Lady jumping Home | News & events | Legal updates | Contractors' relief at ruling they are not bound indefinitely by third party collective agreements

Contractors' relief at ruling they are not bound indefinitely by third party collective agreements

02 February 2010

In what will be a very welcome decision for employers, the Court of Appeal has ruled that contractors who take on staff as a result of a TUPE transfer are not bound by new collective agreements negotiated by third parties after the transfer.

In March 2009 we reported the Employment Appeal Tribunal’s decision in Alemo-Herron & Ors v Parkwood Leisure Limited, which suggested that private sector employers could continue to be bound by collective agreements negotiated between public sector employers and trade unions for years after a TUPE transfer.


Facts

In Alemo-Herron the employees originally worked for the London Borough of Lewisham in the Council's leisure department. In May 2004 their contracts of employment were transferred under TUPE to Parkwood Leisure Limited, a private contractor.

The employees' contracts contained a clause stating: "...your terms and conditions of employment will be in accordance with collective agreements negotiated from time to time by the National Joint Council for Local Government Services (NJC)..." 

NJC negotiations for new rates of pay commenced in June 2004. Parkwood took no part in these negotiations and did not recognise the unions involved. An agreement for new pay rates was concluded between the parties in July 2004.

A tribunal found that this amounted to a new collective agreement. Parkwood refused to pay at the new rate of pay and an employee brought a claim for unlawful deduction from wages.

The EAT held that Parkwood was bound by the new agreement. In doing so it endorsed the ‘dynamic’ approach to employment contracts, under which pay can be set in line with occurrences and decisions involving only third parties.

This was a particularly unattractive scenario for companies involved in public sector tendering exercises because an in-coming employer faced the prospect of continuing to be bound by collective agreements even where these were re-negotiated and it played no part in those negotiations.

Court of Appeal decision

The Court of Appeal followed existing European case law and restored the ‘static’ approach to collective agreements.

Although the terms of collective agreements will transfer to a new employer on a TUPE transfer the terms will not apply indefinitely but only until such time as the collective agreement expires, terminates or is replaced.

Comment

This is a helpful, common sense decision which will no doubt be welcomed by employers.

© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.

Are any of the issues in this article giving you a headache? If so, we want to know

Name *

Comments*

The information you provide here will be used solely for the purposes of responding to your query for more information see our privacy policy.
 

Get in touch

Rebecca McGuirk

Partner
T: 03700 86 4103
I: +44 (0)121 625 4103
E: rebecca.mcguirk@shoosmiths.co.uk