Court of Appeal Reverses EAT Decision

In March 2009 we reported on a case where the Employment Appeal Tribunal allowed the transferral of benefits for employees who had moved from a public to a private sector environment, The Court of Appeal has now reversed the EAT’s decision, in this article Sarah Lamont explains more…

24/02/2010

Back in March 2009, we reported on the case of Alemo - Herron and others v Parkwood Leisure Ltd, (click here to read the case) where the Employment Appeal Tribunal held that employees who had transferred from a public sector body to a private sector employer were entitled to the benefit of pay rises, post transfer, set by a collective agreement that applied during their employment in the public sector, even though the private sector employer was not a party to the collective agreement.  The Court of Appeal has now given judgment on the appeal brought by Parkwood and reversed the EAT’s decision. 

Background

The Alemo case concerns the divergent position created by the UK EAT case of Whent and Others v Cartledge and the European Court’s decision in Werhof v Freeway Traffic Systems Gmbh & Co KG.

In Whent, the EAT held that where the collective agreement was incorporated into the employees' contract, the employees were entitled to the benefit of later pay rises set by the collective agreement, even though the new employer was not a party to it (known as the “dynamic approach”).

However, in Werhof, the ECJ (interpreting the Acquired Rights Directive – the “Directive”) held that, in similar circumstances, the employees benefit from the collectively agreed terms in a "static" rather than "dynamic" sense. This means the transferee is bound by the terms in force at the date of transfer (i.e. these terms remain ‘static’) but not by subsequent collective agreements to which it is not a party.

Facts

Now, let’s recap on the facts and background of this dispute. 

In Alemo - Herron and others v Parkwood Leisure Ltd the employees were once employed by the London Borough of Lewisham. When employed by Lewisham, their terms of employment entitled them to be paid in accordance with collective agreements negotiated by the National Joint Council for Local Government Services (NJC).

In 2002 Alemo- Herron and others (the “employees”) transferred under TUPE to CCL Ltd, a private sector employer. In May 2004 they were transferred again to Parkwood Leisure Ltd.

The employees were awarded pay increases in line with the NJC by CCL until 2004. In 2004, after the transfer to Parkwood, the NJC negotiated a new collective agreement. Parkwood was not party to those pay negotiations and refused to recognise the subsequent pay increases. The employees brought a claim for unlawful deduction from wages, arguing that Parkwood was obliged to award pay increases in line with the 2004 agreement.

EAT Decision

The EAT decided that the ECJ judgment could not change the established position under UK law, where, as was the situation here, the UK law was more favourable to employees than the Directive. Therefore, the employees were entitled to the benefit of later pay rises set by the new collective agreement, even though Parkwood was not a party to it and it had not been in place at the time of the TUPE transfer to Parkwood. This confirmed the “dynamic” approach.

Click here to read the Court of Appeal Decision

The Court of Appeal took a different approach.  Reversing the decision of the EAT, it held that that regulation 5(1) TUPE 1981 (and one would assume the equivalent provisions in regulation 4 TUPE 2006) should be given a "static", rather than "dynamic" interpretation, in accordance with the ECJ’s interpretation of the Directive in Werhof.  The private sector employer is therefore not bound by collective agreements made after the date of transfer.

Rimer LJ, who gave the leading judgment, commented that if it were not for the Werhof decision, the Court would have interpreted regulation 5(1) in the same way as the EAT and the employees’ case would therefore have succeeded.  However, the UK was only bound to provide the protection to employees afforded by the Directive.  Whilst the UK could have decided to give employees greater rights than provided for in the Directive, the Court held that it was “unable to detect anything in the language” of regulation 5(1) TUPE 1981 to support this contention.  The Court therefore reasoned that the decision of the ECJ in Werhof should be followed and the appeal upheld.

Transferees will welcome this decision as they will no longer be obliged to honour collective agreements entered into after the date of the transfer.

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