Dynamex Friction Ltd & Anor v Amicus & Ors

Under TUPE, the reason for a dismissal is identified by examining the real decision-making process of the person who effected it. An administrator who independently and properly dismisses employees because the insolvent employer has no funds to pay wages acts for an economic reason. A transferor’s prior manipulation of insolvency, anticipated sale, or later benefit from the business does not make the dismissal transfer-related where it did not influence the administrator’s decision and there was no collusion. Regulation 8(2) therefore disapplies the protection in regulation 8(1), and the Litster gloss to regulation 5(3) is not engaged. Employment Tribunal reasons need not address every submission expressly if their findings and reasoning can reasonably be understood.

Friction Dynamics Ltd entered administration on 7 August 2003. Its joint administrator dismissed the workforce because there were insufficient funds to pay wages. The business was subsequently transferred to Dynamex and Ferotec Realty Ltd, and many employees were re-employed.

An Abergele Employment Tribunal had found a relevant transfer. The Shrewsbury Employment Tribunal later held that the dismissals were for an economic reason, not a reason connected with the transfer, and that the employees were not employed immediately before the transfer for the purposes of regulation 5(3) of TUPE. The Employment Appeal Tribunal, in UKEAT/0435/06/RN and UKEAT/0447/06/RN, set aside that decision for inadequate reasoning and remitted the matter. Realty appealed. The central issues were whose reasons governed the dismissal inquiry and whether alleged stage-management by Craig Smith could make the dismissals transfer-related despite the administrator’s independent conduct.

1. Majority disposition. Ward LJ and Rimer LJ allowed the appeal and restored the Shrewsbury Employment Tribunal’s decision. Lawrence Collins LJ dissented and would have dismissed the appeal.
2. The Employment Tribunal’s reasons were adequate. Rule 30 of the Employment Tribunals (Constitution and Rules etc) Regulations 2004 was a guide, not a straitjacket. It was unnecessary to reproduce every submission where the relevant issues, findings and reasoning could reasonably be understood. The Tribunal had addressed the substance of the alleged stage-management and had made findings which could not be challenged on appeal.
3. The purpose of TUPE, as explained in Litster, required a purposive construction and vigilance against transparent devices or collusive arrangements designed to defeat employee protection. However, regulation 8(2) plainly preserved dismissals for economic reasons entailing changes in the workforce.
4. The relevant inquiry concerned the decision-maker’s real reasons, assessed in light of all the evidence. The administrator, acting properly and without collusion with Smith or the prospective transferees, decided that the employees had to be dismissed because there was no money to pay them. No purchaser had been identified when the dismissals occurred, and there was no finding that the administrator dismissed the employees to facilitate a transfer or to avoid employment liabilities. Smith’s prior intentions and subsequent benefit from the transaction could not supplant the administrator’s reason.
5. The dismissals were therefore economic, not transfer-related. Regulation 8(1) did not apply, the gloss to regulation 5(3) recognised in Litster was not engaged, and the employees were not employed immediately before the transfer. The relevant liabilities remained with the insolvent transferor and the Secretary of State as statutory guarantor.
6. Lawrence Collins LJ considered that the Council Directive (77/187 E.E.C.) and European authorities supported a wider inquiry into objective circumstances, rather than an inquiry confined to the legal entity’s motives. He would have allowed further factual findings and, if appropriate, a reference to the European Court.

• Court of Appeal (Civil Division): By a majority, allowed Realty’s appeal and restored the Shrewsbury Employment Tribunal’s decision: [2008] EWCA Civ 381.
• Employment Appeal Tribunal: Allowed the appeals in UKEAT/0435/06/RN and UKEAT/0447/06/RN, set aside the Shrewsbury Tribunal’s decision and remitted the claims for rehearing before a differently constituted tribunal.
• Shrewsbury Employment Tribunal: Held on 22 June 2006 that the dismissals were for an economic reason, that regulation 8(1) did not apply, and that the employees were not employed immediately before the transfer for regulation 5(3) purposes.
• Abergele Employment Tribunal: Had earlier determined the preliminary issue and found that Friction’s undertaking transferred jointly to Dynamex and Realty.