Parkwood Leisure Ltd v Alemo-Herron and others [2010] EWCA Civ 24 CA

transfer of undertakings | collective agreements | pay increase after transfer

The Court of Appeal has restored an employment tribunal decision that a transferee was not bound by the terms of a pay increase made under a collective agreement that was incorporated into the contracts before the transfer, where the increase was made under an agreement reached after the transfer in which the transferee played no part.

The employees were originally employed by the London Borough of Lewisham. In 2002, they were transferred under the TUPE legislation to CCL Ltd. In 2004, they were TUPE transferred to Parkwood Leisure Ltd. Under their contracts of employment with Lewisham, they were paid in accordance with collective agreements negotiated with the National Joint Council for Local Government Services (NJC). After the first transfer, CCL increased the transferred employees' pay in line with the NJC pay settlements between 2002 and March 2004. However, Parkwood, which took no part in the collective negotiations, did not make pay awards reflecting the agreed NJC increases. The employees complained to an employment tribunal that Parkwood had made unauthorised deductions from their wages. They argued that TUPE protected their terms and conditions of employment on transfer to CCL, and thereafter to Parkwood. Parkwood contended that it was not obliged to increase the transferred employees' pay in accordance with the relevant collective agreements negotiated from time to time. The tribunal held that the collective agreement in force from 2001 was comprehensively renegotiated and revised in 2004. At that point, it said, the old agreement expired, and was replaced by the new agreement. Thereafter, Parkwood was no longer bound by the collectively agreed pay terms.

The employees appealed to the Employment Appeal Tribunal (EAT) (Alemo-Herron and others v Parkwood Leisure Ltd [2009] IRLR 322 EAT), relying on the EAT decision in Whent and others v T Cartledge Ltd [1997] IRLR 153 EAT. In Whent, the EAT held that, following a TUPE transfer, the terms of the collective agreement incorporated into the transferred employees' contracts will bind the transferee, even if it withdraws from collective participation and is not party to the negotiation. The employer argued that Whent had been superseded by the European Court of Justice (ECJ) decision in Werhof v Freeway Traffic Systems GmbH & Co [2006] IRLR 400 ECJ. The ECJ based its decision on what is now art.3(3) of the Acquired Rights Directive (2001/23/EC). This provides that, following a transfer, the transferee shall continue to observe the terms of a collective agreement until such time as it is terminated or expires, or a new collective agreement comes into force. It further provides that member states can limit the continued application of a collective agreement following a transfer to a period of one year. Accordingly, the ECJ held that the transferee, which was not a member of the negotiating body, was not bound by a fresh collective agreement reached after the transfer. It agreed with the employer that the clause in the employment contract referring to collective agreements was “static” and that only the collective agreement in force at the time of the transfer applied. The ECJ disagreed with the employee’s argument that the clause was “dynamic”, and could refer to collective agreements concluded after the date of the transfer.

The EAT in the present case noted that the ECJ in Werhof had relied on (what is now) art.3(3) of the Directive, but that this provision limiting the applicability of collective agreements had not been transposed into the TUPE legislation. The EAT held that member states are free to introduce legislation that is more favourable to the workers within its scope than the relevant Directive. The TUPE Regulations had done just this. Accordingly, neither this part of the Directive nor Werhof was helpful in determining the case. The tribunal remained limited by the earlier case law, ie Whent, and should have concluded that the employer was bound by the fresh collective agreement. Parkwood appealed to the Court of Appeal.

The Court of Appeal held that, according to Werhof, art.3(1) of the Directive (under which the transferor’s rights and obligations arising under the contract or employment relationship transfer to the transferee) does not require a dynamic interpretation to circumstances such as those in Werhof, where there is a contractual clause for terms to be fixed by reference to a collective agreement negotiated from time to time. Instead, a static interpretation of the transferee's obligations in this regard is required. The Court of Appeal disagreed with the employees’ argument that TUPE imposes a dynamic obligation on transferees (although without Werhof this argument might have been supported). TUPE does not expand the rights in the Directive. Decisions such as that in Whent were wrong under an interpretation of TUPE that should be favoured following Werhof. The Court of Appeal allowed Parkwood's appeal and restored the employment tribunal decision.

Case transcript of Parkwood Leisure Ltd v Alemo-Herron and others (on the BAILII website)

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