The Transfer of Undertakings Regulations, or TUPE as it is commonly known, can fill many HR professionals with fear and anxiety. Is it a first or second generation transfer? is it asset reliant or labour intensive? do we need to take on the staff? do our staff transfer over? These are just some of the many questions that can be asked.
For those that are unfamiliar with the TUPE regulations what they essentially revolve around is the obligation on a Company to retain the same terms and conditions of employment for any staff that they take on as a result of a Transfer of Undertakings.
A recent European Court of Justice (ECJ) case has provided further insight into these regulations in the case of Alemo-Herron v Parkwood Leisure Ltd,.
Background
In the case of Alemo-Herron v Parkwood Leisure Ltd,.the employees were originally employed in the public sector by the London Borough of Lewisham, and their terms and conditions provided for pay increases in accordance with collective agreements. These collective agreements were negotiated from by the National Joint Council for Local Government Services (the NJC). In 2002, the employees transferred to a private company, CCL Ltd., under TUPE following an outsourcing exercise, and in May 2004, they were transferred again under TUPE to Parkwood Leisure Ltd.
In June 2004, the NJC got agreement on a new deal that awarded a pay increase to relevant employees for the period of April 2004 to March 2007, however as only public authorities can participate in the NJC, Parkwood Leisure Ltd. , the current employees employers, was not a party to the negotiations and so declined to implement the newly agreed NJC terms. The employees subsequently brought claims for unlawful deductions from wages, arguing that, under TUPE, the contractual terms incorporating the NJC collective agreement had transferred to Parkwood Leisure, and, therefore, Parkwood was obliged to increase the employees' pay.
Multiple Appeals
A case was originally brought to the Employment Tribunal in the UK and the claim dismissed based on previous case law that an employer cannot be bound to collective agreements for employees it had inherited under TUPE. The employees appealed the decision to the EAT which overturned the Employment Tribunal decision and found in favour of the employees. Parkwood then appealed the decision to the Court of Appeal which found in their favour, which led to the employees raising the case with the Supreme Court, which subsequently referred it to the ECJ as it felt the law was unclear.
Static or Dynamic Approach?
The questions referred to the ECJ by the Supreme Court concerned whether a "static" or "dynamic" approach should be taken in interpreting TUPE. The contention made by Parkwood Leisure was that TUPE takes a snapshot of entitlements at the date of transfer and that amendments thereafter are for the employees and their new employer to agree upon together. This is referred to as the "static" approach. The employees argued that TUPE preserved their right to have the NJC set pay on an ongoing basis. This is referred to as the "dynamic" approach.
ECJ Determination
The ECJ determined that, where the transferee (in this case Parkwood Leisure Ltd.) does not have the opportunity to participate in the negotiations pursuant to a collective agreement that are concluded after the date of transfer (NJC Agreement), the outcome of these negotiations should not bind the transferee. In this case, Parkwood should not therefore be bound by any pay increase set out in the NJC collective agreement, which was agreed to after the transfer which occured in May 2004.
The ECJ ruling noted that "...directive 77/187 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."
"Since the transfer is of an undertaking from the public sector to the private sector, the continuation of the transferee’s operations will require significant adjustments and changes, given the inevitable differences in working conditions that exist between those two sectors. However, a dynamic clause referring to collective agreements negotiated and agreed after the date of transfer of the undertaking concerned that are intended to regulate changes in working conditions in the public sector is liable to limit considerably the room for manoeuvre necessary for a private transferee to make such adjustments and changes. In such a situation, such a clause is liable to undermine the fair balance between the interests of the transferee in its capacity as employer, on the one hand, and those of the employees, on the other. "
Implications
This case took the view that the static approach was best considered here, as to take a dynamic approach would undermine the fair balance between the interests of the parties, however it does not rule that dynamic agreements are unenforceable but that the static approach was preferred in this case, but that where a company is not involved int he negotiations on a collective agreement it would be unfair for them to be bound by this agreement...one can't help but think of the many businesses which were bound by industry wide collective agreements under the headings of JLCs & REAs when they may not have been a party to any negotiations.
"Article 3 of Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses, must be interpreted as precluding a Member State from providing, in the event of a transfer of an undertaking, that dynamic clauses referring to collective agreements negotiated and adopted after the date of transfer are enforceable against the transferee, where that transferee does not have the possibility of participating in the negotiation process of such collective agreements concluded after the date of the transfer."
