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Confirmation that collectively agreed terms are ‘static’ for transferring employees

08 March 2017

In two joined cases referred to the European Court of Justice (“ECJ”) by the German Federal Labour Court, an Advocate General (“AG”) has handed down an advisory opinion on the effect of a TUPE transfer on employment terms governed by a collective agreement.

The issue to be determined was whether, once a business has transferred, the transferee is compelled to apply the terms and conditions arising from collective agreements adopted after that transfer. In both these cases, the original employer was a public authority.

In 1997, the employees transferred to a private company, KLS, which agreed that the transferred employees’ terms would continue to be governed by the collective agreement which had previously applied, even though KLS did not belong to the employers’ association that had negotiated it. KLS included a clause in the employees’ contracts stating that their employment would be governed by the collective agreement and by any subsequent collective agreements that amended or replaced it. Clauses of this type covering future changes to collective agreements are often described as being “dynamic” (as opposed to “static” clauses, which would only seek to apply the terms incorporated by the collective agreement at the time of the transfer).

In 2008, the business of KLS was transferred to another company. While the employees sought to rely on the dynamic clause, the transferee argued that it was not obliged to apply terms and conditions arising from amendments made to the collective agreement after the transfer date. In addressing the question, the AG revisited the earlier ECJ judgments of Werhof [2006] IRLR 400 and Alemo-Herron [2013] IRLR 744.

In Werhof, the collective agreement in question had been negotiated by an employers’ association to which the transferor belonged, but the transferee did not. Three years after the transfer date, the employers’ association agreed a new collective agreement with increased rates of pay. The claimant employee, who had transferred with the undertaking, tried to argue that he was entitled to the increased rate of pay under the new collective agreement (i.e. a “dynamic” construction). The ECJ disagreed and ruled that EU law did not intend transferees to be bound by collective agreements other than those in force at the time of the transfer. Such an interpretation was consistent with the objective of the legislation, which was to safeguard the rights and interests of employees in force at the date of transfer. Its purpose was not to protect future expectations of rights or hypothetical advantages that might flow from future changes to collective agreements.

The facts of the subsequent ECJ case, Alemo-Herron, were that employees working for a local authority had contracts of employment which stated that their terms would accord with collective agreements negotiated from time to time by the National Joint Council for Local Government Service. On a TUPE transfer, staff employed by the local authority transferred to a private undertaking which was not a party to the collective agreement negotiations. The ECJ held that terms in collective agreements negotiated after the transfer date were not enforceable against the transferee, who had not had an opportunity to participate in the negotiation. Noting the need to balance the interests of the transferring employees against the interests of the transferee, the ECJ concluded that allowing a dynamic interpretation would push the balance too far in favour of the employees. It added that a dynamic application would be contrary to the transferee’s fundamental right of freedom to conduct a business, as it would not have sufficient freedom of contract (given it had no opportunity to be involved in the collective agreement negotiations).

The AG in the latest cases from Germany, following  the reasoning in Werhof, said that while EU law requires terms and conditions in a collective agreement to be transferred to the transferee, it limits this to those terms in the agreement that are in force at the transfer date. In this way, EU law strikes a balance between the competing interests of employees, who have agreed specific terms with the transferor, and transferees, who have a legitimate right to know the extent of their obligations and not be bound by a future collective bargaining process in which they will not or cannot participate.

The AG also considered that it did not matter whether the transferor belonged to the employers’ association which negotiated the collective agreement in issue. As long as the transferor is bound by the agreement, that is sufficient for the rights derived from it to transfer. Having concluded that clauses incorporating terms from collective agreements should be applied in a static way, the AG did not feel the need to go into the issue of whether the transferee’s fundamental rights would have been breached by a dynamic application of the clause (as was held to be the case in Alemo-Herron).

Asklepios Kliniken Langen-Seligenstadt GmbH and another v Felja and another - AG’s opinion available here

 

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