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Employment Law

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22 FEB 2013

The Dynamic Do-over: The Advocate General’s opinion in Alemo-Herron

What's the point of the TUPE? Other than terrorising HR professionals and inspiring books as good as this one, that is? Its essential function is simple: to protect the employment and the terms and conditions of employees affected by a change in the ownership of the undertaking they work in or (for now at least) by a change in the identity of the provider of a service. The eye-popping complexity for which TUPE disputes are famous arises from trying to apply that simple principle to the messy business that is real life employment. The CJEU is presently pondering one example of the conceptual difficulties that can be thrown up in Alemo-Herron and others v Parkwood Leisure Limited C-426/11 and Advocate General Cruz Villalon has just delivered his opinion.

The employees in the Parkwood case started out working in the Public Sector. More specifically, they worked for Lewisham LBC dealing with leisure activities. As local government employees, their terms and conditions were negotiated by the National Joint Council for Local Government Services. The NJC is a body which gathers together trade union representatives and local government employers. They negotiate the core terms and agreements applicable to local government employees. Those terms are set out in what is known as "the Green Book". Other terms are then settled by local collective agreements. The contracts of employment issued to individual employees usually provide that where the NJC agrees new terms those terms will be incorporated into the employee's contract. Thus, if the NJC agrees a pay rise, all employees then have a contractual entitlement to receive that increase.

In 2002 Lewisham contracted out its leisure services. The employees, as a result, found themselves in the Private Sector. A further transfer brought them into the employment of Parkwood Leisure Limited.

In 2004 a dispute arose about pay. At the heart of the dispute was a very simple question: who was to decide what pay the employees should receive? Parkwood had a simple answer: they were the employer so they decided what to pay their own employees. Not so fast! Lurking ominously in the corner was TUPE and TUPE cannot abide simple answers. The employees countered with their own answer: the NJC continued to set their pay. The argument runs as follows: "Our contracts of employment with Lewisham said that our pay was set by the NJC. When we transferred our terms and conditions were protected. Specifically, the term which provides for our pay to be set by the NJC was protected." If the employees were right that meant that Parkwood would have to pay its employees at rates set by a negotiation that they could not participate in.

The two different arguments about how TUPE works have been given handy labels. Parkwood's contention that TUPE takes a sort of "snapshot" of entitlements at the date of transfer and thereafter amendments are for the employees and their new employer to agree is known as the "static" approach. The employees' argument that TUPE preserved their right to have the NJC set pay on an ongoing basis is known as the "dynamic" approach. The CJEU has been asked by the Supreme Court to decide which approach is the correct one.

The Advocate General favours the dynamic interpretation. He observes that Article 3(3) of Directive 2001/23 (the European Directive that TUPE implements) permits the dynamic approach and notes that there is a line of UK authority giving effect to it. He also points out that the Directive allows Member States to set a limit (subject to a minimum of a year) on the continued effect of transferred collective agreements. The UK did not take advantage of that opportunity. He is further influenced by the fact that the parties, he says, are free to agree to a variation of the contract that would remove the reference to the collective negotiations.

The Advocate General's last point is a difficult one. Parties are not entirely free to agree to vary contracts post-transfer. Any variation, even if expressly consented to, will be ineffective if "the sole or principal reason for the variation is ... the transfer itself; or ... a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the workforce" (TUPE Reg 4(5)). Removing a reference to a collective agreement with which a transferee has been stuck as a result of a transfer would, on its face, likely be for a "reason connected with the transfer". It would be difficult to see on what basis it could be said to be for a reason "entailing changes in the workforce".

The likely effect, therefore, is that should the CJEU do what many expect it to and endorse the Advocate General's opinion, the ability of private sector employers to take control of their own pay negotiations will depend on the Government stepping in to restrict the protection for employees to the minimum the Directive allows. By happy chance, that is what the Government purports to be determined to do in any event.

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