Changes to a collective agreement do not bind a transferee if the collective agreement is negotiated and adopted after the transfer and the transferee had no say in the negotiation process. This has just been decided by the Court of Justice of the European Union (CJEU).

In 2002 the London Borough of Lewisham in Great Britain transferred the operation of its leisure services department to a private undertaking, CCL Limited. In May 2004, CCL transferred the operation to another private undertaking, Parkwood.

In Great Britain employment contracts may stipulate that the salaries of the employees are to be determined through the National Joint Council for Local Government Services - NJC.This is comparable to a situation where Danish public contracts would require the salaries to be determined in accordance with a collective agreement with the Union of Commercial and Clerical Employees in Denmark. The employer is not a member of the NJC and consequently not represented.  

The employees of Lewisham were employed under contracts whose terms had been negotiated with the NJC.  

In June 2004, the NJC concluded pay negotiations resulting in salary increases to the employees. The salary increases were to have retroactive effect, but the negotiations ended after the employees transferred to Parkwood. Consequently, Parkwood believed that they were not bound by the collective agreement, and they refused to pay the salary increases to the employees.  

The employees brought proceedings against Parkwood before the Labour Court, and the case was appealed all the way to the Supreme Court.

Guidance from the CJEU

The Supreme Court referred a question to the CJEU to clarify the legal position. The question was whether it is contrary to EU law if future changes to a collective agreement bind a transferee who is not a party to the existing collective agreement.

It was the opinion of the CJEU that future changes to a collective agreement are not binding if:

  • the collective agreement is negotiated and adopted after the transfer of the undertaking, and
  • the transferee has not been involved in the negotiation process.

The reason given by the Court for its decision was that the Directive is to ensure a fair balance between the undertaking and its employees. The transferee should be able to make the adaptations and changes which are necessary for the undertaking. In addition, the Directive must respect fundamental rights such as the freedom to contract.  

Private transferees cannot participate in the collective bargaining body. Therefore, they cannot safeguard their interests during the contract negotiations or negotiate the terms which can adapt the working conditions to the transferee's business activities. According to the CJEU, the transferee's freedom to contract will be so seriously reduced that it constitutes a restriction of the core of the freedom to set up and operate one's own business.  

No impact on company agreements

The decision of the CJEU has consequences for the legal position in Denmark. A distinction is made between company agreements, adoption agreements and national agreements covering the undertaking because of its membership of an employer's association.  

In connection with the transfers of undertakings where a company agreement has been made, the transferee becomes a party directly unless the transferee opts out of the collective agreement in accordance with the rules in the Danish Transfer of Undertakings Act. The transferee will consequently be able to affect the terms going forward.

Therefore, the decision of the CJEU will generally only be relevant for transferred undertakings which have entered into adoption agreements or are subject to national agreements because of the membership of an employers' association.

IUNO's opinion

If a transferee in Denmark does not wish to be covered by a collective agreement, it is important to structure the transfer as an asset deal and to pay attention to the time limits applicable under the Danish Transfer of Undertakings Act. A transferee must within five weeks notify the union of the employees if the transferee does not wish to adopt the collective agreement. In case of failure to observe this time limit, the transferee automatically adopts the agreement.

If the transferee agrees to become a party to the agreements in force, it is important for the transferee to clarify how a collective agreement has been made. This means whether it is a company agreement, an adoption agreement or a national agreement which is applicable to the undertaking because of its membership of an employers' association as it will have an impact on how the terms can be changed in the long view.

[Case C-426/11 ECJ concerning article 3 of Directive 2001/23, Consolidated Act of 2002-08-20 no. 710 concerning the legal rights of employees in connection with transfers of undertakings]