If a collective agreement transfers under TUPE, are its terms carved in stone on the date of the transfer?  Earlier this year, the Court of Appeal said, yes, as a matter of contract, they are – what is in the agreement on the transfer date remains ‘static’, so that the transferee is only bound by what has been agreed at the date of the transfer.  But the Employment Appeal Tribunal has, this month, come to the opposite conclusion in respect of any terms in a collective agreement that are affected by legislative changes.  The EAT also clarified the circumstances in which a collective agreement may be incorporated into a contract of employment.  As we enter an era of shared services, outsourcing and joint working, the application of TUPE will be key, and Alec Bennett provides a summary of this important case.

The background

Employees’ rights on a change of employer are protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), and the provisions relevant to this case are those that set out that:

  • the rights and obligations of the transferring employer (the ‘transferor’) arising from an employment contract transfer to the incoming employer (the ‘transferee’); and
  • the transferee must comply with any collective agreements in force at the date of the transfer (regulation 5).

Taking the above into account, a key issue for consideration on a TUPE transfer is which terms are incorporated into employees’ contracts, as these will transfer with the employee. 

In general, for a term to be incorporated into a contract of employment, it must be either:

  • an express term (such as in a written contract of employment), or
  • an implied term (for example, implied by statute or custom or practice).

Express terms may be incorporated into a contract of employment by reference to a separate document (such as a staff handbook).

The facts

Mr Worrall started his employment with Birmingham City Council in 1971.  In 1993, the Council and its trade union entered into a collective agreement relating to redundancy and redeployment.  Clause 3.2 of that agreement set out that the Council had a discretion to award 5 ‘added years’, in accordance with the Superannuation Regulations, for employees who took voluntary redundancy.  This provision was contained in the Council’s Personnel Handbook.

In April 2001, Mr Worrell employment was TUPE transferred from the Council to a private sector company called ‘Serviceteam’; he was then transferred from Serviceteam to Morrison plc, and in April 2008 he was transferred under TUPE from Morrison plc to Wilmott Dixon Partnership Limited, the Respondents in this case.

Mr Worrell applied for voluntary redundancy and was accepted, but Wilmott Dixon informed Mr Worrell that he was not entitled to his ‘added years’ under the Superannuation Regulations.  The company stated that this was because the statutory discretion to award ‘added years’ under clause 3.2 of the collective agreement had been removed by the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006.

In Worrall and others v Wilmott Dixon Partnership Limited, the Employment Appeal Tribunal (EAT) had to consider:

  • whether the collective agreement set out in the Personnel Handbook was incorporated into Mr Worrall’s contract of employment and had, therefore, transferred under TUPE; and
  • if the collective agreement had transferred, whether the agreement had ‘frozen’ at the date of transfer, or whether it could be amended by subsequent legislative changes so that Mr Worrall would not be entitled to his ‘added years’. 

The decision

Was the collective agreement incorporated?

The EAT decided that the collective agreement, set out in the Personnel Handbook, was not incorporated into Mr Worrall’s contract of employment.  This was because the handbook was simply ‘made available’ to Mr Worrall; there was no evidence that he had received the handbook, or that he had notice of its terms or had agreed to them.

Mr Worrall also argued that the collective agreement was contractual because it was referred to in a letter to transferring employees which listed policies that would transfer, and because the company did not dispute Mr Worrall’s entitlement under the collective agreement when dealing with his grievance about the ‘added years’.  The EAT gave both these arguments short shrift, and said that a list of transferring policies does not give those policies contractual effect; and neither does the absence of protest from the transferee when referring to those policies.

Did the collective agreement ‘freeze’ at the date of transfer?

The EAT considered the case of Parkwood Leisure Limited v Alemo Heron (Court of Appeal, January 2010) and Werhof v Freeway Tram System GmbH & Co (European Court of Justice, March 2006), which set out that the rights of parties crystallised at the time of the transfer and subsequent changes to a collective agreement could not be relied on by transferred employees (for more information please see the February 2010 edition of Employment Eye).  

Whilst the EAT agreed with Parkwood and Werhof, it felt that the same principles did not apply to changes to a collective agreement effected by legislative developments.  Therefore, subsequent statutory changes could not be ignored.

This meant that the 2006 regulations, which removed the ‘added years’ entitlement from the collective agreement, had to be taken into account and, therefore, Mr Worrall’s right to those ‘added years’ no longer existed.

What does this mean for me?

This decision means that, on a TUPE transfer, the terms of a collective agreement will be a mixed bag of:

  • ‘static’ terms, which will not be subject to future modifications negotiated after the transfer; and
  • terms which are affected by legislation, and may change, either before or after the transfer.

Therefore, when undertaking due diligence prior to a transfer, remember that any terms in a collective agreement that are subject to statutory regulation (for example, any terms that refer to statutory limits, such as ‘a week’s pay’ or ‘default retirement age’) may be subject to change.  Equally, when applying the rights of employees under a collective agreement acquired by a TUPE transfer, check that those rights have not been abolished or amended by statute.