This case concerns a Reg 3(1)(a) transfer in the context of the termination of a franchise agreement and an employee who was on maternity leave. It restates the need to approach ‘old style’ transfers by applying a multifactorial approach.
ALNO produced kitchens. It promoted its products by entering franchise agreements. One such franchisee was SJM. SJM was owned and operated by M. It operated out of leasehold showroom premises in Brighton. SJM displayed the kitchens and provided a design and installation service. C was employed as the the showroom manager, with M undertaking the installations. In mid 2014 SJM, by M, gave notice to terminate the franchise agreement with effect from December 2014. C went on maternity leave in July 2014. ALNO decided that it would take over the lease from SJM and refurbish the showroom. ALNO invited M and C to join it as employees and to operate the newly refurbished showroom. Although it initially looked like an agreement could be reached, in the end M and ALNO could not agree terms. Also it transpired that the premises had a serious defect and there was a significant delay such that by the ET hearing in October 2015 ALNO had not yet commenced trading from the refurbished premises. (The showroom did not open until May 2016.) M’s maternity leave ended in February 2015 and SJM and ALNO were unable to agree whether there was a transfer. C sued both.
The ET Judgment
The case was only argued on the basis of Reg 3(1)(a). It was also not argued by SJM that there was a two-stage transfer but rather a single transfer in December 2014. The ET held that there was a transfer. It did so principally on the basis that the parties intended, in late 2014, that the business would transfer from SJM to ALNO and that this business was an economic entity would retain its identity.
The EAT Judgment
ALNO appealed on the basis that the EJ had failed to undertake the multi factorial assessment that is required in Reg 3(1)(a) transfer (P Bork International A/S v Foreningen af Arbejdsledere I Danmark and Cheesman v R Brewer Contracts Ltd). Also that the judge treated as decisive the intention of the parties that a transfer should take place.
The EAT (HHJ Richardson) held, allowing the appeal:
(i) In a Reg 3(1)(a) transfer it is first necessary to identify an economic entity and to decide whether there is a transfer. In respect of the latter issue a multifactorial approach is required.
(ii) Whilst the EJ was entitled to have regard to the intention of the parties this was not decisive. In this case the EJ failed to consider the following: SJM were not selling kitchens retail from its showroom; M was not being taken on by ALNO; M probably owned the tools and equipment and a van, and; no goodwill transferred. Also in this case the show room ceased to operate for along period of time and the duration of any stoppage is highly material.