Dynamic transfers

Parkwood Leisure Ltd v Alemo-Herron

Although the purpose of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) is to safeguard the terms and conditions of employees after a relevant transfer, the Court of Appeal has said in Parkwood Leisure Ltd v Alemo-Herron that they do not apply to collective pay agreements negotiated post transfer to which the transferee was not a party.

Basic facts

Mr Alemo-Herron and his colleagues worked for Lewisham’s leisure department under terms and conditions set by various collective agreements negotiated from time to time with the National Joint Council (NJC) for Local Government Services.

In 2002 their contracts of employment were transferred under TUPE to CCL Limited and then again in May 2004 to Parkwood Leisure Limited. They were awarded pay increases in line with the NJC pay settlements by CCL from 2002 to 2004, and again by Parkwood in 2005. When a new NJC collective agreement took effect in 2007, however, Parkwood refused to pay up.

The claimants claimed unlawful deduction of wages, arguing that the clause in the contract relating to pay had transferred over and was therefore binding on Parkwood.

Relevant law

Article 3(2) of the 1997 European Acquired Rights Directive states that “ ... the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement”.

Tribunal and EAT decisions

The tribunal found against the claimants. It relied on the 2006 decision of the European Court of Justice (ECJ) in Werhof v Freeway Traffic Systems Gmbh & Co KG. This said that the European Acquired Rights Directive (on which TUPE is based) did not bind transferees in respect of contractual amendments negotiated post-transfer. As the negotiations for new pay rates for 2004 to 2007 started before Parkwood took over the contract, the tribunal said the company could not be bound by the new agreement.

The EAT, however, disagreed. It said that, as a result of an earlier EAT decision (Whent & ors v T Cartledge Limited), employees had more rights under TUPE than had been recognised in Werhof. It concluded that, as it would be unlikely that rights established in domestic law could be removed by the directive, TUPE preserved the rights of employees to have their wages fixed according to an external benchmark, in this case the NJC. As long as it continued to set the rate of pay, that was the rate the transferee had to pay.

Court of Appeal decision

The Court of Appeal, however, has overturned the EAT’s decision although it accepted that had it not been for the ECJ’s decision in Werhof, the claimants would have succeeded. 
Under article 3(2) of the directive, it pointed out that transferring employers were only committed to the terms of any collective agreement until it terminated, expired or was replaced.

It was therefore not difficult to reach the conclusion, as the ECJ had done in Werhof, that an employer should not be committed to contractual terms incorporated into employees' contracts by a collective agreement that was made after it had terminated, had expired or been replaced.

As a result, the provisions in the directive dealing with the transfer of contracts had to be interpreted in a limited or “static” way as opposed to a “dynamic” way as the EAT had done in the case of Whent. It had therefore been wrongly decided.

TUPE had simply implemented and given effect to what was required by the directive and domestic courts had to interpret it consistently within the meaning given to it by the ECJ in Werhof. Mr Alemo-Herron’s claim therefore must fail.