Supreme Court refers key TUPE case to European Court of Justice

The Supreme Court has asked the European Court of Justice to rule on whether a group of former council employees could continue to benefit from nationally agreed pay and terms set by local government pay negotiations when they were subsequently TUPE-transferred to another employer.

The case of Parkwood Leisure v Alemo-Herron and others [2011] UKSC 26 involved 24 individuals originally employed by the London Borough of Lewisham in its leisure department.

The council subscribed to the National Joint Council for Local Government Services (NJC). The employees’ contracts said that their terms and conditions would be in accordance with the “collective agreements negotiated from time to time by the NJC…..supplemented by agreements reached locally through the council’s negotiating committees”.

In 2002 the staff were TUPE-transferred to CCL, a private sector provider. At the time there were collectively agreed terms setting out pay rates from 1 April 2002 to 31 March 2004.

Subsequent NCJ settlements provided for further pay increases, but Parkwood refused to increase the employees’ pay in line with those agreements. The appellants brought claims for unauthorised deduction from wages. They lost at an Employment Tribunal, but won at an Employment Appeal Tribunal.

The Court of Appeal then found in favour of Parkwood, basing its decision on the ECJ decision in Werhof v Freeway Traffic Systems GmbH & Co KG (Case C-499/04) [2006] ECR I-2397. According to the Court of Appeal, the ruling in Werhof meant TUPE only applied to the first transfer – ie ‘statically’ – rather than ‘dynamically’ to later ones.

The Supreme Court has now unanimously agreed to refer the case to the ECJ for a preliminary ruling on whether Article 3(1) of Directive 77/187/EEC (the Business Transfers Directive) – which TUPE implements in domestic law – precluded national courts from giving a ‘dynamic’ interpretation.

Giving the judgment of the court, Lord Hope said domestic legislation enacted so as to give effect to the UK’s EU obligations must be construed so as to conform to those obligations, so far as possible to do so. Two questions arose in this case:

• Whether regulations 5(1) and 5(2) TUPE were designed to be more generous than Article 3(1) of the Directive, as interpreted by Werhof
• If not, whether it was open to the national court to construe those regulations more generously because that is not precluded by Article 3(1) of the Directive.

On the first question, Lord Hope said Parliament must be taken to have intended to do no more in enacting the regulations than implement Article 3(1). It was not possible to infer that Parliament had intended to endorse the ‘dynamic’ interpretation which had been given to Regulation 5 in the existing domestic case law.

On the second question, the judge said it was open to a national court to extend the scope of national legislation implementing a Directive to areas not included within the scope of the Directive, provided that no other provisions of EU law precluded it.

The scope of Article 3 had now been interpreted by the ECJ in Werhof. German law provided for a ‘static’ approach, i.e. that collectively agreed rules become part of the employment contract with the content that they possess at the time when the business is transferred and are not updated after the transfer. The ECJ said such an approach was not precluded by Article 3(1).

But Lord Hope agreed that the question in Parkwood Leisure was a different one: namely, whether a member state was precluded from extending the protection afforded to employees on transfer, so as to provide ‘dynamic’ protection, where that would be the consequence of an application of domestic contract law.

The judge said it was not possible to infer from Werhof how the ECJ might have answered that question. The Directive’s aim, Lord Hope said, was to promote approximation, not harmonisation, of law. It was not to affect the right of member states to introduce laws more favourable to employees.

The judge also pointed out that in Werhof the ECJ had taken into account the new employer’s right not to join an association or union, protected by Article 11 of the European Convention on Human Rights. That had been of relevance there because of the way German employment law dealt with collective agreements. It was not a concern in the Parkwood Leisure case, because the matter depended entirely on the domestic law of contract.

Lord Hope therefore concluded that the question as to whether national courts were precluded from giving a dynamic interpretation in the circumstances of the case should be referred to the ECJ for a preliminary ruling.

Although the Supreme Court declined to give a ruling, Unison general secretary Dave Prentis nevertheless hailed its decision as a victory for fairness.

“We always believed that we had a strong case,” he said. “This decision has wide ranging implications for the hundreds of thousands of other workers already transferred out of the public sector, or due to be outsourced. They may now have the right to wages and conditions they would have enjoyed at their old employer - despite being contracted out.”