Driving a hard bargain

The Court of Appeal has recently ruled on the effect of TUPE on collective bargaining arrangements. Tamsin Wallace and Mark Hammarton analyse the judgement.

In Alemo-Herron v Parkwood Leisure Limited, the Court of Appeal has reversed the EAT’s decision that a private sector service provider had to pay public sector pay increases, some four years after the date of the TUPE transfer, because TUPE operated to pass that liability to them via contractual collective bargaining arrangements.

This decision overrules previous UK case law and reflects the Court’s application of a more recent European Court of Justice (ECJ) case on the same subject matter. Whatever the reason for this surprise about-turn, it will come as welcome relief for many employers, particularly private sector employers who have taken on public sector employees as part of a TUPE transfer.

Background

The facts of this case concerned the application of TUPE to outsourcing in the public sector. There was a collective agreement, incorporated into contracts of employment, which provided for collective bargaining for the employees who transferred, as well as other employees left behind. Collective bargaining continued with new yearly pay increases being agreed for the employees left behind. The question arose as to whether those pay increases also had to be applied to the outsourced employees who now worked for a service provider that had had no input into the annual pay negotiations, did not recognise the unions involved and was not a party to the collective agreement.

The EAT and Court of Appeal decisions

The answer from the EAT was "Yes", reflecting previous EAT case law raising the same or similar issues. However, the Court of Appeal has now answered "No", relying on a recent ECJ decision which it applied in full on the basis that it was indistinguishable from the case before them.

In summary, the ECJ decided that the Acquired Rights Directive (from which TUPE is derived) did not intend a transferee employer to be bound by any collective agreement other than one in force at the time of the transfer. In other words, those liabilities arising from a collective agreement incorporated into the contract of employment, which transfer under TUPE, will cease when the collective agreement is terminated, expires or is replaced by a new collective agreement. This interpretation, noted the ECJ, was consistent with the objective of the Directive, which is merely to safeguard the rights and obligations of employees in force on the day of the transfer and not those flowing from future changes to collective agreements.

Applying this decision to the facts of the case before the Court of Appeal, the transferee was no longer bound by the public sector collective agreement as it had been comprehensively revised after the transfer.

Comment

This case will affect the private and third sector providers of services who will not be bound by changes in the negotiating framework after the transfer date in those sectors, such as education (which are predominantly in the public sector) where sector or industry wide bargaining is in place. This is also positive news for the public sector customers as they are frequently "picking up the wage bill" (at least partly), depending of course on the terms of the commercial contract.

It is not beyond doubt that this is a final and settled position and an appeal in this or a comparable future case may arise. The arguments on either side seemed fairly balanced. As an aside, the case also gives some encouraging comments on the ability of a transferee to agree new terms to supersede those it inherits, notwithstanding well known legal principles which restrict an employer's scope to agree detrimental changes under TUPE. This will be of increasing interest as private sector service providers come under pressure to drive down costs as, in common with their public sector clients, they are required to provide the same (or even more) for less cost.

Tamsin Wallace is an associate and Mark Hammerton a partner at Eversheds. Tamsin can be contacted via This email address is being protected from spambots. You need JavaScript enabled to view it. and 0845 498 7734, while Mark can be reached through This email address is being protected from spambots. You need JavaScript enabled to view it. and 0845 497 1791 respectively.