European Court backs 'static' approach to collective agreements under TUPE

A ‘static’ rather than ‘dynamic’ interpretation should apply to collective agreements under TUPE, the Court of Justice of the European Union (CJEU) has ruled.

The decision in Alemo-Herron and ors v Parkwood Leisure Ltd goes against an opinion of the Advocate General issued in February. It will be welcomed by transferees but not unions.

The dispute at the heart of the case involved the transfer of 24 employees from Lewisham Council’s leisure department to Parkwood Leisure in 2002.

The council subscribed to the National Joint Council for Local Government Services (NJC). The employees’ contracts said that their terms and conditions would be in accordance with the “collective agreements negotiated from time to time by the NJC…..supplemented by agreements reached locally through the council’s negotiating committees”.

At the time there were collectively agreed terms setting out pay rates from 1 April 2002 to 31 March 2004.

Subsequent NJC settlements provided for further pay increases, but Parkwood refused to increase the transferred employees’ pay in line with those deals.

At issue therefore was whether the employees should continue to benefit from increased pay and conditions negotiated at their previous workplace.

The claimants lost at an Employment Tribunal, won at the Employment Appeal Tribunal and lost again at the Court of Appeal. The latter court ruled that, as a result of the Werhof case, TUPE only applied to the first transfer – ie ‘statically’ – rather than ‘dynamically’ to later settlements.

The Supreme Court unanimously agreed in June 2011 to refer to the CJEU the issue of whether a "static" interpretation was required under European law and precluded a "dynamic" interpretation by national courts.

Commenting on the CJEU’s ruling, Emma Burrows, Head of the Employment department at Trowers & Hamlins, said: "When employees transfer under TUPE, the law operates to bind the new employer to the transferring employees' existing contractual terms of employment.  

“The question the CJEU had to determine is whether changes made after the transfer to collective agreements, which are part of employees' terms and conditions, are binding on the new employer where they have had no possibility of participating in the negotiation of those terms. This is a matter of considerable importance to transferees as they may be bound by pay increases, and other arrangements, under collective agreements which they have no control over.”

Burrows said that under UK law a ‘dynamic’ interpretation had been favoured, meaning that a transferee was bound to accept terms contained in collective agreements entered into subsequent to the transfer.  

However, Europe had adopted a "static" interpretation, meaning that post-transfer changes to collective agreements would have no effect.  

Burrows said: "The CJEU judgment is good news for transferees, especially those inheriting public sector staff. A transferee will be secure in the knowledge that any contractual obligations arising from a pre-transfer agreement will crystallise on the date of the relevant transfer. There will be no obligation to honour national collective bargaining pay rates and increases agreed post-transfer.

"Although the Supreme Court still has to apply the decision to UK law, it will be bound to endorse a static interpretation as the CJEU has now ruled that European law precludes a dynamic approach. As a result a static interpretation will remain good law."