In Alemo-Herron v Parkwood Leisure Limited the claimants' contracts provided that their terms and conditions were "in accordance with collective agreements negotiated from time to time".  Prior to a TUPE transfer a series of pay increases had been agreed by the negotiating body (made up of local authority employers and trade unions).  These were honoured by the transferee.  A subsequent collective agreement entered into after the transfer provided for pay increases going forward.  The issue was whether the transferee, which did not recognise the union and was not a party to the collective negotiations that took place after the transfer, was bound by the new pay rates contained in that agreement, over which it had no control.

The issue is particularly relevant in situations where employees who have traditionally been subject to collective bargaining (typically the public sector) subsequently transfer to employers who do not recognise unions or bargain collectively.

Previous UK cases established the "dynamic" approach – TUPE could apply so that a transferee was bound by the terms of a collective agreement to which it was not a party and which were agreed after a transfer had taken place.  But more recent European Court decisions questioned whether this was permitted under the Acquired Rights Directive on which TUPE is based.  The Court of Appeal in Alemo-Herron favoured this alternative ("static") approach, but the Supreme Court decided it was an issue that had to be referred to the European Court.

The European Court's preliminary view was that the "dynamic" approach is not prohibited by the Directive.  Unusually, the European Court has not followed this, deciding instead that where the transferee cannot participate in the negotiation of the collective agreement after the transfer, the static approach is the correct one after all.  The Supreme Court is now likely to uphold the Court of Appeal decision.

The Government's consultation paper on possible changes to TUPE considers the issue of on-going collective agreements, containing a suggestion that the length of time that a transferee must honour the existing terms and conditions agreed as part of a collective agreement prior to a transfer should be limited to one year following transfer.  At the end of that year, they could be varied even if the transfer itself is the reason for the variation (for example, on a harmonisation), although there might be some level of protection against adverse changes.  The Directive allows member states to do this, provided the period is not less than one year, so taking up this option fits with the Government's "no gold plating" approach.  Now that the static approach has been sanctioned by the European Court the proposal is likely to feature again in the official response to the consultation, which we are expecting in September.