The truth about friction

On 29 August, shortly before the start of this year's TUC Conference in Brighton, Sir Bill Morris, general secretary of the Transport and General Workers' Union (T&G), issued a scathing calling notice.

In it he claimed: "Government legislative failure on employment has allowed our members to be unfairly sacked whilst engaging in lawful industrial action. Despite the judgement of the industrial [sic] tribunal that the company acted unlawfully, our members are being cheated out of the compensation owed to them by an unscrupulous employer."

Morris was referring to his members at the Friction Dynamics plant in Caernarfon, who have been taking part in the longest-running current industrial dispute in the UK. It led to Davis v Friction Dynamics (2001), in which Morris's members successfully complained that their dismissals were automatically unfair under Section 238A of the Trade Union and Labour Relations (Consolidation) Act 1992 - the so-called 'eight-week rule'. Despite this, no compensation is likely to be paid to the strikers, for on 20 August 2003 Friction Dynamics' owner placed it into voluntary liquidation. The company's business and assets have since been sold off. This is presumably what Morris meant by the Government "allowing" his members to be unfairly dismissed.

The eight-week rule was introduced in April 2000 and has two limbs. The first is that it is automatically unfair to dismiss an employee taking part in "protected industrial action" within the first eight weeks of the action. ('Protected industrial action' is action that the employee is induced to commit by their union, provided that the union's action falls within the Section 219 'golden formula': acts done in contemplation or furtherance of a trade dispute). The second limb is that a dismissal after the end of that period will be automatically unfair if the employer has not taken reasonable procedural steps to resolve the dispute.

Before the eight-week rule existed, the employer could dismiss a lawfully striking workforce with impunity under Section 238 as long as it dismissed all of the strikers and did not selectively re-engage any of them within three months. This remains on the statute book for the limited purposes of action not protected by the golden formula. Friction Dynamics was the first case to be heard under the eight-week rule, and if Morris gets his way, it could also be the last: on the first day of the TUC Conference, he proposed a motion calling on the Government to remove the "iniquitous" rule.

Briefly, the facts behind the Friction Dynamics case are these. On 30 April 2001, having followed the correct balloting and calling procedures, 86 of Morris's members at the company commenced industrial action. On 1 May 2001, company management wrote to each striker, telling them "you have... repudiated your contract of employment. The company... accepts your repudiation." Following several Acas-brokered meetings between management and T&G officials, the company wrote a further letter to each striker on 27 June 2001, just over eight weeks after the strike started, in which it purported to dismiss them with effect from the following day.

The strikers complained to the Shrewsbury Employment Tribunal that they had been unfairly dismissed on 28 June 2001 contrary to Section 238A. Because that date was more than eight weeks after the strike commenced, the complaints apparently relied on the second limb of the eight-week rule. However, the complaints were later amended to rely on the dismissals having been effected on 1 May by the letter of that date, which was within the eight-week period, thus relying on the first limb of the rule.

The case was transferred from Shrewsbury to Liverpool due to the strength of feeling running against Friction Dynamics in North Wales. After a two-week hearing in October 2002, the Liverpool Employment Tribunal decided that the strikers had been dismissed unfairly.

In the tribunal's written reasons, it stated that the dismissals had taken place on 1 May (within the eight-week period), because the words of the letter unambiguously told the strikers that their contracts of employment were terminated, and that is how management intended it to be read. It went on to state that even if the dismissal date had been 28 June (after the end of the period), Friction Dynamics had not taken reasonable steps to resolve the dispute, and therefore in either event the dismissal was automatically unfair.

The significance of the Friction Dynamics case is therefore that the complaints succeeded because of the eight-week rule, not despite it, and yet Morris still wants it to be removed from the statute book.

Friction Dynamics appealed against the tribunal's decision on the grounds that it was wrong to interpret the 1 May letter as unambiguous. However, before the company's appeal could be heard, and before the tribunal had awarded any compensation to the strikers, its owner placed it in voluntary liquidation. In the long term, this was almost inevitable in any event, because as soon as compensation for 86 unfair dismissal claims became payable (which would certainly have run well into seven figures), the company would have had no real alternative other than liquidation.

The owner allegedly subsequently bought back the assets and set up a new business under the name of Dynamex Friction. On 20 August Morris wrote to Patricia Hewitt, Secretary of State for Trade and Industry, calling for the Department of Trade and Industry (DTI) to launch an investigation into the situation, saying that he believed it was merely a tactical manoeuvre designed to avoid making the compensation payments to the dismissed strikers. That call has also since been taken up by local Mps.

Legislative changes have recently been introduced which deal with part of this problem identified by Morris - namely, that where sums owed to employees following insolvency are unsecured debts, which would include tribunal awards, those debts rank below the claims of secured creditors and preferential creditors. Previously, these included the Crown in respect of unpaid PAYE, VAT and certain other taxes.

The Enterprise Act 2002, which came into force on 15 September 2003, will in many cases now ensure that at least some funds are set aside for the benefit of unsecured creditors, including such employees. The act provides that in respect of companies placed into formal insolvency after 15 September 2003, a prescribed part (between £5,000 and £600,000) of the company's assets, which are subject to a floating charge, will be set aside for payment to the company's unsecured creditors after the claims of preferential creditors (and certain costs) have been satisfied. Additionally, it provides that the Crown no longer ranks as a preferential creditor of such companies, but only as an unsecured creditor, thereby reducing the amount of prior ranking preferential claims.

Thus, unsecured creditors, including employees, will in future have a better prospect of recovering a proportion of the debts owed to them when a company goes into insolvency. Although this may be of little practical assistance to the Friction Dynamics strikers, they will at least have the comfort of knowing that, in future, employees in their position will be better protected.

Addleshaw Goddard partner Andrew Chamberlain and associate Justin Beevor are members of the firm's employment group. Both acted for Friction Dynamics in responding to the unfair dismissal claims from August 2002 until the company went into liquidation DOCE:

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