Under EU legislation, employees’ terms and conditions are preserved in the event of a transfer of business. The work conditions generally transfer along with the employees, and any collective agreement that applied to their employment with their previous employer continues to apply even after the transfer.
New employers may find themselves bound by negotiations to which they were not a party
An interesting question that was referred to the Court of Justice of the European Union by the UK Supreme Court related to employment contracts, the terms and conditions of which were determined by collective agreements negotiated from time to time by the former employer and the trade union. This referral concerned a number of employees originally employed by the London Borough of Lewisham, whose pay, among others, was determined by a collective agreement between their employer and the trade union.
Following a transfer of the borough’s leisure activities, Parkwood Leisure Ltd became the employees’ new employer. Two years later, a more generous collective agreement envisaging pay increases was reached between their previous employer and the union, without the participation of Parkwood.
Parkwood’s employees argued that their pay should also increase and that any changes to the collective agreement post-transfer would still apply to them as outsourced employees.
Parkwood, on the contrary, refused to increase the transferred employees’ pay, claiming that it was not in any way involved in the newly negotiated collective agreement and it was bound only with the collective agreement as at the date of the transfer. Any subsequent changes to the agreement between the previous employer and the union would not apply to it as the new employer.
The opposing views of the parties in those proceedings represent two schools of thought, the dynamic versus the static. The dynamic view considers changes to collective agreements applicable to the new employer even though the changes happen after the employees leave their previous employer, while the static approach considers the collective agreement as frozen as at point of transfer.
The UK Supreme Court made a reference to the CJEU on this point. The critical question posed in the case was whether public sector employees, who are subject to industry or sector-wide negotiated terms, remain entitled to the benefit of increases in pay negotiated under those terms after they have transferred to the private sector.
Back in 2006 in a similar case, the CJEU expressed the view that the static approach is the right one and consequently the new employer inherits only the terms of the collective agreement as they stood at time of transfer. Years later, the Court has been called again to express its position on this tricky matter.
As is usual procedure, the Advocate-General released an Opinion before the Court’s keenly awaited ruling. The Advocate-General confirmed that member states are not precluded from implementing more generous provisions, or from interpreting their national laws more generously, than EU law requires. EU law does not interfere with the right of member states to allow use of dynamic clauses referring to future collective agreements and to protect such agreements indefinitely on transfer. Interestingly, the Advocate-General did say that there was nothing stopping a member state from legislating to restrict the application of these transferred collective rights for a period of one year post transfer or from prohibiting the transfer of dynamic clauses referring to future collective agreements.
The Opinion differs from the Court’s 2006 decision and instead upholds the dynamic approach, suggesting that transferred employees can benefit, even after the transfer, from a pay increase negotiated under a collective agreement signed by the transferor before the transfer, provided that this is envisaged in the collective agreement. In other words, a transferee employer cannot be bound by future amendments to collective agreements if this was never anticipated in the first place.
The Opinion is of huge importance if followed by the Court of Justice. New employers may as a result find themselves bound by negotiations to which they were not a party. The CJEU has yet to make a decision but, in most cases, the Court follows the Opinion in its final decision.
jgrech@demarcoassociates.com
Josette Grech is an associate with Guido de Marco & Associates and heads its European law division.