Parkwood Leisure Ltd v Alemo-Herron & 23 Ors

On a transfer of an undertaking, contractual terms incorporated into an employee’s contract by reference to collective agreements are transferred to the transferee. But where the term provides for future changes negotiated by a body to which the transferee is not party, the decision in Werhof [2006] IRLR 400 establishes that the Directive requires only a static obligation. The transferee is bound by terms agreed at the transfer, but not by later collective agreements. Domestic legislation may confer wider protection, yet the language and context of regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 showed no such enlargement. Regulation 5 was to be construed consistently with article 3(1) of the Directive.

The respondents were former local-authority leisure-services employees whose employment transferred first to CCL Ltd and then to Parkwood Leisure Ltd. Their contracts referred to National Joint Council collective agreements negotiated from time to time. After the transfer to Parkwood, the Council and trade unions agreed revised pay rates. Parkwood disputed liability for the increases, contending that Werhof v Freeway Traffic Systems GmbH & Co KG [2006] IRLR 400 required a static interpretation of the transferred obligations.

The employment tribunal dismissed the unauthorised-deduction claims. The Employment Appeal Tribunal allowed the respondents’ appeal and remitted the claims for a remedy hearing. The central issue before the Court of Appeal was whether regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 preserved a dynamic contractual right to later collectively agreed pay increases.

1. The appeal was allowed. The Employment Appeal Tribunal’s order was set aside and the employment tribunal’s dismissal of the claims was restored.
2. Regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 preserves the transferred contract and makes it enforceable against the transferee as if originally made with that transferee. In principle, that includes a contractual term referring to collective agreements negotiated from time to time.
3. However, Werhof v Freeway Traffic Systems GmbH & Co KG [2006] IRLR 400 interpreted article 3(1) of the Directive as imposing only a static burden in this context. It does not require a transferee to observe collective agreements concluded after the transfer where the transferee was not a party to the bargaining process. The reasoning relied principally on article 3(2) of the 1977 Directive and, consequentially, on the transferee’s freedom of association under article 11 of the Convention.
4. Member States could confer rights more favourable to employees under article 8 of the Directive. The question was therefore whether Parliament had done so in regulation 5. The court found no such intention in regulation 5 read with TUPE as a whole. Regulation 6, the occupational-pensions exception in regulation 7, and the enactment of TUPE 2006 did not establish a wider dynamic obligation.
5. Accordingly, regulation 5 was to be construed consistently with article 3(1) as explained in Werhof. The earlier domestic decisions, including Whent v T Cartledge Ltd [1997] IRLR 153, had adopted the contrary interpretation and should not be followed.

• Court of Appeal (Civil Division): appeal from the Employment Appeal Tribunal; the appeal was allowed, its order was set aside, and the employment tribunal’s dismissal was restored.
• Employment Appeal Tribunal UKEAT/0456/08/ZT: allowed the employees’ appeal and remitted the claims for a remedy hearing.
• Employment Tribunal: dismissed the unauthorised-deduction claims in reasons sent on 16 July 2008.