The Supreme Court has referred to the ECJ the issue of employees’ rights following a TUPE transfer where their contracts provide for pay to be set by a collective agreement negotiated by the transferor and union. An earlier EAT decision adopted a “dynamic” approach allowing employees to benefit from post-transfer pay increases agreed by the transferor, whereas the Court of Appeal considered that pay rights are frozen at the time of the TUPE transfer. The Supreme Court agreed that the Court of Appeal’s static approach complies with EU law and that Parliament intended TUPE to do no more than give effect to EU law in this respect. However, it referred to the ECJ the question of whether EU law precludes our national courts from interpreting TUPE more generously in order to give effect to ordinary principles of contract law. If the answer is no, there is a strong indication that the Court will side in favour of reverting to the dynamic approach.

The issue is likely to be of most relevance to transferees taking on businesses or service contracts which were originally public sector, where such collective agreements are more common. Transferees may wish to reflect the risks in their position on price and indemnities. (Parkwood Leisure v Alemo-Herron, SC)

Another decision concerning post-transfer equal pay claims represents better news for transferees. It is well-established that the preservation of terms under TUPE can provide a gender-neutral defence to equal pay claims. The EAT has now confirmed that the mere passage of time does not change this – TUPE can remain the reason for the pay differential years later. Provided the decision to continue the pay gap is not tainted by direct or indirect sex discrimination, the employer will still be able to establish a defence. In this case the reason for continuing the disparity was to comply with the comparator’s contractual right to the firm-wide level of pay increase and was therefore gender-neutral.

Although this ruling is good news for transferees, they should continue to look out for statistical gender bias between the higher and lower paid groups. This could be sufficient to establish prima facie indirect discrimination requiring the transferee employer to objectively justify a failure to address the disparity. There may also be sound industrial relations reasons to bring about a gradual realignment of salary levels after a TUPE transfer. (Skills Development Scotland v Buchanan, EAT)