Werhof -v- Freeway Traffic Systems GmBH & Co KG
The Acquired Rights Directive protects the terms and conditions of employees when their jobs are transferred to another employer.
In Werhof -v- Freeway Traffic Systems GmbH & Co KG (2006, IRLR 400; IDS 803), the European Court of Justice (ECJ) said that transferees, who are not members of an employer’s association, do not have to apply new collective agreements entered into by the association after the transfer, even if they are incorporated into the contracts of transferred employees.
What were the basic facts?
When Mr Werhof started work for DUEWAG AG in 1985, his terms and conditions were governed by a collective agreement between the metal industry trade union and an employers’ federation.
His job subsequently transferred to Freeway Traffic Systems GmbH & Co KG in 1999, which was not a member of the employers’ federation.
In August 2001, the works council at Freeway agreed a new grading system with the company and in return for a one-off payment, Mr Werhof waived his right to any wage increases that applied before the grading system came into force.
Then in June 2003, the metal industry union and the employers’ federation negotiated a wage increase. Mr Werhof claimed he was entitled to the difference between the amount he had received and the sum negotiated under the new agreement.
The local labour court dismissed his claim, but an appeal court referred two questions to the ECJ:
• When a contract of employment refers to a collective agreement (in force at the time of the transfer) to which only the transferor has signed up, is the transferee bound by subsequent collective agreements to that one?
• If the answer is no, is a transferee (who is not party to a collective agreement) bound by agreements which come into force after the transfer for as long as the transferor is bound?
What did the parties argue?
Mr Werhof argued that because his individual contract included a clause relating to a collective agreement in a particular industrial sector, that clause must be “dynamic” and apply to subsequent collective agreements negotiated after the transfer.
The company said that the only agreement that could bind the transferee was the one that was in force at the time of the transfer.
What did the ECJ decide?
The ECJ said that, under the normal rule of contract, obligations negotiated between two parties cannot be imposed on a third party. However, as this rule could undermine the rights of employees in the event of a transfer, employees had special protection to safeguard the terms of their contracts.
That included the terms and conditions of any collective agreements in their contracts. As a result, the ECJ said “the rights and obligations arising from a collective agreement to which the contract of employment refers are automatically transferred to the new owner, even if … the latter is not a party to any collective agreement.”
But what happens after the transfer? The ECJ said that the collective agreement only has to be observed until it ends or another one comes into force. The directive could not bind a transferee to collective agreements other than the one in force at the time of the transfer.
The court said that binding transferees to observe future collective agreements would undermine their fundamental right not to join an employers’ association.
This radical decision goes against other UK decisions that say that, if a worker’s contract incorporates a collective agreement, the transferee must observe changes to it after the transfer.
To help limit the damage, union officers should negotiate collective agreements (especially those with employers’ federations or associations) that run for extended periods of time that allow for clauses to be varied.
The agreements should also provide for variations to be treated as part of the original agreement.