Transfer of Undertakings – Effect of collective agreements made after transferThursday, February 11th, 2010
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations) are the current UK implementation of the provisions of the European Acquired Rights Directive. The Directive and the domestic Regulations provide the right for employees to continue to receive the same terms and conditions of employment when their jobs are transferred to a new employer.
Regulation 5 defines what happens when employees, who are subject to a collective agreement between the original employer and a trade union, are transferred to the new employer. In that situation,
- the collective agreement is treated as having been made between the new employer and the trade union, and
- any aspect of the agreement, in relation to the employee, applies as if the new employer were party to the agreement.
On 29 January 2010, in the case Parkwood Leisure Ltd v Mark Alemo-Herron and 23 Others, the Court of Appeal ruled that Regulation 5 applies to the provisions of collective agreements in place at the time of a “TUPE” transfer but not to subsequent changes to the collective agreement.
The original employer of the employees in this case was the London Borough of Lewisham. The council’s leisure services department was transferred in 2002 to a private sector employer and, in May 2004, to Parkwood, also a private sector employer. The employees in question carried with them to Parkwood entitlement to terms and conditions that were made under a collective agreement between Lewisham Council and various trade unions, all members of the National Joint Council for Local Government Services (the NJC).
In June 2004, after the transfer to Parkwood, the NJC met and agreed new rates of pay. When Parkwood refused to apply the new NJC rates to the transferred employees, on the basis that they were not in force at the time of the transfer to Parkwood, they claimed that they had suffered unauthorised deductions from their wages. An Employment Tribunal rejected their claim but, on appeal, the decision was overturned by the Employment Appeal Tribunal. A further appeal by Parkwood brought the case before the Court of Appeal.
The Court of Appeal considered both the wording of the European Directive and Regulation 5 of the TUPE Regulations. (In fact, the Court of Appeal examined Regulation 6 of the earlier 1981 TUPE Regulations, the wording of which is effectively identical to Regulation 5 of the current Regulations.) The issue before the Court was whether the Directive and Regulations set out a “static” obligation, i.e. the new employer is obliged to apply only those terms and conditions of a collective agreement that were in force at the time of transfer, or a “dynamic” obligation, i.e. the new employer is required to apply any subsequent changes to terms and conditions made under the collective agreement.
The Court of Appeal’s decision was driven by the 2006 ruling of the European Court of Justice (ECJ) in the case Werhof v Freeway Traffic Systems, brought in relation to the German government’s implementation of the Directive. In an almost identical case, the ECJ decided that the Directive does not bind the new employer to collective agreements reached subsequent to the agreement that was in force at the time of transfer if the new employer is not a party to those later agreements. The employer, therefore, had only a “static” obligation to maintain those terms and conditions in force at the time of the transfer.
On that basis, the Court of Appeal ruled that Parkwood was not required by the TUPE Regulations to apply the later terms and conditions decided by the NJC and reinstated the original Employment Tribunal decision.
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