The United States of America v Nolan [2015] UKSC 63

Mrs Nolan was made redundant when the US Army closed its watercraft repair base in Hampshire without consulting employees. The Supreme Court held that TULCRA's collective redundancy consultation duties applied to the United States despite the strategic, sovereign nature of the closure decision.

Facts

In early 2006, the United States of America decided for strategic reasons to close RSA Hythe, a US Army watercraft repair centre in Hampshire. Mrs Nolan, a civilian budget assistant employed there, was dismissed for redundancy on 29 September 2006, the day before closure. There was no recognised trade union at the base. Mrs Nolan brought Employment Tribunal proceedings under sections 188-198 of the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULCRA”), as amended by the 1995 Regulations, alleging failure to consult employee representatives about the collective redundancies. The US accepted it had made clear in June 2006 that no consultation would take place.

Although the US could have successfully pleaded state immunity at the outset, it did not do so, and by the time it sought to raise the plea (following the EAT decision in UK Coal Mining Ltd v NUM extending consultation duties to underlying strategic business decisions), the Tribunal held it was too late. Mrs Nolan succeeded before the Tribunal and EAT. The Court of Appeal referred a question to the CJEU regarding the timing of the consultation obligation. The CJEU held that, by virtue of article 1(2)(b) of Directive 98/59/EC, dismissal of staff of a military base falls outside the Directive’s scope, and declined jurisdiction to interpret the Directive in this excluded area.

Issues

The appellant raised three points before the Supreme Court:

1. First point of construction: Whether TULCRA should be construed, conformably with Directive 98/59/EC as interpreted by the CJEU, so as not to apply to public administrative bodies or public law establishments.
2. Second point of construction: Whether, by reference to principles of international law (including non-discrimination and the territoriality of jurisdiction), TULCRA should be construed as inapplicable to a foreign state’s jure imperii activity.
3. Vires: Whether the 1995 Regulations were ultra vires section 2(2) of the European Communities Act 1972, insofar as they extended consultation protection to workers without trade union representation employed by public administrative bodies or public law establishments outside the scope of the Directive.

Arguments

Appellant (United States)

Mr Cavanagh QC argued domestic legislation should be construed consistently with the Directive, relying on R (Risk Management Partners Ltd) v Brent LBC [2011] 2 AC 34, contending TULCRA must be read as limited in scope to the Directive’s scope. Sir Daniel Bethlehem QC submitted that international law principles required reading TULCRA as inapplicable to a foreign state’s jure imperii acts, invoking the presumption that legislation conforms to international law, the territoriality principle (The Lotus Case), the US Supreme Court’s approach in F Hoffmann-La Roche v Empagran SA, and principles of non-discrimination including article 18 TFEU and article 21(2) of the Charter of Fundamental Rights.

Advocates to the Court

Mr Beloff QC and Ms Wilkinson, appointed as advocates to the court (Mrs Nolan being unrepresented), supported the reasoning of the courts below, including that the 1995 Regulations fell within section 2(2)(b) as matters “arising out of or related to” EU obligations.

Judgment

First point of construction (rejected)

Lord Mance (with whom Lord Neuberger, Lady Hale and Lord Reed agreed) held TULCRA cannot be read as containing an implied limitation excluding public administrative bodies. Unlike Risk Management, where domestic regulations were intended to be back-to-back with the Directive, TULCRA contains no equivalent of article 1(2)(b). Instead, it contains specific and limited exceptions for Crown employment and police service. The careful exclusion of specified categories of public employee “speaks for itself.” TULCRA has, in several respects, deliberately extended protection beyond European requirements. The fact that the rare situation of a foreign state operating a base in the UK may not have been foreseen is no reason for reading in an exemption inconsistent with the legislative scheme.

Second point of construction (rejected)

Lord Mance held that TULCRA’s application to dismissals in the UK was entirely territorial and consistent with international law. The base, the employees, the contracts and the dismissals were all within the UK. The appropriate response to interference with a foreign state’s jure imperii decisions is a plea of state immunity, not the implication of substantive exemptions into domestic legislation. As Hazel Fox and Philippa Webb explain, jurisdiction and immunity are distinct concepts. To accept the appellant’s argument would make pleas of state immunity largely redundant. The non-discrimination arguments based on EU law failed because articles 18 TFEU and 21(2) of the Charter apply only within the scope of EU law, which the CJEU had confirmed did not extend to this excluded area. Further, non-member states are not within the protection of those provisions: as Lady Hale observed in Patmalniece v Secretary of State for Work and Pensions, discrimination against third country nationals is “not prohibited. Indeed it is positively expected.”

Third point: vires (rejected by the majority)

Lord Mance accepted that, applying Lord Hope’s analysis in Risk Management, where a Directive based on internal market competence is limited to internal market situations, its domestic extension to situations outside that competence cannot generally be regarded as falling within section 2(2)(a) or (b) of the 1972 Act. However, on the particular and unusual facts, TULCRA in its unamended form was primary legislation creating a unified domestic regime extending protection beyond EU requirements. The CJEU identified a flaw (the failure to cover non-trade union situations), and the 1995 Regulations rectified this across the whole pre-existing regime. In these unusual circumstances, Parliament, by enacting the unamended TULCRA, had “created, for the future domestic purposes of the 1972 Act, a relationship” between the EU obligation and the extended domestic categories, which the executive was entitled to continue in the 1995 Regulations.

Lord Carnwath (dissenting on vires)

Lord Carnwath would have allowed the appeal on the vires issue. He considered that the “relationship” required by section 2(2)(b) must be one derived from European law, not one dictated solely by domestic considerations. Since the CJEU had confirmed that public administrative bodies fall in an area expressly excluded from the Directive, with the EU legislature renouncing any uniform interpretation interest, the extension of the 1995 Regulations to such bodies was a purely domestic policy matter outside the power conferred by the 1972 Act. He would have wished to invite the UK Government to make representations before reaching a final view.

Implications

The decision confirms several important points. First, where domestic legislation transposing an EU Directive deliberately extends protection beyond the Directive’s scope (here to public administrative bodies not covered by article 1(2)(b) of Directive 98/59/EC), domestic courts will not imply limitations to bring it back into conformity with the Directive’s scope unless the legislative intention was to remain back-to-back with EU law. The contrast with Risk Management is instructive: implied limitation requires evidence that the domestic regime was intended to mirror the EU regime.

Second, the case sharply distinguishes jurisdiction (legislative competence) from immunity (a bar to adjudication). Foreign states acting jure imperii in the UK cannot have substantive domestic statutory duties read down by reference to international law principles; instead, their proper protection is through a timely plea of state immunity. The decision will be of significance to foreign states operating within the UK, who must understand that domestic employment legislation may apply on its terms unless immunity is invoked.

Third, on the vires point, the majority’s reasoning is fact-sensitive and arguably narrow: where primary legislation has already deliberately extended an EU-derived regime to wholly domestic categories, subordinate legislation under section 2(2) of the 1972 Act may rectify gaps in implementation across the whole pre-existing domestic regime. However, the broader principle articulated by Lord Hope in Risk Management – that subordinate legislation under section 2(2) cannot extend an EU regime into areas outside the EU competence on which it is based – remains intact and is endorsed. Lord Carnwath’s dissent highlights an unresolved tension and the limited scope of the section 2(2)(b) power, an issue of constitutional significance which, as he noted, would have benefited from UK Government submissions.

The case must be remitted to the Court of Appeal to determine the unresolved “Fujitsu issue” – whether the duty to consult arises when an employer is proposing a strategic decision that will foreseeably lead to redundancies, or only when that decision has been made – now as a question of purely domestic law since the CJEU declined jurisdiction in this excluded area. The case therefore leaves significant questions about the timing of consultation obligations in collective redundancy law to be resolved domestically.

Verdict: Appeal dismissed on all three grounds (Lord Carnwath dissenting on the vires point). The case was remitted to the Court of Appeal for determination, so far as necessary, of the UK Coal/Fujitsu issue concerning the timing of the consultation obligation.

Source: The United States of America v Nolan [2015] UKSC 63