Parkwood Leisure Limited v Alemo-Herron and others

A contractual term may validly provide that remuneration will follow collective agreements negotiated from time to time by a third party, even though the employer neither belongs to nor participates in that negotiating body. On its ordinary domestic-law meaning, the term remains enforceable against a transferee under the Transfer of Undertakings (Protection of Employment) Regulations 1981.

Domestic legislation implementing an EU directive may extend protection beyond the directive's requirements unless EU law precludes that result. The decision in Werhof permitted a static approach under the relevant German law, but did not clearly determine whether article 3(1) of Council Directive 77/187/EEC prohibited a more favourable dynamic approach under national law. That question required a preliminary ruling from the Court of Justice.

The employees had worked for a local authority under contracts providing that their terms would accord with collective agreements negotiated from time to time by the National Joint Council for Local Government Services. Their employment transferred successively to two private employers under the Transfer of Undertakings (Protection of Employment) Regulations 1981. The ultimate transferee neither belonged to the NJC nor participated in its negotiations.

The Employment Tribunal dismissed claims for unauthorised deductions based on NJC pay settlements concluded after the transfers. The Employment Appeal Tribunal allowed the employees' appeal: [2009] ICR 703. The Court of Appeal restored the tribunal's decision: [2010] EWCA Civ 24, [2010] ICR 793.

The central questions were whether article 3(1) of Council Directive 77/187/EEC, as interpreted in Werhof, permitted only static contractual protection and whether regulation 5 could nevertheless receive the dynamic meaning indicated by domestic contract law.

1. Reference to the Court of Justice proposed; the appeal was not finally determined. Lord Hope held that it was not acte clair whether article 3(1) of Council Directive 77/187/EEC precluded a national court from giving regulation 5 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 a dynamic interpretation. He would refer that issue for a preliminary ruling under article 267 TFEU and invite written submissions on the questions to be referred.

2. As a matter of domestic contract law, an employer may agree that remuneration will be fixed by collective agreements negotiated from time to time by a body in which the employer does not participate. The contractual language governs. Unless the contract provides otherwise, the employee is entitled to the third party's rates. Regulation 5 would ordinarily make that dynamic term enforceable against a transferee in the same manner as against the transferor.

3. Regulations 5(1) and 5(2) were intended to implement article 3(1), rather than to confer an obviously more generous right. Their expanded language did not materially enlarge the transfer of the contractual rights and obligations described by the Directive. Nevertheless, legislation implementing a directive may extend into areas outside its scope where no other rule of EU law precludes that extension.

4. Werhof, Case C-499/04, did not directly answer the present question. Its ruling established that article 3(1) did not prevent German law from adopting a static approach. It did not say that a dynamic approach under more favourable national law was prohibited. The German statutory system also made employer membership of the bargaining federation material, whereas United Kingdom law allowed parties to incorporate third-party agreements contractually without requiring such membership.

5. The transferee's freedom of association did not resolve the issue. The contracts neither required nor permitted the transferee to join the NJC. Because the Directive's employee-protection purpose, article 7 and the different domestic context left the permissibility of dynamic protection uncertain, a preliminary ruling was necessary.

1. United Kingdom Supreme Court: Held that the EU-law issue was not acte clair and proposed a preliminary reference to the Court of Justice. The appeal was not finally determined: [2011] UKSC 26.
2. Court of Appeal: Allowed the employer's appeal, set aside the Employment Appeal Tribunal's order and restored the dismissal of the claims: [2010] EWCA Civ 24, [2010] ICR 793.
3. Employment Appeal Tribunal: Allowed the employees' appeal and remitted the claims to the Employment Tribunal for a remedy hearing: [2009] ICR 703.
4. Employment Tribunal: Dismissed the claims for unauthorised deductions from wages.