Dynamic decision

The purpose of the Transfer of Undertakings (Protection of Employment) legislation (TUPE) is to safeguard the terms and conditions of employees after a transfer. However, the Court of Justice of the European Union (CJEU) said in Alemo-Herron v Parkwood Leisure Ltd that they did not apply to “dynamic” clauses in collective agreements concluded after the date of transfer if the transferee could not participate in the negotiation process.

Basic facts

In 2002 the London Borough of Lewisham outsourced its leisure services to CCL Limited. CCL then transferred the contract to Parkwood in May 2004.
Mr Alemo-Herron and his colleagues, all former Lewisham employees, had enjoyed terms and conditions of employment as negotiated by the National Joint Council for Local Government Services (NJC) from time to time. In June 2004, the NJC reached a new three year agreement which was retrospectively effective from 1 April 2004. Parkwood took the view that it was not binding on them, so refused to pay the increased wages for the period from April 2004 to March 2007.

The claimants argued that the resulting shortfall in their pay was an ongoing series of unauthorised deductions from wages, as there was a continuing obligation on Parkwood to pay the increase even though the term took effect after the relevant TUPE transfer had taken place (the “dynamic” argument). Parkwood said it only had to pay what was in force at the time of the transfer (the “static” argument) and not what was agreed by the NJC afterwards.

Decision of lower courts

Relying on the 2006 decision of the CJEU in Werhof v Freeway Traffic Systems Gmbh & Co KG, the tribunal found against the claimants. It said that article 3(1) of the Acquired Rights Directive (the European law on which TUPE is based) had to be interpreted as a “static” not a “dynamic” obligation. As the negotiations for new pay rates for 2004 to 2007 concluded after Parkwood took over the contract, it could not be bound by the NJC’s new agreement.

The EAT allowed the appeal on the basis that the UK had previously provided for a “dynamic” interpretation through domestic case law. This was overturned by the Court of Appeal which agreed with the tribunal’s “static” interpretation. The claimants appealed to the Supreme Court, which referred the case to the CJEU to establish whether member states are precluded under the directive from giving a “dynamic” interpretation of terms from collective agreements concluded after the date of the relevant TUPE transfer.

Decision of CJEU

The CJEU came out in favour of the “static” approach, holding that article 3 of the Acquired Rights Directive does not exist to safeguard the interests of employees alone, but also to ensure a “fair balance” with the interests of the transferee business, as the transferee must be in a position to make the adjustments and changes necessary to carry on its operations.

In addition, the CJEU held that article 3 had to be interpreted consistently with article 16 of the Charter of Fundamental Rights of the European Union which provides the right of freedom to conduct a business, a fundamental right that includes freedom of contract.

Despite the fact that article 8 of the directive entitles member states to take measures which are more favourable to employees, the CJEU was concerned that this must not adversely affect the very essence of the transferee’s freedom to conduct a business. The Court held that as Parkwood was unable to participate in the relevant NJC negotiations, it could neither assert its interests effectively, nor negotiate changes to working conditions for its employees. As such, it decided that member states could not give a “dynamic” interpretation to clauses in collective agreements concluded after the date of transfer if the transferee does not have the possibility of participating in the negotiation process.