Collective Terms and Negotiations: are you bound post TUPE transfer?

This confirms that employees who transfer to a new organisation are not entitled to the benefit of collectively agreed terms where:

• those terms are agreed after the date of transfer; and
• the new organisation was not a party to the negotiation of those terms.

The decision provides welcome clarification on the position of collective agreements following a TUPE transfer and settles contradictory case law on this point.

Brief facts

The Claimant worked for the London Borough of Lewisham.  Under his contract, his salary was set by reference to collective agreements negotiated by the National Joint Council for Local Government services (NJC).  The Claimant transferred under TUPE to a private sector company (Parkwood Leisure) who was not a member of the NJC.  After the TUPE transfer, Parkwood Leisure refused to pay an increased pay rate that had been agreed by the NJC after the transfer.

The Claimant claimed an unlawful deduction from wages, arguing that the contractual clause referring to the NJC bound the private sector employer post-transfer.  On its journey through the UK Tribunal system, following various appeals by both parties, it became necessary for a reference to be made to the ECJ to determine whether the intention of TUPE was intended to be ‘dynamic’, meaning that TUPE preserved the right for the employee to have the NJC set his pay on an on-going basis, or whether the approach should be ‘static’, meaning that TUPE takes a ‘snap shot’ of entitlements at the date of transfer and that any amendments thereafter are for the employee and the new employer to agree upon together.

ECJ decision

The ECJ concluded that the correct approach is a ‘static’ approach. In making its decision, the ECJ noted that TUPE aims to ensure a balance between the interests of transferred employees and the new employer.  The transfer must therefore enable the new employer to be in a position to make lawful adjustments and changes necessary to carry on its operations post-transfer, something of much significance in a transfer from the public to the private or voluntary sector where different employment terms and conditions operate.

Our thoughts

The ruling means that ‘dynamic’ clauses which seek to incorporate collectively agreed terms agreed after the date of transfer will not be binding on the new employer (unless they are a party to the collective agreement).  This is a very welcome decision for organisations that employ staff that have previously been employed in the public sector as it provides a new level of certainty and control over things such as salary changes post transfer where pay rates are set by collective agreement.  They will still be bound by incremental rises agreed pre-transfer.  Employers of transferred staff will now need to consider the arrangements they put in place to deal with pay review post transfer.

The other element of interest is that the ECJ made comments that following a transfer an employer must “be able to assert its interests effectively in a contractual process to which it is party and to negotiate the aspects determining changes in the working conditions of its employees with a view to its future economic activity”.  It will be interesting to see how this impacts on the Government’s proposed changes to the provisions of TUPE concerning post-transfer changes to be announced in September.  This comment also raises a question that has not previously been considered by the courts in detail. Should contract terms relating to pay awards determined by the Government, for example pay awards in the NHS, be given a static or dynamic interpretation?  Our view is that much will still come down to the wording of the contracts in question.

If you have any questions in relation to this briefing or require further information on the effects of this decision on your organisation, please contact Kate Watkins on 0121 212 7494, kate.watkins@anthonycollins.com or Matthew Wort on 0121 214 3501, matthew.wort@anthonycollins.com.

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