New employers and post-transfer sector level bargaining

The 2014 Regulations change the law on the effect of sector or industry level collective bargaining, codifying the decision of the European Court of Justice in Alemo-Herron v Parkwood Leisure Limited [2013] EUECJ C-426/11 (see below). The effect of these changes is to deny transferred workers the benefit of any post-transfer improvements to terms negotiated under a sector-wide collective agreement, unless their new employer agrees.

Under regulation 4A of TUPE, for all transfers on or after 31 January 2014:

• where a contract term incorporates provisions of collective agreements “as may be agreed from time to time”, any provision that is agreed and comes into force after the date of transfer will not bind the transferee, unless they are a party to the collective bargaining process for agreeing the term;

• instead, the contract of employment will take effect “as if it does not incorporate” that collectively agreed term.

Under the common law, any term already incorporated into a contract of employment continues to exist independently of the collective agreement, even after the collective agreement has fallen away (Gibbons v Associated British Ports [1985] IRLR 376).

The background to this change is the decision of the European Court of Justice in Alemo-Herron v Parkwood Leisure Limited [2013] EUECJ C-426/11.

This case involved local government employees in Lewisham Council’s leisure department. Their wages were fixed by sector level collective bargaining under a collective agreement negotiated by the National Joint Council (NJC) for Local Government Services. After the employees were outsourced to Parkwood, a private sector company, Parkwood refused to honour new NJC pay settlements. It argued that not being party to the collective agreement nor involved in the negotiations, it should not be bound.

The case reached the European Court of Justice (ECJ) and the ECJ unexpectedly ruled in favour of Parkwood. The ECJ ruled that employees whose contract terms are governed by industry or sector-level collective agreements should not benefit from pay increases and other changes to contract terms negotiated under the collective agreement after the transfer date, unless the new employer is also a party to the collective bargaining machinery.

In a potentially far-reaching judgment with implications beyond the scope of TUPE, the ECJ pointed to Article 16 of the Charter of Fundamental Rights of the European Union — the freedom to conduct a business — and said that binding an employer to the outcome of negotiations to which it is not a party breaches this fundamental right.

The rest of the judgment is equally troubling, since the ECJ went on to suggest that the Acquired Rights Directive is not aimed only at safeguarding the interests of employees on a transfer but rather, that those interests should be “balanced” against the needs of the new business to make changes “necessary to carry on its operations”, especially on a private sector outsourcing, “given the inevitable differences in working conditions that exist between the two sectors”.