Dynamic interpretation of TUPE not allowed
To re-cap, the Claimant worked for the London Borough of Lewisham. Under his contract his salary was set by reference to collective agreements negotiated by the National Joint Council (NJC) for local government services. He was transferred under TUPE to Parkwood Leisure Limited, which was not a member of the NJC, being a private sector company. After the transfer Parkwood Leisure refused to pay an increased pay rate which was later agreed by the NJC. The Claimant claimed that the clause in his contract referring to the NJC bound Parkwood Leisure Limited as a result of the TUPE transfer and as such, the failure to pay the increase in wages amounted to an unlawful deduction from wages.
On the basis of a previous ECJ case, the Tribunal rejected the claim because it held that TUPE is not “dynamic” and only transfers “static” contractual obligations which exist at the date of transfer. Therefore, terms referring to collective agreements negotiated by a third party cease to have effect when the agreement expires, terminates or is replaced. The EAT allowed an appeal but this was overturned by the Court of Appeal and then the Claimant appealed to the Supreme Court, hence the reference to the CJEU.
The Supreme Court considered that Parliament would have intended the relevant regulation in TUPE to have a “static” effect and merely intended the regulations to implement the Acquired Rights Directive. As such, the interpretation should be a static one. However it was aware that the CJEU may demonstrate through case law that a national court may extend the scope of national legislation implementing a Directive beyond what the Directive envisaged; hence the reference.
The CJEU noted that the Acquired Rights Directive does not just aim to safeguard the interests of transferred employees but also endeavours to ensure a “fair balance” between the interest of the employees and the transferee (though no doubt in general terms a number of transferees would disagree). It considered that a transferee must be able to make the adjustments and changes necessary to carry out operations post transfer, especially between public and private sector, where there are possibly quite substantial differences in working conditions. It went on to hold that a dynamic clause referring to collective agreements which are intended to regulate changes and working conditions in the public sector would be likely to limit the ability of a private sector transferee to make such changes and would therefore undermine the fair balance of interest to which it referred.
The other point which made a crucial difference was the CJEU stating that the Acquired Rights Directive must be read in a way that was compatible with the Charter of Fundamental Rights of the European Union. This lays down the freedom to conduct a business, which includes the freedom of contract. This requires that a transferee must be able to effectively assert its interests where it is a party to a contractual process and to negotiate changes in working conditions of its employees. In this situation Parkwood Leisure was not a party to the collective agreement and so was unable to participate in the collective bargaining body and so could not assert its interests effectively i.e. it had no control over the decisions which were made because it could not participate. The CJEU considered that, while member states may take measures which are more favourable to employees than those set out in the Acquired Rights Directive, this could not be extended to limit the contractual freedom of a transferee to the extent that it limited the transferee’s ability to conduct a business.
Consequently the Court held that member states could not allow for “dynamic” clauses referring to collective agreements which are negotiated and adopted after the transfer date to be enforceable against the transferee in circumstances where that transferee was not able to participate in the negotiation process concluded after the transfer date.
This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.
For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.