the EAT’s judgment and there is no point in mere repetition, I shall confine myself to a few comments and conclusions stated in my own words.

The aim of the Directive and of the implementing TUPE Regulations is the logical starting point. The aim was to safeguard the acquired rights of employees on the transfer of an undertaking. Safeguarding the acquired rights of employers was not the aim. Allowing a transferee employer to rely on TUPE in order to prevent a transferred employee from taking the benefit of a varied term agreed by the employer by reason of the transfer is not required either by the aim of, or by the provisions of, the Directive and TUPE.

Regent submitted that the legislative language is clear on this point; that the meaning of the Directive in its reference in Article 3(1) to the “transferor’s rights” (not just to the transferor’s obligations) and of TUPE in its reference in Regulation 5(2)(a) to the transferor’s rights and powers (not just the transferor’s duties and liabilities) under or in connection with any such contract is “plain and obvious”; that there is “no ambiguity in the wording of Regulation 12 which allows room for any purposive interpretation”; and that the EAT’s conclusion that the agreed variation in the retiring age is binding on Regent involves a “fundamental rewriting of the legislation.”

In my judgment, Regent’s submissions cannot be squared with the fundamental interpretative requirement that the Directive must be read to promote the protective purpose for which it was made and that, if it is possible to do so, TUPE must be construed by the English Courts and tribunals so as to be consistent with the Directive and the rulings of the Court of Justice.

The EAT was plainly correct in holding that “it would be inconsistent with the aimof protecting the workforce to refuse them benefits contractually conferred by the transferee.”(paragraph 51) An employee’s rights on a transfer are not being safeguarded if he/she is prevented from taking the benefit of a term that was agreed with the transferee on or after the transfer.

The safeguarding of an employee’s acquired rights on the transfer of an undertaking means that a transferred employee, who wishes to take the benefit of the original retiring age of 60 agreed with the transferor, is entitled to do so as against the transferee. If the retiring age is then varied by agreement with the transferee, the employee must be treated as obtaining an additional right not as waiving an acquired right. His acquired right to retire at the original retiring age of 60 is transferred by TUPE. The acquired right cannot be removed by his agreement on the transfer of the undertaking or by reason of it. There is, however, nothing in the EC or domestic legislation to prevent the employee from obtaining an additional right. Neither the public policy reflected in the Directive and TUPE nor the reasoning in the authorities cited by Regent prevent an employee from reaching an agreement with the transferee employer under which he obtains an additional right by reason of the transfer. The transferred employee can then choose between enforcing the transferred acquired right or the newly obtained right.

As to Regent’s citation of authority on the principles of EC Law, neither Daddy’s Dance Hall [1988] IRLR 315 nor Credit Suisse First Boston (Europe) Limited v. Lister [1998] IRLR 700 relied on by Regent are authority for any principle or proposition that would determine this case in its favour. The public policy ruling of the Court of Justice in Daddy’s Dance Hall, which was applied by this court in Credit Suisse,was that a worker cannot waive the rights conferred upon him by the mandatory provisions of the Directive, even if the disadvantages for him of such a course of action are offset by advantages so that, overall, he is not left in a worse position. Mr Power could not effectively waive his acquired right to retire at 60. This was transferred and preserved by TUPE. It was still available to him when he reached 60. There was no diminution of, or derogation from, his acquired right on the transfer of the undertaking to Regent.

Regent cannot enforce against Mr Power, or rely on, a purported waiver by him of his transferred acquired right to retire at 60. Mr Power is entitled to rely on, and hold Regent to, the additional right obtained by him under the variation agreed with Regent.

Regulation 12 of TUPE does not support Regent’s case. Mr Power’s reliance on the retiring age of 65 agreed with the transferee, even for a reason connected with the transfer of the undertaking, is not contrary to the prohibition on employees contracting out of the protection and safeguards of TUPE. As already explained the agreed variation of his retiring age to 65 could not deprive him of the transferred acquired right to retire at age 60.

Regulation 12 is unavailable to Regent. Mr Power has not contracted out of his acquired right as to his retiring age i.e. the right to retire at 60. Rather than contracting out of, excluding or limiting his transferred acquired right, he has contracted into and obtained a right which he did not previously have i.e. he has obtained from Regent the right to continue working, if he so wishes, after the age of 60 and up to the age of 65. There simply is no contracting out of or exclusion or limitation of Mr Power’s right to retire at 60, which can be rendered void by the Regulation, or disentitle him from relying on the varied retiring age, let alone release Regent from the variation offered by and agreed to by it.

For the above reasons the EAT was right in holding that there was an error of law in the ET’s decision and in allowing Mr Power’s appeal. I would dismiss Regent’s appeal against the EAT’s order and order it to pay Mr Power’s costs of the appeal, which have been agreed in the sum of £31,842.58 including VAT.

I agree.

I also agree.