No Dynamic Interpretation of TUPE

On 22 February, I blogged regarding the interpretation of TUPE where transferring employees' contracts provide that their terms are to be determined in accordance with collective agreements.

As things then stood, it appeared that the European Court was going to allow a ‘dynamic’ interpretation that would have meant that 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.

In the case of Alemo-Herron and Others v Parkwood Leisure Ltd, the salary of an employee of the London Borough of Lewisham was set by reference to collective agreements negotiated by the National Joint Council for Local Government Services (“NJC”). The employee TUPE transferred to Parkwood Leisure, a private sector company which was not a member of the NJC.  After the transfer, Parkwood Leisure refused to recognise an increased pay rate that was later agreed by the NJC and the employee brought a claim for unlawful deduction from wages.  Consistent with the case law at the time, a tribunal rejected the claim on the basis that TUPE only transfers ‘static' contractual obligations existing on the date of a transfer. However, after a series of appeals, the matter reached the Supreme Court, and it 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 European Court is not bound by that opinion, but it will usually follow it; and the opinion was that the UK is not precluded from applying TUPE dynamically to give effect to collective agreements incorporated in contractual terms indefinitely following a transfer.  Further, the interim judgement of the Supreme Court strongly suggested that it favoured a dynamic interpretation.

However, the European Court has held that the UK courts cannot adopt a dynamic interpretation of TUPE; and in light of this, the static approach will stand. This is highly significant for public sector outsourcing exercises, and any other transfer situation where a workforce is subject to collective bargaining arrangements which the incoming employer is not party to.

In its decision, the European Court placed emphasis on the principle of freedom of contract. This is noteworthy.

Notoriously, in what is known as the Daddy’s Dance Hall case, the Court long ago held that a variation to a transferred employee's contract is ineffective if the transfer is the reason for the variation, even where the variation is consensual. This has caused considerable problems for transferees, such as when seeking to harmonise terms and conditions following a transfer or, say, make transferring employees subject to effective restrictive covenants.

In a consultation paper on TUPE, which was published in January 2013, the Government proposed to amend TUPE to provide that a transferee and an employee can agree contractual changes in the same way as an employer and employee are able to if no transfer has taken place. This proposal seems contrary to the Daddy's Dance Hall decision, but is consistent with the principle of freedom of contract espoused by the European Court this week. The Government has said that it intends to publish its response to the consultation by September.

For further information in relation to TUPE, contact me (T: 01952 211010; email, Chris Piggott (T: 01952 211 011; email or Will Morse (T: 01432 377152; email