Post-transfer changes to collective agreements are not binding on transferees

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) in effect transfer the terms of collective agreements between transferors and the trade unions recognised in respect of transferring employees, where these are incorporated into their contracts of employment.

In Alemo-Herron, the European Court of Justice (ECJ) has established a very important principle on the extent to which transferees are bound by the terms in such collective agreements.

Very simply, TUPE has been held to have static, not dynamic, effect. This means the terms of collective agreements transfer in the form that they exist as at the time of transfer. Dynamic clauses, which seek to incorporate changes to collective agreements negotiated and adopted post TUPE transfer, are not be enforceable against transferees who do not have a right to participate in the negotiation process.

In Alemo-Herron, the claimant originally worked for the London Borough of Lewisham. His salary was set by collective agreements negotiated with the National Joint Council for Local Government Services (NJC), which were expressly incorporated into his employment contract. In 2004, the claimant’s employment transferred to a private sector employer. When a higher pay rate was agreed by the NJC following the TUPE transfer, the claimant asserted that he was contractually entitled to the increase in salary, notwithstanding that his new employer could not participate in the negotiations with the NJC. The new employer refused to abide by the new collective agreement. By dismissing the claimant’s claims, the ECJ has held the employer was within its right to refuse to implement the new collective agreement.

Key in this decision was the ECJ’s view that a static interpretation of TUPE was consistent with Article 16 of the Charter of Fundamental Rights of the European Union. Article 16 lays down the freedom to conduct a business, which includes the freedom of contract. Forcing transferees to abide by terms of a collective agreement agreed post transfer without their involvement would contravene this fundamental right. Further, whilst TUPE is intended to safeguard the interests of transferring employees, it must also provide a fair balance between the interests of those employees and the transferee. The ECJ held that a static interpretation of collective agreements better achieved that balance, particularly as transferees must be in a position to make the adjustments necessary to carry out their operations post-transfer.

This decision will have significant ramifications in public sector outsourcing where collective agreements on terms such as pay and benefits that are negotiated by bodies like the NJC are more prevalent. It provides private sector organisations excluded from collective negotiations more freedom. The employers will not have to match terms that are negotiated on behalf of those employees who remain employed in the public sector if they are unable to participate in the negotiation process.