Matthews (trading as Anton Motors) v Smith

Where an employer contends that employees took over an undertaking before notices of dismissal expired, the employment tribunal must determine whether, when and how a relevant transfer occurred. It must then apply the Transfer of Undertakings (Protection of Employment) Regulations 1981 to employees who remained employed immediately before that transfer.

A transfer may comprise a series of transactions. If contractual liabilities passed to the transferees, that may affect liability for redundancy and wrongful dismissal payments. A tribunal commits an error of law if it treats the transfer question as unnecessary and consequently leaves a material defence undetermined.

The appellant operated a car body repair business and employed the three respondents. On 14 May 1999 he gave them notice that their employment would end on 28 May because the business was being discontinued. On about 27 or 28 May, the parties agreed that the respondents would occupy the premises and use the equipment. From 2 June they conducted a similar business there as self-employed persons.

The Employment Tribunal awarded redundancy payments and damages for wrongful dismissal. It found that the dismissals were for redundancy but considered it unnecessary to decide whether the undertaking had been transferred. The Employment Appeal Tribunal dismissed the employer's appeal on 23 January 2001.

The central issue before the Court of Appeal was whether the tribunal had erred in law by failing to decide whether, before the dismissals took effect, there had been a relevant transfer engaging regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981.

1. Appeal allowed unanimously. Lord Justice Mummery delivered the leading judgment. Lord Justice Rix and Lord Justice Judge agreed. The Employment Tribunal had committed an error of law by treating the transfer question as unnecessary. The employer's defence could not be determined without findings on whether, when and how the alleged transfer occurred.

2. The notices given on 14 May did not terminate the respondents' employment immediately. Their employment continued until the notices expired on 28 May. The agreement leading to their occupation of the premises was reached on 27 or 28 May. The tribunal therefore had to examine whether the business was transferred while the respondents remained employed. Lord Justice Judge emphasised that this timing issue had not been sufficiently addressed.

3. Regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 could materially affect the claims. If the respondents accepted an alternative under which they remained and took over the business, there might have been no dismissals. Alternatively, if a relevant transfer preceded the effective dismissals, contractual rights and liabilities might have passed to the respondents under regulation 5(2). Regulation 5(3) also required consideration because a transfer effected through two or more transactions may protect a person employed immediately before any of those transactions.

4. The absence of findings on the parties' dealings between 14 May and 2 June made final determination by the Court of Appeal impossible. The tribunal rehearing the case had to decide whether the alleged alternative offer was made and accepted and, if necessary, whether an undertaking or part of it was transferred, by what transactions, on what terms and at what time. The court expressed no view on the merits. Arguments under regulation 8(1) and (2), discussed with reference to Litster v Forth Dry Dock Engineering Company Ltd [1990] 1 AC 546, appeared unlikely to be relevant.

5. The entire matter, including liability and quantum, was remitted for rehearing by a differently constituted Employment Tribunal. There was no order as to costs.

1. Court of Appeal: By [2002] EWCA Civ 1722, unanimously allowed the employer's appeal and remitted liability and quantum for a complete rehearing by a differently constituted Employment Tribunal.
2. Employment Appeal Tribunal: On 23 January 2001, dismissed the employer's appeal and upheld the conclusion that the transfer question did not need to be determined.
3. Employment Tribunal: By extended reasons sent on 1 December 1999, ordered the employer to pay the three former employees statutory redundancy payments and damages for wrongful dismissal. It did not determine whether an undertaking had been transferred.