What happens to a national or collective agreement after a TUPE transfer?
In theory contractual terms within a collective agreements will transfer. But does the new employer also have to honour future changes to that national or collective agreement even when that new employer may not be a party to the national or collective agreement and may have no say in what those changes are?
Does the national or collective agreement transfer ‘freeze in time’ as at the point of the transfer (the so called ‘static model’)?
Or does the national or collective agreement transfer remain subject to future changes that may be agreed (the so called ‘dynamic model’)?
The Supreme Court referred the case of Parkwood Leisure Limited v Alemo-Herron and others (2011) to the Court of Justice of the European Union (CJEU). The CJEU was asked to give a preliminary ruling on whether the predecessor to regulation 4 of Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006 (Regulation 5 of TUPE 1981), concerning the effect of a relevant transfer on contracts of employment, can be given a ‘dynamic’ or a ‘static’ interpretation by national courts.
The Court of Appeal had held that a transferee was not bound by any collective agreement made after the expiry of an agreement that was in force at the time of the transfer if the employer was not party to the collective bargaining machinery concerned (static interpretation). The dynamic interpretation would mean that a transferee would be bound to give effect to collective agreements negotiated by a third party from time to time as long as the contract of employment allowed for this.
The employees appealed to the Supreme Court, which decided to make reference to the CJEU. The Advocate General proposed that the CJEU find that the dynamic interpretation would be correct. The CJEU disagreed and found that the static approach was in fact correct. The CJEU stated that a dynamic interpretation would undermine the fair balance between the interests of the transferee and the employees and emphasised the importance of freedom of contract.
The outcome of the case is that transferees are not bound by collectively agreed terms negotiated post-transfer where the transferee has no involvement in the negotiating process. The scenario where a private sector contractor takes on a public sector contract free from stringent collective bargaining in relation to pay may seem quite attractive to many contractors in the private sector.