ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
UKEAT/0253/06/DA
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
Lord Justice Buxton
Lord Justice Wilson
and
Lord Justice Moses
Between :
RICHARD MILLAM | Appellant |
- and - | |
THE PRINT FACTORY(LONDON) 1991 LTD | Respondent |
(Transcript of the Handed Down Judgment of
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Mr Marc Living (instructed by Messrs Coole & Haddock) for the Appellant
Mr Timothy Pitt-Payne (instructed by The AP Partnership) for the Respondent
Hearing date: 27 March 2007
Judgment
Lord Justice Buxton :
Background
This appeal from the Employment Appeal Tribunal, which reversed a determination of an Employment Tribunal, raises a short question as to the identity of the employer of Mr Millam, the claimant before the ET and the appellant in this court. Mr Millam complains of various breaches of employment law. There was ordered to be tried as a preliminary issue whether his employment had by operation of the “TUPE” Regulations transferred from his original employer, Fencourt Printers Ltd [Fencourt], to McCorquodale Confidential Print Ltd [McCorquodale] on the sale of Fencourt by its parent company to McCorquodale. The respondent to the appeal, The Print Factory, only appeared on the scene when it bought the business of McCorquodale after Mr Millam had been dismissed; but as The Print Factory recognised, if Mr Millam was an employee of McCorquodale at the date of termination it may have liabilities towards him, which is why they have contested the proceedings.
The broad facts can be taken from the judgment of the EAT, which I set out.
The claimant was employed from 5 December 1994 by Fencourt Printers Limited at premises at Littlehampton in West Sussex. He was a lithograph printer. There was some ambiguity in the contractual documents as to whether his true employer was indeed Fencourt Printers or its holding company, ITT London & Edinburgh, but nothing in the event turns on that.
ITT was taken over by Norwich Union in November 1998. Norwich Union then sold Fencourt Printers to McCorquodale on 2 November 1999. McCorquodale is a printing company based in Milton Keynes.
It was a share sale agreement. The claimant was told that the identity of his employer was not changing, which of course would be correct for a share sale since the company remains the employer. Confusingly however, he was also told on 16 August 2000 that his employment had been continued “under the TUPE regulations”. Furthermore, the employees were told at the time of the sale that it was McCorquodale’s intention fully to incorporate the business of Fencourt into its own.
After the takeover, the PAYE documents showed that McCorquodale was the company that paid the claimant’s wages, and indeed Fencourt had no payroll or wages department of its own. McCorquodale also managed the claimant’s contributory pension scheme. There is no evidence as to whether any payment was made by Fencourt for those services.
The Tribunal noted that the companies were separately registered. There were also two VAT registrations, one for each company and two sets of accounts. The documentation plainly was premised on the basis that there were two separate businesses being run by two separate companies. The Tribunal noted that there were various combined board meetings of the two companies, although Fencourt also had its own separately quarterly meetings. In effect, McCorquodale were controlling Fencourt’s activities.
Following the takeover, the sales representative of Fencourt moved to McCorquodale. That company began to handle the sales function for Fencourt. Other staff remained carrying out their functions in West Sussex, however. The evidence before the Tribunal was that at the date of administration- that is the date when Fencourt went into administration- some 50% of its work was being carried on for McCorquodale. In addition, work was transferred from McCorquodale to Fencourt. This was partly to make Fencourt appear a more attractive purchasing opportunity for potential buyers.
Both companies went into administration in 2005. There is a separate administration for each.
The issue and the ET’s approach to it
The question under TUPE is whether the business in which the claimant is employed has been transferred from one owner to another. That question is attended by some legal issues. For instance, it is well established, and accepted on all sides in this case, that a change in the legal control of the original corporate employer, such as occurs on a share sale of the kind that took place in this case, does not of itself transfer the business in TUPE terms. That was decided by the EAT in Brookes v Borough Care Services [1998] ICR 1198, a decision the correctness of which was not in issue before us. It is also well established that the mere fact that two companies are part of the same group, or that one company is the parent of another, does not of itself mean that the one company controls the business of the other. That is inherent in the decision of the Court of Justice in Case C-234/98 [1999] ECR I-8643 (Allen). However, those rules as to what does not constitute a transfer under the TUPE Regulations are merely reminders that the question is whether as a matter of fact the business in which the claimant is employed has been transferred from one company to another.
The ET so understood its task, having directed itself in the light of Brookes and Allen and duly reviewed the facts given in evidence before it. It concluded in its §5.9:
we are not satisfied that the Claimant remained an employee of Fencourt Ltd, discrete from McCorquodale, after McCorquodale’s acquisition in 1999. The Share Sale Agreement gave the superficial impression that no TUPE transfer had occurred. The buyer of the shares did far more than a simple shareholder would have done following a simple sale, or in our experience, a parent company of a subsidiary would have done in similar circumstances. In particular, McCorquodale’s handling of a significant element of the management of Fencourt set its actions apart from those of a mere shareholder. It made key decisions in relation to Fencourt’s workload, it attempted to bring about contractual changes and it ultimately made the decision to put Fencourt into Administration. In all those circumstances, we are satisfied that on 2 November 1999 there was a TUPE transfer of Fencourt Ltd to McCorquodale.
The Grounds of Appeal to the EAT from that finding did not allege any misunderstanding or misstatement of the basic facts, nor any perversity in assessing them. Instead, the nub of the complaint was as set out in paragraph 4 of the Grounds:
It is submitted that the law as stated in Brookes does not provide for the piercing of the corporate veil in the way that tribunal did to provide its own interpretation of documents when the overriding transaction was that TUPE did not apply due to ownership being by way of a share transfer.
The decision of the EAT
The EAT adopted that criticism in terms of a legal error with regard to the piercing of the corporate veil. It said, in its §20:
In our judgment this appeal must succeed. As a matter of law the businesses were located in separate companies and it is common ground that this was not affected by the sale of shares themselves. There was no evidence of any transfer of assets or staff (save for the single sales employee) to the parent company. The crucial evidence relied upon by the Tribunal was that McCorquodale purported to run the two businesses in a closely interlinked way. In our view the effect of the Tribunal’s decision is to pierce the corporate veil: in other words, it looked behind the legal form and concluded that the real business was not in the hands of the legal entity in whose name it was ostensibly run, namely Fencourt, but was to be found in the hands of the holding company, McCorquodale, which in practice directed its affairs.
And the EAT went on, in its §§ 21-24, to explain the very limited circumstances in which it was permissible to pierce the corporate veil, none of which arose in the present case.
In my view, the EAT was led by the appellants’ formulation of the issue in terms of piercing the corporate veil to misdirect itself. An issue of piercing the corporate veil only arises when it is established that activity x is carried on by company A, but for policy reasons it is sought to show that in reality the activity is the responsibility of the owner of company A, company B. That is why the EAT said at its §24, with respect rightly, that to pierce the veil it must generally be shown that the subsidiary company is a sham or façade. But as my brother Moses pointed out in the course of argument, one only reaches that stage when it is established that activity x is indeed being carried on by company A. And that is what is said in the authority relied on by the EAT, Gower and Davies Principles of Modern Company Law (7th edition), p181, which speaks of judicial efforts to lift the veil and render shareholders personally liable for what the company does. But in our case the ET did not find that the activity was being carried on by Fencourt, and then pierce the veil to attribute that activity as a matter of law to McCorquodale. What it found was that as a matter of fact the activity was being carried on by McCorquodale, not by Fencourt. No judicial effort was required to render McCorquodale liable for what was done by Fencourt because the ET found that it was McCorquodale, not Fencourt, that was performing the activity in the first place.
That concentration on the issue of corporate structure led the EAT not to give proper weight and respect to the findings of the ET. Mr Pitt-Payne, sensing difficulties in his way in the actual reason for its decision given by the EAT, in terms of there having been an error of law relating to the company structure, resourcefully argued that what the EAT had actually decided was that the facts as found by the ET could not in law justify the conclusion that there had been a TUPE transfer. True it is that the EAT in its §§ 25-26 criticised the weight that the ET had placed on certain elements, such as the integration of the business of Fencourt into McCorquodale, and pointed out that there was lacking in this case what the EAT would have expected to see in a TUPE transfer, evidence of employees or assets being transferred to McCorquodale. But it could not be said, and was not said, that any of those factors was a necessary feature either of a TUPE transfer or of something that was not a TUPE transfer. The evidence was such that it could have led the fact-finding body to conclude either that it did, or did not, indicate a TUPE transfer. But to do what Mr Pitt-Payne attributed to it the EAT had to go further and hold that the evidence made it impossible to conclude that a TUPE transfer had taken place. The EAT did not so hold, and would not have been right in so holding. There was therefore no ground on which the EAT could legitimately interfere with the conclusion of the ET.
The EAT at its §27 summed up its view in these terms:
In our judgment the companies were as a matter of law run independently and it is plain that Fencourt retained its own assets and its own employees. The lack of independence, which is typical of a subsidiary, does not demonstrate that the holding company owns the subsidiary’s business. As a matter of law, it is the corporate entity that runs the business and absent any sham, the courts are entitled to look no further.
It is, with respect, correct to say that a subsidiary’s lack of independence does not demonstrate that the holding company owns the business. But that observation, when adopted as crucial to the decision in this case, does not give weight to the fact that the ET found, drawing on its experience, that the arrangements in the present case were not typical, to the extent that the business was that of McCorquodale. And the same has to be said of the observations that as a matter of law Fencourt was independent from McCorquodale; and that that concludes the matter in the absence of proof that Fencourt’s presence was a sham. The legal structure is of course important, but it cannot be conclusive in deciding the issue of whether, within that legal structure, control of the business has been transferred as a matter of fact. That was the conclusion of the ET, and the EAT demonstrated no proper basis for displacing that conclusion.
Disposal
I would allow the appeal, and restore the ET’s finding that on 2 November 1999 there was a TUPE transfer of Fencourt Ltd to McCorquodale.
Lord Justice Wilson:
I agree with both judgments.
Lord Justice Moses:
I agree. The proposition that the transfer of shares in one company to another is not the same as the transfer of the business of the one to the other gives rise to the difficulty apparent in the instant case. Where, following a transfer of shares, a subsidiary is 100% owned by a parent, how can one tell whether the business has been transferred to the parent for the purposes of the TUPE Regulations? It is that, sometimes difficult, question of fact which must be resolved deploying the experience and expertise of the Employment Tribunal.
The mere fact of control, which will follow from the relationship between parent and subsidiary, will not be sufficient to establish the transfer of the business from subsidiary to parent. There will often be little to distinguish between the case of transfer of control on acquisition by a new parent and transfer of the business to a new parent. Faced with such difficulties, the Employment Tribunal, is not entitled to indulge in the industrial equivalent of a Gallic shrug.
In the instant case the Employment Tribunal identified a number of evidential indications, which, in combination, established that control of the business, in the sense of how its day-to-day activities were run, had passed from Fencourt to McCorquodale. In a letter, signed by the Chief Executive of McCorquodale, disseminated to employees of Fencourt shortly before the transfer of shares, Fencourt’s then parent, the Norwich Union, said :
“Norwich Union are,(sic) and always have been, anxious to ensure that Fencourt is sold to a company that will fully integrate the operation into their own. Norwich Union are satisfied that this is MCP’s [ie McCorquodale’s] intention and are happy to endorse MCP as a worthy employer in this field”.
On I6th August 2000, that letter was again sent, by way of an enclosure, to the claimant, accompanying a letter which said :
“In reply to a letter dated 25 July sent on behalf of GPMU members I am writing to confirm continuation of your employment under the TUPE Regulations, as detailed in the letter from Norwich Union prior to the sale…”
That letter contradicted an earlier letter, but it was one to which the Tribunal was entitled to attach significance.
The Tribunal also relied on a number of newsletters, distributed by McCorquodale, which were fruitfully employed by Wilson LJ in cross-examination of counsel for that company and which demonstrated that McCorquodale had taken over the day-to-day management of Fencourt’s business.
The Employment Tribunal was perfectly entitled to rely on that evidence to conclude, with the other factors to which it refers, that there had been a transfer of Fencourt’s business to McCorquodale. No error of law has been disclosed in that approach. I too would allow the appeal and restore the decision of the Tribunal whose obligation was to reach a factual conclusion.