Secretary Of State For Trade & Industry v Cook & Ors

Factual and Procedural Background

The Secretary of State for Trade & Industry ("Appellant") was held liable by an Industrial Tribunal to make payments to three former employees ("Applicants") of an insolvent employer, Company A, in respect of specified debts owed by Company A. The dispute centered on whether Company A's business had been transferred to Company B, such that the obligation to pay the Applicants had also transferred. The Industrial Tribunal found that Company A's business was sold to Company B under a written contract explicitly acknowledging the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("The Regulations"). However, the Applicants were not informed of the identity of Company B at the time of the transfer and only discovered it after proceedings had commenced. The Tribunal applied a prior Employment Appeal Tribunal ("EAT") decision holding that the transfer of employment contracts under The Regulations does not take effect unless employees are notified both of the transfer and the transferee's identity. As a result, the Tribunal concluded the Applicants' contracts were not transferred and the Secretary of State was liable to make payments due to the Applicants. The Secretary of State appealed this decision to the EAT, challenging the binding nature of the prior precedent and the interpretation of The Regulations.

Legal Issues Presented

1. Whether the contracts of employment of employees transfer automatically to a transferee under The Regulations without the employees being notified of both the transfer and the identity of the transferee.
2. Whether the prior EAT decision in Photostatic Copiers (Southern) Limited v Okuda & Japan Office Equipment Limited (In Liquidation) should be followed or departed from.
3. The effect of the Transfer of Undertakings (Protection of Employment) Regulations 1981, as amended by the Trade Union Reform and Employment Rights Act 1993, on the rights of employees to object to transfers.

Arguments of the Parties

Appellant's Arguments

• The Appellant contended that the contracts of employment transferred automatically to Company B upon the sale of Company A's business under Regulation 3 and 5 of The Regulations.
• The Appellant challenged the binding effect of the Photostatic decision, arguing that the requirement of notice of the transferee's identity is inconsistent with the purpose of the Directive and The Regulations.
• The Appellant urged the EAT to depart from the Photostatic case, emphasizing that the Regulations were designed to protect employees by ensuring continuity of employment regardless of their knowledge of the transfer.

Respondents' Arguments

The opinion does not contain a detailed account of the parties' legal arguments on behalf of the Respondents.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court analysed the binding precedent in Photostatic, which required notification of both the transfer and the transferee's identity for employment contracts to transfer under Regulation 5(1). Although acknowledging the binding nature of this precedent, the Court expressed strong reservations about its correctness, noting that it undermines the purpose of the Directive and The Regulations, which is to protect employees’ rights and ensure continuity of employment regardless of employees’ knowledge.

The Court examined the legislative history, including the 1993 amendments to Regulation 5, which introduced an explicit right for employees to object to transfers, thereby preserving their freedom to choose their employer. This right to object operates at or immediately before the transfer, and if exercised, terminates the contract without dismissal.

The Court reasoned that requiring employees to have knowledge of the transferee before the transfer would allow unscrupulous employers to evade their obligations by withholding information. The Regulations were designed to prevent such evasion and to secure employees' protection even in cases of non-disclosure.

The Court concluded that the Photostatic interpretation imposes an unnecessary and harmful pre-condition inconsistent with the Directive’s purpose. It held that the transfer of employment contracts should not depend on employees’ knowledge of the transferee’s identity. The Court acknowledged that employees dismissed immediately before transfer still benefit from protections under Regulation 8 and that concealment of the transfer would be difficult to maintain in practice.

Accordingly, the Court decided that the Industrial Tribunal was bound by Photostatic in the instant case but that the EAT should no longer follow Photostatic in future cases due to its inconsistency with the Directive and The Regulations.

Holding and Implications

The appeal is allowed.

The Court held that the prior EAT decision requiring employees to be informed of the transferee’s identity before contracts transfer under The Regulations is inconsistent with the Directive’s purpose and should no longer be followed. The direct effect of this decision is that employment contracts transfer automatically upon a business transfer regardless of employees’ knowledge of the transferee, thereby strengthening employee protections and continuity of employment. No new precedent beyond this decision’s immediate effect was established, but the ruling repudiates the restrictive interpretation in Photostatic, preventing employers from circumventing obligations through nondisclosure.