If an employee’s contract incorporates a right to receive pay rises negotiated from “time to time” under a collective agreement, will his new employer following a TUPE transfer be obliged to honour pay settlements collectively negotiated after the TUPE transfer, even though the new employer had nothing to do with such negotiations? “No” is the decision of the Court of Justice of the European Union (CJEU), in the preliminary ruling regarding the case of Alemo-Herron and others v Parkwood Leisure.
The claimants were former employees of the London Borough of Lewisham, who transferred to the private sector under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”). The claimants’ case was that their contracts with the Borough included a provision entitling them to pay rises negotiated “from time to time” by collective agreements to which they referred (referred to in the litigation as the “dynamic” approach to the contractual terms). Parkwood’s defence was that it could not be made liable for pay or other employment obligations to its employees that have resulted from post-transfer collective bargaining processes to which it was not a party (the “static” approach). The “dynamic” approach supported by the employees was favoured in principle by the CJEU’s Advocate General in his opinion issued in February this year. See our previous law-now* for further commentary on the UK case history and the Advocate General’s opinion.
The CJEU however, rejected the Advocate General’s opinion and supported the “static” approach: the European Directive on TUPE has the dual aim of ensuring a fair balance between the interests of employees on the one hand, and the new employer on the other. A “dynamic” approach would undermine this fair balance in the current case where the new employer is unable to participate in the collective bargaining body at issue. In these circumstances, the new employer can neither assert its interests effectively in a contractual process, nor negotiate the aspects determining changes in working conditions for its employees with a view to its future activity. The “static” approach was to be favoured as it was consistent with the freedom of contract as set out in the Charter of Fundamental Rights of the European Union.
Non-unionised private sector companies tendering for contracts for services from the public sector in particular will be relieved at this outcome. There is now support for the argument that future pay rises, which may be collectively agreed by unconnected third parties after any TUPE transfer, will not need to be factored into the cost of such tenders. After the public consultation on TUPE, it remains to be seen whether the government will amend TUPE in September to limit the period for which terms derived from collective agreements apply to one year from the transfer.