The EAT has recently handed down a startling decision on the extent to which a pre-TUPE transfer collective agreement could influence post-transfer rates of pay.

In the case of Alemo-Herron and others v Park Leisure, the 23 claimants had transferred out of local authority employment in 2002. There had then been another TUPE transfer to their current employer in May 2004.

While in local authority employment, their pay had been fixed by a collective agreement that ran for a three-year period. Their next employer had raised their pay in line with the collective agreement, but without acknowledging any obligation to do so.

In June 2004, shortly after the May 2004 transfer to their current employer, the terms of a new collective agreement (to run to 2007) were negotiated between the local authority and the relevant trade unions. The new employer took no part in the negotiations.

The claimants claimed the increase in pay provided for in that collective agreement as an unlawful deduction from their wages.

The employment tribunal decided (unsurprisingly) that the transferee employer could not be bound post-transfer by a change in employment terms over which they had had no control. The claimants appealed and the EAT has allowed their appeal for the following reasons -

  • TUPE provides that collective rights should transfer but does not provide for how long they should last. The relevant European Directive is quite clear that collective rights should only continue for a maximum of one year post-transfer but this has not been implemented into TUPE and so (according to the EAT) the UK is free to make its own rules.
  • There was a similar case in 1997 (Whent v Cartledge) where the EAT decided that collective rights could continue, because it was always open to the transferee employer to negotiate a way out of any obligations under the collective agreement by varying or terminating the employment contracts. The EAT in the present case was heavily influenced by the fact that the employer had tacitly adhered to the terms of the collective agreement for over 2 years after the first TUPE transfer.
  • The EAT approves of a 'dynamic' rather than a 'static' approach to TUPE rights. Employment contracts often provide that earnings go up every year by a measure over which the employer has no control (e.g. in line with RPI index). Why should not such a right transfer under TUPE?

Points to note –

  • This decision has already been appealed to the Court of Appeal. The EAT’s interpretation of TUPE could mean transferee employers who take on public sector employees also having to take on their existing pay structures ad infinitum, if this decision is allowed to stand.
  • Although the EAT suggests that this problem can be dealt with by the employer varying the employees’ contract terms, it is always difficult to do this post-transfer without the variation being held to be ‘transfer-related’ and thus void.
  • One significant factor in this case was that the collective agreement was incorporated into the employees’ contracts. As such, the pay structure could not be altered without employee consent. If this had not been the case, the transferee employer could simply have terminated the collective agreement or let it expire and it would have ceased to have any effect so far as the claimants were concerned. On a TUPE transfer, the transferee should always check employment terms to establish the contractual status of any collective agreement.
  • As this decision shows, interpreting TUPE is never easy, and mistakes may ultimately prove expensive. As we have many clients continually involved in outsourcing exercises – as both customers and suppliers – we are well-placed to give you expert advice on these issues.