TUPE – Post-Transfer Obligations And Public Sector Employees

In a case (Alemo-Herron and others v Parkwood Leisure Ltd.) that will be of interest to private sector employers who have taken over, or who are considering acquiring, undertakings that were previously part of the public sector, the Employment Appeal Tribunal (EAT) has held that a contractual term entitling council employees to pay in accordance with collective agreements negotiated by the National Joint Council for Local Government Services (NJC) is protected when there is a transfer under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) so as to give a right to pay increases negotiated post-transfer.

This had been the position until the European Court of Justice held (Werhof v Freeway Traffic Systems) that the objective of the Acquired Rights Directive, which the TUPE Regulations transpose into UK law, is to safeguard the rights and obligations of employees at the date of the transfer but not to protect contractual terms giving them a right to pay increases negotiated after the transfer has taken place.

Article 3(2) of the Directive provides that the transferee shall continue to observe the terms and conditions agreed in any collective agreement until the date of termination or expiry of the agreement or the coming into force of another collective agreement but that Member States may limit the period for observing such terms and conditions provided it is not less than a year. However, the TUPE Regulations have no corresponding provision limiting a worker’s rights.

Member States are free to introduce domestic laws that are more favourable to workers than is required by the Directive they implement. The EAT therefore held that Parkwood Leisure Ltd., which took over a company that had acquired, under a TUPE transfer, employees of the London Borough of Lewisham’s Leisure Department, was bound by pay increases negotiated by the Council with the NJC under a collective agreement reached after the TUPE transfer had taken place. Even though the new employer was not a party to the negotiations, the employees’ terms were still so determined because it was in their contracts of employment.

The EAT gave permission for Parkwood Leisure Ltd. to appeal to the Court of Appeal.

Says Emmanuelle Ries; “When contemplating bidding for a public sector service or function being privatised, it is important to consider all the ramifications, legal and financial. In a recent example, a company tendering for a public sector contract realised that, if it won, it would have to take on six employees in their mid-forties who were in a final-salary scheme. This would have added more than 20 per cent to the cost of employing the transferees.

We can advise you to ensure that your decision is made after consideration of all the relevant factors.”

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© , July 2009

Please contact:

Emmanuelle Ries

DD +44 (0)20 7553 9938

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