24 June 2011

The way TUPE applies to contractual collective bargaining arrangements has been thrown into doubt, following a decision of the Supreme Court in the case of Alemo-Herron v Parkwood Leisure Limited.

Eversheds reports the following:

The point in issue is of particular significance when private sector employers take on public sector employees as part of a TUPE transfer. At its heart is this question: are public sector employees who transfer to the private sector entitled to the benefit of increases in pay negotiated under industry or sector wide bargaining arrangements after they are transferred to the private sector?

In 2010, the Court of Appeal decided that a transferee employer was only bound by the terms of collective agreements in forceat the time of the transferand not to subsequently agreed changes or new agreements. However, the Supreme Court has now rejected that approach and decided to refer the matter to the Court of Justice of the European Union (CJEU) for clarification.


The claimants were originally employed by London Borough of Lewisham under contracts that entitled them to pay 'in accordance with collective agreements negotiated from time to time by the National Joint Council for Local Government Services…'. In 2002 their contracts of employment were transferred under the Transfer of Undertaking (Protection of Employment) Regulations 1981 (TUPE) when the undertaking in which the claimants worked was outsourced to CCL Ltd. CCL was subsequently taken over by Parkwood Leisure Ltd (Parkwood), and the claimants' contracts were again transferred pursuant to TUPE.

After the transfer to Parkwood, in 2004 the Council entered into joint negotiations with trade unions as a result of which it agreed certain pay increases. Parkwood was not party to the pay negotiations and did not recognise any of the relevant unions. Nevertheless the claimants argued that they were legally entitled to the benefit of pay increases negotiated between the council and the union.

Decisions of the Employment Appeal Tribunal (EAT) and Court of Appeal

The EAT decided that, where a collective agreement is incorporated into employees' contracts and provides for terms such as pay to be determined by negotiation with the relevant union from time to time, the employees are entitled to the benefit of any post–TUPE transfer improvement in terms negotiated in accordance with that agreement. Although the case concerned the 1981 Regulations the principle is equally applicable to cases to which the 2006 TUPE regulations apply.

This decision supported the so-called 'dynamic' approach. In other words, the transferee’s obligations extended to changed terms and conditions that are agreed by a third party after the date of the transfer. The Court of Appeal overturned this decision, however. In its view, European case-law (specifically a case known asWerhof) meant that, following a TUPE transfer, any contractual liabilities arising from a pre-transfer collective agreement would cease when the collective agreement is terminated, expires or is replaced by a new collective agreement.

Decision of the Supreme Court

The case has now been before the Supreme Court, which is of the view that the law is simply not clear. On the one hand, the Court felt that had the issue been solely one of UK law, the ‘dynamic’ interpretation would apply (ie the approach taken by the EAT). What it was not sure about, however, was whether the dynamic approach is permitted by the European Acquired Rights Directive, on which the TUPE regulations are based. Although it follows fromWerhofthat the Directive does notrequireMember States to adopt the dynamic approach, the Supreme Court felt it was not clear whether Member States are actually precluded from doing so and adopting a more generous scheme of protection for employees than that mandated by the Directive. Accordingly, the Supreme Court has asked the CJEU for a ruling to clarify the law in this area.

Follow this link to read the full commentary from Eversheds