The Court of Justice of the European Union (‘CJEU’) has determined that changes to a collective agreement do not bind a transferee if the collective agreement is negotiated and amended after the transfer and the transferee had not been able to take part in the negotiation process.
In 2002 the UK’s London Borough of Lewisham (‘Lewisham’) transferred the operation of its leisure services department to a private undertaking, CCL Limited (‘CCL’). In May 2004, CCL transferred the operation to another private undertaking, Parkwood Leisure Ltd (‘Parkwood’).
Under the European Acquired Rights Directive 2001 (‘the Directive’) (implemented in the UK through TUPE1) employees’ rights arising under their contract transfer to the transferee employer.
The employees’ original employment contracts with Lewisham stipulated that their terms and condition of employment were determined by collective agreement negotiated by the ‘National Joint Council for Local Government’ (the “NJC”). Parkwood is not a member of the NJC and consequently was not represented at NJC’s negotiations.
In June 2004, the NJC implemented pay negotiations pursuant to a new collective agreement resulting in salary increases. The salary increases were to have retroactive effect, but the negotiations ended after the employees transferred to Parkwood. Parkwood claimed that they were not bound by the collective agreement as they had not been a party to the negotiations and they refused to pay the salary increases to the employees.
The employees brought, and lost, proceedings against Parkwood at the UK employment tribunal. The case was appealed up to the UK’s Supreme Court who requested guidance from the CJEU.
Guidance from the CJEU
The CJEU held that future changes to a collective agreement are not binding if:
- the collective agreement is negotiated and adopted after the transfer of the undertaking; and
- the transferee has not been involved in the negotiation process.
They stated that the Directive aims to ensure a fair balance between the undertaking and its employees.
They also found that Parkwood’s ‘freedom of contract’ would have been detrimentally affected had the changes to the collective agreement applied to their employees as this would have constituted a restriction of the core freedom to set up and operate one’s own business provided for in the Charter of Fundamental Rights of the European Union.
In the UK, the case is important in the context of public sector outsourcings. Private sector companies do not need to comply with any national collective bargaining salary increases which are agreed after the public sector employees transfer into the private entity. However, the UK government proposed key changes to TUPE on 5 September 2013. It is anticipated that the renegotiation of terms agreed under collective agreements will be permitted for one year after transfer so long as the changes are no less favourable to employees than their current terms. There will now be a period of consultation in the UK although it is anticipated that this proposal will become law in early 2014.
The Transfer of Undertakings (Protection of Employment) Regulations 2006
Case C-426/11 ECJ concerning article 3 of Directive 2001/23, Consolidated Act of 2002-08-20 no. 710 concerning the legal rights of employees in connection with transfers of undertakings.
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