CJEU Decision in Alemo-Herron v Parkwood

Thanks to Dr John McMullen of Wrigleys Solicitors LLP for preparing this case summary.

In Alemo-Herron v Parkwood Leisure Ltd the European Court has delivered its long awaited judgment in the litigation concerning whether clauses in employment contracts which oblige an employer to follow determinations of a third party (such as a national negotiating body) in setting pay are binding on a transferee employer.

In British law, the answer was originally that such clauses are dynamic in nature, thus transferring to the new employer under TUPE even if the new employer has no say in the national bargaining arrangements. In the case of Werhof [2006] ECR 1-2397 the European Court held, however, that such clauses are static in nature, thus obliging the new employer to follow only the current collective agreement affecting pay and conditions and not future determinations by a third party when the employer is not a party to the negotiations.

In this case, a public sector to private sector transfer (the contracting out of Lewisham Council's leisure services), it was argued that the dynamic interpretation was permissible under British law even if not permitted under European law, under the principle that a Member State may, it its domestic law, grant rights more favourable than contained in European law.

The European Court disagreed.

This was because a dynamic clause referring to collective agreements undermines the balance between the interests of the transferee in its capacity as employer, on the one hand, and those of the employees, on the other. Under Article 16 of the Charter of Fundamental Rights of the European Union, an employer must have the right to conduct a business and assert its interests effectively in a contractual process to which it is party. This allows it to negotiate the process of determining changes in the working conditions of its employees with a view to its future economic activity.

A dynamic interpretation was therefore inconsistent with the Charter. As such, Member States are not permitted to allow dynamic clauses referring to collective agreements negotiated and adopted after the date of transfer where the transferee does not have the opportunity of participating in the negotiating process by which such a collective agreement was concluded.