The battle of Alemo-Herron v Parkwood

The European Court of Justice has handed down a keenly-anticipated decision on TUPE and collective agreements. Graham Richardson looks at the lessons to be learned.

In the ‘ping-pong’ ascension of Alemo-Herron and others v Parkwood Leisure Ltd from the South London Employment Tribunal all the way to the Court of Justice of the European Union (the “ECJ”), judgment has been given on whether a ‘static’ or ‘dynamic’ interpretation of the Transfer of Undertaking (Protection of Employment) Regulations 2006 (the “TUPE Regulations”) is required by the Acquired Rights Directive (the “Directive”), and has at last given a measure of clarity on what has for some time been an uncertain area of TUPE.

This case is particularly important in the case of transfers from public sector employers, where collective agreements are common.

Legal background

The TUPE Regulations provide that on a relevant transfer, the employees of the transferor will transfer to the transferee on their current terms and conditions of employment.

This can cause significant issues where collective agreement terms as in force ‘from time to time’ are incorporated into the employees’ contracts of employment. Is the transferee in a TUPE transfer in such circumstances bound only by the provisions in force at the time of the transfer (the ‘static’ approach), or are they required to honour collective agreement terms agreed after the transfer (the ‘dynamic’ approach)? This has long been a source of legal uncertainty, with different courts taking different approaches. However, in the case of Alemo-Herron the ECJ has at last provided some clarification.

Facts

In Alemo-Herron, the employees’ claim arose out of two relevant transfers under the predecessor of the TUPE Regulations. First, in 2002, the claimants transferred from the employment of the London Borough of Lewisham to CCL Limited, and secondly, in May 2004, the claimants’ employment transferred again to Parkwood Leisure Limited (“Parkwood”).

The employees’ contracts of employment provided that the terms of their employment would “be in accordance with collective agreements negotiated from time to time by the National Joint Council for Local Government Services” (the “NJC”). In July 2004, the NJC announced (after consultation with various unions, but without consultation with Parkwood) increased rates of pay applicable from April 2004 to March 2007.

Whilst Parkwood accepted that it was bound to honour collective agreement terms negotiated prior to the transfer, it refused to comply with the collective agreement terms negotiated after the transfer. As a result, Mr Alemo-Herron, together with 23 fellow employees, brought a claim for unlawful deduction from wages in the South London Employment Tribunal.

The parties’ legal arguments

The ECJ had previously held in Werhof v Freeway Traffic Systems that ‘dynamic’ obligations would not pass to a transferee under the German Civil Code and that a ‘static’ interpretation of the Directive was permitted. Relying on Werhof, Parkwood submitted that it was not bound by the NJC’s collective agreement terms implemented after the relevant transfer, and, in addition, that the right to freedom of association prevented a ‘dynamic’ approach.

The claimants’ case was that Werhof did not restrict a ‘dynamic’ interpretation of TUPE. The Directive specifically permits member states to implement rules more favourable towards employees, and the claimants argued that the UK Government had intended TUPE to grant employees wider rights. This assertion was supported by domestic case law preceding Werhof, including Whent v Cartledge. In Whent, the EAT had held in favour of the ‘dynamic’ approach, stating that where the terms of a collective agreement were incorporated into an employee’s contract of employment, this could not be affected by their employer’s unilateral withdrawal from the collective agreement.

While the Employment Tribunal found in favour of the employer based on a “static” interpretation, the employees appealed. The case then made its way up the court system, with progressively higher courts reaching different decisions and those decisions being appealed, until the case reached the Supreme Court, who referred the question of whether the “static” or “dynamic” approach was correct to the ECJ.

The ECJ ruling

In the ECJ ,the Advocate General in his Opinion favoured a “dynamic” interpretation. However, a different approach was taken by the ECJ in its judgment, with the ECJ ruling in favour of a largely static approach.

The Article 16 right of freedom to conduct a business was crucial, and Parkwood’s inability to take part in the NJC negotiations was considered to limit this right. Consequently, the Directive would not permit member states to widen employees’ rights to the extent argued by the employees in the current case, because such measures would be “liable to adversely affect the very essence of the transferee’s freedom to conduct a business”.

The facts of the case, particularly, the fact that the transfer was from the public to the private sector, meant that on transfer, Parkwood’s operations would “require significant adjustments and changes”. A ‘dynamic’ approach to the transfer would inevitably limit Parkwood’s scope to make such adjustments, which would be “liable to undermine the fair balance between the interests of the transferee… and those of the employees”.

Comment

The judgment is particularly relevant in the context of employees transferring under the current TUPE Regulations from the public sector to the private sector. Of specific note is the ECJ’s conclusion that the Directive “does not aim solely to safeguard the interests of employees in the event of transfer of an undertaking, but seeks to ensure a fair balance between the interests of those employees, on the one hand, and those of the transferee, on the other. More particularly, it makes clear that the transferee must be in a position to make the adjustments and changes necessary to carry on its operations”. It will be interesting to see whether these observations are taken up in future TUPE case law, as historically TUPE has been primarily seen as an employee protection measure.

In the ECJ’s ruling, where a transferee employer “does not have the possibility of participating in the negotiation process” with respect to collective agreement terms concluded after a relevant transfer, the transferee will only be required to comply with collective agreement terms in place at the transfer date. Public sector organisations must however remember that the ruling is likely only to be relevant where the transferee has no possibility of taking part in the negotiation of collective agreement terms. Importantly, the ECJ did not reach a finding that collective agreements could never be “dynamic” in the context of a TUPE transfer.

A recent Government consultation on changes to the TUPE Regulations invited views on whether there should be a one-year limit on the length of time that a transferee must honour employment terms agreed as part of a collective agreement prior to a TUPE transfer. Such a proposal would be likely to be welcomed by many transferee employers. In its consultation the Government indicated that it was awaiting the Alemo-Herron decision, and the impact of this decision on the Government’s proposals remains to be seen.

Graham Richardson is a Director at Bond Dickinson LLP. He can be contacted on 0844 984 1500 or by This email address is being protected from spambots. You need JavaScript enabled to view it..