The EAT has held that a transferee remains bound by pay increases negotiated post-transfer under a collective agreement to which the transferee is not a party in the case of Alemo-Herron v Parkwood Leisure Limited (EAT).
This case follows the earlier EAT decision in Whent v Freeway, that where terms of an employee’s contract of employment are expressly governed by collective bargaining machinery, those elements continue to be governed by that machinery after the transfer. This is the case even if the transferee is not and has never been a party to that collective process.
Some doubt had previously been cast on this approach (“the dynamic approach”) in 2006 when the ECJ held in the case of Werhof v Freeway that the Acquired Rights Directive (ARD) did not bind transferees in respect of contractual amendments negotiated post-transfer between transferor and union under a collective agreement (“the static approach”).
This decision will be particularly relevant to many private sector employers who inherit the liabilities of former public sector employee as part of the outsourcing of a former public function. The key implications are:
- Although collective agreements are not usually legally binding, the rights under such agreements may be incorporated into individual contracts of employment which will therefore transfer under TUPE.
- Where the collective agreement between transferor and union continues to exist after the transfer because only part of the bargaining unit has transferred, the transferred employees will be able to force the transferee to comply with any terms that are collectively agreed between the transferor and union after the transfer, even though they are not a party to the agreement.
- Although the EAT considered that the transferee in this case could have taken steps to negotiate a variation of the employees’ contracts so that the collective agreement was not incorporated, this would not necessarily be straightforward or achievable as this change would be “connected to the transfer” and therefore void.
- Although the case was decided under old TUPE, the same principles will apply under TUPE 2006. In effect such transferred former public sectors employees will enjoy more favourable rights under TUPE 2006 then the ARD.
However, this case has already been appealed to the Court of Appeal which may re-assert the static approach adopted by the ECJ in Werhof.
This case involves former employees of the London Borough of Lewisham (LBL) employed in the leisure department, who had been employed on standard Council contracts providing that (a) their terms and conditions were in accordance with collective agreements negotiated by the National Joint Council for Local Government Services (NJC); and (b) that they were paid according to pay scales agreed by the NJC.
In 2002, the employees were transferred under TUPE from LBL to CCL Limited. At the date of transfer the employees’ pay was determined by a collective agreement entered into in 2001 (the original agreement) and CCL continued to pay them in line with the original agreement.
In May 2004, the employees were subject to a further TUPE transfer to Parkwood Leisure Ltd. The 2001 agreement expired following the transfer and a new collective agreement was negotiated by the NJC (the subsequent agreement). Parkwood gave pay increases in line with the subsequent agreement in 2005, but without acknowledging that it was liable to do so.
The employees brought a claim for unlawful deductions from wages, arguing that Parkwood was obliged to award pay increases in line with the 2004 agreement for 2006 to 2008.
The Employment Tribunal held that the subsequent agreement was a new agreement, and that the original agreement had expired. As a result, the employees were not entitled to receive pay rises in line with the subsequent agreement.
The employees appealed to the EAT and this appeal was upheld.
Both parties on appeal agreed that the domestic position was as set out in the case of Whent, if there was no reference to the ARD.
However, Parkwood argued that the position was changed by the ECJ decision in Werhof which meant that, while the transferee will be bound by the terms of a collective agreement which applies at the time of the transfer (even if they are not a party to that agreement), this only applies until the date of termination or expiry of the collective agreement or entry into force or application of a new collective agreement. The ARD does not require the transferee, who is not party to such an agreement, to be bound by collective agreements subsequent to the agreement in force at the time of the transfer.
The employees argued that the ARD could not change the position under domestic law and to support this argument relied on the fact that it was open for a member state to provide more favourable rights to employees than they would receive under EC legislation.
The EAT agreed with the employees and held that an ECJ judgment could not change the established position under domestic law, and therefore allowed the appeal. The Employment Tribunal had therefore erred in following the ECJ case of Werhof rather than Whent. What appears to have particularly played in the mind of the EAT is that the aim of both TUPE and the ARD is to protect employee rights, and it would be odd if existing domestic rights were affected by an interpretation of the directive.
The EAT gave permission to appeal to the Court of Appeal and an appeal has subsequently been lodged.