Originally published March 2010
'Static' interpretation of wage-fixing
clause in transferring employees' contracts
In Parkwood Leisure v Alemo-Herron and others the Court of
Appeal has resolved a long-running argument about the effect of a
TUPE transfer on contract terms and conditions which are negotiated
under a collective agreement.
The basic rule under TUPE is that employees should transfer on
their existing contract terms and the transferee employer is
legally bound by them. However, the effect of TUPE on a relevant
collective agreement is that, although it also transfers, it can be
terminated immediately by the transferee. But what if the contract
provides that terms and conditions (including pay) will be in
accordance with a collective agreement negotiated from time to time
by a third party (typically a committee with members drawn from
various employers and trade unions)?
Is that, in effect, a contract term that survives the
transfer?
In the past, it has been suggested in some UK cases, notably
Whent v Cartledge decided in 1997, that as a contract term
it should be preserved.
However, the ECJ stated in the more recent 2006 case of Werhof
v Freeway Traffic Systems GmbH that this 'dynamic'
interpretation would mean the situation could continue
indefinitely, with future collective agreements affecting a
transferee employer who is not entitled to be a party to them. That
employer's fundamental right of freedom of association (one of
the rights protected by the European Convention of Human Rights)
would be infringed.
The Court of Appeal in the present case has preferred a
'static' interpretation – the transferee employer
is only bound by obligations (such as pay settlements) already
agreed to at the date of the transfer. Thereafter it is free to
negotiate with the workforce as it pleases.
Decisions in cases such as Whent were wrong and should not
be followed.
Point to note -
- This decision will be extremely helpful to would-be transferees tendering for outsourcing contracts from the public sector. They must be clear on the current terms and conditions of transferring employees, for which they will become responsible. However, thereafter they cannot have future contract changes imposed on them – though they must of course be careful not to impose transfer-related variations, which will be deemed void. We shall be happy to advise further.
Meaning of 'affected employees' and the
'special circumstances' defence
In Unison v Somerset County Council and others the EAT was
asked to consider a TUPE transfer where it had been agreed that
certain council employees (the 'in-scope' employees) would
be seconded to a joint venture company ('the company')
established for the purpose by transferor and transferee.
Negotiations had been protracted, lasting over two years, but in
the last few days of negotiations, agreement was reached on how the
company would carry out any future recruitment.
It had been suggested by the transferor that any such vacancies
should be advertised internally, first to all council employees,
and then to all 'in-scope' employees before it was
advertised publicly. However, the final agreement protected council
employees in a different way. The company simply undertook that the
proportion of seconded staff working for it on council business
would never fall below 70%.
The relevant trade union claimed that there had been a failure to
consult with representatives of 'affected employees' as
required by TUPE reg 13. It argued that, for these purposes,
'affected employees' could include council employees who
were not 'in-scope' but who might have benefitted from the
internal advertising of future vacancies in the company that had
been originally proposed. Under the final agreement these employees
would only learn of any vacancies at the same time as any external
applicants.
The EAT disagreed. 'Affected employees' includes only
–
- Those individuals who will or may be transferred;
- Their old colleagues at the transferor employer who will not transfer but whose jobs might be in jeopardy;
- Their new colleagues at the transferee employer whose jobs might also be in jeopardy.; and
- Those individuals who have internal job applications pending at the time of the transfer.
As the claimants were not 'affected employees' they
could not complain of a failure to consult.
Points to note -
- This is a helpful decision for employers as there is no definition of 'affected employees' in the TUPE Regulations themselves.
- The employers (transferor and transferee) had also argued that, even if the claimants were 'affected employees', there were special circumstances which justified any failure to consult over what were last minute changes in terms made against a background of fast-moving, uncertain, events and an approaching deadline. The EAT indicated that it saw nothing wrong with that argument. TUPE reg 13(9) provides a 'special circumstances' defence but in previous reported cases it had seemed that such a defence would only be allowed to succeed in extraordinary circumstances. Now it seems that this may not be the case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.