SECTION 28(1), ORGANISATION OF WORKING TIME ACT, 1997
GROSVENOR CLEANING SERVICES LIMITED
(REPRESENTED BY IRISH BUSINESS AND EMPLOYERS' CONFEDERATION)
- AND -
SERVICES INDUSTRIAL PROFESSIONAL TECHNICAL UNION
Chairman: Ms Jenkinson
Employer Member: Mr Doherty
Worker Member: Mr. Somers
1. Appeal against Rights Commissioner's Decision WT14830/03/JH
2. The claim is on behalf of 26 workers who are seeking payment of outstanding annual leave which had occurred when their employer - Grosvenor Cleaning Service Limited - (the Company) lost a contract with the North Eastern Health Board on the 31st of March, 2003. The contract was taken over by CPS Cleaning Services. The Company's view is that a Transfer of undertaking had occurred and that CPS, as the new employer, was now responsible for payment of annual leave. (The Company supplied documentation to support its case). The Union contacted CPS but was told by that company that it would not take any responsibility for holidays entitlements.
The dispute was referred to a Rights Commissioner, whose decision was as follows:
"It follows from the foregoing conclusion that the employment of the claimants was terminated by Grosvenor Cleaning Services who longer required the claimants to provide the service to the NEHB. As a termination of employment occurred, the claimants have a valid complaint under the Organisation of Working Time Act 1997 in that outstanding holiday entitlements as specified in the attached appendix ( which forms part of this Decision) are due to each of the named claimants."
The Company appealed the decision to the Labour Court on the 18th of December,
2003, in accordance with Section 28(1) Organisation of Working Time Act, 1997. A
Labour Court hearing took place on the 20th of August, 2004, in Cavan, the earliest
date suitable to the parties.
3. 1. It is well established in European and Irish Law generally that the transfer of a contract from one service to another service provider, with a transfer of the majority of the workforce, is a transfer of an undertaking for the purposes of the EC (Protection of Employees on Transfer of Undertakings) Regulations, 2003.
2. One of the primary objectives of the Transfer of Undertakings regulations is to ensure that all rights and obligations of the transferor towards his/her employees transfer to the transferee on the day of the transfer. This includes continuity of service, terms and conditions of employment and accrued annual leave.
3. If transfer regulations do not apply to a change in contract, no protection would be provided for employees in a second generation transfer situation.
4. 1 Each of the workers received a letter from the Company to the effect that their employment would be terminated on the 31st of March, 2003. The letter made no reference to a Transfer of Undertaking
2. It is clear that a termination of contract took place in this instance. Section 23 of the Organisation of Working Time Act provides that where an employee ceases to be employed, the whole or any portion of the current leave year remains to be granted and the employee shall be paid an amount equal to the pay that would have been received had that annual leave been granted.
This is an appeal by the Company against the decision of the Rights Commissioner in WT14830/03/JH who found that there was a valid complaint under the Organisation of Working Time Act, 1997, (the Act) in that outstanding holiday entitlements were due to each of the 26 named claimants.
A claim was brought by the Union under the Act for outstanding leave, which had accrued when their employer was Grosvenor Cleaning Services (the Company). The claimants were employed by the appellant as cleaners and worked exclusively as cleaners in Cavan Hospital. The contract was subject to periodic competitive tendering, and in March, 2003, the North Eastern Health Board invited tenders for the cleaning of the hospital. The respondents tendered but were unsuccessful. A new contractor, CPS, was appointed. All employees transferred to the incoming contractor, CPS Cleaning Services.
The Company denies any obligation towards the claimants with respect to outstanding annual leave entitlements on the basis that a transfer of undertakings took place and the new employer is liable for the outstanding payments.
An agreement was entered into between CPS and the claimants, acting through SIPTU, whereby CPS agreed to employ the claimants on the same terms and conditions as were applied to them by the respondent. Moreover, CPS agreed to accept a transfer of the accrued service which the claimants had with the respondent. It was, however, expressly agreed between the parties that CPS would not be liable for any holiday entitlements which the claimants accrued with the respondent.
It would appear that over the continuance of their employment with the respondent, the claimants had not received their statutory entitlement to annual leave. Thus, by 31st March, 2003, each of the claimants had significant leave entitlements outstanding. The Union took the view that the claimants were dismissed by the appellant and claimed that they should be paid compensation by the appellant for the loss of accrued leave at the date of their dismissal (31st March, 2003) pursuant to section 23(1) of the Organisation of Working Time Act 1997 (the Act). When this was refused, the Union presented a complaint to a Rights Commissioner. The Rights Commissioner found with the Union, and the Company appealed to this Court.
The appellant Company does not deny that the claimants have a cause of action arising from its failure to afford them their full holiday entitlements. Rather, it contends that any cause of action lies against CPS as its successor in the employment relationship with the claimants. The appellant relies on the European Communities (Safeguarding of Employees' Rights on Transfer of Undertakings) Regulations 1980 and 2000 (the Regulations) and contends that its loss of the contract for the cleaning of Cavan Hospital and the awarding of that contract to CPS constituted the transfer of part of a business and that any liability in respect of the claimants’ holiday entitlements transferred to CPS.
The appellant contends that it is a well established practice in European and Irish law that the transfer of a contract from one service provider to another service provider, with a transfer of the majority of the workforce, is a transfer of an undertaking for the purposes of the Regulations. The Company citesSuzen v. Zehnacker Gebaudereingigung G.m.b.H. (Case C13/95)  E.C.R. 1259in support of this position.
The Union contends that the appellant did not comply with the terms of the Regulations as it did not consult the employees in accordance with the requirements of the regulations, did not advise the employees of the reasons for the transfer, and did not provide details of the legal, economic and social implications of the transfer and the measures envisaged in relation to employees. Nor did it consult with SIPTU, as the representative body for the employees, in relation to these issues. The only correspondence issued to employees was the letter dated 15th March, 2003, to the effect that their employment would be terminated on 31st March.
The Union contends that the Regulations do not apply. It too citesSuzen v. Zehnacker Gebaudereingigung G.m.b.H. (Case C13/95)  E.C.R. 1259in support of its position.
Transfer of Undertakings
The EU Directive on Acquired Rights 77/187/EEC (the Council Directive 2001/23/EC was not transposed into Irish law until 11th April, 2003,) provides for the safeguarding of employees’ rights in the event of transfers of undertakings, business or part of businesses. It aims to ensure, as far as possible, that the rights of employees are safeguarded in the event of a change of employer by allowing them to remain in employment with the new employer on the terms and conditions agreed with the transferor, and secondly to ensure as far as possible that the employment relationship continues unchanged with the transferee. The Directive was made effective in Ireland by the European Communities (Safeguarding of Employees' Transfer of Undertakings) Regulations, 1980 and 2000 (the Regulations).
InJMASpijkers v Gebroedaeas Benedik Abbatoir C.V.  ECR 119the Court set out what it considered to be the decisive criteria for establishing whether the Directive applied:
- “In order to establish whether or not such a transfer has taken place in a case such as that before the national court, it is necessary to consider whether, having regard to all the facts characterising the transaction, the business was disposed of as a going concern, as would be indicated inter alia by the fact that its operation was actually continuing or resumed by the new employer, with the same or similar activities”
- “To decide whether these conditions are fulfilled it is necessary to take account of all factual circumstances of the transaction in question including the type of undertaking or business in question, the transfer or otherwise of tangible assets such as buildings and stocks, the value of intangible assets at the date of transfer, whether the majority of the staff are taken over by the new employer, the transfer or otherwise of the circle of customers and the agree of similarity between activities before and after the transfer, and the duration of any interruption in those activities. It should remain clear however, that each of these factors is only part of the overall assessment which is required and therefore they cannot be examined independently of each other”.
The essence of a transfer is that the economic entity retains its identity. In the ECJ caseDaddy’s Dance Hall 1988 IRLR 315 ECJ, it was held that the Regulations applied in a case where premises were leased, and at the termination of the lease the employment of the claimant was terminated. A new lessee was brought in to run the premises and he employed the claimant, but later dismissed him. The new lessee was obliged to carry on the employment rights and obligations of the first lessee, even though there was no contractual connection between the first and second lessee.
Suzenwas decided in the wake of a number of decisions which extended the Regulations to secondary contracting out – where part of a business is contracted out to a second company, which in turn contracts it to a third entity. In this case, the Court pointed to a lack of any contractual link between the old employer and the new employer. It looked at the elements set out inSpijkers, applied them and found that no transfer of tangible assets had taken place.
- “The mere fact that the service provided by the old and the new awardees of a contract is similar does not therefore support the conclusion that an economic entity has transferred. An entity cannot be reduced to an activity entrusted to it. Its identity also emerges from other factors such as its work force, management staff, the way in which its work is organised, operational methods or where appropriate the operational resources available to it”.
If there is no transfer of assets, and the transferee does not take over a major part of the workforce and the combined entity of the group of employees and assets they used to carry on the economic entity is not transferred, in circumstances where the economic entity needs assets to continue in existence, there may not be a transfer, as per the qualifications laid down inSuzen.
The mere fact that a contract of employment transferred from the transferor to the transferee cannot of itself constitute a “transfer” under the Regulation.
The ECJ inHidalgo and Others v Asociation de Servicios Aser and Sociedad Cooperativa Minerva (C-173/96), and Horst Ziemann Sicherheit GmbH and Horst Bohn Sicherheitsdienst (C-247/96)gives guidelines to national courts to assist in their examination of whether a transfer of undertakings has taken place. At paragraph 34 of Sicherheit the Court states:
- “the term economic entity refers to an organised grouping of persons and assets enabling an economic activity which pursues a specific objective to be exercised. The mere fact that the service successively provided by the old and the new undertaking to which the service is contracted out or the contract is awarded is similar does not justify the conclusion that a transfer of such an entity has occurred”.
The Court inHidalgoat paragraph 26, states:
- “Whilst such an entity must be sufficiently structured and autonomous, it will not necessarily have significant assets, material or immaterial. Indeed, in certain sectors, such as cleaning and surveillance, these assets are often reduced to their most basic and the activity is essentially based on manpower. Thus, an organised grouping of wage earners who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity”.
- “Since, in certain labour-intensive sectors, a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity, it must be recognised that such an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue the activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specially assigned by his predecessor to that task. In those circumstances, the new employer takes over a body of assets enabling him to carry on the activities or certain activities of the transferor undertaking on a regular basis”.
- “I take the view that the work of cleaning the premises of undertakings – an activity for which they have a permanent need even where their main business is not cleaning – may fall within the scope of the Directive if it is carried out by a stable group of employees pursuing a specific objective; this holds true even where there has been no transfer of significant tangible or intangible assets, provided that there is an economic entity and that that entity retains its identity after the transfer”.
At paragraph 107 he states:
“However, to determine whether there is a stable economic entity, the national courts must consider first whether it is dealing with an organised grouping of persons and assets or simply of persons, that is to say, a grouping of employees who constitute a stable unit by virtue of the fact that they are engaged in a particular economic activity and pursue the same objective, in the sense defined above. It must then determine whether that grouping has retained its identity”.
At paragraph 145 he states:
“It is true that an economic entity must be organised, that is to say, it must have an organisational structure, however minimal, in order to constitute an undertaking, business or part of a business”.
Having examined the nature of the contract with Cavan Hospital and the employment history of the employees employed by the appellant, the Court notes that many of the employees had substantial service with the Company - most had in excess of two years' service. During their employment with the appellant, they were not required to transfer to other Grosvenor sites, all were assigned to specific named areas within the Cavan Hospital sites, a structured roster system was in operation and employees were aware of their set hours of work.
The Court is satisfied that this is a labour intensive undertaking, where staff were transferred en masse to the new employer for the purpose of engaging in cleaning the Cavan Hospital site. This activity is the same one carried on by the previous employer and will continue with substantially the same staff after the transfer.
Therefore, in determining that the Regulations apply to this case, this Court concludes that the appellant’s business with the Health Board at the Cavan Hospital sites is part of its business and as an economic entity has retained its identity in the hands of the transferee. Secondly, while the Court accepts that the application of the Regulations is not a matter of the intent of the parties but a matter of law, the Court notes that its application in this case was understood and accepted by both parties at the time of the transfer.
This case raises complex questions of National and European law. What the Court must now consider is whether in the circumstances of this particular case the appellants can avail of the of the provisions contained in the Transfer of Undertakings legislation in order to transfer a statutory duty imposed upon them by the Act.
Interpretation of Relevant Legislation.
Both the Act and the Regulations were enacted to transpose European Directives. In interpreting this type of legislation, the courts have developed an approach known asteleological or purposive construction.Thismethod of interpreting statutory provisions was explained by Keane J inMulcahy v Minister for the Marine High Court, Unreported, 4th November 1994as follows:
- " While the Court is not, in the absence of a constitutional challenge, entitled to do violence to the plain language of an enactment in order to avoid an unjust or anomalous consequence, that does not preclude the Court from departing from the literal construction of an enactment and adopting in its place a teleological or purposive approach, if that would more faithfully reflect the true legislative intention gathered from the Act as a whole."
- “the departure point of the interpretation of a provision must be its literal sense, followed by an analysis of the terms used in their ordinary sense. That is to say by reference to the meaning which the words used have in ordinary language”.
- “It is often the case however that a literal interpretation of the text is not by itself always sufficient to solve the problem of interpretation; help is then provided by the further interpretative criterion normally used by the Court.In particular ……. every provision of Community Law must be placed in its context and interpretedin the light of the provisions of Community Law as a whole, regard being had to the objectives thereof and to its state of evolution at the date on which the provision in question is to be applied.”
In this case where the Directives and the national legislation implementing them are silent as to whether a transferor may transfer a breach of its obligations under the Working Time Directive, and thus escape liability for same, the Court is satisfied that it should adopt the teleological method of interpreting the legislative provisions applicable in this case.
The Holiday Issue.
The Act was enacted to give effect to Directive 93/104/EC. This Directive was in turn adopted pursuant to Article 118a of the EC Treaty to ensure a better level of protection of the health and safety of workers.
Hence it is clear that the obligation to provide annual leave is imposed for health and safety reasons. This right has been characterised as a fundamental social right in European Law (see comments of Advocate General Tizzano in R v Secretary of State for Trade and Industry, ex parteBroadcasting, Entertainment Cinematography and Theatre Union  IRLR 559which was quoted with approval by Lavin J inRoyal Liver Assurance Limited v Mackin & Others, High Court, unreported Lavin. J15th November 2002. InVon Colson & Kamann v Land Nordrhein – Westfalen  ECR 1891the ECJ has made it clear that where such a right is infringed the judicial redress provided should not only compensate for the economic loss suffered by the complainant but must provide a real deterrent against future infractions.
The Act provides employees with a right to four weeks' annual leave in a full year and prescribes that two of those weeks must be consecutive. There is a concomitant duty on employers to ensure that the leave is actually taken. Section 20 (1) of the Act also prescribes the criteria against which an employer must decide when the leave is to be given. The section provides as follows:
- 20.—(1) The times at which annual leave is granted to an employee shall be determined by his or her employer having regard to work requirements and subject—
- ( a ) to the Company taking into account—
- (i) the need for the employee to reconcile work and any family responsibilities,
(ii) the opportunities for rest and recreation available to the employee,
- (i) the need for the employee to reconcile work and any family responsibilities,
( b ) to the Company having consulted the employee or the trade union (if any) of which he or she is a member, not later than 1 month before the day on which the annual leave or, as the case may be, the portion thereof concerned is due to commence, and
( c ) to the leave being granted within the leave year to which it relates or, with the consent of the employee, within the 6 months thereafter.
- ( a ) to the Company taking into account—
- 20.—(1) The times at which annual leave is granted to an employee shall be determined by his or her employer having regard to work requirements and subject—
Article 7 of the Directive provides that, save where the employment relationship terminates, annual leave cannot be replaced with a payment in lieu. Section 23 of the Act provides for payment of compensation on cesser of employment for any outstanding holidays. This cannot, however, be interpreted as allowing an employer to so order his or her affairs so as to allow all leave to accrue to the end of a leave year and then terminate the employment relationship and make payments in lieu of holidays. Such an arrangement would defeat the health and safety imperatives on which the Act is based.
The Company contends that the claimants were not dismissed but that their contracts of employment, together with all the rights, obligations and breaches arising therefrom, were taken over by CPS, and, accordingly, can have no claim for compensation against the Company pursuant to section 23 of the Act. The cause of action, which the employees have, is for the Company’s failure to provide them with annual leave in accordance with the Act. The decision of the High Court inRoyal Livermakes it clear that where leave is not given the contravention of the Act thus arising crystallises before the expiry of the leave year in question unless the employee expressly agrees with the Company to extend the period within which the leave is to be given by up to six months. No such consent had been sought or given in this case. The leave year runs from 1st April to 31st March. Having regard to the terms of section 20(1) of the Act, and in particular to section 20(1) (b), the latest date on which the Company could have complied with the Act would have occurred several weeks before the 31st March 2003. Hence, at the time the claimants ceased to be employed by the Company, and the putative transfer took effect, their right to leave had been contravened and the Company was in breach of its statutory duty to provide that leave.
It is clear, following the decision in theRoyal Livercase, that the employees had a cause of action against the Company prior to the transfer. The question posed is does the fact of the transfer also transfer liability for the breach of the Act to the new employer?
There is no doubt that the claimants are entitled to a judicial remedy for the infringement of their statutory rights to annual leave. That remedy must be effective not only in compensating for the loss of the leave withheld but must also discourage further infractions of the rights established by the Act and the Directive which is transposed.
The Transfer of Undertakings Issue.
The regulations were enacted to give effect to Council Directive 77/187/EEC. The purpose of this Directive is to provide protection to employees in circumstances in which the business in which they are employed, or part of a business is taken over by a different natural or legal person. It operates by transferring the rights and obligations arising from individual contracts of employment to the acquirer of the business (the transferee).
The claimant’s right to holidays is not merely contractual. Whilst their contracts of employment may contain an express or implied term that holidays in accordance with the Act will be given, the right to holidays is derived from statute and exists independently of any contractual terms. The liability of the Company arising from its failure to provide the leave is the equivalent of a liability arising from a breach of statutory duty. The Court has not been referred to any authority in which a transferee was fixed with such a pre-existing liability in a transfer of undertakings arising from a change of contractors.
It is clear that the purpose of the Directive is to provide protection to employees in the event of a takeover of a business or part of a business. It is not intended to be in ease of employers by relieving them of liability incurred in consequence of a failure to fulfil a statutory duty. Yet, that is the only real result which could be achieved by the outcome contended for by the Company. Such a result is not necessary to protect the interests of the claimants. They can have adequate redress against the respondent in the within proceedings. What the Court is being asked to do is to allow the Company to use the Directive as a shield to escape liability and to make the transferee, who is wholly innocent of any wrongdoing, liable in its stead. The injustice of such a result is compounded by the lack of any contractual nexus between the Company and the transferee and the absence of any prior opportunity for the transferee to establish the extent of any residual liabilities in respect of the Company’s employees or to be indemnified by the Company against such liabilities.
The Court must interpret the law where it is unclear so as to achieve the result envisaged by both of the Directives. Having regard to facts of this case and the clear purpose which both Directives seek to achieve, it is impossible to identify or to conceive of any policy in the law which would be served by the result contended for by the Company. Apart from being unconscionable, such an outcome would undoubtedly lessen the effectiveness of the Working Time Directive in that it would provide an incentive for employers in the circumstances of the Company to withhold holiday entitlements where a contract may be lost in the knowledge that liability for their illegality would pass to a rival bidder. This could never have been intended by the Acquired Rights Directive or the Regulations and would be tantamount to using the Directive to avoid their statutory obligations under the Act.
For all of the reasons set out above, the Court concludes that even though the Regulations governing the transfer apply in this case, their application could not enable the transferor to avoid liability for failure to provide the claimants their statutory entitlement to holidays.
This complaint is, therefore, well founded. The Court notes that the amount of outstanding leave for each claimant is not contested between the parties.
Where a claimant has not received his or her statutory period of leave, a claim cannot be made nor can an award be formulated as being for payment in lieu of holidays. Article 7 of the Working Time Directive expressly prohibits the payment of an allowance in lieu of annual leave except where the employment relationship has ended. In such cases the proper award should be in the form of compensation for loss of annual leave. Such an award need not be limited to the value of the lost holidays.
The obligation to provide annual leave is imposed for health and safety reasons and the right to leave has been characterised as a fundamental social right in European Law (see comments of Advocate General Tizzano inR v Secretary of State for Trade and Industry, ex parte Broadcasting, Entertainment Cinematography and Theatre Union  IRLR 559which were quoted with approval by Lavin J in theRoyal Livercase). InVon Colson & Kamann v Land Nordrhein – Westfalen  ECR 1891the ECJ has made it clear that where such a right is infringed the judicial redress provided should not only compensate adequately for economic loss sustained but must provide a real deterrent against future infractions.
Therefore, the Court determines that each claimant should receive compensation in the amount as claimed plus an additional amount of €100.
Accordingly, the decision of the Rights Commissioner is varied and the appeal is disallowed.
Signed on behalf of the Labour Court
27th September, 2004______________________
Enquiries concerning this Determination should be addressed to Ciaran O'Neill, Court Secretary.