ECJ Safeguards Employers’ Rights in Collective Agreements

Monday, August 26, 2013 | Published by

In July of 2013, the Court of Justice of the European Union announced its judgment in the highly anticipated case Alemo-Herron and Others v Parkwood Leisure Ltd, C-426/11, regarding the safeguarding of employees’ rights in the event of transfers of undertakings.

The plaintiffs in this case were originally employed by a public sector entity, the London Borough of Lewisham, and were bound by the terms and conditions detailed in the collective agreements reached by the National Joint Council for Local Government Services (the NJC).

Then in 2004, the employees were transferred to Parkwood Leisure Limited. Later that same year, a new NJC collective agreement was reached covering pay rates for the period 1 April 2004 to 31 March 2007.

The dispute arose when Parkwood Leisure Limited refused to honour the terms of the 2004 agreement, stating that as a private sector employer they were unable to participate in the negotiation process which led to the 2004 agreement.

The employees then sued, alleging that Parkwood was obliged to increase their pay based on the 2004 agreement and their failure to do so resulted in unlawful wage deductions.

The issue before the Court of Justice of the European Union was whether Council Directive 2001/23 prohibits, permits or requires the acceptance by Member States of the transfer of dynamic clauses referring to collective agreements.

Dynamic clauses are terms that have been agreed to between the employees and the transferor employer prior to the transfer of an undertaking, and have the effect of requiring the transferee employer to abide by the conditions agreed in future collective agreements, even where that employer cannot be a party to the negotiations leading to that agreement.

The Court ruled that Article 3 of Directive 2001/23 must be interpreted as precluding a Member State from providing, in the event of a transfer of an undertaking, that dynamic clauses referring to collective agreements negotiated and adopted after the date of transfer are enforceable against the transferee, where that transferee does not have the possibility of participating in the negotiation process of such collective agreements concluded after the date of the transfer.

The Court reasoned that an employer’s right to conduct business, particularly the freedom to enter into a contract, is a fundamental right under Article 16 of the Charter of Fundamental Rights of the European Union.

The Court rejected the dynamic approach claiming that it would adversely burden an employer’s ability to conduct business by forcing the employer to adhere to terms which they never agreed to, since they were excluded from the negotiations.

The Court emphasized a static interpretation which provides for a fair and balanced approach that weighs the interests of the transferee and its employees equally.

It is worth noting however, that the Court did not shed any light on how they may have ruled had the transferee been a party to the negotiating process.

This judgment is a major victory for employers, because it limits the applicability of collective agreements reached after the date of the transfer of an undertaking, if the transferee did not participate in the negotiations of those agreements, and therefore was unable to assert its own interests into the terms under consideration. The Court’s ruling reiterates the importance of allowing an employer to maintain control over its economic activity with an eye towards future financial stability.

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Image: Court of Justice of the European Union, file created by Ssolbergj (en:Wikipedia (version history) based on [1]) [Public domain], via Wikimedia Commons