Litster v Forth Dry Dock & Engineering Co Ltd

Domestic legislation enacted to implement a Community directive must, so far as reasonably possible, receive a purposive construction consistent with the directive’s wording, purpose and interpretation by the European Court of Justice. Necessary words may be implied where a literal reading would frustrate the manifest purpose of the legislation.

Under the Transfer of Undertakings (Protection of Employment) Regulations 1981, an employee dismissed before a transfer because of the transfer is treated as having remained employed immediately before it. The employee’s contract and associated liabilities therefore pass to the transferee. This protection does not extend to a dismissal for an economic, technical or organisational reason entailing changes in the workforce.

The appellants were employed in a ship-repair business operated by an insolvent company. They were dismissed approximately one hour before the business assets were transferred to a newly formed company, which continued the business using a largely different workforce at lower wages.

The industrial tribunal held that the appellants had been unfairly dismissed and that the transferee was liable. The Employment Appeal Tribunal affirmed that result in [1986] I.R.L.R. 59, subject to reconsideration of compensation. The Second Division of the Court of Session allowed the transferee’s appeal in [1987] I.R.L.R. 289, holding that the appellants had not been employed immediately before the transfer.

The central issue in Litster v Forth Dry Dock & Engineering Co Ltd was whether regulations 5 and 8 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 protected employees dismissed shortly before, and because of, an impending transfer.

1. Appeal allowed unanimously. Lord Oliver of Aylmerton delivered the principal speech. Lord Keith of Kinkel and Lord Templeman gave concurring reasons. Lord Brandon of Oakbrook and Lord Jauncey of Tullichettle agreed with those speeches.

2. Per Lord Oliver, Lord Keith and Lord Templeman, legislation enacted to implement a Community directive must, where reasonably possible, be construed consistently with the directive’s purpose and the interpretation adopted by the European Court of Justice. Following Pickstone v Freemans Plc [1989] AC 66, the court could depart from a strictly literal reading and imply words needed to fulfil the United Kingdom’s Community obligations.

3. Regulation 5(3) of the Transfer of Undertakings (Protection of Employment) Regulations 1981 was therefore to be read as including a person who would have been employed immediately before the transfer but for an unfair dismissal within regulation 8(1). The construction accorded with articles 3 and 4 of Council Directive 77/187/E.E.C. and the ruling in P Bork International A/S v Foreningen af Arbejdslederre i Danmark [1989] I.R.L.R. 41. It prevented a transferor and transferee from defeating employee protection by arranging dismissal shortly before completion.

4. The extended construction applied only where the transfer, or a reason connected with it, was the reason or principal reason for dismissal. A dismissal for an economic, technical or organisational reason entailing changes in the workforce remained outside regulation 8(1). Secretary of State for Employment v Spence [1987] Q.B. 179 was correctly decided on its findings of an economically motivated dismissal and was distinguished. The results in Alphafield Ltd v Barratt and Secretary of State for Employment v Anchor Hotel (Kippford) Ltd were correct on their facts, although their flexible, proximity-based reasoning was rejected.

5. Per Lord Oliver, regulation 3(4) was declaratory, not an exclusive definition of a transfer. The involvement of a third-party landlord in surrendering and regranting the premises did not prevent a relevant transfer. The appellants had been dismissed because of the agreed transfer, and no permissible economic, technical or organisational reason had been established. The Court of Session’s interlocutor was recalled, the Employment Appeal Tribunal’s order restored, and the cause remitted to the Court of Session.

1. House of Lords: Allowed the appeal unanimously, recalled the Second Division’s interlocutor, restored the Employment Appeal Tribunal’s order and remitted the cause to the Court of Session.
2. Second Division of the Court of Session: In [1987] I.R.L.R. 289, allowed the transferee’s appeal and directed that it be dismissed from the industrial tribunal proceedings.
3. Employment Appeal Tribunal: In [1986] I.R.L.R. 59, affirmed the transferee’s liability but remitted assessment of compensation because there was no evidential basis for restricting loss to 26 weeks.
4. Industrial tribunal: Held that the appellants had been unfairly dismissed, found the transferee liable and assessed compensation by reference to 26 weeks’ loss of employment.