Lassman v Secretary of State for Trade and Industry

A payment from the statutory insolvency fund following the Secretary of State’s decision under section 167 of the Employment Rights Act 1996 is treated as a redundancy payment under section 214(5)(c). In later proceedings, the tribunal asks whether the payment followed that administrative decision. It does not reopen the decision’s correctness or legality by collateral challenge.

The Secretary of State must act in good faith, make reasonable enquiries, and apply the law as reasonably understood when deciding the claim. A later clarification of employment law does not retrospectively invalidate the payment. Where the statutory conditions are met, continuity is broken by renewal or re-engagement under a new contract.

Employees dismissed by Rotaprint plc after its insolvency received redundancy payments from the Secretary of State and were then employed by Pan Graphics Industries Ltd. When Pan Graphics later became insolvent, they sought further payments calculated by reference to their earlier service.

The Industrial Tribunal held that the earlier payments broke continuity of employment. The Employment Appeal Tribunal reversed that decision, treating the transfer as preserving continuity. The Secretary of State appealed, raising whether the earlier payments were valid payments under the statutory insolvency scheme and whether they could be challenged after the law on transfers of undertakings had later developed.

Appeal allowed unanimously. Lord Justice Beldam delivered the leading judgment. Lord Justice Chadwick agreed on the statutory construction, and Lord Justice Robert Walker agreed in the result.

1. Section 167 of the Employment Rights Act 1996 entrusted the payment decision to the Secretary of State’s administrative satisfaction. The decision was not wholly objective. The Secretary of State had to make reasonable enquiries, consider the facts, and apply the law as it was understood when the decision was made, acting in good faith and on a view which he could reasonably entertain.
2. The Secretary of State’s 1988 view was reasonable in light of Secretary of State for Employment v Spence [1987] QB 179. The later decision in Litster v Forth Dry Dock & Engineering Co. Ltd [1990] 1 AC 546 did not retrospectively render the earlier payment unauthorised. The Secretary of State was not required to anticipate future developments in employment law.
3. Under section 214(5)(c), a payment made from the National Insurance Fund following a decision that the requirements of section 167(2) were met was a payment under section 167. In subsequent proceedings, the tribunal’s task was to establish that the payment followed that decision, not to investigate whether the Secretary of State had been entitled to reach it or to conduct a collateral review of its legality.
4. Once the payment was treated as made, section 214(2) operated where the employment contract was renewed or the employee was re-engaged under a new contract. The respondents’ service with Rotaprint and Pan Graphics was therefore not continuous for the later redundancy calculation.

Lord Justice Robert Walker added that a collateral challenge many years later would be particularly extraordinary where the Secretary of State depended on information supplied by others. He also observed, without it being necessary to the decision, that the authorities on collateral challenges should be considered in light of Boddington v British Transport Police [1999] 2 AC 143. There was no order as to costs.

1. Court of Appeal: Allowed the Secretary of State’s appeal and made no order as to costs.
2. Employment Appeal Tribunal (27 November 1998): Allowed the employees’ appeals and held that the earlier payments had not broken continuity of employment.
3. Industrial Tribunal (13 March 1997): Held that the earlier redundancy payments broke continuity and that no further payment was due.