The law has been called many things – ‘the embodiment of the moral sentiment of the people’, ‘mind without reason’ and, perhaps most memorably, ‘an ass’. A recent case in the Supreme Court has now asked whether the TUPE Regulations can be described as ‘dynamic’. The Regulations protect employees’ contractual rights when the company or service they work in is transferred to a new owner. The extent of that protection depends on how ‘dynamic’ the Regulations are.

In Parkwood Leisure Ltd v Alemo-Herron, the claimants were employed in Lewisham Council’s leisure department, parts of which were contracted out to Parkwood. The claimants transferred along with the service – as is well known, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) provide that when a new owner takes over a business or service, he must also take on the employees already employed in it. To achieve this effect in law, TUPE provides, in essence, that the new owner is deemed to have been the employer all along. This means that, from a legal point of view, anything the old employer agreed to in the employees’ contracts, the new employer is taken also to have agreed. In other words, the new employer ‘stands in the shoes’ of the old one.

The claimants’ contracts stated that their pay would be set by collective agreements negotiated from time to time by the National Joint Council for Local Government Services (NJC). The Council was a member of the NJC but Parkwood, as a private sector employer, was not. When the claimants claimed to be entitled to pay increases agreed by the NJC after the transfer, the question arose of whether Parkwood should be bound by NJC negotiations, even though it wasn’t involved in them.

As a matter of pure UK law, the claimants had a good case for saying that it should. Nothing in contract law prevents an employer and employee agreeing to be bound by decisions made by a completely unrelated third party. For example, a private sector employer may agree to pay the rate for certain jobs agreed by a local council, simply because that will be a convenient way of ensuring employees get the going rate. So, given that TUPE puts Parkwood, as the new employer, in the shoes of the Council, Parkwood could simply be taken to have agreed the pay-setting term. It then wouldn’t matter that Parkwood wasn’t part of the NJC – it ‘agreed’ to be bound by its decisions when it acquired the contract for the Council’s leisure services. This interpretation of TUPE, under which future changes to collective agreements can be incorporated into transferred contracts, is known is the ‘dynamic’ interpretation.

Unfortunately, as with all things TUPE-related, it wasn’t as simple as that. This can’t be seen as a matter of pure domestic law, since TUPE only exists to satisfy the Government’s obligations under the EU Acquired Rights Directive (No.77/187). Back in 2006, in Werhof v Freeway Traffic Systems (Brief 803), the European Court of Justice (ECJ) decided that the Directive only requires the new employer to abide by the terms of employment as they stood at the time of the transfer, and not any future changes to collective agreements. This interpretation of the Directive is known as the ‘static’ interpretation.

The Supreme Court was unsure how, exactly, the Werhof decision affected the Alemo-Herron case. It accepted that Werhof permits a merely static interpretation of the Directive and that, when enacting TUPE, Parliament intended to go no futher than the Directive’s minimum requirements. But the Court thought that it would still be open to the claimants to argue for a more generous, dynamic interpretation of TUPE, unless Werhof actually prohibited such an interpretation in EU law. The Court was uncertain whether the ECJ in Werhof intended to go as far as that, and so decided to refer the Alemo-Herron case to the ECJ for clarification on this point.

It’s high time the ECJ clarified the implications of Werhof. When hearing Alemo-Herron, the Supreme Court queried whether Werhof was directly applicable to the present facts, having been decided in the context of a German employment dispute. In the UK, collective agreements are generally assumed not to be legally binding, and can only be enforced by individuals in so far as their terms have been incorporated into individual contracts of employment. In many continental legal systems, by contrast, the collective approach is much more important, in that individuals may be able to rely directly on terms agreed on their behalf by trade unions or works councils.

The case obviously has potential implications for any employers taking on services contracted out from the public sector. This is just one of the many important issues being discussed and explained by expert speakers at the IDS TUPE Conference on 29 September 2011. See here for more information.