Graysons Restaurants Ltd v Jones & Ors, United Kingdom Employment Appeal Tribunal, Judgment, Law, casemine.com

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MR SEAMUS SWEENEY (of Counsel) Instructed by: Croner Group Ltd Litigation Department Croner House Wheatfield Way Hinckley LE10 1YG
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THE HONOURABLE MRS JUSTICE SIMLER DBE PRESIDENT

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Graysons Restaurants Ltd v. Jones & Ors

Smart Summary

Factual and Procedural Background

This appeal arises in the context of employer insolvency and concerns the rights of employees to arrears of pay under Part XII of the Employment Rights Act 1996 ("ERA"). The employees, who transferred from a public employer to private companies and subsequently to the Respondent company during insolvency proceedings, brought equal pay claims that have not yet been finally determined or quantified. The key procedural history includes an initial Employment Judge decision, an appeal to the Employment Appeal Tribunal ("EAT"), and the involvement of the Secretary of State as an interested party following the appeal hearing. The Employment Judge had concluded that equal pay arrears are not debts payable at the time of transfer unless determined, and that any liability exceeding the statutory guarantee transfers to the transferee. The appeal contests these conclusions, focusing on the legal characterization of equal pay arrears and the effect of insolvency transfer regulations.

Legal Issues Presented

Whether a claim for equal pay arrears constitutes a claim for "arrears of pay" under s.184(1) ERA and thus a debt to which the employee is entitled on the "appropriate date" (the insolvency date), even if the claim has not been determined.
Whether liability for such debts transfers from the insolvent employer (transferor) to the transferee under Regulation 8 of the TUPE Regulations 2006, or whether the transferee’s liability is extinguished to the extent of arrears accrued prior to the appropriate date.

Arguments of the Parties

Appellant's Arguments

The Appellant contended that equal pay arrears are not debts payable at the time of transfer if undetermined, relying on precedent suggesting no debt arises until claims are adjudicated.
They argued that only the statutory guaranteed sums (up to eight weeks’ arrears) are covered by the Secretary of State’s liability, and any excess liability transfers to the transferee.
The Appellant further submitted that equal pay claims are conceptually different from ordinary pay claims and are not included within the statutory definition of arrears of pay.

Respondent's Arguments

The Respondent argued that equal pay arrears can be claims for arrears of pay under s.184(1) ERA, regardless of whether the claim has been determined, as the equality clause modifies contracts automatically.
They contended that employees have a legal entitlement to equal pay arrears on the appropriate date, and these arrears are no different from other contractual pay claims that may be disputed or unquantified at the insolvency date.
The Respondent rejected the notion that liability for arrears exceeding the statutory guarantee is extinguished, asserting that such liability transfers to the transferee, consistent with the rescue culture underpinning insolvency law.

Secretary of State's Arguments

The Secretary of State submitted that equal pay claims do not fall within the scope of "arrears of pay" as defined in Part XII ERA and thus do not give rise to debts payable on the appropriate date.
They argued that the statutory list of debts in s.184 is exhaustive and does not include equal pay arrears, which are qualitatively different from ordinary pay claims.
The Secretary of State maintained that including equal pay arrears would impose an unfair administrative burden and that such claims are not necessarily claims in debt but may be claims for damages.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hartlepool Borough Council v Llewellyn [2009] ICR 1426	Determination of when equal pay claims constitute debts; automatic modification of contracts by equality clause.	The court found the Employment Judge erred in relying on this case to conclude no debt arises before tribunal determination; accepted automatic contractual modification and entitlement to arrears.
Pressure Coolers v Molloy [2012] ICR 51	Scope of Part XII ERA protection and when debts accrue; limitation of Secretary of State liability to debts accrued before transfer.	The court disagreed with the Employment Judge's interpretation that arrears of pay claims require prior claim presentation; distinguished redundancy payments from equal pay arrears.
Secretary of State for Business, Innovation & Skills v Dobrucki [2015] UKEAT/0505/13	Accrual of debts for Part XII ERA purposes; protection limited to debts accrued before or at transfer.	The court held the Employment Judge’s reliance was misplaced; equal pay arrears can be debts accruing before transfer despite being undetermined.
Benson & Others v Secretary of State for Trade and Industry [2003] ICR 1082	Interpretation of s.184 ERA; limits on debts payable by Secretary of State; distinction between types of pay.	The court clarified s.184(2) is not exhaustive of arrears of pay; equal pay arrears not excluded by omission from s.184(2).
Connor v Secretary of State for Trade & Industry (2005) UKEAT/0589 & 0890/SM	Definition of debts within s.184 ERA; exclusivity of categories of debts protected.	The court agreed that equal pay arrears can fall within s.184(1)(a) and are not excluded by s.184(2).
Secretary of State for Trade and Industry v Slater [2008] ICR 54	Rationale behind Regulation 8 TUPE 2006; exceptions to transfer of liabilities in insolvency.	Adopted to explain that liabilities exceeding statutory limits transfer to transferee; supports rescue culture.
Key2Law (Surrey) LLP v De'Antiquis (CA) [2012] ICR 881	Approval of Slater; interpretation of Regulation 8 TUPE 2006.	Confirmed that liabilities exceeding statutory limits transfer to transferee; endorsed the Employment Judge’s alternative conclusion.
OTG Ltd v Barke [2011] ICR 781	Interpretation of Article 5 ARD and Regulation 8 TUPE 2006; balance between employee protection and rescue culture.	Supported the court’s conclusion that only liabilities within statutory limits are excluded from transfer; excess liabilities transfer to transferee.
Glasgow City Council v Marshall [2000] ICR 196	Presumption of operation of equality clause; burden of proof on employer for material factor defences.	Used to support the presumption that equality clauses operate and give rise to arrears of pay unless rebutted.
Macarthys Ltd v Smith [1980] ICR 672	Requirement of concrete comparator in equal pay claims.	Referenced to reject hypothetical claims and emphasize the necessity of concrete comparison in equal pay claims.
Walton Centre for Neurology and Neurosurgery NHS Trust v Bewley [2008] IRLR 588	Application of concrete comparison principle in equal pay claims.	Supported the approach that equal pay claims must be based on actual comparators.
Sodexo Ltd v Gutridge	Automatic operation of equality clause upon meeting statutory conditions.	Quoted for the principle that equality clause "bites" automatically once conditions are met, supporting entitlement to arrears.

Court's Reasoning and Analysis

The court first addressed whether equal pay arrears constitute "arrears of pay" under s.184(1) ERA. It rejected the argument that the statutory list in s.184(2) is exhaustive and excludes equal pay arrears, noting that s.184(2) lists specific categories treated as arrears but does not define arrears of pay. The court emphasized that equal pay arrears relate to remuneration for work already performed and that the equality clause implied by statute modifies employment contracts automatically when conditions are met, creating a presumption of entitlement to equal pay arrears unless rebutted by material factor defences.

The court distinguished equal pay arrears from other claims such as damages or compensatory awards, clarifying that while tribunals may award damages, the arrears claims are contractual and thus debts for work done. It held that the entitlement to arrears accrues pay-day by pay-day and does not depend on tribunal determination to exist as a debt at the appropriate date.

Regarding the transfer of liability under Regulation 8 TUPE 2006, the court interpreted the regulation narrowly, holding that only liabilities for sums payable by the Secretary of State under Part XII ERA (up to eight weeks’ arrears) do not transfer to the transferee. Liabilities exceeding the statutory guarantee do transfer. The court rejected the submission that the entire liability for historic arrears is extinguished, emphasizing the balance between employee protection and the rescue culture in insolvency law.

In sum, the court found the Employment Judge erred in concluding that undetermined equal pay arrears are not debts payable at the transfer date, and clarified the scope of liability transfer under insolvency regulations.

Holding and Implications

The appeal was succeeded in part with the following core rulings:

Equal pay arrears can constitute "arrears of pay" within s.184(1) ERA and thus are debts under s.182 ERA, even if not yet determined by a tribunal.
The Employment Judge erred in holding that undetermined equal pay arrears cannot be claims for arrears of pay for Part XII purposes.
There is a presumption that equality clauses operated in the Claimants' contracts, giving rise to legal entitlement to equal pay arrears on the appropriate date, subject to rebuttal by material factor defences.
Only liabilities up to eight weeks of arrears (subject to statutory limits) are excluded from transfer to the transferee under Regulation 8 TUPE 2006 as payable by the Secretary of State. Any arrears exceeding that limit transfer to the transferee.

The decision clarifies the legal characterization of equal pay arrears in insolvency and the extent of liability transfer under TUPE, reinforcing employee protection while maintaining the insolvency regime’s rescue culture. No new precedent beyond the application of established principles was created, and the ruling affects the parties by confirming the transferee’s liability for arrears exceeding statutory guarantees.