- No service provision transfer where services too fragmented
- The effect of collective
agreements after transfer
Two recent cases on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) have significant ramifications for employers.
The first case is Clearsprings Management Ltd v (1) Ankers & Others
TUPE transfers can occur where there is a ‘service provision change’. This usually means an outsourcing or where one supplier is replaced by another – or others. For TUPE to operate, there has to be “an organised grouping of employees…which has as its principle purpose the carrying out of the activities concerned on behalf of the client”.
Clearsprings provided accommodation and support services to asylum seekers under a contract with the Home Office in North West England. As part of a re-tendering exercise, new contracts were awarded for the provision of the accommodation services to three new contractors. A transitional period began on 20 March 2006, during which the new contractors arranged properties to accommodate asylum seekers. The asylum seekers were randomly distributed between the three new contractors – with an increase in the numbers on a gradual basis during the transition. Clearsprings' contract terminated on 30 June 2006.
The question was whether there was a relevant transfer of the 17
employees of Clearsprings to the new contractors?
The answer, according to the EAT, was no. The crucial aspect of the decision was the finding that in this case, particularly given the transition period, the activity carried out by Clearsprings was too fragmented at the earliest possible transfer date. This meant that it was also not possible to determine to which new contractor the work previous carried out by the Clearsprings employees had transferred.
This will be an important case to keep in mind where employers are involved in outsourcing or re-tendering and there is a change in the number of contractors and a redistribution of the original activities. However, each situation will depend on its facts and the principle that TUPE may still apply where activities are divided up and awarded to a number of contractors is still good law.
In Alemo - Herron and others v Parkwood Leisure Ltd the employees were once employed by the London Borough of Lewisham. When employed by Lewisham, their terms of employment entitled them to be paid in accordance with collective agreements negotiated by the National Joint Council for Local Government Services (NJC).
In 2002 the employees transferred under TUPE to CCL Ltd, a private sector employer. In May 2004 they were transferred again to Parkwood Leisure Ltd.
The employees were awarded pay increases in line with the NJC by CCL until 2004. In 2004, after the transfer to Parkwood, the NJC negotiated a new collective agreement. Parkwood was not party to those pay negotiations and would not recognise the subsequent pay increases. The employees brought a claim for unlawful deduction from wages, arguing that Parkwood was obliged to award pay increases in line with the 2004 agreement for 2006 to 2008.
The Alemo case concerns the divergent position created by the UK EAT case of Whent and Others v Cartledge and the European Court’s decision in Werhof v Freeway Traffic Systems Gmbh & Co KG.
In Whent, the EAT held that where the collective agreement was incorporated into the employees' contract, the employees were entitled to the benefit of later pay rises set by the collective agreement, even though the new employer was not a party to it.
However, in Werhof, the ECJ (interpreting the Acquired Rights
Directive) held that, in similar circumstances, the employees
benefit from the collectively agreed terms in a "static" rather
than "dynamic" sense. This means the transferee is bound by the
terms in force at the date of transfer (i.e. these terms remain
‘static’) but not by subsequent collective agreements to which it
is not a party.
In Alemo, the EAT decided that the ECJ judgment could not change the established position under UK law. Where, as here, the UK law was more favourable to employees than the Directive. Therefore, the employees were entitled to the benefit of later pay rises set by the collective agreement, even though Parkwood was not a party to it.
It must be remembered that Alemo involved public sector multi-employer collective agreements where the bargaining mechanism sat outside of the control of any individual employer. However, it may well be relevant in situations where a public sector function is outsourced to the private sector or there is a subsequent change in those suppliers.
An appeal was been lodged by Parkwood at the beginning of February this year and we will keep you posted.