With July rainfall well above the seasonal average our focus in this bulletin is on a topic which never dampens the spirits...TUPE(!) We lead with news of a helpful case for "transferee" employers on service provision changes before moving on to consider the issue of collective agreements and the thorny question of whether they transfer as part of the employment contract under TUPE.
TUPE Service Provision Change
The Employment Appeal Tribunal (EAT) has just handed down its decision in the case of Nottinghamshire Healthcare NHS Trust v Hamshaw & Others upholding the Sheffield Employment Tribunal's earlier decision that there cannot be a TUPE transfer, even under the TUPE 2006 change of service provision test, where the services provided for a client are not fundamentally or essentially the same as they were before the change of provider.
The Notts NHS Trust ran a 24-hour residential care home for adults needing long-term support; cleaning and cooking was provided by staff in the form of healthcare assistants and service users did not have the opportunity to develop domestic skills. Night staff undertook waking night shifts.
When the home was closed in April 2010 the service users moved from this institutional setting to their own housing association homes and it was expected that they would be more independent in terms of the care and management of those homes. The service users would do their own shopping, food preparation and cooking and develop skills in handling money, albeit assisted by care workers.
The care service was taken over by two independent care providers who offered jobs to some of the ex-NHS staff. However, whilst the Trust considered TUPE applied, the care providers maintained it did not and did not recognise the staff as having transferred to them.
The EAT held there was no TUPE transfer as the services provided moving forward were not "fundamentally or essentially the same" as they had been before. There was a fundamental difference in the ethos of the old and new care arrangements; the service users were living in a different setting, being helped to do domestic tasks (previously done by healthcare assistants) autonomously and the staff were working sleep-in night shifts instead of waking nights.
This is a helpful case for providers taking over care services and one which certainly confirms that the re-provision of care from a traditional care home setting to a true domiciliary care/independent living setting (something we are likely to see more often with the development of personalisation) will generally not give rise to a TUPE transfer. It could also support an argument that TUPE does not apply where existing independent living arrangements are to be provided in a fundamentally or essentially different way irrespective of the setting. However, advice on this should still be sought on a case by case basis as the issue will be a matter of fact and degree and a TUPE transfer can still arise where there is just a change in the way services are delivered.
Changes to Collective Agreements Post-Transfer:
Contractual or Not Contractual?
Those of you who follow TUPE developments avidly (and we know you number many!) will be aware that the UK and European Courts have differed as to whether changes to collective agreements (such as Agenda for Change) made after a TUPE transfer are incorporated into employees' individual contracts of employment such that the transferee is bound is to honour them.
The UK EAT case of Whent & Others v T Cartledge Ltd (1997) found that employees were entitled to pay rises set by a collective agreement incorporated into their contracts of employment even though the new employer was not a party to them and the pay rises were agreed after the transfer. This became known as the "dynamic approach" to the question of whether future changes under a collective agreement transfer.
However the ECJ confirmed some 9 years later in the case of Werhof v Freeway Traffic Systems GmbH & Co KG (2006) that the transferee was bound only by the terms of a collective agreement (such as those relating to pay rises) in force at the date of transfer and not by subsequent changes to which it was not a party. This was termed the "static approach".
The question came before the UK courts again earlier this year in the case of Parkwood Leisure Limited v Alemo-Herron & Others (2011). The case was appealed all the way to the Supreme Court which considered that the position as to which interpretation should be applied was actually unclear and referred the question back to the ECJ. Until the ECJ determines the question conclusively it remains the case (under Werhof) that TUPE transfers static contractual terms only.
It is thought that the Supreme Court's own view is that the dynamic interpretation should hold sway since most public sector contracts provide (rather vaguely) that employment terms and conditions are in accordance with collective agreements "negotiated from time to time" meaning that the previous employer had no certainty as to terms going forward in any event.
We therefore await the ECJ's determination with interest.
Interestingly the Acquired Rights Directive, from which UK TUPE law derives, enables national governments to pass legislation limiting the period for which collective agreements can protect terms post-transfer, to just one year and, given the Coalition's stated aim to place TUPE as a whole under imminent review (because of its "gold-plated" rights), it might well be that, if the dynamic interpretation is to replace the static, legislation will be passed limiting the impact of collective agreements to just this one year period.
In the many months which may now elapse before the ECJ gives a view on this issue we have set out some practical points to assist you when bidding for TUPE contracts.
- At the very least due diligence should look at how contractual pay clauses, and any other terms affected by collective agreements, are constructed to assess whether they are "dynamic" or "static" in nature. If "dynamic" the remaining length of current pay awards and any potential upcoming collective bargaining negotiations should be considered. It may be possible to obtain further information through due diligence as to the current state of play of negotiations.
- If collective bargaining negotiations are ongoing, expect to receive full disclosure of these and explore the possibility of sitting in or making representations as an interested party.
- Commercially, any organisation considering tendering for a public sector (or historically public sector) contract should carry out a risk assessment of ongoing contractual commitments. Also, be aware that public sector transferors may seek to include a requirement to abide by future collectively agreed terms in the business transfer agreement.
- Consider including a price adjustment mechanism or, at the very least, a price review clause in business transfer agreements to insure against the potential increase in employment costs if a dynamic interpretation is judged to be the correct one. It may even be possible to obtain an indemnity from the transferor in respect of any increase in employment costs.
If you would like advice about any employment issue or Tribunal matter please contact:
020 7634 8749
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This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.