The In-House Lawyer

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (formerly 1981) (TUPE) were introduced into UK law to give effect to EU legislation protecting employees’ rights in the event of a transfer of a business (Acquired Rights Directive 2001/23/EC, formerly 77/187/EC). The effect of TUPE is to transfer most employment terms from the transferor to the transferee, so that it is as if the employment contract was originally made between the employee and the transferee. The transferee will therefore clearly be bound by any terms of the employees’ employment contracts that were negotiated before the transfer.

In 2006, in Werhof v Freeway Traffic Systems GmbH & Co KG, the European Court of Justice (ECJ) held that transferees were not bound by agreements negotiated between the transferor and a trade union after the transfer.

However, in the recent case of Alemo-Herron & 23 ors v Parkwood Leisure Ltd, the Employment Appeal Tribunal (EAT) took a different stance.

FACTS in Alemo-Herron

The claimants were 23 employees who had been transferred under TUPE to the respondent company. The claimants’ employment contracts included a clause providing that their terms and conditions of employment (including salaries) would be in line with those negotiated from time to time under a collective agreement.

The claimants had originally transferred under TUPE from the London Borough of Lewisham (with which the collective agreement had been made) to a company in 2002 and then to the respondent in 2004.

After the second transfer (ie to the respondent company), negotiations between the original employer – the London Borough of Lewisham – and the unions took place for new rates of pay to cover the period from 2004 to 2007.

The respondent (which, incidentally, did not recognise the trade union) refused to pay the employees’ salaries in accordance with the rates negotiated between the original employer and the trade union. The respondent argued that it was not obliged to adhere to a collective agreement and make payments under it after a certain period following the inheritance of the contracts of employment under TUPE.

The claimants contended that the respondent was obliged under TUPE to comply with the terms of their contract of employment, which included the clause relating to setting pay levels.

EMPLOYMENT TRIBUNAL (ET) decision

The ET found in favour of the respondent company. It relied on the fact that the collective agreement existing between 2001 and 2004 had expired and had been replaced by the new agreement starting in 2004, which was negotiated after the second transfer to the respondent. The claimants appealed.

EAT decision

The EAT allowed the claimants’ appeal. It held that the respondent was obliged to pay the claimants their salaries at the rates negotiated after the transfer by the original transferor (London Borough of Lewisham) and the trade union. The employment contracts had transferred and were binding on the respondent company as transferee – this included the contractual clause for regulating future wages (described as a ‘dynamic clause’). This was notwithstanding that the wages would be fixed according to an external benchmark set by collective bargaining.

The EAT carefully considered the ECJ case of Werhof but found that the UK was entitled to interpret EU law in a way that was more favourable to employees than was required under EU law.

COMMENT

This decision will not be welcomed by companies acquiring staff under TUPE. In a TUPE situation, it is often the case that incoming transferred staff are on different terms and conditions from existing staff. However, it is one step further to say that those incoming staff’s future pay will be set by negotiations between parties completely unconnected with the transferee company.

The respondent has been given permission to appeal to the Court of Appeal (CA). It will be interesting to see if the CA takes a less employee-friendly approach.

By Emma Vennesson, associate, Salans. E-mail: evennesson@salans.com.