Employment Cases Update

Meter U v Ackroyd & Ors UKEAT/0206/11/CEA

Date published: 02/03/2012

Appeal against a ruling that the claimant employees had been unfairly dismissed following a TUPE transfer. Appeal allowed and remitted to the ET to decide if the dismissals were fair after hearing further evidence if necessary.

The respondent provided meter reading services across the UK to suppliers of electricity whether by direct contract with suppliers or by sub-contracts. Since 1999, it had carried on this business by means of franchises with independent franchise limited companies, typically owned by individual meter readers. The respondent did not employ meter readers. The contracts of employment of meter readers transferred to the respondent by operation of TUPE and the respondent undertook consultations with the transferring employees. The franchise model was explained and the employees were offered the opportunity of forming franchise companies. The employees that did not take up the opportunity were dismissed by reason of redundancy. The two ET’s hearing the cases ruled that the dismissal of employee meter readers transferred to the respondent under TUPE was not for an economic, technical or organisational reason entailing changes in the workforce. The claimants had therefore been unfairly dismissed. The respondent appealed.

The EAT upheld the appeal. ‘Workforce’ in Regulation 7(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 does not include corporate franchisees. Subject to determination in one of the cases of whether the franchise agreements were a sham, no other conclusion could be reached other than that the dismissals in both cases were for an economic, technical or organisational reason entailing changes in the workforce and were by reason of redundancy.

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Appeal No. UKEAT/0206/11/CEA

UKEAT/0207/11/CEA

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON, EC4Y 8JX

At the Tribunal

On 7 February 2012

Judgment handed down on 28 February 2012

Before

THE HONOURABLE MRS JUSTICE SLADE DBE, MRS M McARTHUR FCIPD, MR A HARRIS

UKEAT/0206/11/CEA

METER U LTD (APPELLANT)

MS L ACKROYD AND OTHERS (RESPONDENTS)

UKEAT/0207/11/CEA

METER U LTD (APPELLANT)

MR M L HARDY AND OTHERS (RESPONDENTS)

Transcript of Proceedings

JUDGMENT

APPEARANCES

For Meter U Ltd
MR ANDREW STAFFORD (One of Her Majesty's Counsel) & MR JAMES BOYD (of Counsel)

Instructed by:
HBJ Gateley Wareing (Manchester) LLP
Ship Canal House
98 King Street
Manchester
M2 4WU

For Ms L Ackroyd & Others
MR ANDREW ALLEN (of Counsel)

Instructed by:
Thompsons Solicitors
Churchill House
17 Wellington Street
Leeds
LS1 4DL

For Mr M L Hardy & Others
MR JAMES LADDIE (of Counsel)

Instructed by:
UNISON Employment Rights Unit
Legal Services
Unison Centre
130 Euston Road
London
NW1 2AY

SUMMARY

TRANSFER OF UNDERTAKINGS – Economical technical or organisational reason

'Workforce' in Regulation 7(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 does not include corporate franchisees. The Respondent's business model of using franchisees to carry out meter reading rather than employees was long established and made the Respondent more competitive in winning contracts. The Employment Tribunals erred in holding that the dismissal of employee meter readers transferred to the Respondent under TUPE was not for an economic, technical or organisational reason entailing changes in the workforce. Subject to determination in the Hardy cases of whether the franchise agreements were a sham, no other conclusion could be reached other than that the dismissals in both cases were for an economic, technical or organisational reason entailing changes in the workforce and were by reason of redundancy.

THE HONOURABLE MRS JUSTICE SLADE DBE

1. Meter U Limited ('the Respondent') appeal from the judgments of two Employment Tribunals which held that the Claimant employees had been unfairly dismissed. The dismissals in each case had been of employees whose contracts of employment had been transferred to the Respondent on a transfer of an undertaking within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ('TUPE'). The Tribunals held that the employees had been dismissed for a reason relating to the transfers and the Respondent had 'not established an economic, technical or organisational reason entailing changes to the workforce' within the meaning of Regulation 7(2) of TUPE. Accordingly the dismissals were held to be 'automatically unfair'. The Respondent contends that the Employment Tribunals erred in so holding.

2. The dismissal of an employee for a reason connected with a TUPE transfer is automatically unfair unless the transferee establishes that the reason for the dismissal was an economic, technical or organisational reason entailing changes in the workforce ('an ETO reason'). If such a reason is established, the dismissal will be regarded as having been for redundancy where Employment Rights Act 1996 ('ERA') section 98(2)(c) applies or otherwise for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held within the meaning of section 139(1). The Employment Tribunal will then, applying ERA section 98(4), consider whether the dismissal was fair or unfair in all the circumstances.

3. By a judgment sent to the parties on 23 February 2011 Claimants who transferred to the Respondent from N Power Yorkshire Limited ('the Ackroyd Claimants') an Employment Tribunal sitting in Leeds ('the Leeds Tribunal') held that the Claimants were not dismissed for an ETO reason and were automatically unfairly dismissed by the Respondent.

4. By a judgment sent to the parties on 27 January 2011 determining claims by five Claimants who transferred from the Respondent from G4S Utility Services (UK) Limited ('the Hardy Claimants') an Employment Tribunal sitting in Exeter ('the Exeter Tribunal') held that the Claimants were not dismissed for an ETO reason and were automatically unfairly dismissed.

Outline facts

5. The Respondent provides meter reading services across the United Kingdom to suppliers of electricity whether by direct contract with suppliers or by sub-contracts. It has carried on this business since 1999 and since that date has done so by means of franchises with independent franchise limited companies, typically owned by individual meter readers. The Respondent does not employ meter readers. Its only employees are about twenty administration staff.

6. The Claimants in the Hardy appeal were, prior to 1 December 2009, employed as meter readers by G4S Utility Services (UK) Limited ('G4S') servicing a contract for Scottish Power. Siemens were awarded that contract following a re-tendering process. Siemens sub-contracted the meter reading work to the Respondent. A service provision change from G4S and the Respondent took place on 1 December 2009 and the contracts of employment of ten meter readers employed by G4S on the Scottish Power contract transferred on that date to the Respondent by operation of TUPE.

7. The Respondent undertook consultations with transferring employees and with their union representatives. The franchise model was explained to transferring employees. They were offered the opportunity of forming franchise companies but only one, Mr Milne, did so. On 6 April 2010 the employment of the transferred meter reader employees was terminated by reason of redundancy. Mr Hardy appealed his dismissal but the appeal was dismissed.

8. The Claimants in the Ackroyd appeal were prior to 1 December 2009 employed by N Power Yorkshire Limited as meter readers servicing a contract for Scottish Power. Siemens were awarded that contract following a re-tendering process. Siemens sub-contracted the meter reading work to the Respondent. A service provision change took place on 1 December 2009 and the contracts of employment of 109 meter readers transferred on that date to the Respondent.

9. The Respondent undertook consultations with transferring employees and their union representatives. As were the Hardy Claimants they were offered the opportunity of forming franchise companies but none did so. On 6 April 2010 their employment was terminated on grounds of redundancy. Where requested appeals from dismissal were considered. They were not upheld. Redundancy payments were made.

Relevant statutory provisions

10. The Transfer of Undertakings (Protection of Employment) Regulations 2006 are the current domestic law implementation of Council Directive 2001/23/EC ('the Directive').

11. Transfer of Undertakings (Protection of Employment) Regulations 2006

Regulation 7:

"(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the 1996 Act (unfair dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is—

(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.

(2) This paragraph applies where the sole or principal reason for the dismissal is a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer.

(3) Where paragraph (2) applies—

(a)paragraph (1) shall not apply;

(b)without prejudice to the application of section 98(4) of the 1996 Act (test of fair dismissal), the dismissal shall, for the purposes of sections 98(1) and 135 of that Act (reason for dismissal), be regarded as having been for redundancy where section 98(2)(c) of that Act applies, or otherwise for a substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held."

12. Employment Rights Act 1996

Section 139:

"(1)For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to—

(b)the fact that the requirements of that business—

(i)for employees to carry out work of a particular kind, or

(ii)for employees to carry out work of a particular kind in the place where the employee was employed by the employer,

have ceased or diminished or are expected to cease or diminish."

Section 230(1):

"In this Act "employee" means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment."

13. Directive 2001/23/EC

Preamble:

"(3) It is necessary to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded."

Article 2:

"1. For the purposes of this Directive:

(d) "employee" shall mean any person who, in the Member State concerned, is protected as an employee under national employment law."

Article 4:

"1. The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce."

Relevant findings of the Employment Tribunals

14. Both the Exeter (by majority) and the Leeds Tribunals held that the dismissals of the Claimants were for 'a reason connected with the transfer'. There is no appeal and now no cross appeal from that decision.

The Exeter Tribunal (Hardy Claimants)

15. It was contended on behalf of the Hardy Claimants that the franchise agreement was a sham. In paragraph 22 of its judgment the Employment Tribunal record that it was argued that

"in reality the status of the meter readers under the franchise agreement, as properly interpreted, is that of an employee rather than an independent contractor."

The Employment Tribunal did not think it necessary to consider the issue of whether or not the franchisees were employees as the Claimants' claims would be determined by the decision as to whether the term 'workforce' in TUPE Regulation 7(2) included franchisees as well as employees. If so there would be no reduction in the workforce on the dismissal of the employees and Regulation 7(2) would not apply.

16. The Exeter Tribunal, referring to Berriman v Delabole Slate Ltd [1985] ICR 546 and Crawford v Swindon Insurance Brokers Ltd [1990] IRLR 42 observed at paragraph 23 of their judgment:

"It is well established that if an ETO is to involve changes to the workforce this must be something more than just the terms and conditions involved…"

The Tribunal observed that neither the Directive nor TUPE give a definition of the term 'workforce' although TUPE contains a definition of the term 'employee' 'which is essentially the same as that contained in the Employment Rights Act 1996'.

17. The Exeter Tribunal held at paragraph 23:

"[The Directive] requires Member States to put in place effective provisions to ensure the rights of employees on the transfer of undertakings and we do not lose sight of the fact that the underlying purpose of the Directive and the Regulations is to preserve employment."

They continued:

"In our judgment, it must have been the intention of the Directive to include a wider class of persons other than employees [having included] [in] the term 'workforce' and the Regulations replicate this. Our conclusion as to the meaning of the word 'workforce' is that it would encompass all persons working in the respondent's business whether as employees, franchisees or otherwise. In our judgment the term would include franchisees such as Mr Milne and the remaining claimants, had they taken up the offer…"

At paragraph 24 the Exeter Tribunal held:

"It is the unanimous conclusion of the Tribunal that since there would be no changes to the workforce, there being no reduction in the number of meter readers required, the respondents have not established an ETO reason for the dismissals. It must follow therefore that the dismissals are automatically unfair under Regulation 7."

The Leeds Tribunal (Ackroyd Claimants)

18. The Leeds Tribunal expressed surprise that the Claimants' representatives alleged that the franchise agreement was a sham. They held at paragraph 8:

"It is clear that the franchise business model has been in operation for many years and documentation relating to the franchises in this case gives a clear indication that [the] real position is what it says it is; that is a contractual relationship between the Respondent and franchise companies, rather than an employment relationship between the Respondent and employees…"

The Tribunal set out particular aspects of the relationship between the Respondent and franchisees which led them to that conclusion.

19. The Leeds Tribunal held in paragraph 11.2 that their duty was to consider the purpose of TUPE and the Directive. They accepted that redundancy is a clear example of an ETO. Further they found that the Respondent had acted thoroughly and prima facie fairly in their collective and individual consultation processes. However they found in paragraph 11.2 that

"…in this particular case, the process was unrealistic. The Respondents knew that the Claimants would have one choice and that was for their employment to be terminated and for them to agree to the franchise option or alternatively for them to receive their entitlements…'

The Leeds Tribunal held that 'it was appropriate to take a purposive approach in this case'."

They held:

"11.3 …The appropriate purposive approach, taking into account the reason for the Regulations and the Acquired Rights Directive, was for the Tribunal to conclude unanimously that, when the Claimants' employment was brought to an end, then this was for a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.

11.4 …The Tribunal accepted the submission by Mr Boyd that the Claimants' employment was potentially redundant within the definition contained in the Employment Rights Act, so far as the Respondent were concerned. However, the Tribunal, taking the purposive approach, was not prepared to say that this was an economic, technical or organisational reason entailing changes in the workforce."

The Tribunal continued:

"…if it did not make the decision it makes, it gives an opportunity for the purpose of the Transfer of Undertakings Regulations to be ignored and for the Claimants' security of employment and terms and conditions to be lost as a result of transfer."

20. The Leeds Tribunal concluded that the Ackroyd Claimants had been unfairly dismissed.

The submissions of the parties

21. Andrew Stafford QC with James Boyd for the Respondent contended that the change of contractual arrangements from employment to franchise was an economic and organisational reason which entailed changes in the workforce. The Exeter Tribunal was wrong in its interpretation. 'Workforce' does not extend to the workforce of third party franchise companies to which meter reading has been contracted.

22. The franchise agreements for meter reading were with limited companies not individuals. To treat employees of those companies as part of the Respondent's workforce would be to pierce the corporate veil when there was no warrant for doing so. The Leeds Tribunal held that the franchise agreement with limited companies were not a sham. There was no warrant for including their employees in the Respondent's workforce. Although there was no such express finding by the Exeter Tribunal the same reasoning applied and there should have been such a finding.

23. Mr Stafford contended that there was no proper basis for including limited companies in a 'workforce'. The concern of the Leeds Tribunal that to hold that franchisees were not included in the workforce would give an opportunity for the purpose of TUPE to be ignored is met by the possibility of a conclusion that a franchise arrangement is a sham and the reality is that former employees continue to be employed by the Respondent.

24. Mr Stafford contended that on the facts of these cases it was clear that economic or organisational reasons entailed changes in the workforce of the Respondent. As the Leeds Tribunal found the franchise model enables the Respondent to operate with a very low cost base so that it can tender for contracts offering competitive prices. The Tribunal accepted evidence that the future loss of revenue to the Respondent of changing from a franchise model to directly employed meter readers would be in the region of £15 million. Mr Stafford submitted that on the evidence, the requirement set out in Berriman v Delabole Slate at page 551B that in order to fall within Regulation 7 it must be an objective of the economic or organisational reason for the dismissal to achieve changes in the workforce was satisfied. Further, the reason for effecting change was to make the Respondent competitive in bidding for contracts. This was a reason related to the conduct of the business as is required for economic reasons for change in the workforce to fall within TUPE Regulation 7(2).

25. It was submitted that the dismissal of the Claimants was for redundancy. The Leeds Tribunal recognised that there was a redundancy situation. The Respondent no longer required employees to carry out meter reading. Mr Stafford referred to Bromby & Hoare Ltd v Evans and another [1972] ICR 113 in which the NIRC held that employees dismissed to be replaced by self-employed workers and to Hodgkins and others v CJB Development Ltd (1984, EAT/948/83) in which employees dismissed and replaced by sub-contract labour were in each case held to have been dismissed by reason of redundancy.

26. The Leeds Tribunal held that in general the Respondent had carried out thorough and fair consultations with individuals. They held that realistically employees were presented with one choice: for them to agree to the franchise option when their employment terminated.

27. Mr Stafford contended that the decision of each Tribunal that the Claimants were not dismissed for an ETO reason entailing changes in the workforce was not soundly based. He submitted that sufficient findings of fact had been made for a decision to be substituted that the Claimants in each case were dismissed for an ETO reason, that they were dismissed for redundancy and their dismissals were fair.

28. For the Hardy Claimants Mr Laddie contended that it is established by Delabole Slate and Crawford that an ETO reason entails a change in the workforce within the meaning of TUPE Regulation 7(2) when it entails a change in the overall numbers of the workforce or a change in the functions of members of the workforce. Delabole Slate established that a mere change in the terms and conditions of the contract under which employees work does not amount to a change in the workforce. Mr Laddie submitted that dismissing a transferred employee in order that he can be re-engaged under a different commercial arrangement is a dismissal in order to change terms and conditions of service. It is not a change in the workforce.

29. Mr Laddie submitted that the term 'workforce' is not to be limited to 'employed workers'. In this regard he relied on a number of dictionary definitions which referred to workers. For example the Oxford English Dictionary defines 'workforce' as

"the workers or employees, collectively, usu. of a particular firm or industry."

He contended that before their dismissals the Claimants carried out meter reading as employees. Under the franchise model the same work would be carried out and was likely to be performed by the same people.

30. Mr Laddie contended that in this case excluding franchisees from the 'workforce' would open the floodgates to similar measures being implemented by unscrupulous transferees. Further, to exclude franchisees from being held to be part of the Respondent's workforce would be inconsistent with the Directive. The purpose of the Directive is to safeguard employees' rights on a transfer of undertaking.

31. Mr Laddie drew attention to certain terms in the standard form Franchise Agreement to which 'the Individual', who was likely to be a former employee of the Respondent, was a party. Tribunals should consider the practical realities of who and how individuals carried out work when deciding their status. However if the Tribunal erred in treating corporate franchisees as part of the workforce, rightly Mr Laddie did not suggest that this Employment Appeal Tribunal should uphold the decision of the Exeter Tribunal on the basis that the franchise arrangements with the corporate franchisees were a sham. The Answer to the Notice of Appeal does not seek to uphold the decision of Exeter Tribunal on that basis. Rather, Mr Laddie submits that if the appeal were to be allowed there would have to be a remission to the Tribunal to decide whether the franchise arrangement was a sham.

32. As for the contention of the Respondent that the Claimants were dismissed by reason of redundancy, Mr Laddie accepted that on the authority of Bromby the dismissal of an employee and engagement of self-employed workers who carry out the same work is dismissal for redundancy. The submission in Mr Laddie's skeleton argument that Bromby was wrongly decided was not developed orally. However he contended that the Hardy and Ackroyd cases are to be distinguished from Bromby as in these cases the requirements for the same individuals to carry out the same work had not ceased or diminished. Mr Laddie relied on the following line of reasoning: ERA section 139(1)(b)(i) provides that a dismissal is by reason of redundancy where it is wholly or mainly attributable to 'the fact the requirements of that business for employees to carry out work of a particular kind…have ceased or diminished or are expected to cease or diminish.' ERA section 230(1) provides that 'employee' means 'an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment'. Accordingly the term 'employee' includes a former employee. Therefore a dismissal is not by reason of redundancy where the requirements of the business for former employees to carry out work of a particular kind have not ceased or diminished. In these cases each of the Claimants could have been taken up a franchise. Therefore there was no diminution in the requirement for employees, which term included former employees, to do the work of meter reading.

33. The Exeter Tribunal did not consider the fairness of the dismissals under ERA section 98. Mr Laddie accepted that if they had erred in law considering the dismissals took to be for an ETO reason and therefore automatically unfair, the Hardy cases would have to be remitted.

34. Mr Allen for the Ackroyd Claimants adopted Mr Laddie's arguments save for that on redundancy. The Leeds Tribunal relied on a purposive approach to decide that the dismissal of the Ackroyd Claimants were not for an ETO reason entailing changes in the workforce. Mr Allen rightly recognised that the Tribunal did not set out the interpretation of TUPE and the Directive which led to their conclusion.

35. Mr Allen agreed with Mr Laddie that it may not be necessary to adopt a purposive approach to reach the conclusion that 'workforce' can include a wider range of people than employees. He recognised that the term 'workforce' suggested that it is made up of individuals rather than corporate entities. In this regard he drew attention to certain provisions of the Franchise Agreement which highlighted the importance of the individual in the Respondent's franchise model. He referred in particular to clauses 7.3.7, 11.1 and 11.2 including that in 11.2 by which the Franchisor, the Respondent, has the power to decide whether, on the death of an Individual named in the agreement, a relative or beneficiary is acceptable to take over the franchise company and retain the franchise. This provision indicated the importance of the Individual in the franchise arrangements. However Mr Allen did not seek to go behind the finding of the Leeds Tribunal that the franchise business model was not a sham.

36. If the Leeds Tribunal were to have erred in holding that the dismissals of the Ackroyd Claimants were not for an ETO reason, Mr Allen submitted that the issue of whether the dismissals were fair in all the circumstances would have to be remitted to the Tribunal.

Discussion and conclusion

37. The central point in these appeals is whether the Employment Tribunals erred in law in holding expressly by the Exeter Tribunal and implicitly by the Leeds Tribunal that the 'workforce' of the Respondent included not only employees but also the individuals employed by the franchise companies or, possibly, the franchisee companies themselves.

38. The term 'workforce' is not defined in either TUPE or the Directive. Counsel for the Claimants did not consider that any assistance could be drawn from the definition of 'worker' in domestic employment legislation. However we note that, unsurprisingly, those definitions refer to an 'individual'. Even if it were helpful to base a construction of 'workforce' on the dictionary definitions relied upon by Mr Laddie they all define 'workforce' by reference to people, workers or employees. Applying an ordinary common sense use of the word 'workforce' it does not include limited companies. These have an identity separate from their directors or controlling shareholders. They are not people, workers or employees although they will employ or engage them. Employees of corporate franchises are part of their employer's workforce.

39. The Court of Appeal in Delabole held:

"14. …the phrase "economic, technical or organisational reason entailing changes in the workforce" in our judgment requires that the change in the workforce is part of the economic, technical or organisational reason. The employer's plan must be to achieve changes in the workforce. It must be an objective of the plan, not just a possible consequence of it.

15. Secondly, we do not think that the dismissal of one employee followed by the engagement of another in his place constitutes a change in the "workforce". To our minds, the word "workforce" connotes the whole body of employees as an entity: it corresponds to the "strength" or the "establishment". Changes in the identity of the individuals who make up the workforce do not constitute changes in the workforce itself so long as the overall numbers and functions of the employees looked at as a whole remain unchanged."

Changes in the terms and conditions of employment of transferred employees to those of existing employees were held not to be a change in the workforce. In Crawford the EAT held at paragraph 30:

"We are satisfied that there will be a change in the workforce if the same people are kept on but they are given entirely different jobs to do."

40. In our judgment changes in numbers of employees or in their duties are not the only changes which may constitute 'changes in the workforce' within the meaning of TUPE Regulation 7. However on the basis of the findings of fact by the Tribunals it is not necessary for us to decide whether a change in status, for example from employee to independent contractor, is a change in the workforce within the meaning of Regulation 7.

41. Neither the Exeter Tribunal nor the Leeds Tribunal held that the Respondent's franchise business model was a sham. The Leeds Tribunal held:

"So far as the allegations that the Respondent's franchise business model was a sham is concerned, the Tribunal considered that the decision was straight-forward and is surprised that the Claimants' representatives took the point. It is clear that the franchise business model has been in operation for many years and documentation relating to franchises in this case gives a clear indication that [the] real position is what it says it is; that is a contractual relationship between the Respondent and franchise companies, rather than an employment relationship between the Respondent and employees…"

42. The Leeds Tribunal was bound to apply their finding of fact that the franchise business model was not a sham. They held that franchisees were limited companies, not employees.

43. The Exeter Tribunal did not think it necessary to address the issue of whether or not the franchisees are properly to be regarded as employees because they held that franchisees were to be included in the 'workforce' in considering Regulation 7. Having concluded that persons carrying out meter readings for franchise companies, or the companies themselves were part of the workforce, the Exeter Tribunal concluded that there was no reduction in the numbers in the workforce when the Claimants were dismissed as their work would be carried out by franchisees as part of the workforce. Since on their dismissals there was no reduction in numbers in the workforce the Claimants were not dismissed for an ETO reason.

44. In our judgment both Employment Tribunals erred in holding that franchisees were included in the Respondent's workforce. Since their decision that there was no change in the workforce was based on the premise that a change from engaging employees to using corporate franchisees to carry out meter reading work was not a reduction in the workforce, the decisions in each case must be set aside.

45. The Leeds Tribunal held at paragraph 5.5 that there was a continued requirement for franchisees but not for employees to carry out meter reading work. To continue with the Claimants as employees they held:

"[would] be totally at odds with their business model and have serious implications in relation to costs. The Tribunal accepted [by] Mr Barnett's estimate that future loss of revenue resulting from any such changes would be in the region of £15 million."

46. We have held that on its proper construction 'workforce' does not include limited companies. It follows that on the dismissal of the Ackroyd Claimants there was a reduction and therefore a change in the workforce.

47. On the findings of fact made by the Leeds Tribunal the only conclusion is that the Ackroyd Claimants were dismissed for economic and organisational reasons entailing changes in the workforce.

48. The Exeter Tribunal did not decide the issue of whether the franchise arrangement was a sham. On the facts found, the same conclusion as in the Ackroyd cases would be reached unless the Tribunal were to conclude that the franchise arrangement was a sham.

49. By reason of our conclusion that franchisees are not to be included in computing the Respondent's workforce, the submissions made by Mr Laddie that the dismissal of ten employees does not constitute a change in the workforce within the meaning Regulation 7 because such a change must be to the whole workforce or be significant falls away. Nor is it of legal significance that on their dismissal the Respondent's workforce was reduced to the number of administrative staff of twenty.

50. In his skeleton argument, Mr Laddie made submissions in support of a proposition that the Claimants were not dismissed for redundancy. It appears that the submission was made in anticipation of the Respondent contending that because the Claimants were dismissed for redundancy they were dismissed for an ETO reason. That is not how submissions on appeal were developed by Mr Stafford. He submitted that if he succeeded in overturning the decision of the Tribunals that the dismissals of the Claimants were not for an ETO reason, on the facts the only correct conclusion was that the Claimants were dismissed for redundancy.

51. Mr Laddie contended that on its proper construction dismissal of an employee by reason of redundancy within the meaning of ERA section 139(1)(b)(i) of the business had a continuing requirement for former employees to carry out work of a particular kind. He relied upon the definition of 'employee' in section 230(1) which includes an individual who worked under a contract of employment, a former employee. Even if such a construction of section 139(1)(b)(i) were correct it would only apply to negate redundancy where an employee was dismissed because there were no future requirements for employees to carry out work of a particular kind but the employer had a requirement for former employees to do so. On Mr Laddie's construction, in order not to fall within the definition of redundancy the employer's requirement for workers to perform work would have to be specifically for former employees to do so. This was not so in these cases. Only one of the Hardy Claimants and only two of the Ackroyd Claimants formed limited companies which entered into franchise agreements. All other franchises were to be taken up by companies in which the controlling shareholder was not a former employee of the Respondent. The Respondent did not have a continuing requirement for former employees to carry out meter reading work. They had a requirement for franchisees to do so whether or not they had any connection with former employees of the Respondent.

52. Unless the franchise arrangements were found to be a sham in the Hardy cases, on the facts found, a Tribunal properly directing themselves would inevitably hold that, applying Regulation 7(3)(a) the dismissals of the Claimants are to be regarded as having been for redundancy.

53. Although Mr Stafford submitted that we should substitute a finding that the dismissals of the Claimants were fair within the meaning of ERA section 98(4), such an assessment is for an Employment Tribunal to make having heard the evidence. Whilst the Leeds Tribunal made findings of fact regarding the consultation process undertaken by the Respondent in the Ackroyd cases we consider that in those cases as well as in the Hardy cases the decision as to the fairness of the dismissals should be taken by the Employment Tribunals after hearing further evidence if necessary.

Summary conclusion

54. (1) The appeals are allowed and the findings of automatic unfair dismissal set aside.

(2) The Ackroyd cases are remitted to the Tribunal for determination of whether the dismissals of the Claimants were fair or unfair within the meaning of the Employment Rights Act 1996 section 98(4).

(3) The Hardy cases are remitted to the Tribunal for determination of whether the Respondent's franchise business model was a sham, and, if it is found not to be a sham, for determination of whether the dismissals of the Claimants were fair or unfair within the meaning of the Employment Rights Act 1996 section 98(4).

(4) The Ackroyd and the Hardy claims are remitted on the basis that the dismissals of the Claimants were for economic and organisational reasons entailing changes in the workforce within the meaning of Regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 and were for redundancy within the meaning of the Employment Rights Act 1996 section 139(1)(b)(i).

(5) The claims are to be remitted to the same Employment Tribunals if reasonably practicable. If not, to those selected at the direction of the relevant Regional Employment Judge.