A key question being considered at the moment is whether under the
Transfer of Undertakings (Protection of Employment) Regulations (TUPE),
the continued contractual right to benefit from collective agreements on the
transfer of employees to a new employer is either:
- a ‘dynamic’ right (whereby the transferee is bound by collective terms as at the date of the transfer and any re-negotiation of those terms post transfer); or
- a ‘static’ right (whereby the transferee is only bound by the collective terms agreed as at the date of the transfer).
Parkwood Leisure Ltd v Alemo-Herron & ors [2011]
The Supreme Court has determined that a reference should be made to the European Court of Justice (ECJ) for a preliminary ruling on whether or not Article 3(1) of the Acquired Rights Directive (the Directive) regarding the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses ‘precludes’ the domestic legislation of member states from giving a dynamic rather than a static interpretation to collective agreements.
Please note that this case relates to TUPE 1981, however, the same principles would apply under the current TUPE 2006 provisions.
Facts
The 24 claimants were originally employed by the London Borough of Lewisham and within their contracts there was an express clause which incorporated the local government National Joint Council (NJC) terms and conditions. The express clause also provided that the claimants’ salary would be determined ‘in accordance with collective agreements negotiated from time to time’ by the NJC.
The claimants transferred in 2004 to Parkwood Leisure Ltd (PLL). Also in 2004 the NJC negotiated pay enhancements and the claimants claimed that they should be entitled to the renegotiated terms.
PLL accepted that it was bound by any collective agreements negotiated at the time of the transfer, however it disputed that it was bound by any terms renegotiated after the transfer had taken place.
PLL specifically referred to the ECJ’s decision in the German case of Werhof v Freeway Traffic Systems GmbH and Co KG [2006]. Under this case, Regulation 5(1) of TUPE was held to have a narrower meaning than had previously been thought. The ECJ concluded that the Directive does not ‘require’ a dynamic approach. As a result, PLL argued that it cannot be made liable for enhanced pay or other obligations that result from a post-transfer collective bargaining process.
Referral to the ECJ
The main issue before the Supreme Court was to what extent there was room for giving a different meaning to Regulation 5 of TUPE from that indicated by Werhof as to the meaning of Article 3(1) of the Directive.
It is noteworthy that TUPE 2006 regulations brought in the concept of ‘service provision change’ as a type of relevant transfer. However, it has been long accepted that this captures more transfers than the Directive. Therefore, there is already precedent for the domestic legislation to go beyond the Directive.
Comment
Article 7 of the Directive permits member states to introduce laws that are more favourable to employees. So it is open to domestic legislation to interpret Regulation 5 ‘dynamically’ provided there is nothing in Werhof that prevented this.
While we eagerly await the ECJ decision, it should be made clear that the static interpretation of TUPE remains good law. Therefore at present employers should only be liable for collective agreements that have been negotiated as at the transfer date. We all should be aware that this could change in light of the ECJ decision and it is therefore advisable to keep an eye on this case.
There is currently no certain outcome on this interesting point. Due to this uncertainty there may well be increased opposition to proposed transfers from unions as the future rights of the transferring staff could be affected by this decision. If static interpretation is confirmed, this would be positive news for employers who transfer public sector employees as part of a TUPE transfer.
Employers should also consider including contractual provisions into your commercial contracts relating to potential future liabilities that could be incurred if the ECJ decides that a dynamic approach can be taken by UK courts. It is also advisable for employers to address the potential future costs through bid prices or review mechanisms.
Going Forward
The TUPE regulations are to be reviewed by the government with the aim of improving efficiency and reducing bureaucracy. As part of this review it may be necessary for the government to consider the permitted limitation in Article 3(2) of the Directive, which puts a time limit on the need to observe collective agreements to a year after the transfer date. It is widely thought that this limitation would not be implemented by the government, particularly given the recent unrest in the public sector.
One thing that is clear is that some tweaks will be made to the TUPE regulations. Let’s all hope that these prove to be less of a burden for employers than the current situation.
By Mini Setty, associate, and Joanne Frew, partner, DWF LLP.
E-mail: mini.setty@dwf.co.uk; joanne.frew@dwf.co.uk.
Parkwood Leisure Ltd v Alemo-Herron & ors [2011] UKSC 26
Werhof v Freeway Traffic Systems GmbH and Co KG [2006] IRLR 400
DWF’s writers can be reached via the DWF LinkedIn group ‘In Touchº - Keeping In-House Lawyers Informed’.
