TUPE and post-transfer changes to collective agreements

PPMA WEBSITE EMPLOYMENT LAW UPDATE June 2011 (4)

 

TUPE and post-transfer changes to collective agreements

 

Previous updates on this site have reported on cases concerning the provisions of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) relating to the protection of collectively agreed terms and conditions which apply to employees who are transferred to a new employer. In particular, what is the position where a change, negotiated by a third party, occurs to the terms of any such collective agreement after the transfer? Is the new employer, who is not a party to that agreement, bound by any such changes? Should a “dynamic” or “static” interpretation to the relevant TUPE provision be applied?

 

In the case of Werhof v Freeway Traffic Systems GmbH & Co KG, the European Court of Justice (ECJ) held that Article 3(1) of the Acquired Rights Directive, which transfers contractual obligations existing on the date of a transfer and which is implemented in the UK by way of the TUPE Regulations, does not bear a “dynamic interpretation”, i.e. terms and conditions under a collective agreement negotiated by a third party only operate until that agreement terminates or expires or is replaced by another agreement.

 

However, there have been conflicting decisions in the domestic courts on this issue. In the case of Whent & ors v T Cartledge Ltd, the Employment Appeal Tribunal applied a “dynamic” approach to the relevant TUPE provision, finding that the transferee employer was bound by the NJC agreement which was incorporated into the relevant employees’ contracts of employment. This included the rates of pay which were agreed subsequent to the transfer by the NJC. Although this provided transferring employees with greater rights than had been recognised in Werhof, it was open to the UK Government to grant greater protection when implementing the Directive.

 

But in the case of Parkwood Leisure Ltd v Alemo-Herron & ors. the Court of Appeal determined that a “static” interpretation, rather than a “dynamic” one, should be applied. Domestic cases, such as Whent, which allowed for pay to be set in line with third parties post-transfer decisions, were wrong in the light of the ECJ decision in Werhof and should not be followed. This meant that the transferee employer did not need to give effect to a pay increase agreed under the relevant collective agreement where that was agreed after the transfer had taken place. The transferee employer was only bound by rights under collective agreements in force at the date of the transfer. 

 

The Parkwood Leisure case has now progressed to the Supreme Court which has decided to refer the issue to the ECJ. The Supreme Court considered whether it is open to a national court to extend domestic legislation implementing a provision of a European Directive to areas not included within that Directive’s scope. It was recognised by the ECJ in the case of Criminal Proceedings against Lindqvist that there is nothing to prevent a member state so doing, provided no other provision of Community law precludes it.

 

The Supreme Court then considered whether a dynamic interpretation of the relevant TUPE Regulation was precluded by the relevant EU Article. Having referred to the ruling in Werhof, the Court considered the answer to this question was not clear and therefore decided to refer the matter to the ECJ.

 

This comes at a time when there has been debate about the so-called “gold-plating” of domestic legislation implementing EU Directives, with the TUPE Regulations identified by the Government as one area for potential regulatory reform. The continuing drive for cost savings and efficiencies in public service provision, the use of outsourcing and development of other alternative service delivery arrangements, also means that employers are seeking greater flexibility in relation to pay and terms and conditions of employment. The outcome of this referral to the ECJ is therefore likely to be watched with interest and will be reported in a future update on this site.