The European Court is not normally known as a promoter of capitalism. But its recent, surprising, decision in Alemo-Herron and others v Parkwood Leisure Ltd, in particular, should boost outsourced service providers to the public sector.

Particularly in more traditional sectors of the economy, employment contracts often provide that certain terms are collectively bargained. These often include core terms, like pay. The contract will say that the rate of pay will be as agreed between the employer and the trade . Often the employer will be party to the collective negotiations: for instance, many governmental departments and organisations. Sometimes the employer will not be party: for example, many third sector organisations participate in national scales they do not directly influence.

So what happens when an employee with these collectively-bargained terms transfers under TUPE to an employer which does not participate in that collective bargaining process? A classic example would be the outsourcing of public sector workers to private suppliers. Does the term continue to have effect as if the worker were still employed by the public sector transferor (ie he or she gets the benefit of post-transfer, collectively-agreed pay rises)? Or is the term frozen on exit (ie the terms that transfer are the terms that bind the transferor at the moment of transfer but not afterwards)? Put another way, are TUPE rights “dynamic” or “static”?

Static”, says the European Court.

The court held that the purpose of the Acquired Rights Directive (ARD) – the EU Directive underlying TUPE – is to ensure a fair balance between the rights of the interests of the transferring employees and the new employer. Now, no-one can object to fairness. But the purpose of the ARD is to protect employee rights on a transfer. And, as night follows day, the consequence of the European Court’s decision will be that employees who transfer are going to enjoy worse terms than those who do not: precisely the problem the ARD was enacted to stop.

The European Court was also influenced by provisions in the EU Charter of Fundamental Rights and Freedoms which enshrine the “freedom to conduct a business”. The Court said this Charter right meant that the employer had to be able to participate in any collective negotiation process by which the law said it was to be bound. This was, of course, the same Charter that was greeted with howls of derision from the right-wing press as EU communism by the back door.  

So, what now?

In the short term, the case will go back to the UK Supreme Court for formal confirmation of the European Court’s ruling. We can also expect pricing models for service providers to the public sector in particular will now not normally have to deal with increases agreed at a collective level. Depending on contractual terms, there may even be attempts by cash-strapped governmental bodies or service providers to unpick charges already billed and paid as having been unnecessarily paid.

You can’t imagine, however, that the union, which have spent much of the last decade fighting against the erosion of rights of workers being transferred out of the public sector, are going to take this lying down. One suspects their response might be rather more dynamic than static.