The ECJ has held that Member States are precluded from finding that “dynamic” clauses relating to collective agreements negotiated after the date of a TUPE transfer are enforceable against transferee employers, where those employers do not have the possibility of participating in the negotiation of the collective agreements.
“Static” vs. “Dynamic”
The case of Whent & Others v T Cartlidge Limited  established that where a contract of employment incorporates a collective agreement (in this case in relation to pay awards) the collective agreement would transfer under TUPE and employees would be entitled to future pay increases despite the incoming employer having no part in the negotiation of such increases. This is referred to as the “dynamic” approach to contractual terms transferring under TUPE.
However, in Werhof v Freeway Traffic Systems GMbH & Co KG  the European Court of Justice (the “ECJ”) held that the employees’ right to benefit from collective agreements is “static” and not “dynamic”. As such, an incoming employer would be bound by the terms of any collective agreements in place at the point of transfer but would not be bound by any future collective agreements or changes to which they were not a party. This is known as the “static” interpretation.
Parkwood Leisure Limited v Alemo – Herron
In Parkwood Leisure Limited v Alemo-Herron & Others , Alemo-Heron (AH) worked for the London Borough of Lewisham. Under his contract of employment, AH’s pay was set through collective agreements negotiated by the National Joint Council for Local Government Services (the “NJC”). AH’s employment then transferred under TUPE to Parkwood Leisure Limited, a private sector company who was not a member of the NJC. Following the transfer, Parkwood Leisure Limited refused to pay AH an increased pay rate agreed by the NJC. AH claimed that this amounted to an unlawful deduction of wages as by virtue of the TUPE transfer, Parkwood Leisure Limited were bound by the clause relating to NJC in AH’s contract of employment. AH argued that a “dynamic” approach to this clause should be followed and that as such, he should be entitled to pay rises as agreed from time to time by the NJC.
A tribunal rejected AH’s claim on the basis of the ECJ’s decision in Wherof that such clauses should be given a “static” interpretation. AH appealed to the EAT who allowed the appeal. The EAT’s decision was then overturned by the Court of Appeal and AH appealed to the Supreme Court.
The Supreme Court followed the ECJ decision in Wherof as they considered that Regulation 5 of TUPE was only intended to give effect to Article 3(1) of the Acquired Rights Directive which would mean that the strict Wherof interpretation should be followed and clauses relating to collective agreements should be given a “static” interpretation.
However, the Supreme Court also considered a number of domestic cases which showed that a national court may extend the scope of national legislation that implements a Directive beyond what was initially intended by the EU Directive as long as such wider interpretations are not precluded by another provision of EU law.
The Supreme Court considered that Wherof was not clear on this point and so referred the matter to the ECJ, specifically asking the ECJ to clarify whether the Acquired Rights Directive (incorporated into domestic law by TUPE) precludes the “dynamic” approach to contractual terms transferred under TUPE adopted by the UK courts in Whent and other cases.
Prior to the ECJ’s decision, the Attorney General stated that in his opinion the Directive did not preclude member states from deciding that “dynamic” contractual clauses will transfer provided that this requirement is not unconditional or irreversible. However, the ECJ’s decision differed from the Attorney General’s opinion.
When considering the Supreme Courts question, the ECJ noted that the directive seeks to ‘ensure a fair balance’ between the interests of transferring employees and those of the transferee employer. The ECJ recognised that a transfer from public to private sector will often give rise to a need for a number of adjustments and changes due to the ‘inevitable differences in working conditions’ between the two sectors. As such, the ECJ stated that post transfer, a private sector employer must be able to make the required adjustments and changes necessary to carry on its business. The ECJ considered that a “dynamic” clause referring to collective agreements and intended to regulate changes to working conditions in the public sector, may limit the ability of private sector transferee employers to make necessary post-transfer changes and as such may undermine the ‘fair balance’ of interests that was originally intended under the Directive.
The ECJ further held that the Directive must be read in a way that is compatible with the Charter of the Fundamental Rights of the European Union. Article 16 of the Charter provides for the freedom to conduct a business. This freedom includes the freedom to contract and requires a party (i.e. the transferee employer) to be able to assert its interests in a contractual process and to negotiate changes to its employees’ working conditions.
The ECJ recognised that while Member States are allowed to take measures that are more favourable to employees than those set out in the Directive, the limit to this right must be that Member States cannot restrict contractual freedom to the extent that it could impact on the ability of a transferee employer to conduct a business.
In light of their findings, the ECJ held that Members States are precluded from finding that “dynamic” clauses relating to collective agreements negotiated after the date of a TUPE transfer are enforceable against a transferee employer, where that employer does not have the possibility of participating in the negotiation of the collective agreement.
This decision has resolved much uncertainly on whether or not employers are bound to honour national collective bargaining pay rates and increases agreed after the transfer of former public sector employees. The decision of the ECJ provides employers with comfort that they cannot be bound by post-transfer collectively agreed terms if they are not involved in the negotiating process.
The ECJ Judgement can be read here: http://curia.europa.eu/juris/document/document.jsf?text=&docid=139749&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=2692180
If you would like further information about the ECJ’s decision or advice on TUPE in general, please contact a member of the Devonshires Employment Team.