Significant TUPE decision from European Court of Justice

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In a recent decision of particular significance for public sector outsourcings, the ECJ held that the Acquired Rights Directive precludes member states from a "dynamic" interpretation of TUPE in relation to collectively agreed contractual clauses, Alemo-Herron v Parkwood Leisure Ltd.

Background

Mr Alemo-Herron and his colleagues originally worked in the Leisure Services Department at the London Borough of Lewisham. Their contracts stated that their terms and conditions of employment were in accordance with the collective agreements negotiated from time to time by the National Joint Council for Local Government (NJC).

In 2002 the employees transferred under TUPE to a private company CCL Ltd and in accordance with the collective agreement which covered the period 1 April 2002 to 31 March 2004, they continued to receive the collectively agreed pay increases. In May 2004, there was another TUPE transfer to a private company, Parkwood. A new collective agreement was negotiated by the NJC in June 2004 relating to rates of pay for the period 1 April 2004 to 31 March 2007. This agreement was reached after the TUPE transfer to Parkwood and it refused to pay the pay increases negotiated on the basis that it was not bound by the 2004 agreement. 

Litigation 

In 2008, the employees brought unsuccessful Employment Tribunal claims for unlawful deductions of wages but were successful in their appeal to the EAT. In 2010, the Court of Appeal upheld Parkwood’s appeal. It held that Article 3 of the Acquired Rights Directive does not bind transferees to any collective agreement made after the transfer.

The employees then appealed to the Supreme Court which referred the matter to the ECJ. The specific issue in question was whether the Directive prohibits, permits or requires the transfer of "dynamic" contractual clauses which bind transferees in relation to terms agreed in future collective agreements where the transferee has not been a party to the relevant negotiations. Alternatively, should the "static" approach be taken whereby transferees are not bound by any subsequently collectively agreed terms when they had not played any part in negotiating them. 

If February 2013, the Advocate General gave his Opinion following the referral and was of the view that the "dynamic" approach should be taken:

ECJ decision

In July 2003, the ECJ gave its judgment and disagreed with the Advocate General.

The ECJ held that the Directive does not require a transferee to be bound by a collective agreement negotiated and adopted after the date of the transfer where that transferee does not have the possibility of participating in the negotiating process of the collective agreement.  This was the case even where an employment contract refers to a collective agreement binding the transferor. Significantly, the purpose of the Directive is not only to safeguard employees’ interests but also to ensure "a fair balance between the interest of those employees on the one hand and those of the transferee on the other hand".  In essence, a transferee is able to make changes that are necessary for it to carry on its operations. In a transfer from the public sector to the private sector, as here, "given the inevitable differences in working conditions that exist between those two sectors" a transferee would need to make changes. If the "dynamic" approach were taken this would "limit considerably the room for manoeuvre necessary for a private transferee to make such adjustments and changes."