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Boost for private sector employers as Court of Appeal limits scope of TUPE

9 February 2010

Staff who worked for Lewisham Council’s leisure services department before it was outsourced cannot continue to benefit from pay rises negotiated by trade unions under a national collective agreement, the Court of Appeal has unanimously ruled.

The leisure services department was outsourced to CCL in 2002. There was a further TUPE transfer in May 2004 from CCL to Parkwood Leisure.

The workers’ contracts provided that their terms and conditions were in accordance with collective agreements negotiated by the National Joint Council for Local Government Services.

The question was whether Parkwood was bound by an agreement between the National Joint Council and the trade unions concluded in July 2004, after it had become the employer.

Lord Justice Rimer said the workers’ claim that TUPE gave them this protection would have been “unanswerable” had it not been for the ECJ decision in Werhof v Freeway Traffic Systems GmbH & Co KG [2006] IRLR 400.

Delivering judgment in Parkwood Leisure v Alemo-Herron and others [2010] EWCA Civ 24, he said the case depended on interpretation of article 3(1) of directive 2001/23/EC and regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 2006.

“The effect of regulation 5 of TUPE is, on a transfer of an undertaking, to preserve employees’ contracts and make them enforceable against the transferee as if the transferee were a party to the contracts,” he said.

“Thus the term in question would in principle be enforceable against the transferee just as it would have been against the original employer. The fact that the transferee may have no voice in the negotiation from time to time of the terms provided for by such provision is, from a legal point of view, neither here nor there.

“It may be commercially unfortunate from the transferee’s perspective, but it is one that appears to be visited upon it by regulation 5, one implemented for the purpose of achieving the great objective of the directive, namely the safeguarding employees’ rights on the transfer of an undertaking.”

Rimer LJ said the ECJ’s ruling in Werhof had “put all that in question”. He said the facts of the European ruling were indistinguishable from the Lewisham Council case.

He said that the ECJ in Werhof had given article 3(1) a “static” rather than “dynamic” interpretation and the duty of domestic courts was to interpret regulation 5 of TUPE in this light. As a result, previous domestic decisions were wrong and should not be followed.

Lord Justice Rimer allowed the appeal and restored the decision of the employment tribunal. Lady Justice Smith and Lord Justice Ward agreed.

Charles Newman, partner at Beachcroft, said the case would come as a welcome relief for private sector employers who take on outsourced contracts and will now no longer be bound by pay increases negotiated after the transfer.

“TUPE is a particularly complex area for employers, and the EAT decision in this case had highlighted just how some TUPE decisions can lead to unfortunate results in practice from a commercial point of view,” he said.

“The EAT decision had decided that if a private sector employer inherited a workforce under TUPE that had had the benefit of trade union negotiated pay rises under a national collective agreement, the new employer could still be bound in the future by future negotiations between the old employer and the trade unions, even though the new employer would not be a party to those negotiations, and would have no input into them whatsoever.”

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