Meter U Ltd v Ackroyd (Meter U Ltd v Hardy)

For the purposes of regulation 7(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006, a transferee’s workforce does not include corporate franchisees or persons employed by them. A genuine change from employing workers directly to procuring the work through corporate franchises can therefore reduce the transferee’s workforce.

Where that change is required by an established business model for economic and organisational reasons, it is an ETO reason entailing changes in the workforce. The resulting dismissals are to be treated as redundancies, subject to the separate statutory assessment of fairness.

The appellant provided meter-reading services through corporate franchisees and employed only administrative staff. Following service-provision changes, meter readers transferred to it from G4S Utility Services (UK) Ltd and N Power Yorkshire Ltd. The appellant consulted the transferred employees, offered them an opportunity to form franchise companies, and dismissed those remaining employed as redundant.

The Exeter and Leeds Employment Tribunals held the dismissals automatically unfair under regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006. They treated franchisees, or persons working for them, as part of the appellant’s workforce and therefore found no relevant workforce change. The central issue on appeal was whether that construction of “workforce” was correct.

1. Appeals allowed. The Tribunals erred in including corporate franchisees, or their workers, in the appellant’s workforce. In its ordinary and common-sense meaning, a workforce comprises people, workers or employees. A limited company has a separate identity and is not itself a worker or employee. Its employees belong to its own workforce, not that of the company which contracts with it.
2. The Court of Appeal’s reasoning in Berriman v Delabole Slate Ltd, [1985] ICR 546, confirmed that an ETO plan must have workforce change as an objective, not merely as a possible consequence. Changes in employee numbers or duties are not, however, the only possible workforce changes. It was unnecessary to decide whether a change of status from employee to independent contractor would itself be such a change.
3. The Leeds Tribunal had found that the franchise model was genuine and not a sham. On that finding, the replacement of directly employed meter readers by genuine corporate franchisees reduced the appellant’s workforce. Its established franchise model enabled it to operate competitively and avoid substantial cost consequences. The only lawful conclusion in the Ackroyd cases was that the dismissals were for economic and organisational reasons entailing workforce changes.
4. The Exeter Tribunal had not determined whether the Hardy franchise arrangements were a sham. The same ETO conclusion would follow unless, on remittal, it found that they were shams.
5. Under regulation 7(3)(a), the dismissals were to be regarded as redundancies. The appellant no longer required employees to undertake meter reading; it required franchisees, whether or not connected with former employees. The definition of “employee” in section 230(1) of the Employment Rights Act 1996 did not prevent that conclusion on the facts found.
6. The findings of automatic unfair dismissal were set aside. The Ackroyd cases were remitted for determination of fairness under section 98(4) of the Employment Rights Act 1996. The Hardy cases were remitted first to determine the sham issue and, if the arrangements were genuine, to determine fairness.

• Employment Appeal Tribunal: Appeals allowed. The automatic-unfair-dismissal findings were set aside and the claims remitted.
• Leeds Employment Tribunal: By a judgment sent on 23 February 2011, held the Ackroyd claimants automatically unfairly dismissed.
• Exeter Employment Tribunal: By a judgment sent on 27 January 2011, held the Hardy claimants automatically unfairly dismissed.