Parkwood Leisure Limited v Alemo-Herron and others

The Supreme Court considered whether regulation 5(1) and 5(2) of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) required a transferee to give effect to collective agreements concluded by a bargaining body after the date of a relevant transfer. The court recognised that, under domestic contract law, an employment term that makes pay and conditions subject to a body such as the National Joint Council can operate dynamically and bind a transferee by virtue of TUPE. However, the court held that regulation 5 must be read in the light of article 3(1) of Council Directive 77/187/EEC and the decision of the Court of Justice in Werhof v Freeway Traffic Systems, such that it was necessary to consider whether the Directive precludes protection of subsequent collective agreements.

Because the question was not acte clair on the materials and involved EU law interpretation affecting the scope of regulation 5 in the circumstances of this case, the Supreme Court concluded that a preliminary reference to the Court of Justice of the European Union under article 267 TFEU was required rather than a final determination on the substantive issue.

Background and parties: The appellants were former employees of the London Borough of Lewisham who were transferred first to CCL Ltd and then, in May 2004, to Parkwood Leisure Ltd. Their original contracts incorporated terms giving them the benefit of conditions negotiated by the National Joint Council for Local Government Services (the NJC). Following the transfers Parkwood declined to apply NJC pay increases negotiated after the date of transfer.

Procedural history: The employees brought unauthorised deductions claims in the Employment Tribunal which were dismissed. The Employment Appeal Tribunal allowed an appeal and remitted for remedy. The Court of Appeal allowed Parkwood’s appeal and restored the ET decision. The case then proceeded to the Supreme Court.

Nature of the claim and relief sought: The claimants sought to enforce contractual entitlement to pay increases negotiated by the NJC after the transfers. The central question was whether regulation 5(1) and 5(2) of TUPE, read together with article 3(1) of Directive 77/187/EEC, required the transferee to give effect to collective agreements concluded after the date of transfer.

Issues framed:

• How should Werhof v Freeway Traffic Systems (C-499/04) be understood in interpreting article 3(1) of the Directive?
• To what extent, if any, can national courts give regulation 5 of TUPE a meaning more generous to employees than that indicated by the Directive and Werhof?

Reasoning and conclusions: The court reviewed relevant domestic authorities (including Whent and BET Catering) that applied ordinary contract principles to hold that transferees could be bound by dynamic terms incorporated into contracts. It examined the Directive, its recitals and article 3(1)–(2), and the Court of Justice’s decision in Werhof which had held that article 3(1) does not preclude a transferee who is not a party to an employer federation from refusing to apply collective agreements made after transfer. The court found that TUPE in some respects was more generous than the Directive but that regulation 5(1) and 5(2) did not on their face appear to go beyond article 3(1).

Because Werhof addressed a closely related question but did not directly decide whether a national court could, consistently with the Directive, adopt a more generous dynamic interpretation of domestic implementing legislation in circumstances such as those in this case, the Supreme Court concluded the matter was not acte clair. The Court therefore referred the relevant question to the Court of Justice for a preliminary ruling under article 267 TFEU and invited further written submissions on the questions to be referred.

The Supreme Court did not determine the substantive issue on whether a transferee is bound by collective agreements concluded after transfer. It concluded that the question of the proper interpretation of article 3(1) of Directive 77/187/EEC in the circumstances of this case was not acte clair and referred the question to the Court of Justice of the European Union for a preliminary ruling under article 267 TFEU. The court invited further written submissions on the questions to be referred and did not make a final substantive decision on the appeal.

Employment Tribunal: claims dismissed (judgment 16 July 2008). Employment Appeal Tribunal: appeal allowed and remitted for remedy [2009] ICR 703. Court of Appeal: allowed Parkwood's appeal, set aside EAT order and restored ET decision [2010] EWCA Civ 24, [2010] ICR 793. Supreme Court: referred question to the Court of Justice under article 267 TFEU and invited further submissions [2011] UKSC 26.