Employment Update March 2009: TUPE

23 March 2009

Employment Group

Transferee bound post-transfer by pay rise in collective agreement

The EAT has recently handed down a startling decision on the extent to which a pre-TUPE transfer collective agreement could influence post-transfer rates of pay.

In the case of Alemo-Herron and others v Park Leisure, the 23 claimants had transferred out of local authority employment in 2002. There had then been another TUPE transfer to their current employer in May 2004.

While in local authority employment, their pay had been fixed by a collective agreement that ran for a three-year period. Their next employer had raised their pay in line with the collective agreement, but without acknowledging any obligation to do so.

In June 2004, shortly after the May 2004 transfer to their current employer, the terms of a new collective agreement (to run to 2007) were negotiated between the local authority and the relevant trade unions. The new employer took no part in the negotiations.

The claimants claimed the increase in pay provided for in that collective agreement as an unlawful deduction from their wages.

The employment tribunal decided (unsurprisingly) that the transferee employer could not be bound post-transfer by a change in employment terms over which they had had no control.
The claimants appealed and the EAT has allowed their appeal for the following reasons -

  • TUPE provides that collective rights should transfer but does not provide for how long they should last. The relevant European Directive is quite clear that collective rights should only continue for a maximum of one year post-transfer but this has not been implemented into TUPE and so (according to the EAT) the UK is free to make its own rules.

  • There was a similar case in 1997 (Whent v Cartledge) where the EAT decided that collective rights could continue, because it was always open to the transferee employer to negotiate a way out of any obligations under the collective agreement by varying or terminating the employment contracts. The EAT in the present case was heavily influenced by the fact that the employer had tacitly adhered to the terms of the collective agreement for over 2 years after the first TUPE transfer.

  • The EAT approves of a 'dynamic' rather than a 'static' approach to TUPE rights. Employment contracts often provide that earnings go up every year by a measure over which the employer has no control (e.g. in line with RPI index). Why should not such a right transfer under TUPE? 

Points to note –

  • This decision has already been appealed to the Court of Appeal. The EAT’s interpretation of TUPE could mean transferee employers who take on public sector employees also having to take on their existing pay structures ad infinitum, if this decision is allowed to stand.

  • Although the EAT suggests that this problem can be dealt with by the employer varying the employees’ contract terms, it is always difficult to do this post-transfer without the variation being held to be ‘transfer-related’ and thus void.

  • One significant factor in this case was that the collective agreement was incorporated into the employees’ contracts. As such, the pay structure could not be altered without employee consent. If this had not been the case, the transferee employer could simply have terminated the collective agreement or let it expire and it would have ceased to have any effect so far as the claimants were concerned. On a TUPE transfer, the transferee should always check employment terms to establish the contractual status of any collective agreement.

  • As this decision shows, interpreting TUPE is never easy, and mistakes may ultimately prove expensive. As we have many clients continually involved in outsourcing exercises – as both customers and suppliers – we are well-placed to give you expert advice on these issues.

 

No ‘service provision change’ where services fragmented

The case of Clearsprings Management v Ankers and others comes hard on the heels of another EAT decision (in the case of Kimberley Group Housing v Hambley) concerning a similar service provision change relating to the provision of accommodation for asylum seekers (termed "service users").

The problem is that the EAT comes to a different answer in this case – a reminder that TUPE cases are always decided on their facts.

In the Kimberley case, the service users had previously been accommodated in one hostel. There was a change of service provider and the users had been split 89%/11% between two new hostels and two new service providers. What should happen to the work force who provided the service? The EAT decided that their contracts transferred under TUPE and, as the vast majority of the activity in question had passed to one transferee, it was to that transferee alone that all liabilities as employer should transfer under TUPE.

In the case of Clearsprings, when a similar contract came to an end, the tribunal again decided that there was a service provision change but that -

  • under TUPE there could only be one transferee, which was not the case here;

  • there had been an interim period between contracts so it was not possible to identify a 'transfer date'; and

  • there was such a fragmentation of the undertaking that it was impossible to apply TUPE. In this case, the claimant employees had not been assigned to any particular service user or any particular property. Different properties were dealt with in different ways as the contract came to an end.

For these reasons, the employment tribunal decided that there had been no TUPE transfer. The EAT agreed.

The employment tribunal was wrong to suggest that there can only ever be one transferee under a TUPE transfer. In a case (such as Fairhurst Ward v Botes) where a contract was split between two transferees but each transferee had received an identifiable part of the undertaking, it was easy to say which part the claimant had been assigned to and TUPE could apply. However, that was not the case here.

Point to note –

  • When dealing with a service provision change, TUPE may now apply without the need to show that a ‘separate economic entity’ has transferred. However, the Clearsprings case is a reminder that, even if the activity remains the same pre- and post-transfer, there must be also continue to be an identifiable ‘organised grouping of employees’ for TUPE to apply. So, TUPE may not apply to every service provision change. We shall be happy to advise further.