For lovers of the legal nitty gritty of transfer of undertaking (TUPE)

About clauses referring to collective labour agreements after the date of transfer of undertaking (TUPE)

The European Court recently had to rule about the scope of clauses referring to collective labour agreements (incorporation of the collective labour agreement) after the date of transfer of undertaking. This is judgement is the third in a row and most interesting.

Werhof: clause has static character

In Werhof the Court ruled that article 3(1) of the Directive “does not preclude, in a situation where the contract of employment refers to a collective agreement binding the transferor, that the transferee, who is not party to such an agreement, is not bound by collective agreements subsequent to the one which was in force at the time of the transfer of the business”. The Court also ruled that a clause referring to a collective agreement cannot have a wider scope than the agreement to which it refers. Consequently, account must be taken of Article 3(2) of the Directive, which contains limitations to the principle that the collective agreement to which the contract of employment refers is applicable.

However, it is not only about employee protection. The transferee must be able to make the adjustments and changes necessary to carry on his operations. The Court referred to the freedom of association in this respect. Based on this decision the prevailing doctrine in the Netherlands was that clauses referring to collective labour agreements became ‘static’ in case of TUPE.

Parkwood: static if freedom to conduct a business is compromised

This prevailing doctrine did not change after Parkwood. The question was whether an incorporation clause that has been worded dynamically would change into a static clause because of TUPE. In Parkwood that was the case because the interests of the transferee would have been harmed too much. The freedom to conduct a business played a role. This freedom entails that the transferee must be able to assert its interests effectively in a contractual process to which it is party and to negotiate the aspects determining changes in the working conditions of its employees with a view to its future economic activity. This was not possible for Parkwood if the clause would have remained dynamic. In addition, the Court ruled that, since the transfer is of an undertaking from the public sector to the private sector, the continuation of the transferee’s operations will require significant adjustments and changes, given the inevitable differences in working conditions that exist between those two sectors.

New insights: Court of Justice takes contractual freedom as starting point

After Asklepios the prevailing doctrine in the Netherlands after Werhof has come under pressure. The Court reiterates that the objective of the Directive was merely to safeguard the rights and obligations of employees in force on the day of the transfer. New is however that the Court also observes that a contract is characterised by the principle of freedom of the parties to arrange their own affairs and that a ‘dynamic’ clause not automatically becomes static. Freedom to conduct a business can be reason to limit the transfer of the dynamic character. This freedom, however, was in this case not compromised according to the Court because German national legislation provides for the possibility, after the transfer, for the transferee to adjust the working conditions existing at the date of the transfer, either consensually or unilaterally. The conclusion that an incorporation clause would automatically become static in case of TUPE can therefore no longer uphold.

Final remarks: possibility to change employment conditions on paper or in practice feasible?

Missed opportunity is that the Court has not assessed (it is up to the national courts) whether the possibility to adjust the working conditions either consensually or unilaterally, in practice is an option or feasible. It is unclear whether the dynamic character will transfer of the possibility to adjust the working conditions only exists on paper or that the clause becomes static if this possibility in practice not really exists. In Germany for example, the European Court ruling has been received with grumbling as in practice it is rather complicated to adjust the employment conditions. The same goes for Dutch law. Unilateral adjustment is possible on paper but in reality virtually impossible. However, if the possibility on paper is decisive, dynamic clauses referring to collective labour agreements will keep their dynamic character after TUPE.

Boudewijn Kanen is founding partner at Liber Dock and advises companies on legal and strategic matters from employment (including pensions) and corporate law perspective to help companies to achieve their business objectives. Boudewijn regularly publishes in professional journals. This article is a summary of his annotation with Prof. R.M. Beltzer (university of Amsterdam) on the Asklepios decision in Dutch legal journal Jurisprudentie Arbeidsrecht (case law labour law).