Employment Case Note: Seahorse Maritime Ltd v Nautilus International

Introduction

The Court of Appeal has clarified the territorial scope of section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”), overruling a previous judgment by the Employment Appeal Tribunal which extended collective consultation obligations to overseas employees who had a sufficiently strong connection to Britain.

Under section 188, employers are obliged to inform and collectively consult where they propose to dismiss as redundant 20 or more employees at one establishment within a period of up to 90 days. Failure to comply with this obligation may give rise to a complaint in the Employment Tribunal, which may then make a declaration and/or a protective award if such claim is upheld.

The issue in Seahorse Maritime Ltd v Nautilus International was whether this right applied in relation to off-shore employees.  While section 286 of the TULRCA specifies that a number of provisions do not apply to employees who work outside Great Britain, it remains silent in relation to the right to be consulted under section 188.  The Court of Appeal was therefore required to consider the application of case law on the territorial scope of individual employment rights, which had previously established various categories of overseas employees who might be protected.

Factual background

The case concerned a number of individuals who were employed by Seahorse Maritime Limited (“Seahorse”) to “serve on any vessel managed by” a third party, Sealion Shipping Limited (“Sealion”).  The crew was primarily stationed outside of British territorial waters for four to six weeks roster periods, and employees who were domiciled in Britain would return home at the end of each roster rotation.

In 2015, Sealion took a number ships located in foreign territorial waters out of service as a result of an economic downturn in the oil industry. The ships were then laid up.  This resulted in the need to implement a number of redundancies within the Seahorse workforce.  Nautilus International, a trade union, claimed that this process triggered section 188 and that the failure to inform and consult with employees domiciled in Britain entitled each of those employees to a protective award of up to 90 days’ gross pay.

Seahorse argued the claim did not come within scope of section 188 for two primary reasons. First, the vessels represented separate establishments, similar to the individual stores in USDAW v Ethel Austin Ltd (C80/14), [2015] ICR 675 and Lyttle v Bluebird (this being the Woolworths litigation).  As less than 20 British crew members had been made redundant on each vessel, it was argued by Seahorse that the precondition for collective consultation had not been met.  In addition, Seahorse argued that the test of territoriality for section 188 ought to attach to each separate establishment, as opposed to the employees themselves.  In this case, the vessels did not have sufficient connection to Great Britain to justify the imposition of collective consultation obligations.

Decisions of the Employment Tribunal and the Employment Appeal Tribunal

The Employment Tribunal (“ET”) and the Employment Appeal Tribunal (“EAT”) each upheld Nautilus’ claim, deciding that the ships were not separate establishments and that the employees had a sufficiently strong connection to Great Britain.

It was held that the employees were not contractually assigned to a particular ship and were at times transferred from one ship to another, the redundancies were implemented by a single crewing services company which referred to a single group of employees, and the employer (Seahorse) did not own or operate the separate vessels. Accordingly, it was held that each of the ships were not a distinct unit of Seahorse’s undertaking.

In relation to territorial scope, the ET and EAT acknowledged the principles established by Serco Ltd v Lawson and other cases [2006] IRLR 289, as further expounded by Ravat v Halliburton Manufacturing & Services Ltd [2012] UKSC 1, [2012] ICR 389, as the starting point. These principles provided that the rights conferred by British employment legislation should not be enjoyed by employees working outside Great Britain, except in exceptional circumstances where there may be factors connecting the employment to Great Britain and British employment law which pull sufficiently strongly in the opposite direction to overcome the territorial pull of the place of work.  This included peripatetic employees who were based in Great Britain, and expatriate employees or international commuters with close connections to Great Britain by virtue of the nature and circumstances of employment.

Applying these principles, the ET found that the focus of the enquiry ought to be the employees, as opposed to the establishment, and that the employees were peripatetic. This meant that the Employment Tribunal had jurisdiction over the section 188 claim.  The EAT agreed that territoriality attached to the employees but found that the ET had erred in finding that the employees were peripatetic, given the ships were stationed (static) adjacent to live oil wells.

Jurisdiction was instead upheld on the basis that the employees were international commuters who had a sufficiently strong connection with Britain. Factors relevant to this decision were that the employees were domiciled in Britain, their employment contracts were stated to be governed by English law and Seahorse used a British registered company to manage the employees.

Court of Appeal

Seahorse appealed to the Court of Appeal on the grounds that the EAT had erred in its findings on both the establishment and territoriality issues.

Seahorse submitted that the only possible outcome on a correct application of EU and domestic authorities was that each ship constituted a separate establishment of Seahorse. The ships were clearly a distinct place of work and employees were assigned to particular ships for long periods of time.  It was, in Seahorse’s view, irrelevant that there was the contractual right to assign them to different ships or that it might occur from time to time.

Seahorse also argued that it was wrong to attach significance to the fact that the workforce was treated collectively during the handling of the redundancy exercise, this being contrary to the repeated message of both the Court of Justice of the European Union and domestic authorities that a work unit could constitute an establishment notwithstanding that many functions, including the HR function, were administered centrally.

The Court of Appeal agreed with this approach, stating that, in practice, the ships were each self-contained operating units, coming within the definition of establishment. The crew were assigned to particular ships and returned, rota after rota, to the same ship for periods of time.  It made no difference that the owner or operator of the unit was the same legal person as the employer of some or all of the workforce (as the ET had decided).  On this basis, it was very likely that no obligation to consult arose under section 188.

Nevertheless, the Court turned to consider whether territorial scope extended to the crew members. This involved a two-part enquiry:  first, whether the sufficient connection test was to be answered by reference to the establishment or the individual employee and second, whether there was such connection in the present case.

As regards the first step, the Court noted that the obligation created by section 188 sat at a collective level. Given the collective character of that obligation, and the crew members’ varying degrees of connection with Great Britain, it was necessary to focus on the one common feature which defined the group – the establishment.  Otherwise, the employer (and any Tribunal hearing a claim) would be required to carry out individual assessments to determine which employees were to be taken into account in relation to the numerical threshold under section 188, were entitled to be consulted if such threshold was reached, and were the beneficiaries of a protective award if the consultation obligations were breached.  This was viewed by the Court as an entirely unsatisfactory outcome.

Having then found that the issue of sufficient connection fell to be answered by reference to the establishment, being the individual ships, as opposed to the individual employees assigned to them, the Court turned to consider whether there was such connection. Given the only connection between the ships and Great Britain was that some, though not all, of Seahorse’s functions were performed through its Farnham-based agent, it was quickly concluded that the circumstances of the case did not overcome the territorial pull of the location of the establishment.  On this basis, Seahorse’s appeal succeeded and Nautilus’ claim as regards the proposed redundancies of Seahorse crew assigned to ships stationed outside Great Britain was dismissed.

Comment

The Court of Appeal’s decision is important for two primary reasons. First, it confirms that ships can constitute separate establishments, much like shops which form part of a larger chain, provided that crew members are, in practice, assigned to a particular ship.

Second, the decision clarifies that the collective nature of the obligations under section 188 ought to be treated differently to individual rights under the Employment Rights Act 1996. Instead of focusing on whether the employees themselves have a sufficiently significant connection with Great Britain, which may vary greatly within the pool of affected employees, the focus ought to be on the common feature which defines the pool, the fact that the employees are employed at the same establishment.  This will be a highly fact sensitive inquiry, involving consideration of the links that the establishment may have with Great Britain.  However, it is important to remember that the territorial pull of the place of work will be highly influential and the mere fact that the employer is based in Great Britain is not by itself enough to extend collective employment rights under section 188 to employees based overseas.

The case ought to be of particular note to the offshore shipping industry. The upshot of the case in relation to ships using dynamic positioning working offshore in foreign territorial waters is that such ships will likely be the establishment at which the employees on them work (rather than, say the premises of the crew company which employs them).

Further, since the Court of Appeal has found that the focus for territorial jurisdiction in collective redundancy is where the establishment is located, there now have to be specific factors which displace the presumption that the local law of the location of the establishment (ship) is what applies to the employees on the ship at the time of termination.

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  • Jess Greenheld Employment Assistant

    Jess is a member of the employment team.

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  • Nick Humphreys Partner

    Nick has acted for numerous multi-national, publically listed corporations as well as public and third sector clients. His clients include travel sector clients, industrial conglomerates, hotels, media organisations, marine businesses and charities

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