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Advocate General endorses 'dynamic' approach to collective bargaining agreements following TUPE transfer

Private sector service providers could have to honour national public sector pay arrangements for any workers that have transferred to them under the TUPE regulations if the approach of a legal adviser is followed by the EU's highest court.

Advocate General Cruz Villalón said that the rules governing the Transfer of Undertakings (Protection of Employment) (TUPE) regulations permitted member states to take a "dynamic" approach to obligations stemming from national collective bargaining agreements. This meant that it was for national courts to decide whether employees could continue to benefit from future pay increases under such an agreement once they transferred to the private sector.

The opinions of Advocate Generals are not binding on the Court of Justice of the European Union (CJEU), which will deliver the final ruling. However, judges use the opinions in making their decisions and opinions are followed in the majority of cases. TUPE implements the EU's Acquired Rights Directive and protects the rights of employees whose companies are taken over by new owners. The regulations also apply where work is outsourced, brought back in-house or the service provider is changed.

Employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, said that the Advocate General's opinion upheld the view of the UK's Supreme Court. The case was referred to the CJEU in June 2011 after it ruled that Germany was permitted to take a 'static' approach to the future impact of collective bargaining agreements.

"This is not really a case about whether collective agreements are static or dynamic, but about what the contract of employment says," Mordue said. "The crucial point here is that the contract of employment stated that the terms and conditions would be those decided through national collective bargaining. That is no different to saying pay rises will be linked to inflation. Collective agreements made after the transfer only have an impact for transferee and employee because the contract says that this will be the case - without this clause in the contracts the new collective agreements would be irrelevant."

"Nevertheless, the practical implications of the likely outcome of this case may be huge. Many contractors may be bound by collective bargaining outcomes that they don't control unless and until they can break the link between the contract and the national collective bargaining," he said.

Collective bargaining occurs when a trade union negotiates a successful outcome, usually in relation to pay or conditions, on behalf of a group of employees. Pay bargaining arrangements are common in areas including the NHS, local authorities and the education sector.

The 24 workers involved in the long-running case were originally employed by Lewisham Council, under contracts which gave them the right to pay increases in line with the National Joint Council for Local Government Services' collective agreement. In 2002 their jobs were transferred to a private sector employer that continued to apply the nationally-agreed pay increases, before there were once again transferred to Parkwood Leisure Ltd in 2004. Parkwood originally uprated pay "without liability" in line with the collective agreement, but stopped doing so shortly after the transfer.

The case reached the Supreme Court in June 2011 after progressing through the employment tribunal system. The court said that it was inclined to the view that the right to benefit from the national pay increases did transfer under TUPE, and so bound subsequent contractors, in line with earlier case law and a natural reading of the workers' contracts of employment. The fact that there was a clear contractual reference to the NJC arrangements meant that the employees had a right to benefit from them, even though the private sector employers could not participate in or influence the agreement.

However, the Supreme Court decided to check this understanding with the CJEU, which had previously ruled that the Acquired Rights Directive did not prevent national courts from adopting the static approach. Under German law, post-transfer changes to a collective bargaining agreement do not impact on the transferee.

In his ruling, the Advocate General said that the Acquired Rights Directive was only intended to achieve "partial harmonisation" rather than "establish a uniform level of protection throughout" the EU. In addition, the case could be distinguished from the German one as the clause giving effect to the agreement was set out in "an employment contract containing a dynamic clause adopting the terms agreed in future agreements".

"In view of the foregoing, I am of the opinion that the [Acquired Rights Directive] presents no impediment to the United Kingdom allowing parties to use dynamic clauses referring to future collective agreements and accepting that such clauses are transferable as a consequence of the transfer of an undertaking," he said. "The directive does not require member states to adopt a dynamic interpretation to clauses referring to a collective agreement ... however, the directive does not, in principle, prevent member states from allowing dynamic clauses referring to collective agreements to exist."

Employment law expert Christopher Mordue said that the decision made it clear that if the private sector employer agreed a change in terms and conditions after the transfer, it would be able to avoid the impact of future changes to a collective bargaining agreement it had no control over.

"This whole area is one which the Government is considering in its proposed reforms of TUPE," he said. "The opinion makes clear that the Government is in control of the solution and can place a time limit on how long collective agreements will continue to bind a transferee. It is also possible for transferees and employees to agree a change in terms and conditions after the transfer to avoid this result, and the Government is proposing to make it easier to do so."

"Given the practical impact of contractors being bound by ongoing public sector collective bargaining, the case for reform appears stronger and more urgent," he said.

A Government consultation on changes to TUPE, designed to remove what it claims are "gold-plated" protections from the regime, closes on 11 April.

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