The Court of Justice of the European Union (ECJ) has issued its decision in an important case concerning the effect of industry or sector-wide negotiated terms after the transfer of an undertaking. The case is particularly significant to those private companies involved in the outsourcing of public sector work.
In the case of Alemo-Herron and others v Parkwood Leisure Limited, the issue at stake was whether the terms of a collective pay agreement, which was negotiated through a central bargaining forum, bound a transferee employer (ie the new private contractor) for employees who transferred to it under TUPE, even though it had not had the opportunity to be a party to the negotiations of the terms of the collective agreement. The UK courts had disagreed over which of the two interpretations of the Acquired Rights Directive to prefer. The two approaches were:
- The dynamic approach – the transferee employer is bound by all collective agreements (and in this case the outcome of the collective pay award formula), whether the negotiations occurred prior to or after the transfer. This is the case even if the transferee has not had the opportunity to negotiate the terms of the agreement as the collective bargaining machinery transfers.
- The static approach – the transferee employer is only be bound by the terms of collective agreements in force on the date of the transfer and once the employees transferred, their terms and conditions would be frozen at the point of transfer and they would not have the benefit of any collectively agreed pay increases to which their employer was not a party.
In February this year, the Advocate General recommended that the ECJ prefer the dynamic approach. However, in its decision published last week, the ECJ rejected the Advocate General’s findings and held that the Directive prohibits member states from applying the dynamic approach where the transferee has not had the opportunity to negotiate the collective terms. The ECJ stated that the dynamic approach didn’t strike the right balance between the interests of the employees and the interests of the transferee. It also held that, in binding the transferee to terms it has no opportunity to negotiate on, the dynamic approach impinged too greatly on the transferee’s freedom to conduct business under Article 16 of the Charter of Fundamental Human Rights.
This decision will be good news for private sector employers as it gives greater certainty when taking on public sector contracts. It means that incoming employers can more easily price for such contracts as they have greater control over employees' terms and conditions.
If you would like more information, or specific advice, please contact Roger Bull, or get in touch with your usual Burges Salmon contact.