British Fuels Ltd v. Baxendale and Another; Wilson and Others v. St Helens Borough Council

The House of Lords considered the effect of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (the Regulations) enacted to give effect to the Acquired Rights Directive (77/187/EEC). The court held that a dismissal in connection with a transfer is effective under domestic law (not a nullity) but is capable of being treated as unfair for the purposes of domestic unfair dismissal legislation under Regulation 8 if the transfer or a reason connected with it is the reason or principal reason for dismissal. Regulation 5 makes the transferee liable for the transferor's contractual and statutory obligations arising from contracts of employment, but that obligation does not create a Community-law right to specific performance of continued employment where national law does not provide such a remedy. Regulation 8(2) allows an employer to rely on an economic, technical or organisational ("eto") reason entailing changes in the workforce as a defence to unfair dismissal. Regulation 12 prohibits contracting out of Regulations 5, 8 or 10. Applying those principles, the House allowed British Fuels Ltd's appeal in the Baxendale and Meade cases and dismissed the appeal of Mr Wilson and others, because on the facts the changes in Wilson were justified by eto reasons entailing changes in the workforce, whereas in the British Fuels cases the dismissals had legal effect and the employees could not require specific continuance of employment by the transferee.

Background and parties:

• Baxendale and Meade: employees of National Fuels Distributors Ltd (N.F.D.), subsidiaries of British Coal Corporation, whose undertakings were merged into British Fuels Ltd (B.F.L.). N.F.D. gave notices of redundancy effective 28 August 1992; B.F.L. offered re-employment on less favourable terms effective 1 September 1992. The employees accepted and later sought to assert continuity of the prior terms under the Regulations and the Directive.
• Wilson and others: employees of Lancashire County Council (L.C.C.) at a residential home transferred to St. Helens Borough Council on 1 October 1992 with reorganisational changes and revised terms; staff were given the option to transfer or remain with L.C.C., some accepted St. Helens' offers and later claimed unlawful deductions alleging their earlier terms should have continued.

Procedural history: In both sets of cases there were findings at Industrial Tribunal and Employment Appeal Tribunal levels; the Court of Appeal gave differing outcomes (in Baxendale/Meade in favour of the employees; in Wilson the Court of Appeal allowed the employers). The matters came to the House of Lords on appeal.

Nature of relief sought: Declarations and remedies that employees remained employed on their original terms with the transferee (or, alternatively, that variations imposed were ineffective); claims for unlawful deductions, redundancy payments, and unfair dismissal remedies.

Issues framed:

• Whether a dismissal connected with a transfer is a nullity so that employment continues automatically with the transferee;
• If not a nullity, whether the employee may nonetheless enforce against the transferee the same rights and remedies available against the transferor;
• Whether employees can validly vary or affirm changed terms imposed at or after the transfer, and the effect of Regulation 12's prohibition on contracting out;
• Whether Regulation 5, Regulation 8 (including the eto defence in Regulation 8(2)) and the Directive require a national court to treat a dismissal as ineffective and compel continued employment by the transferee.

Court's reasoning and conclusions: The House analysed the Regulations alongside ECJ jurisprudence on Articles 3 and 4 of the Directive. It concluded that the Directive and the Regulations safeguard employees by ensuring the transferee becomes liable for the transferor's rights and obligations, and by protecting employees from dismissal justified solely by the transfer. However, those instruments do not create a Community-law right to specific performance of continued employment where national law does not provide such a remedy. English law treats dismissal as effectively terminating the working relationship, leaving contractual and statutory remedies (damages, unfair dismissal compensation, reinstatement/re-engagement where available) against the transferor or transferee. Regulation 8(2) permits an eto defence where dismissals are for economic, technical or organisational reasons entailing changes in the workforce. On the facts, the House allowed British Fuels' appeal in Baxendale and Meade (their dismissals were effective and employees had accepted alternative arrangements so no enforceable right to continued work on previous terms) and dismissed the appeals in Wilson (the variations were attributable to eto reasons entailing workforce change and validly made or affirmed).

The appeals were decided as follows: the appeals of British Fuels Ltd in the cases of Baxendale and Meade were allowed; the appeal of Wilson and others against St. Helens Borough Council was dismissed. Rationale: the Regulations, read in light of the Directive and ECJ authorities, make the transferee liable for the transferor's contractual and statutory obligations but do not render dismissals automatically a nullity nor create a Community-law right to specific performance requiring a transferee to continue to employ a dismissed worker where national law provides no such remedy. Dismissals connected to a transfer are effective but may be treated as unfair under Regulation 8 unless an eto reason entailing changes in the workforce applies. On the facts, the Baxendale/Meade dismissals were effective and the employees accepted new terms, whereas in Wilson the changes were justified by eto reasons entailing workforce change and thus the transferee was not held liable for unpaid differences.

Claims began at Industrial Tribunals (mixed findings), proceeded to the Employment Appeal Tribunal and then to the Court of Appeal (which gave differing outcomes: in Baxendale/Meade the Court of Appeal allowed the employees; in Wilson the Court of Appeal allowed the respondent employer). The matters were then heard by the House of Lords which allowed British Fuels' appeal and dismissed the Wilson appellants' appeal. (See [1998] UKHL 37.)