A number of Leisure Department Workers of the London Borough Council of Lewisham were “transferred” to a private company. The Transfer of Undertakings (Protection of Employment) Directive 1981 (TUPE) therefore applied to them.
A term of the contract prior to the transfer stated that pay rises could be negotiated by collective agreements(1) “from time to time” with a separate body. Parkwood later refused to be bound by the pay increases that were renegotiated after the transfer.
The central issue was whether the collectively negotiated terms of the employment contract agreed by the transferor(2) with the union bound the transferee(3)after the undertaking was transferred .
The leading case was Whent v Cartledge(4)which held that the terms or conditions of the employment contract negotiated prior to a transfer would bind the transferee following a TUPE transfer by virtue of TUPE Regulation 5.
(Regulation 5 states that a transfer of undertaking will not terminate a contract of employment. All rights and obligations under that contract will be transferred to the transferee). The Leisure Department employees argued that the new employer needed to honour the changes to their pay and conditions made under the collective agreement, even after the company had transferred.
The European Court of Justice in Werhof(5) held that although contracts in force at the time of the transfer would bind the transferee, this would not be the case for any terms negotiated after the transfer had happened. The basis of this was derived from the Acquired Rights Directive which was the underlying authority of the TUPE Regulations.
Article 3(1) states simply that all rights will be transferred. Article 3(2) however states that collective agreements will be honoured up to a year after the transfer or until termination or expiry of that agreement. Parkwood Leisure claimed this freed them from honouring any pay increases negotiated post-transfer as the transfer terminated the previous contract.
Judge McMullen QC in his Employment Appeal Tribunal (EAT) decision in Alemo-Herron decided that notwithstanding Article 3(2) of the Acquired Rights Directive, the termination/expiry restriction(6) had not been transposed into TUPE Reg 6 and that according to Article 7 the U.K. is permitted to legislate for conditions more favourable to the worker than that found in the Directive.
Whent has therefore been reinstated. Where unions and employers have agreed before the transfer that contractual collective bargaining will result in pay changes from time to time, workers will remain entitled after any transfer to receive pay increases negotiated post-transfer. Collective agreements negotiated after a transfer bind the transferee in accordance with TUPE Reg 5(1).
The EAT has allowed the employer to make an appeal on the decision in this case in the Court of Appeal.