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Dynamic Interpretation of TUPE

It is widely known that the Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”) protect employees where there is a transfer of a business or a “service provision change” (when services, such as office cleaning or staff catering, are outsourced or taken back in-house). When an undertaking transfers, the employment terms of transferring employees become binding on the new employer. 

It is quite straightforward, then, that if an employee is paid a salary of, say, £20,000 and he is then subject to a TUPE transfer, he will be entitled to receive the same salary post transfer.

But what if the employee’s pre-transfer terms and conditions incorporate the terms of a collective agreement which provide a mechanism for the effecting of future pay rises, and the new employer is not party to the collective agreement?  This is quite common, such as where the original employer recognises a particular union or is a member of a particular trade association, and the new employer has no, or different, such recognition or membership.  Will the new employer still have to give effect to pay rises negotiated in the future under a collective agreement which it is not actually party to?

The current position, based on case law, is that it will not: the new employer is bound by the terms of the collective agreement in force at the date of transfer, but not by subsequent changes.  This is termed a ‘static’ application of TUPE.  However, for a period between 1997 and 2006, the courts applied the opposite, ‘dynamic’, approach – and depending on the outcome of a case that is currently before the European Court, we might see a return to that position.

The case of Alemo-Herron and Others v Parkwood Leisure Ltd concerns a former employee of London Borough of Lewisham (“AH”).  AH’s salary was set by reference to collective agreements negotiated by the National Joint Council for Local Government Services (“NJC”). AH TUPE transferred to PL, a private sector company which was not a member of the NJC.  After the transfer, PL refused to pay AH an increased pay rate later agreed by the NJC and AH brought a claim for unlawful deduction from wages.  A tribunal rejected AH's claim on the basis that TUPE only transfers ‘static' contractual obligations existing on the date of a transfer. After a series of appeals, the matter reached the Supreme Court.

The Supreme Court referred to the European Court the question of whether ‘dynamic’ contractual obligations could in fact transfer.  In such cases, an officer of the court called the Advocate General expresses an opinion as a pre-cursor to the decision of the court.  The Advocate General’s opinion announced this week is that the UK is not precluded from applying TUPE ‘dynamically’ to give effect to collective agreements incorporated in contractual terms indefinitely following a transfer.  The European Court is not bound by the Advocate General’s opinion, but it will usually follow it.

The interim judgement of the Supreme Court strongly suggests that it favours a dynamic interpretation.

If, as expected, the European Court’s decision is consistent with the Advocate General’s opinion, businesses to whom employees have transferred, or in the future transfer, under TUPE could find themselves bound to honour changes in employment terms, such as pay rises, collectively agreed following the transfer, despite having no involvement in, or control over, the bargaining process – and perhaps without even being aware that changes have been agreed. 

Whist awaiting the final decision in Alemo-Herron, firms and companies which are to take over an undertaking by means of a business transfer or service provision change are advised to be alive to the risk associated with inheriting collective terms to which they may be actively subject post transfer.  Increased due diligence should be undertaken to asses the construction of clauses affected by collective agreements and the extent that they are contractual in nature; and, if so, regarding the remaining length of the current pay awards and whether there are any future bargaining negotiations planned.

For further information in relation to TUPE, I can be contacted on 01952 211010 or email john.merry@lblaw.co.uk.  Alternatively you can contact my colleagues Will Morse, on 01432 377152, email william.morse@lblaw.co.uk or Jennifer Gibson 01952 211025, email jennifer.gibson@lblaw.co.uk