In an important case providing helpful clarification of the law, the Court of Appeal has ruled in favour of a "static" interpretation of collective agreements when there is a relevant transfer under TUPE. It held that, where employees have a contractual right to pay rises negotiated under a collective agreement, any pay increases negotiated after the transfer do not bind the transferee (Parkwood Leisure Ltd v Alemo-Herron).

The claimants were originally employees of the London Borough of Lewisham and transferred to the private sector under TUPE. They claimed that a contractual term entitling them to have their pay set "in accordance with collective agreements negotiated from time to time by the National Joint Council for Local Government Services" (NJC) was protected under TUPE and therefore that Parkwood was legally obliged to award increases negotiated by the NJC after the transfer, even though it was not a party to that collective agreement.

Previously, there had been a conflict between UK and European case law on this issue. The ECJ had held that the rights of employees under collective agreements are "static" and that the transferee is bound only by the agreement in force at the time of the transfer, not any subsequent negotiations under it. However, the EAT had held that TUPE as interpreted by the UK courts gives more favourable rights to employees than the Acquired Rights Directive and that the rights of employees under collective agreements were "dynamic", entitling them to the benefit of annual pay increases negotiated under a collective agreement after the transfer date, even where the transferee was not a party to the collective agreement.

The Court of Appeal disagreed with the EAT, holding that it was bound to follow the decision of the ECJ. The employees therefore failed in their claim. Parkwood was bound only by the terms in existence at the date of the transfer and not by the subsequent pay increase.

Impact on employers

  • The decision related to TUPE 1981, but will also apply to TUPE 2006 as the wording of the relevant regulations is broadly the same.
  • This case is of particular importance to the public sector and to private sector employers who inherit public sector employees, but is equally relevant to any business that inherits employees whose pay is collectively negotiated.
  • This decision will be welcomed by employers, who will only be obliged to honour the terms incorporated into the contracts of transferring employees as at the transfer date. They will not be bound, following the transfer, by agreements entered into after that date to which they are not a party and over which they have no influence.