Alemo-Herron

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 determined by reference to a sector-level collective agreement negotiated by the National Joint Council (NJC) for Local Government Services, a body which included representatives from the trade unions and the local authority employers.

Their employment transferred under a TUPE transfer to a private sector company, Parkwood Leisure, that did not recognise trade unions. Parkwood refused to honour new NJC pay settlements after the transfer date. 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) which unexpectedly ruled in favour of Parkwood. The ECJ said 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 ECJ also used the judgment to suggest that the Acquired Rights Directive is not aimed only at safeguarding the interests of employees on a transfer but instead, 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”.

www.bailii.org/eu/cases/EUECJ/2013/C42611.html

As explained on page 8, this judgment marks an unwelcome shift in the ECJ’s approach to TUPE. The Alemo-Herron case will return to the Supreme Court in 2014, but in the meantime, the government has already codified the judgment for all transfers on or after 31 January 2014 with new Regulation 4A of TUPE.

Regulation 4A(2) states simply that the contract of employment shall have effect post-transfer “as if it does not incorporate the collective agreement”. The government’s intention is for the employee’s contract terms to be frozen at the date of the transfer — the so-called “static approach” intended by the ECJ in Alemo-Herron.

Under the common law, any term that has already been 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).