The ECJ has just issued its judgment in the important Alemo-Herron case, of particular relevance to public sector contracting. In a decision which will come as a relief for private sector contractors, it has ruled that the Acquired Rights Directive precludes UK courts from adopting a "dynamic" rather than a "static" interpretation of TUPE. In other words, where transferring employees` contracts provide that their terms are to be determined in accordance with collective agreements negotiated by certain parties from time to time, the transferee cannot be bound by post-transfer collectively agreed terms if it is unable to be involved in the negotiating process.

The case was of major concern to businesses taking on contracts from the public sector, worried about being bound by public sector collective bargaining machinery in respect of employees had transferred over.

The ECJ noted that the Directive does not simply aim to safeguard the interests of transferred employees but also seeks to ensure ‘a fair balance’ between the interests of those employees and the transferee. In particular, the transferee must be in a position to make the adjustments and changes necessary to carry on its operations post-transfer. A transfer between the public and private sector will, in the Court’s view, require significant adjustments and changes given the ‘inevitable differences in working conditions’ between the two sectors. A ‘dynamic’ clause referring to collective agreements intended to regulate changes in working conditions in the public sector is liable to limit the ability of a private sector transferee to make such changes.