‘Dynamic’ loses out to ‘static’ in the European Court of Justice

Pattinson & Brewer employment specialist Paul Statham on the latest ECJ ruling regarding collectively-agreed terms …

You may think that the European Court of Justice is writing about new super heroes with the numerous mentions of ‘dynamic’ and ‘static’ in their decision in Alemo-Herron & Others v. Parkwood Leisure Limited (bit.ly/1aUhiqn). But this is in fact an important case on the effect of collectively-agreed terms after a TUPE transfer.

The claimants worked for the London Borough of Lewisham. Their terms and conditions were set by reference to collective agreements negotiated through the National Joint Council for local government services (NJC). The claimants were then TUPE transferred to Parkwood Leisure in the private sector, who were not members of the NJC.

In the usual way after the outsourcing exercise, Parkwood Leisure refused to make any pay increases. The claimants claimed that the clause in their contract referring to the NJC bound Parkwood Leisure, and therefore they had been subjected to an unlawful deduction of wages when Parkwood Leisure refused to pay any increased wages negotiated through the NJC after the TUPE transfer. This is the so-called Dynamic interpretation.

The tribunal rejected the claim, the EAT allowed the appeal, and the Court of Appeal overturned the decision of the EAT. The matter then went to the Supreme Court, who referred the case to the ECJ to decide whether Regulation 5 of the old TUPE Regulations 1981 allowed for a dynamic interpretation with regards to terms and conditions of employment that transferred, or whether this was contrary to the directive.

Interestingly, the ECJ referred to the Charter of Fundamental Rights of the European Union, and in particular Article 16. This sets out a freedom to conduct business, including freedom of contract. It suggested that if a dynamic interpretation of Regulation 5 was allowed, that this would infringe Parkwood Leisure’s Article 16 rights to conduct their business and contract freely with their employees on the terms they would wish. As Parkwood Leisure was unable to participate in the collective bargaining body which was setting the terms and conditions, it could not assert its interest effectively to set terms and conditions.

The ECJ therefore held that the terms and conditions of members who were transferred on the outsourcing exercise were frozen at the date of transfer, and could not be changed to their benefit as a result of further negotiations at the NJC even though there was a clause in their contract of employment to that effect. The static interpretation applied.

It would be interesting to see how the ECJ would have decided the case had Parkwood Leisure been able to join the NCJ and take part in the negotiations.