UK: TUPE - increased risks for transferees where employee terms set by collective agreement

The Supreme Court has referred to the ECJ the issue of employees' rights following a TUPE transfer where their contracts provide for pay to be set by a collective agreement negotiated by the transferor and union.  Transferees who have acquired staff with such contractual terms (most commonly ex-public sector employees) now face a period of uncertainty and, potentially, the prospect of having to abide by terms over which they have no control. Putative transferees should build this risk into their position on price and indemnities.

The Court of Appeal had ruled that in these circumstances pay rights are frozen at the time of the TUPE transfer and that new pay rates set by collective agreements negotiated by the transferor post-transfer do not bind the transferee (the "static" approach). This overruled previous EAT case law adopting the "dynamic" approach allowing employees to benefit from post-transfer pay increases agreed by the transferor. In doing so, the Court of Appeal relied on a decision of the ECJ interpreting the Acquired Rights Directive as only requiring the static approach.

The Supreme Court agreed with this interpretation of EU law and ruled that Parliament intended TUPE to do no more than give effect to EU law in this respect. However, it referred to the ECJ the question of whether EU law precludes our national courts from interpreting TUPE more generously in order to give effect to ordinary principles of contract law.

If the answer is no, there is a strong indication that the Court will side in favour of reverting to the dynamic approach. 

Although this would be bad news for transferees, there may be a glimmer of hope: the Government is currently reviewing TUPE and could consider limiting the period for observing collectively negotiated terms to a fixed period of at least one year, as permitted by the Directive. (Parkwood Leisure v Alemo-Herron, SC)