TUPE: are new employers bound by outside pay agreements?

TUPE regulations protect the interests of employees when their employment is transferred from one organisation to another. But to what extent should the new employer be bound by future national, collective pay agreements over which it has no control or influence?

The Court of Justice of the European Union (CJEU) has decided that it would be unfair to subject private sector businesses to such strict obligations.

The issue arose in the case of 24 workers who were originally employed by Lewisham Council. Their contracts entitled them to benefit from national collective pay agreements. In 2002, their jobs were transferred to a private sector company which continued to honour ongoing national pay settlements.

However in 2004, the jobs were transferred to Parkwood Leisure Ltd. To begin with, Parkwood continued with the pay arrangements “without liability” but then stopped doing so.

The employees took action to continue receiving the increased national pay awards.

The CJEU has decided that holding the employer to such an open-ended commitment was unfair, especially as the employer had no input into the national agreement. It said the law attempted to ensure a fair balance between the interests of employees and employers.

It said: “”A dynamic clause referring to collective agreements negotiated and agreed after the date of transfer of the undertaking concerned that are intended to regulate changes in working conditions in the public sector is liable to limit considerably the room for manoeuvre necessary for a private transferee to make such adjustments and changes.””

“”In such a situation, such a clause is liable to undermine the fair balance between the interests of the transferee in its capacity as employer, on the one hand, and those of the employees, on the other.””

“”In those circumstances, the transferee’s contractual freedom is seriously reduced to the point that such a limitation is liable to adversely affect the very essence of its freedom to conduct a business.””

The case will now be heard by the Supreme Court. Legal experts say that following the CJEU ruling, the Supreme Court is expected to dismiss the employees’ claim for unlawful deduction of wages.

We shall keep clients informed of developments.

Please contact Sarah Liddiard or John Carter if you would like more information about the issues raised in this article or any aspect of TUPE regulations and employment law.