Transferee not bound by post transfer collectively agreed terms

Transferee not bound by post transfer collectively agreed terms - Recent Judgment by the Court of Justice of the European Union

Transferee not bound by post transfer collectively agreed terms where it had no possibility of participating in the negotiation process - Recent Judgment by the Court of Justice of the European Union

In Alemo-Herron & Ors v Parkwood Leisure Limited Case C-425/11, published on the 18^th July 2013, the Court of Justice of the European Union considered whether Member States are precluded from providing that dynamic clauses in transferring employees contracts of employment referring to collective agreements which are negotiated and adopted after the date of transfer, are enforceable against the transferee, where that transferee does not have the possibility of participating in the negotiation process. This decision is particularly relevant in the context of public sector outsourcing.

Parkwood, the private sector employer in the case, acquired a leisure centre that had been operated by the London Borough of Lewisham, giving rise to a transfer of undertaking within the meaning of the UK Regulations (TUPE). The contracts of the employees who transferred to Parkwood provided that their terms and conditions of employment would be in accordance with collective agreements negotiated from time to time by the National Joint Council for Local Government. Some time after the acquisition, a new collective agreement, which included a pay rise, was reached within the NJC. Parkwood refused to apply the pay rise, and argued in favour of a 'static' interpretation of TUPE. In other words, Parkwood accepted that it was bound by the collectively agreed terms that were in force at the date of the transfer, but did not accept that it was bound by collectively agreed terms negotiated after the transfer, where it could have no part in the negotiations. The employees argued for a 'dynamic' interpretation of TUPE. They maintained that they were entitled to the benefit of pay rises negotiated after the transfer, irrespective of whether their employer was involved in the negotiations. The case came before the UK Supreme Court, which referred a number of questions to the CJEU for a preliminary ruling.  

The CJEU held that the Directive precludes a member state from providing "in the event of a transfer ... that dynamic clauses referring to collective agreements, which are negotiated and adopted after the date of transfer, are enforceable against the transferee, where that transferee does not have the possibility of participating in the negotiation process of such collective agreements". This means that where the transferring employees' contracts of employment provide that their terms and conditions of employment are to be determined by collective agreements in force from time to time, the transferee is not bound by post transfer collectively agreed terms, if the transferee has no possibility of being involved in the negotiation process.

 In coming to its conclusion, the CJEU considered the following: 

• Given that the transfer in question was from the public sector to the private sector, "the continuation of the transferee's operations would require significant adjustments and changes given the inevitable differences in working conditions that exist between those two sectors". A dynamic contractual clause referring to collective agreements negotiated after the transfer which are intended to regulate changes in working conditions in the public sector, is liable to limit considerably the room for manoeuvre necessary for a private transferee to make the necessary adjustments and changes to continue its operations and is liable to undermine the fair balance between the interests of the transferee and the employees.
• The Charter of Fundamental Rights of the European Union lays down the freedom to conduct a business. The transferee in Alemo-Herron could not participate in the collective bargaining at issue, and could therefore neither assert its interests effectively in its contractual process nor negotiate changes in the working conditions of its employees with a view to its future economic activity. In such circumstances, a transferee's contractual freedom would be seriously reduced to the point that such a limitation is liable to adversely affect its freedom to conduct a business. A similar argument was considered by the Irish Supreme Court in its recent decision on Registered Employment Agreements (See our bulletin on McGowan v Labour Court).

The decision in Alemo-Herron provides welcome clarification on an issue that was previously a source of uncertainty for employers, particularly those involved in public sector outsourcing.  

For more information please contact Elaine Kelly, Michelle Ní Longáin, Lorraine Smyth or Michael Kennedy.