A TUPE transfer operates to transfer employees on their existing employment contracts. However, where these contracts provide for pay or other terms to be set by collective agreements negotiated by the transferor employer and union, and the transferee has no possibility of participating in these negotiations, the pay or other rights are frozen at the time of the TUPE transfer, according to a recent ECJ decision. The transferee is not bound by any changes agreed by the transferor post-transfer in this situation.

The ECJ upheld this “static approach” on the basis that EU law has to be interpreted in light of Article 16 of the EU Charter of Fundamental Rights, which lays down the freedom to conduct a business including the freedom of contract. Binding a transferee to terms determined by other parties post-transfer (the “dynamic approach”) would interfere with these freedoms where the transferee had no opportunity to participate in the negotiations.

The case was referred to the ECJ by the Supreme Court and there are indications that the Supreme Court might well have upheld the “dynamic approach” had the ECJ not ruled that this was precluded by EU law. This decision is therefore good news for potential transferees, particularly those on a public sector outsourcing or subsequent change of contractor (given that employees with this type of contractual term are commonly ex-public sector). (Parkwood Leisure v Alemo-Herron, ECJ)