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TUPE and sector-level bargaining
[ch 12: pages 481-483]The CRTUPEAR 14 have changed the way the law treats contract terms that are agreed through sector- or industry-level collective bargaining, after a TUPE transfer, codifying a decision of the European Court of Justice in Alemo-Herron v Parkwood Leisure Limited [2013] EUECJ C-426/11.
In summary, these changes deny transferred workers the benefit of any improved contract terms (such as pay increases) that are negotiated through national, sector or industry level collective bargaining after the transfer date, unless the new employer agrees to the improved terms:
Local government employees in Lewisham Council’s leisure department had their wages fixed by sector-level collective bargaining under a collective agreement negotiated by the National Joint Council (NJC) for Local Government Services. The leisure service contract was outsourced to Parkwood, a private company. Parkwood refused to honour new NJC pay settlements, arguing that since it was not party to the collective agreement, nor involved in the negotiations, it should not be bound by its terms.
The case reached the European Court of Justice (ECJ) which unexpectedly agreed with Parkwood. It ruled that employees whose contract terms are governed by industry or sector-level collective agreements cannot 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, the ECJ suggested that binding an employer to the outcome of negotiations to which it is not a party is a breach of Article 16 of the Charter of Fundamental Rights of the European Union — the freedom to conduct a business.
The ECJ suggested that the Acquired Rights Directive is not aimed only at safeguarding the interests of employees on a transfer. Instead those interests must be “balanced” against the needs of a 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”.
Alemo-Herron v Parkwood Leisure Limited [2013] EUECJ C-426/11
A new regulation 4A, TUPE (regulation 7, CRTUPEAR 14) was enacted to give effect to the Alemo-Herron ruling. It says:
• 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 transfer date will not bind the transferee, unless they are one of the parties to the collective bargaining process for agreeing the term;
• instead, the contract of employment will take effect “as if it does not incorporate” the collectively agreed term.
In other words, the new employer is no longer obliged to honour employees’ contractual rights to have their pay determined by national or sector level collective bargaining. After the transfer date, their pay and conditions will remain fixed until they are changed through negotiation with the new employer.
These changes have affected all transfers since 31 January 2014.
Outsourcing the cuts – the impact of Alemo Herron
A report by The Smith Institute sponsored by UNISON and published in September 2014: Outsourcing the cuts – pay and employment effects of contracting out, shows that unions’ concerns about the Alemo-Herron ruling are being borne out. Public sector cuts are being passed on to lower paid workers, the two-tier workforce is returning, and the gap between the two tiers is widening. In all of the organisations studied, the need to make cost savings in response to public spending cuts was the key driver of outsourcing. The report also found that the successive re-tendering of contracts and reconfigurations of services has produced a “staggering array” of different terms and conditions among workers providing the same public service. And when staff move to the private sector, transparency around their pay decreases.
A key finding of the report is that although employees who have been transferred from the public to the private sector have retained their public sector pensions (as Fair Deal requires – see page 476), new joiners are typically not being offered adequate pensions. Outsourcing, warns the report, is leading to “a massive levelling down of pension provision over the longer term for public service workers”, “insufficient to provide an adequate pension in retirement”. The report also cites evidence of employers offering incentives (such as less damaging cuts to pay) to encourage low-paid employees to opt out of their public-sector pension.
The full report is available from the website of the Smith Institute (www.smith-institute.org.uk/wp-content/uploads/2015/09/Outsourcing-the-cuts.pdf).