The Court of Justice of the European Union (‘CJEU’) has held that post-transfer changes to collective agreements should not bind a transferee following a Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI/2006/246) (‘TUPE’) transfer, where the transferee cannot participate in the negotiation process. In other words, a ‘static’ approach applies.
The issue of whether or not ‘dynamic’ terms of collective agreements transfer under TUPE has been the subject of debate for quite some time. The key question is whether or not an employee is entitled to benefit from on-going post-transfer changes to terms and conditions under a collective agreement, which is incorporated into their contract of employment.
The pay scales of employees of the London Borough of Lewisham were determined by a collective agreement between their employer and the National Joint Council for Local Government (‘NJC’). Following two TUPE transfers, Parkwood Leisure Limited (‘Parkwood’) became their new employer.
Post-transfer, the NJC negotiated a new agreement which increased the employees’ pay scales. As they were a private sector employer, Parkwood was not entitled to participate in those negotiations and refused to implement the increases. The employees claimed to be entitled to the benefit of the increased pay terms of the newly negotiated collective agreement and issued a claim against Parkwood in the Employment Tribunal (‘ET’) for an unlawful deduction of wages.
Progress through the courts
Parkwood argued that it was not bound by the increased pay terms of the collective agreement as these were negotiated post-transfer and without its participation. Parkwood won in the ET, lost in the Employment Appeals Tribunal and won in the Court of Appeal. The Supreme Court then referred the matter to the CJEU to determine whether or not the Acquired Rights Directive (2001/23/EC) (the ‘Directive’), implemented in the UK by TUPE, prohibits the transfer of dynamic contractual rights and requires national courts to adopt a static interpretation.
The Advocate General’s Opinion published in February 2013 suggested that the Directive does not prohibit a dynamic interpretation of collective agreements. This would mean that transferees would be bound by any newly negotiated terms of collective agreements incorporated into transferring employees’ contracts, making a thorough due diligence process essential – particularly for transferees inheriting public sector staff.
However, going against the Advocate General’s Opinion, the CJEU handed down its decision in Alemo-Herron and others v Parkwood Leisure Ltd (Case C-426/11 ECJ) that a dynamic interpretation is not permissible. The static approach applies. It held that the terms and conditions in the transferred employees’ contracts of employment were frozen at the date of the transfer and could not be changed to their benefit as a result of further post-transfer negotiations at the NJC. This was so even though there was a clause in their contracts of employment that said that their terms and conditions would be in accordance with the “collective agreements negotiated from time to time by the NJC”.
Implications of the ruling
On a TUPE transfer, transferees will generally be bound by the terms of any collective agreement incorporated into a transferring employee’s contract of employment. However, changes made to incorporated collective agreements after the transfer will not bind the transferee where the transferee cannot be involved in the negotiations to those agreements.
This is a welcome decision which provides a level of certainty and control over salary costs and other collective agreement arrangements, which will crystallise at the date of the transfer.
However, transferees should be alert to the possibility that, if the negotiating process of a collective agreement allows for their participation, a dynamic interpretation could still be possible. This would mean that any transferred employees would be entitled to the benefit of any terms of a collective agreement negotiated post-transfer.