The Court of Appeal has overturned the decision of the Employment Appeal Tribunal (EAT) in Alemo-Herron and others v Parkwood Leisure Ltd.

Parkwood Leisure Ltd. had taken over a company that acquired employees of the London Borough of Lewisham’s Leisure Department following a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The employees argued that Parkwood was bound by pay increases negotiated with the National Joint Council for Local Government Services (NJC) under a collective agreement reached after the TUPE transfer had taken place.

This had been the position in domestic case law 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. In the ECJ’s view, the Directive required a ‘static’ interpretation of the burden on transferees taking over employment contracts that incorporate terms fixed from time to time by collective agreements.

The Employment Tribunal ruled that the decision in Werhof required a decision in Parkwood Leisure’s favour and dismissed the employees’ claims.

The EAT overturned this decision. It held that a contractual term entitling council employees to pay in accordance with collective agreements is protected when there is a transfer under TUPE so as to give a right to pay increases negotiated post-transfer. Whilst 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, the EAT found that 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 and Regulation 5 of TUPE imposed ‘dynamic’ obligations upon transferees. 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.

However, the Court of Appeal ruled that in Werhof the ECJ has interpreted article 3(1) of the Directive in a limited sense and it must therefore always have had that meaning. It therefore follows that, when enacting TUPE, the UK had no obligation to do more than ‘incorporate a burden upon transferees that was co-extensive with that meaning’. Lord Justice Rimer found that the language of TUPE Regulations 5(1) and (2) sits harmoniously with that of article 3(1) and could find nothing in it to support the argument that the Regulations were intended to give employees greater rights on a transfer than those prescribed by article 3(1). The decisions in earlier domestic case law were therefore wrong and should not be followed.