Out-Law News 3 min. read

CJEU: unlawful to require new employers to apply collective bargaining agreements post transfer


It would be unfair to expect private sector service providers who take on workers under the TUPE Regulations to have to apply post-transfer collective bargaining agreements they were unable to influence or participate in, the EU's highest court has said.

The decision by the Court of Justice of the European Union (CJEU) means that the UK's Supreme Court will likely dismiss a claim for unlawful deduction of wages by former Lewisham Council employees, based on the non-payment of a national pay award by the local authority, an employment law expert said.

"The decision is particularly relevant for private sector contractors who take on employees from the public sector where national pay bargaining is commonplace," said Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com.

"Previous case law – and earlier decisions and opinions in this case – seemed to suggest that a private sector transferee would be bound to apply public sector pay settlements made after the transfer, if the transferred employment contracts said that they were subject to collective agreements reached from time to time under the public sector bargaining machinery," he said.

The case will now return to the Supreme Court for a final decision. Mordue said that although the UK court had been "inclined to rule in favour of the transferee being bound by the ongoing collective bargaining arrangements", the CJEU decision appeared to have "closed down that outcome in a watertight way".

Collective bargaining occurs when a trade union negotiates a successful outcome, usually in relation to pay or conditions on behalf of a group of employees. Pay bargaining arrangements are common in areas including the NHS, local authorities and the education sector.

The 24 workers involved in the long-running case were originally employed by Lewisham Council, under contracts which gave them the right to pay increases in line with the National Joint Council for Local Government Services collective agreement. In 2002 their jobs were transferred to a private sector employer that continued to apply the nationally-agreed pay increases, before they were once again transferred to Parkwood Leisure Ltd in 2004. Parkwood originally uprated pay "without liability" in line with the collective agreement, but stopped doing so shortly after the transfer.

In an opinion delivered in February, Advocate General Cruz Villalón said that the rules governing the Transfer of Undertakings (Protection of Employment) TUPE regulations permitted member states to take a "dynamic" approach to obligations stemming from collective bargaining agreements. This meant that it was for national courts to decide whether employees could continue to benefit from future pay increases guaranteed under them.

However, the CJEU said that it favoured a 'static' interpretation in which post-transfer changes to a collective bargaining agreement did not impact on the transferee. The EU's Acquired Rights Directive, which is implemented in the UK by TUPE, "does not aim solely to safeguard the interests of employees in the event of transfer of an undertaking, but seeks to ensure a fair balance between the interests of those employees, on the one hand, and those of the transferee, on the other", it said.

"A dynamic clause referring to collective agreements negotiated and agreed after the date of transfer of the undertaking concerned that are intended to regulate changes in working conditions in the public sector is liable to limit considerably the room for manoeuvre necessary for a private transferee to make such adjustments and changes," the CJEU said.

"In such a situation, such a clause is liable to undermine the fair balance between the interests of the transferee in its capacity as employer, on the one hand, and those of the employees, on the other," it said.

A private sector transferee "must be able to assert its interests effectively in a contractual process to which it is party" if it is to have the freedom to conduct a business effectively, the CJEU said. In this case, Parkwood could "neither assert its interests effectively in a contractual process nor negotiate the aspects determining changes in working conditions with a view to its future economic activity" by virtue of being unable to participate in the collective bargaining arrangements, it said.

"In those circumstances, the transferee's contractual freedom is seriously reduced to the point that such a limitation is liable to adversely affect the very essence of its freedom to conduct a business," the CJEU said. "[The Acquired Rights Directive] cannot be interpreted as entitling the Member States to take measures which, while being more favourable to employees, are liable to adversely affect the very essence of the transferee's freedom to conduct a business."

Employment law expert Christopher Mordue said that the CJEU's decision was "hopefully the final twist in a long running case" and should "close down potential exposure to claims for unlawful deductions from wages where contractors have not followed national pay bargaining outcomes".

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