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TUPE and collective agreements - static vs dynamic debate revisited

25 September 2017

A judgment of the European Court of Justice (“ECJ”) in a German case has reconsidered the effect of a TUPE transfer on employment terms governed by a collective agreement. The issue to be determined was whether, once a business had transferred, the new employer was compelled to apply the terms and conditions arising from collective agreements adopted after that transfer.

Facts of the case

The case concerned employees of a public authority in Germany who transferred to a private company (KLS) in 1997. KLS agreed that the transferred employees’ terms would continue to be governed by the collective agreement which had previously applied, even though KLS did not belong to the employers’ association that had negotiated it. KLS included a clause in the employees’ contracts stating that their employment would be governed by the collective agreement and by any subsequent collective agreements that amended or replaced it.

Clauses of this type covering future changes to collective agreements are often described as being “dynamic” (as opposed to “static” clauses, which would only seek to apply the terms incorporated by the collective agreement at the time of the transfer). The clause was consistent with German law on transfer of undertakings, which required that terms and conditions transfer to the transferee unaltered, on a dynamic basis.

In 2008, the business of KLS was transferred to another company. While the employees sought to rely on the dynamic clause, the transferee argued that it was not obliged to apply terms and conditions arising from amendments made to the collective agreement after the transfer date. In so contending, the transferee relied on the earlier ECJ judgments of Werhof [2006] IRLR 400 and Alemo-Herron [2013] IRLR 744.

Werhof and Alemo-Herron

In Werhof, the collective agreement in question had been negotiated by an employers’ association to which the transferor belonged, but the transferee did not. Three years after the transfer date, the employers’ association agreed a new collective agreement with increased rates of pay. The claimant employee, who had transferred with the undertaking, tried to argue that he was entitled to the increased rate of pay under the new collective agreement (i.e. a “dynamic” construction). The ECJ disagreed and ruled that EU law – specifically, the Acquired Rights Directive (“ARD”) - did not intend transferees to be bound by collective agreements other than those in force at the time of the transfer. Such an interpretation was consistent with the objective of the legislation, which was to safeguard the rights and interests of employees in force at the date of transfer. Its purpose was not to protect future expectations of rights or hypothetical advantages that might flow from future changes to collective agreements.

The facts of the subsequent ECJ case, Alemo-Herron, were that employees working for a local authority had contracts of employment which stated that their terms would accord with collective agreements negotiated from time to time by the National Joint Council for Local Government Service. On a TUPE transfer, staff employed by the local authority transferred to a private undertaking which was not a party to the collective agreement negotiations. The ECJ held that terms in collective agreements negotiated after the transfer date were not enforceable against the transferee, who had not had an opportunity to participate in the negotiation. Noting the need to balance the interests of the transferring employees against the interests of the transferee, the ECJ concluded that allowing a dynamic interpretation would push the balance too far in favour of the employees. It added that a dynamic application would be contrary to the transferee’s fundamental right of freedom to conduct a business, as it would not have sufficient freedom of contract (given it had no opportunity to be involved in the collective agreement negotiations).

Advocate General’s opinion

In the latest case, the ECJ Advocate General gave an opinion that followed the reasoning in Werhof, and Alemo-Herron. He said that while the ARD requires terms and conditions in a collective agreement to be transferred to the transferee, it limits this to those terms in the agreement that are in force at the transfer date. In this way, EU law strikes a balance between the competing interests of employees, who have agreed specific terms with the transferor, and transferees, who have a legitimate right to know the extent of their obligations and not be bound by a future collective bargaining process in which they will not or cannot participate.

The ECJ’s judgment

Surprisingly, the ECJ has taken a different approach from the Advocate General, ruling that the ARD should not be read as preventing a “dynamic” clause from having effect in all circumstances.

The ECJ ruled that the ARD should not be read as intended to prevent a “dynamic” clause from operating under all circumstances”. The judgment goes on to state, however, that this is subject to the transferee being “able to assert its interests effectively in a contractual process to which it is party and to negotiate the aspects determining changes in the working conditions of its employees with a view to its future economic activity”.

The ECJ emphasised that, in this context, the ARD does not aim solely to safeguard the employees but seeks to ensure a fair balance between their interests and those of the transferee. Specifically, the transferee must be in a position to make the adjustments and changes necessary to carry on its operations. The ECJ concluded that the German legislation complied with this requirement because the transferee was entitled “to adjust the working conditions existing at the date of the transfer, either consensually or unilaterally”.

Implications

The ECJ’s judgment is opaque even by its standards, but it does signal that member states have at least some room for manoeuvre if they wish to provide in their national legislation for “dynamic” clauses to have effect after a transfer, so long as the transferee’s interests are properly safeguarded.

It remains to be seen what impact (if any)this will have on the UK position under TUPE, the relevant provisions of which were specifically amended in 2014 in line with the “static” approach set out in Alemo-Herron. Regulation 4A of TUPE deals with the effect of a TUPE transfer on employment contracts that incorporate provisions of collective agreements. It provides that the principle of automatic transfer does not apply where:

  • the provision of the relevant collective agreement is agreed after the date of the transfer; and
  • the transferee is not a participant in the collective bargaining for that provision.

Asklepios Kliniken Langen-Seligenstadt GmbH v Felja; Asklepios Dienstleistungsgesellscheaft mbH v Graf [2017] IRLR 653 – judgment available here

 

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