02/03/2009
- 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.
No service provision transfer where
services too fragmented
The first case is Clearsprings Management Ltd v (1) Ankers & Others
Background
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”.
Facts
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?
Decision
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.
The effect of collective agreements after transfer
Facts
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.
Background
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.
Decision
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.
