The dead hand of TUPE: old agreements bind new employers

Employers can be forced to implement pay rises they never agreed or even discussed: that is the effect of a UK case on Transfer of Undertakings (Protection of Employment) Regulations (TUPE). In today's so-called virtual organisations, with so many ancillary functions now outsourced, the shockwaves from this case will run far, impacting particularly on those providers who contract with the public sector.

This all comes about because TUPE operates to transfer collective agreements to a new employer along with the transferring workforce. However, thanks to this new case, it's now clear that the new employer can be bound by pay increases and similar changes negotiated after the transfer between the old employer and the unions under that collective agreement. Clearly, the case is useful ammunition for public sector bodies that are trying to persuade contractors to accept contractual obligations to honour public sector pay systems or (conversely) trying to persuade staff side representatives that such provisions are unnecessary.

The Employment Appeals Tribunal (EAT) held that where there is a contractual term incorporating a collective agreement, the transferee is indeed bound by any pay increases negotiated by the transferor under the collective agreement even after a TUPE transfer has taken place. The key is to establish the nature of the contractual right – everything flows from that.

This includes national or sector-wide collective agreements, such as local authority employees' terms and conditions (NJC Green Book). In this particular case, the contractual term entitled employees to pay "in accordance with collective agreements negotiated from time to time by the NJC". The EAT's reasoning would apply equally to different wording which achieved the same result.

This means that, not for the first time in TUPE, UK law is now much more unfavourable to employers than the equivalent legislation in the rest of the EU. It's not just the Government that 'gold-plate' European law, it's our domestic courts. However, we understand that the case is being appealed to the Court of Appeal so, although the law is currently clear, it may change. We expect that the appeal will be listed between 3 July and 3 November.

Wragge & Co's employment experts provide an analysis of this judgment and action points to consider.