Appeal No.	 EAT/34/00

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 15 March 2001
Judgment delivered on 3 September 2001

Before
MR RECORDER BURKE QC
MR D A C LAMBERT
MRS D M PALMER

MR G THOMPSON	APPELLANT

(1) SCS CONSULTING LIMITED	RESPONDENTS
(2) LAVA SYSTEMS (EUROPE) LIMITED
(3) OPEN TEXT (UK) LIMITED

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants

	MR P NICHOLLS
(of Counsel)
Instructed By:
Messrs Read Hind Stewart
Solicitors
Trafalgar House
29 Park Place
Leeds
LS1 2SP	
For the First and Second Respondents

For the Third Respondent	NO APPEARANCE OR
REPRESENTATION
BY OR ON BEHALF OF
THE FIRST AND SECOND RESPONDENTS

MR B CARR
(of Counsel)
Instructed By:
Messrs Lovell White Durrant
Solicitors
65 Holborn Viaduct
London
EC1A 2DY

MR RECORDER BURKE QC:

1	The Appellant, Mr. Thompson, appeals against the decision of the Employment Appeal Tribunal at Leeds, chaired by Mr. Fletcher, and promulgated with extended reasons on 13th October 1999 that his complaints against the Third Respondents, Open Text (UK) Limited, be dismissed.  The appeal raises important and interesting points as to the construction and application of the Transfer of Undertakings (Protection of Employment) Regulations 1981, familiarly described by the acronym “TUPE”.

The History

2	The relevant facts as found by the tribunal can be briefly set out. Mr.Thompson was employed as a Sales Executive, originally by the First Respondent and subsequently by the Second Respondent.  He was first so employed in 1984 and latterly was employed on the terms of a service agreement dated 1st August 1997.    The First and Second Respondents are or were wholly owned subsidiaries of a Canadian software company, Lava Systems Inc. (“Lava”).  The Third Respondents are, in turn, a wholly owned subsidiary of another Canadian software company, Open Text Corporation.  We shall refer in this judgment to Open Text Corporation as “Open Text” and to the Third Respondents as “Open Text UK”.

3	Towards the end of 1998 the First and Second Respondents and their Canadian parent were in serious financial difficulties.  On 21st December Receivers were appointed to Lava in Canada; by that time Open Text had decided, if possible, to acquire the business of Lava in Canada and in the United Kingdom; and a Purchase and Sale Agreement between the Canadian Receivers of Lava and Open Text, which provided that Open Text or an affiliate should enter into such an agreement with a Receiver of the First and Second Respondents to purchase their assets for $1.9 million, was agreed.  On 23rd December the agreement was approved by the Ontario Court (General Division).

4	On the same day 23rd December, Mr. Czasnicki, who was Vice President of Finance and Administration of Open Text UK, met Mr. Souster of Baker Tilly, Receivers designate of the First and Second Respondents, in order to agree how to put into effect in the UK the relevant provisions of the Canadian agreement and to draw up a UK agreement for the sale of the First and Second Respondents’ business.  The price of the business was fixed by the Canadian agreement.  Mr. Souster’s position was that, if he were to be appointed immediately as Receiver, because of the lack of success of and funds in the business, he would for familiar reasons have forthwith to dismiss all the employees, Mr. Czasnicki argued against this course both because he did not want to see the employees of the business all dismissed just before Christmas and because he did not want to lose employees who could be vital to the maintenance of a viable business.

5	Accordingly those concerned, presumably including the creditors or other body who had put the Receivers in, agreed to delay the Receivers’ appointment until 29th December and that, by that date, Open Text UK would identify which employees it wished to retain for the future operation of the business.  Those whom Open Text UK did not wish to retain would be dismissed by the Receiver on that date before and as a pre-condition to Open Text Limited’s entering into the UK sale and purchase agreement.  Para. 10 of that agreement provided that :

“the receivers have either served notice of dismissal on the dismissed employees or delivered notice of dismissal to the last known home addresses ... of the dismissed employees at the request of the purchaser as a precondition to the purchaser entering into this agreement on the grounds that they are not required for the operation of the business and that it would not be economically viable for the business to continue if the dismissed employees remained in the employ of the vendors”.
6	In contrast, para. 19.2 of the UK agreement provided that :

“the parties believe that” (TUPE) “will apply to the remaining employees and the purchaser shall take over all of the vendors’ liabilities to the remaining employees”.
7	By 29th December Open Text UK identified those employees of the First and Second Respondents whom they wished to remain in the business.   They did not include Mr. Thompson; his name, together with those of another 24 employees who were not to remain in the business, appeared in Schedule 4 of the agreement as a dismissed employee; they were all dismissed by the Receivers with effect from 11.30 a.m. on 29th December.  The transfer of the business from the First and Second Respondents to Open Text UK, which was admittedly a transfer to which TUPE applied, was completed and took effect 11 hours later, at 10.30 pm on the same day.  Thus a number of employees transferred across from the employment of the First and Second Respondents to the employment of Open Text UK; but that number did not include Mr. Thompson.

8	Mr. Thompson claimed before the Employment Tribunal that he had been unfairly dismissed for a reason connected with the transfer to Open Text UK of the undertakings of the First and Second Respondents and that, pursuant to TUPE, Open Text UK were liable to him in respect of his unfair dismissal.  He claimed that there has been no consultation with him prior to the transfer and that he was entitled to a protective award pursuant to regulation 10 of TUPE.  He further claimed that Open Text UK were liable in respect of claims made under his contract of employment.  Open Text UK resisted on the grounds :
	
	(i) 	that Mr. Thompson had been dismissed on 29th December by the Receivers of the First and Second Respondents before the completion of the UK sale and purchase agreement and was therefore not employed by the First or Second Respondents “immediately before the transfer” as required by regulation 5(3) of TUPE; accordingly no liability passed under TUPE to Open Text UK.
	
	(ii) 	Mr. Thompson was not dismissed for a reason connected with the transfer but because the business of the First and Second Respondents was not viable and redundancies were inevitable regardless of the transfer.
	
	(iii) 	alternatively that Mr. Thompson was dismissed for an economic, technical or organizational reason (“an ETO reason”) entailing changes in the workforce and was fairly dismissed for such reason.

9	There were other points taken in Open Text UK’s Notice of Appearance; it is not for present purposes necessary to refer to them.

The Tribunal’s Decision

10	The tribunal specifically asked itself what was the reason for the dismissal of Mr. Thompson; it concluded that he was dismissed for an ETO reason within regulation 8(2) of TUPE and that, by reason of the application of regulation 8(2), he was not to be treated as automatically unfairly dismissed within regulation 8(1) of TUPE.  It found that the business of the First and Second Respondent was over-staffed, inefficient in terms of sales and insolvent and that it could only be made viable for the future and continue as a going concern if the workforce was reduced in size.  See paras. 4.2.1 to 4.2.4 of the tribunal’s extended reasons.

11	Having so concluded, the tribunal then considered the effect of those findings; it decided that because Mr. Thompson was dismissed for an ETO reason the purposive construction given to the words “employed immediately before the transfer” by the House of Lords in Litster v. Forth Dry Dock and Engineering Co. Ltd. (1990 1 AC 548) did not apply and that, absent such construction, Mr. Thompson had not been employed by the vendors immediately before the transfer of their business to Open Text UK, having been dismissed 11 hours earlier. Therefore, the tribunal concluded, regulation 5 of TUPE did not operate to transfer any rights or liabilities under or in connection with Mr. Thompson’s contract of employment to Open Text UK (see paras. 4.3.1-4.3.5 of the extended reasons).

12	On the basis of those conclusions the tribunal held that there could be no liability upon Open Text UK in respect of any of Mr. Thompson’s claims and his claims against Open Text UK were dismissed.  It went on to hold that Mr. Thompson’s dismissal was procedurally unfair but that any procedural unfairness had caused him no loss: it held that there had been a failure to comply with the consultation requirements of regulation 10 of TUPE and that the dismissal was in breach of contract; but those findings, of course, did not affect the position of Open Text UK for the reasons summarized above.

13	No doubt because success against the First and Second Respondents, who were neither present nor represented at the hearing before the tribunal (although Mr. Souster of the Receivers gave evidence) has not proved or is unlikely to prove worthwhile.  Mr. Thompson has appealed to the Employment Appeal Tribunal against the dismissal of his claims against Open Text UK.   His appeal has been argued under two separate heads.  Firstly it is submitted by Mr. Nicholls on his behalf that the tribunal ought not to have held that Mr. Thompson’s dismissal was for an ETO reason and ought to have held that the reason or the principal reason for his dismissal was the transfer; and, if the transfer was the reason or principal reason for the dismissal, then (a) the dismissal was automatically unfair pursuant to regulation 8(1) of TUPE and (b) liability for the dismissal fell upon Open Text UK  pursuant to regulation 5(3) of TUPE, as construed in Litster.  Alternatively it is submitted that even if the tribunal’s decision that the dismissal was for an ETO reason stands, nevertheless liability for the dismissal for that reason fell upon Open Text UK as transferee of the business of the First and Second Respondents.

ETO Reason

14	Mr. Nicholls’ submissions on this part of the appeal can be summarized as follows:-

	(1) 	(i)  	Mr. Thompson was dismissed at the behest of Open Text UK and as a precondition to the sale of the business.  The reason or principal reason for such a dismissal must have been the transfer.

(ii) 	Such a dismissal cannot be a dismissal for or principally for an ETO reason; the only type of ETO reason in issue in this case is an “economic” reason, but, on authority, an economic reason must relate to the future conduct of the business; it is not sufficient that the dismissal is intended to secure a sale of the business or to enhance the price of the business as in the present case.

(iii) 	These propositions are supported by policy; if a transferee imposes a pre-condition upon a sale of the business that the transferor should dismiss employees, the purpose of TUPE to protect employees in the event of a transfer would seriously fail if in such a case the provisions of TUPE which establish that a dismissal by reason of a transfer is automatically unfair were to be defeated by the supposed existence of an ETO reason.
		
		(iv) 	They are further supported by recognition that where the transferor, and not the transferee dismisses the relevant employee(s) the reason for dismissal must be that of the transferor and not that of the transferee; the transferor in this case did not dismiss for any economic reason related to the future conduct of the business but by reason of the transfer.

(2) 	There is an inconsistency within the authorities as to whether the party dismissing can do so both by reason of the transfer within regulation 8(1) of TUPE and for an ETO reason within regulation 8(2) of TUPE or whether regulations 8(1) and 8(2) are mutually exclusive. The latter view was the correct view; if the correct analysis of the facts of this case was that the reason or principal reason for the dismissal of Mr. Thompson was the transfer, then there could not be an ETO reason.
	
	(3) 	If the reason for the dismissal fell within regulation 8(1) and not within regulation 8(2), then the effect of the House of Lords’ decision in Litster is that Mr. Thompson must be treated as still employed immediately before the transfer; the dismissal would be automatically unfair; and the liability in respect of that dismissal would fall on Open Text UK.

15	On behalf of Open Text UK Mr. Carr submitted, in summary :
	1. 	(i) 	The tribunal’s finding of an ETO reason was a finding of fact; and there was evidence supporting that finding.  In particular he relied on the tribunal’s express findings that Mr. Thompson would have been dismissed, as would all the other employees, if there had been no sale of the business and that reduction of the size of the workforce was the only way in which the business could continue as a going concern.

(ii) 	The was not a case of collusion between transferor and transferee to evade the effect of TUPE, as was the case in Litster; in this case the effect of the agreement was to save some employees from dismissal by the Receivers which would otherwise have been inevitable.

(iii) 	The tribunal had specifically directed itself that an ETO reason had to be connected with the future conduct of the business as a going concern, had in the context asked itself the correct question and had reached an answer open to it on the facts.
	
	2 & 3.	While the authorities had not all adopted an identical approach to a case in which might fall within regulation 8(1) or regulation 8(2) of TUPE, in this case any difference of approach was irrelevant; it was plain on the tribunal’s finding of fact, and an authority that the Litster principle could not apply as it would have done if the tribunal had not found an ETO reason and had found that the dismissal fell within regulation 8(1).

The Authorities

16	We were referred to a substantial number of authorities.

17	In Secretary of State for Employment v. Spence [1986 ICR 651) the employers went into receivership on 16th November 1983; it was anticipated that, provided no major contracts were lost, there would be sufficient work for the majority of the workforce until February 1984; but a major customer threatened to withdraw if the business were not sold by 24th November; in the absence of such a sale, trading ceased on 25th November and the workforce, including the applicants, was dismissed at 11 a.m. on 28th November.  At 2 p.m. on the same day the business was sold to a purchaser who had received an assurance of work from the major customer and who re-engaged the workforce.  The applicants claimed redundancy payments against their original employers; in the absence of funds in the employers, the Secretary of State, under the then existing statutory provisions, would have been liable for any outstanding redundancy payments due from the employers; it was therefore contended on his behalf that there had been a transfer within TUPE of the business in which the applicants had been employed to the purchasers, that the applicants had been employed by the employers immediately before the transfer, and that their employment was transferred to the purchasers and had not been terminated  and, therefore, that no liability fell upon the employers or the Secretary of State.

18	The tribunal’s conclusion that the applicants had not been employed immediately before a transfer, if there was one, was upheld by the EAT and the Court of Appeal.  In the Court of Appeal Balcombe LJ, with whom Stephen Brown LJ and Mustill LJ agreed, said at p.663 :

“... it is clear that the applicants were dismissed before the relevant transfer.  Their contracts of employment were not existing at the moment of the transfer.  There was nothing on which Regulation 5 could bite and accordingly the Secretary of State is liable for redundancy payments.”

It should be noted that in Spence there was no argument as to the existence or otherwise of an ETO reason (presumably because no issue as to unfair dismissal arose) and, therefore no argument as to the interrelationship between a dismissal for such a reason and a dismissal for which a TUPE transfer is the reason or a principal reason.

19	In Wheeler v. Patel (1987 ICR 631) the applicant was employed as a sales assistant by Mr. Golding in his retail shop; Mr. Golding agreed to sell his business to Mr. Patel on 20th January 1986; he dismissed the applicant with effect from 12th January.  The applicant claimed unfair dismissal against Mr. Patel as transferee and Mr. Golding as transferor; the tribunal concluded firstly that she was not employed by Mr. Golding immediately before the transfer and that therefore Mr. Patel could not be liable; and it concluded, secondly, that she had been dismissed for that reason.  The EAT, presided over by Scott J (as he then was), upheld the first conclusion.  As to the second conclusion, it expressed the issue which arose as to the second conclusion that, at p.638A :

“There is no doubt that the transfer of the business from Mr. Golding to Mr. Patel was the reason or was connected with the reason for the employee’s dismissal.  So the case prima facie falls within regulation 8(1) .....  The question for decision then is whether this case falls within regulation 8(2).  If it does not, then by reason of para.(1) the dismissal must be held to be unfair. If the case does come within paragraph (2), paragraph (1) does not apply, and the further question will then arise whether the circumstances surrounding the dismissal render it ... an unfair dismissal.”
20	There was virtually no evidence before the tribunal in Wheeler as to the reasons for the dismissal of the applicant beyond the wishes of Mr. Patel either to take none or to take only some of Mr. Golding’s employees; and, in that context the EAT held that the word “economic” within the phrase “economic, technical or organizational reason” should be given a restricted meaning such that it did not apply merely because a reduction of the workforce would secure a sale of or an enhanced price for the business.  It said, at p.640B :

“The economic reasons apt to bring a case within paragraph (2) must, in our view, be reasons which relate to the conduct of the business.”
Because on the evidence the only reason for the dismissal was Mr. Golding’s desire to sell the business no ETO reason had been established; the case fell within regulation 8(1); the appeal succeeded against Mr. Golding.

21	It is important, in our view, to note 2 points when considering the effect of Wheeler on the present case.  The first is that in Wheeler there was no suggestion that, absent the sale, any of Mr. Golding’s staff would have been dismissed or that Mr. Golding’s business was in financial difficulties; the facts of Wheeler were very different from those of the present case.  The second point is that the tribunal in the present case expressly referred to Wheeler and proceeded on the basis of the restricted meaning of “economic” which it established (as modified slightly by the subsequent decision in Whitehouse; see para. 26 of this judgment), viz :-
“The words “economic, technical or organizational reason entailing changes in the workforce mean that the reason must be connected with the future conduct of the business as a going concern” (para. 4.2.3)
22	In Michael Peters Ltd. v. Farnfield (1995 IRLR 191) the appellants were the transferees of the business of 4 companies within a larger group; the employee, who was employed by the group holding company, was chief executive of the group and all the group companies but was made redundant at a time when the group’s receivers were dealing with a number of potential transferees of the group or companies within the group; a sale of the business of the 4 group companies was concluded 3 days later.  The tribunal upheld the employee’s unfair dismissal claim on the basis that the group was his employer, that there had been a TUPE transfer of a single economic unit to the transferees, and that the employee had been dismissed by reason of that transfer.  The tribunal found that there was no ETO reason because there was no evidence that satisfied them that the dismissal was related to the conduct of the business and the dismissal came about in order to achieve the transfer that took place and for that reason and no other.  It found that the employee had been dismissed because in order to achieve the sale it was deemed necessary to reduce the number of staff employed by the group.  The EAT, presided over by Tucker J, allowed the transferee’s appeal on the grounds that the employee was not part of the undertaking transferred and that he was not employed by the transferor.  Thus, although he had been found to have been dismissed by reason of the transfer, the transferees were not liable for his dismissal.  The EAT rejected the appeal against the tribunal’s finding as to the absence of an ETO reason.

23	Mr. Nicholls submitted that this decision constituted a precise parallel to the present case; in our view it does not.  A major difference between the two is the fact, as found by the tribunal in the present case, that the Receiver had no funds and would,  absent the transfer, have dismissed the entire workforce including Mr. Thompson. We do not regard Michael Peters Ltd. as adding to the principle established by Wheeler; so far as the decision refers, briefly, to the ETO reason issue, it does so on the basis of application to the facts of the principle established in Wheeler.   As in the present case, it was for the tribunal to apply the appropriate principle to the primary facts.

24	It is, next, necessary to refer briefly to Litster v. Forth Dry Dock Co. Ltd. (reference above) in which the insolvent transferor’s receivers dismissed the workforce without notice, by arrangement with the transferee, one hour before the transfer took place.  The transferee then engaged a new workforce to continue the transferor’s business.   No question of an ETO reason arose on the facts.  As is of course well known to all employment lawyers their Lordships held that the words “employed immediately before the transfer” in regulation 5(3) of TUPE had, in such circumstances, to be given a purposive construction so as to accord with decisions of the European Court of Justice and should therefore be construed as if they were “employed immediately before the transfer or would have been so employed if he had not been unfairly dismissed in the circumstances described by regulation 8(1)”; otherwise by collusion, in a case in which there might be no ghost of an ETO reason, a transferee and transferor acting in concert would have been able to avoid the purpose and intended effect of TUPE and the Council Directive (72/187/EEC) which TUPE was intended to implement in the United Kingdom.  However, it is important, in our judgment, that Lord Oliver of Aylmerton, with whom Lord Keith of Kinkel, Lord Brandon of Oakbrook and Lord Jauncey of Tullichettle agreed, at p.371G to 372C expressly did not disapprove the reasoning of the Court of Appeal in Spence and distinguished it by drawing attention, at p.370A, to the important findings in Spence that there was no collusion between transferor and transferee and that the reason why the receivers decided to dismiss the workforce was that there was no prospect of any work for the business until a contract could be re-negotiated with the principal customer.  Lord Oliver appears to have considered that on the facts of Spence the extended construction of regulation 5(3) would not or might not apply.

25	It is also important that the House of Lords in Litster expressly limited the application of its purposive construction to cases falling within regulation 8(1); it made no suggestion that it should apply to cases where the transferor dismissed for an ETO reason falling within regulation 8(2) and not by reason of the transfer.

26	In Whitehouse v. Chas. A. Blatchford (1999 IRLR 492) the employee was employed as a technician by a company which held a contract to provide prosthetic appliances to a hospital; when the contract came up for renewal the company’s bid failed; the contract was granted to the respondents on condition that they reduced the number of technicians from 13 to 12.  After taking over the contract the respondents carried out a fair redundancy selection exercise at the end of which it was decided that the employee was to be dismissed.  The employee claimed (inter alia) that he had been automatically unfairly dismissed by reason of the transfer; the tribunal found that he had been fairly dismissed for an ETO reason.  His appeals to the EAT and, thence, to the Court of Appeal failed.  In the Court of Appeal Beldam LJ, at para. 20, said :

“It seems to me that the words “economic technical or organizational reason entailing changes in the workforce clearly support the conclusion that the reason must be connected with the future conduct of the business as a going concern”

	and at para. 21 :

“I do not find it surprising that the Vice Chancellor’s restriction” (in Wheeler) “on the scope of the word “economic” in the manner he suggested has subsequently been followed in other similar cases.  Nor do I think it necessary to add to them, for they are merely examples, which do not, in my view, add to the relevant principles.”

27	At para. 2.5 Beldam  LJ said :

“I would approach the decision in the present case by accepting that, if an employee is dismissed solely by reason of a transfer, he must be taken to be unfairly dismissed.  But, if, in addition, there is an (ETO) reason, the tribunal of fact has to determine whether that is the principal reason within the meaning of regulation 8(2).  I do not think it is helpful to try to circumscribe precisely all the varied circumstances which can amount to (ETO) reasons.  Furthermore citation of the circumstances of other decided cases may serve only to illustrate that in those instances, on the facts found by the tribunal, it was open to it to hold that the reason or the principal reason was an (ETO) reason.”

and, at para. 26 :

“In my view Mr. Linden is correct in submitting that there was here evidence on which the tribunal could conclude that the reason for dismissal was an (ETO) reason”.
28	He went on to reject the employee’s argument that the facts pointed only to a dismissal to secure the transfer of the business.

29	Buxton LJ at para. 46 agreed that, applying the Wheeler test, the reduction in the number of technicians plainly related to the conduct, i.e. the future conduct, of the business.  Parker J, as he then was, agreed with both judgments.

30	Next, so far as this part of the argument is concerned, we should refer to Honeycombe 78 Ltd. v. Cummins (EAT/100/99), an unreported decision of the EAT presided over by HHJ Clark.  The employees were employed by Hobbs Welch Limited which found itself in financial difficulties.  An administration order was made; on the next day one of the administrators caused trading to cease and dismissed the workforce forthwith because, as the tribunal found, the company could no longer pay them.  At the time the directors of the company were offering to fund payments to staff and were proposing to purchase the business; they offered to employ all the staff when their new company bought the business from the administrators and did so 2 weeks later save for the 4 applicants who did not become employed by the new company.  The tribunal decided that the applicants had been dismissed by reason  of the transfer and that the new company was liable to them as transferee.  After reviewing authorities such as Spence, Litster, Michael Peters Ltd. and others, the EAT held that the tribunal had erred in failing to consider whether the reason or principal reason for the dismissal, in the absence of collusion, was an ETO reason “thus negativing a transfer related reason under regulation 8(1).  The EAT concluded at para. 47 :

“that provided that the transferee can show that the transferor’s reason or principal reason for dismissing the employees prior to the transfer was an ETO reason, then the transfer-related reason envisaged in regulation 8(1) is displaced even if the regulation 8(2) ETO dismissal could be held to be unfair ...”

and at para. 50 :

“On the primary facts as found the Employment Tribunal was bound to conclude that Mr. Hall’s principal reason for dismissal was economic.”
31	This decision, with which we respectfully agree, appears to us to synthesize the effect of the preceding authorities as to the interrelationship between regulations 8(1) and 8(2).  It is also an example - but no more than that - of the factual conclusion which may be reached as between a regulation 8(1) reason and an ETO reason within regulation 8(2) as the reason or principal reason for the dismissal where an administrator or receiver dismisses employees because he has no funds with which to pay them even though a transferee of the business is at hand and a TUPE transfer is imminent.

32	Finally we were taken by both counsel to Kerry Foods v. Creber (2000 IRLR 11), a decision of the EAT presided over by Morison J, the then President.  This was another case in which the employers’ business found itself in financial difficulties as a result of which receivers were appointed.  Within 3 days they dismissed all non-essential employees and after a week, they dismissed further employees and ceased trading. By this time prospective purchasers were showing interest in the business; and subsequently the appellants purchased the business.  On the employees’ claim that there was a TUPE transfer, that they had been made redundant and unfairly dismissed and that the appellants as transferees were liable, the tribunal held, (insofar as is now material) that there had been a transfer, that the dismissals occurred by reason of the transfer and that liability to the employees had transferred to the appellants; it then found that the dismissals were for an ETO reason but that the dismissals were unfair because the possibility of alternative employment had not been canvassed.

33	The EAT held that, if the principal reason for the dismissals was the transfer, then the Litster principle applied, the dismissals were automatically unfair and the transferees were liable but that if the principal reason for the dismissal was an ETO reason neither regulation 8(1) nor the Litster principle applied.  Applying that principle and holding that the tribunal had found, on evidence upon which it was open to it so to find, that the transfer was the principal reason for the dismissals, the EAT concluded that the issue of fairness never arose; on the basis of the tribunal’s finding as to the reason for the dismissals, they were automatically unfair; see p.12 para. 17.

34	This decision, the most recent on the interrelationship of regulations 8(1) and 8(2) to which we were referred, does not establish any new principle; it illustrates the principles as to that interrelationship derived from the earlier cases and that it is for the tribunal to find as a fact, whether the reason or principle reason for dismissals in such circumstances is one which falls within regulation 8(1) or within regulation 8(2).

35	Before leaving the authorities we must refer, albeit briefly, to Mr. Nicholls’ submission, summarized in para. 14(2) of this judgment, that there was an inconsistency within the authorities as to the approach to be adopted by a tribunal which has to decide whether regulation 8(1) or regulation 8(2) applies in the case before it.  In support of that submission Mr. Nicholls referred us, in addition to Whitehouse and Kerry Foods, to Warner v. Adnet (1998 IRLR 294) in which, perhaps in contrast to the former 2 decisions, the Court of Appeal suggested (per Mummery LJ at paras 24 and 25) that a tribunal in such a case may decide prima facie that the reason for dismissal falls within regulation 8(1) but that it may then decide that the reason or principal reason was an ETO reason so that regulation 8(1) is, as a result, disapplied.

36	In our judgment it is unnecessary in the circumstances of this case to embark on a close examination of the relevant authorities, which might add further to the length of this judgment, to see whether there is truly any inconsistency between them.  We accept the submission of Mr. Carr that the tribunal in this case would have reached the same result whether it had applied what might be described as the mutually exclusive approach or the preliminary but displaceable conclusion approach to the interrelationship between regulation 8(1) and regulation 8(2).  Indeed, it may be difficult to conceive of a set of facts on which (unless some technical point upon the burden of proof has escaped us) the supposed difference of approach could or would make a real difference to the factual conclusions of a tribunal.  Ultimately, in a case in which one party contends that the reason or principal reason for the dismissal was the transfer and regulation 8(1) applies and another party contends that the reason or principal reason for the dismissal was an ETO reason, the tribunal must make a finding of fact as to what the reason or principal reason was, whichever approach is adopted.

Our conclusions as to ETO reason

37	In our judgment the following principles are to be derived from the authorities and which apply for the purposes of this appeal :-

	(1) 	Whether the correct approach to the interrelationship between regulations 8(1) and 8(2) in a case such as this is to consider the facts on the basis of a preliminary conclusion that the reason or principal reason for the dismissal is the transfer which may be displaced by a finding that the reason or principal reason is an ETO reason or on the basis that the two reasons are mutually exclusive, if where an ETO reason is raised, the tribunal concludes that the reason or principal reason for dismissal was such a reason. Regulation 8(2) applies; regulation 8(1) is excluded; and the extended construction of regulation 5(3) in Litster does not apply. If, on the other hand, the tribunal concludes that the reason or principal reason was the transfer, regulation 8(2) does not apply, the Litster principle does or may apply; and the dismissals are automatically unfair.  See Litster, Whitehouse, Honeycombe 78 Ltd. and Kerry Foods.
	
	(2) 	In deciding whether an ETO reason was or was not the reason or principal reason for the dismissal, the tribunal is making a factual decision.  See Whitehouse and Kerry Foods
	
	(3) 	In making that factual decision the tribunal must consider whether the reason was connected with the future conduct of the business as a going concern.  See Wheeler and Whitehouse.
	
	(4) 	The tribunal is entitled to take into account as relevant factual material whether there was any collusion between transferor and transferee and whether  the transferor or those acting on its behalf had any funds to carry on the business or any business at the time of the decision to dismiss.  See Spence, Litster, Honeycombe 78 Ltd.
	
	(5) 	An appellate tribunal should only interfere with such a factual decision if the tribunal erred in law by applying the wrong test, by considering an irrelevant factor, by failing to consider a relevant factor or by reaching a perverse decision.

38	Mr. Nicholls assured us in the course of his submissions that he did not seek to attack or go behind the tribunal’s findings of fact; his argument was that, on the facts as found, the only conclusion which could be reached was that the reason or principal reason for the dismissal was the transfer.  Although he accepted that the conclusion in favour of an ETO reason was one of fact, the thrust of his case - as demonstrated by the Notice of Appeal - was that the tribunal must have applied the wrong test or reached a perverse decision (although he eschewed the word “perverse”).

39	The tribunal in this case expressly directed itself, having referred to Wheeler and Whitehouse and having, at para. 4.2.4 set out the passage from para. 25 of the judgment of Beldam LJ in Whitehouse which we have recited at para. 27 of this judgment, that, if there was to be an ETO reason, the reason must be connected with the future conduct of the business as a going concern.  It did so having, at para. 4.2.1, correctly stated that the issue was whether Mr. Thompson was automatically unfairly dismissed because of the transfer or for a transfer-connected reason contrary to regulation 8(1) or whether the reason or principal reason for his dismissal was an ETO reason in accordance with regulation 8(2).  It manifestly had in mind the sequence of events which it had found to have occurred, including the precondition imposed upon the UK agreement by Open Text UK that those not selected for retention should be dismissed before the transfer; but it does not, in our judgment, follow from these findings, as Mr. Nicholls submitted, that there could not be a finding of an ETO reason and that this could only be a regulation 8(1) case.

40	On the contrary, it was in our judgment open to the tribunal to conclude on the facts, as they did, that the business was overstaffed, inefficient in terms of sales and insolvent and that the only way in which it could be made viable for the future and continued as a going concern was for the workforce to be reduced in size.  The tribunal found as facts that this was not a case of collusion and that left to their own devices the receiver would have dismissed all of the employees.  These findings were not challenged.  On the basis of the primary facts it was for the tribunal to reach a factual conclusion as to whether the reason or principal reason for the dismissal of Mr. Thompson was an ETO reason; it was open to the tribunal to decide that it was; the tribunal applied the right tests and the correct principles; and (if and insofar as there was an implicit suggestion of perversity) we see no basis on which it could be concluded that the tribunal’s conclusion was perverse.

41	For the reasons set out in para. 36 of this judgment we do not regard Mr. Nicholls’ argument as to the differences of approach to the central issue as of relevance in the circumstances of this case; nor have we been persuaded that the tribunal’s decision offends against the policy of the Regulations or the Directive.  It must not be forgotten, in considering this case, that if Open Text UK had not been on the scene all of the employees would have been dismissed.  The precondition, which lay at the heart of Mr. Nicholls’ arguments, enabled some, but only some, of the employees to be saved from the dismissal which, for the reasons found by the tribunal, otherwise awaited them. It did not cause anyone to be dismissed who would not otherwise have been dismissed.  On that view of the facts the dismissal of Mr. Thompson could properly be seen as taking place not in order to secure a sale or to enhance the sale price or at the behest of the transferee but for an ETO reason.

42	Nor, finally, are we persuaded by the argument that the tribunal somehow failed to consider the reasons of the transferee who dismissed rather than the reasons of transferor.  In our judgment the tribunal can be seen to have directed its attention, correctly, to the reasons why the receivers dismissed Mr. Thompson.

If the dismissal was for an ETO reason, did liability pass to Open Text UK

43	Mr. Nicholls’ alternative submission was that, if the tribunal’s conclusion as to the ETO reason stood, nevertheless the liability for dismissal for such reason passed to Open Text UK as transferees of the business of the First and Second Respondents; he submitted that there was no clear authority for or against this proposition and that principle and policy supported it particularly in cases of insolvent transferors because, unless liability was transferred to the transferee in the case of a dismissal for an ETO reason, the employee would have no effective remedy; this was an important and undesirable consequence, especially in a case where the transferee required the dismissal for his own reasons, which was inconsistent with the aims of TUPE and also of the Directive, as set out in its preamble.

44	Our attention was directed by Mr. Nicholls to the decision of the EAT in Cornwall County Care Ltd. v. Brightman (1988 IRLR 238), reached in the period of uncertainty after the decision of the Court of Appeal in Wilson v. St. Helens BC (1998 ICR 387) at a time when it appeared that a dismissal in the context of a transfer might in some circumstances be a nullity, a view dispelled by the subsequent decision in that case of the House of Lords (1999 2 AC 52).  In that context the EAT, presided over by Morison J., said at para. 28 that it might appear that where the dismissal of an employee falls neither within regulation 8(1) nor 8(2) the employment relationship continues so that the transferee would become liable to pay compensation due and that if this were the proper approach TUPE would provide fuller protection and employees and employers would know how they stood.

45	It is, however, clear that these comments were not part of the ratio of the EAT’s decision and were no more than suggestions as to an approach which might alleviate the difficulties seemingly posed by the decision of the Court of Appeal in Wilson.  They were made without any reference to or analysis of any of the authorities to which we have referred earlier in this judgment, with the exception of Litster.  In our judgment, however beneficial it might be if the potential liability for unfair dismissal and any liability for other claims in a case of dismissal for an ETO reason were to fall on the transferee even though the employee was dismissed by the transferor before and was not employed by the transferor immediately before the transfer, the law is to the contrary effect.  It has, in our judgment, been clearly established, in particular by Spence, Litster, Honeycombe 78 Ltd. and Kerry Foods (i) that the Litster principle applies only where the dismissal is for or principally for a regulation 8(1) reason and does not apply where the dismissal is for or principally for an ETO reason within regulation 8(2) and (ii) that in the latter case if the relevant employee has been effectively dismissed by the transferor at such a time that he cannot be said to fall within regulation 5(3) on its ordinary meaning, not its meaning as extended by the Litster principle (and it was not contended this was not such a case), any liability to the employee falls on the transferor and not upon the transferee.

46	Accordingly while paying tribute to the careful yet moderate way in which this part of the appeal was put forward by Mr. Nicholls we are unpersuaded by his argument; the tribunal correctly held that any liability to Mr. Thompson upon his claims was not transferred under TUPE to Open Text UK but lay with the Second Respondents and therefore that the claims against Open Text UK should be dismissed.

Conclusion

47	For the reasons we have set out, this appeal must be dismissed.