BE ALERT FEBRUARY 2010 UK | ||
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In February 2009 we reported the EAT's decision in the case of Parkwood
Leisure Limited v Alemo-Herron. Click here for our previous Be
Alert on this case. This case highlights important issues about
the rights of public sector employees when they transfer to the private
sector under the Transfer of Undertakings (Protection of Employment)
Regulations ("TUPE") on the outsourcing of public sector services.
It also has an impact for other sectors involved in business transfers
where the transferor has collective agreements in place. The EAT held that the transferee was bound by pay increases negotiated
by the transferor with a union under a collective agreement after
the TUPE transfer had taken place. The impact of this was to
potentially significantly extend the liabilities of transferees taking on
employees subject to collective agreements which could be renegotiated
from time to time. Importantly, the Court of Appeal has now overturned this decision. The full facts of this case are set out in our earlier Be
Alert. The case was concerned with the 1981 TUPE regulations but
the same principles apply under the 2006 regulations. The key issue for the Court of Appeal was to decide the breadth of
Article 3 of the Acquired Rights Directive ("Directive") and its
subsequent implementation in UK law under Regulation 5 of TUPE 1981.
These provisions essentially operate in a TUPE transfer to transfer an
employee's contract of employment from the transferor to the transferee
and to have effect as if the transferee has always been the employee's
employer. The Court of Appeal was required to decide whether to follow an
established line of domestic case law interpreting the obligations
imposed by this legislation or a later ruling of the European Court of
Justice ("ECJ"). Mr Alemo-Herron claimed that his contract with his original employer,
a council, included a provision entitling him to pay increases agreed
in accordance with collective agreements negotiated "from time to
time". Mr Alemo-Herron argued that the pay increases had become a
contractual entitlement, and when his employment was transferred to a new
employer, his new employer was liable to honour any future pay increases
under Regulation 5 TUPE 1981, just as the council would have been had it
still been his employer. Mr Alemo-Herron relied on a number of
domestic decisions in which similar claims had previously succeeded,
including Whent v Cartledge Ltd. Parkwood claimed, however, that the Whent line of authorities
had been fatally undermined by the decision of the ECJ in Werhof v
Freeway Traffic Systems GmbH & Co. Werhof postdated the
domestic decisions. In Werhof the ECJ decided that a
transferee was only bound by a collective agreement in force at the time
of the transfer. Whilst recognising that the Directive is intended
to safeguard the rights of employees in the event of a change of employer
by allowing them to continue to work for the new employer on the same
conditions as those agreed with the transferor, the ECJ found that the
Directive does not in any way indicate that a transferee must be bound by
collective agreements other than ones in force at the time of the
transfer. It said that the objective of the Directive is simply to
safeguard the rights and obligations of employees in force on the day of
the transfer. It also said that the interests of the transferee to
make adjustments and changes necessary to carry on his operations cannot
be disregarded. Finally, the ECJ said that by adopting a "static"
approach to the legislation it makes it possible to avoid a situation in
which the transferee of a business, who is not a party to a collective
agreement, is bound by future changes to that agreement, thus fully
safeguarding the transferee's right not to join an association. The Court of Appeal indicated that had it not been for the decision in
Werhof it would have found in favour of Mr Alemo-Herron. It
said that the effect of Regulation 5 TUPE 1981 is, on a transfer of an
undertaking, to preserve employees' contracts and make them enforceable
against the transferee as if the transferee were a party to the
contracts. It said that the fact that the transferee would have no
voice in the negotiations of the terms from time to time is, from a legal
viewpoint, neither here nor there, although it may well be commercially
unfortunate. However, considering itself bound by Werhof the Court found that
Article 3 of the Directive does not bear a dynamic interpretation in
relation to contractual terms providing for employment terms to be fixed
by reference to the terms of collective agreements negotiated from time to
time. Therefore, where a contract of employment refers to a
collective agreement binding the transferor, the transferee who is not
party to such an agreement, is not bound by collective agreements
subsequent to the one which was in force at the time of the transfer of
the business. The Court of Appeal said that it follows that the UK had no obligation
when enacting TUPE to do more than incorporate a burden upon transferees
that was co-extensive with Article 3 of the Directive. It rejected
Mr Alemo-Herron's argument that TUPE 1981 had given employees wider rights
than those required by the Directive and found that Regulation 5 should be
interpreted in the same way as Article 3. The Court of Appeal's findings in this case are welcome news to
employers involved in TUPE transfers who have taken on, or will be taking
on, new employees who are subject to the terms of collective agreements
which are renegotiated from time to time. These employers can now be
confident that the extent of their liabilities under collective agreements
will be governed by the terms of any such agreements in force at the time
of the transfer. | ||
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