New arguments from Alemo-Herron v Parkwood Leisure

by Laurie Anstis on July 22, 2013

Last week the Court of Justice of the European Union gave its judgment in the case of Alemo-Herron v Parkwood Leisure. This followed a referral from the Supreme Court.

Parkwood Leisure took on responsibility for the London Borough of Lewisham’s leisure centres. This was a TUPE transfer, so Parkwood had to honour the original contracts of employment that the employees had with Lewisham. These said that their terms and conditions (including rates of pay) were set by negotiations carried out by the National Joint Committee for Local Government Services (“the NJC”). Lewisham could take part in these negotiations but Parkwood couldn’t. The principal issue was whether after the transfer the contract was governed by the terms and conditions set at the time of the transfer (the “static” approach) or whether later NJC negotiations could change those terms and conditions, despite Parkwood not being able to take part in those negotiations (the “dynamic” approach).

The EAT had previously suggested that the “dynamic” approach was the correct one under the UK TUPE regulations (BET Catering Services Limited v Ball), but in Werhof v Freeway Traffic Systems the European Court of Justice had decided that the Acquired Rights Directive (from which UK TUPE law is derived) did not require the “dynamic” approach, and that the static approach was sufficient.

One of the questions referred by the Supreme Court to the CJEU was whether it was permitted for the UK TUPE law to take the wider “dynamic” approach, or whether it was obliged to adopt a “static” approach.

It isn’t unusual for UK implementation of EU directives to take a wider approach than is strictly required by directives. The government is currently on the hunt for some of this “gold-plating” as part of its “war on red tape”. As a general rule the European Union has no problem with this. If UK law wants to be more generous to employees than EU law requires, the CJEU has not generally interfered with this.

In Alemo-Herron, however, the CJEU held that the directive precluded the possibility of national laws adopting a dynamic approach. In other words, EU law prohibited the wider interpretation that had been given by the UK courts to the UK legislation.

They came to that conclusion using some rather striking language.

First, they said:

“27  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.

28 However, a dynamic clause referring to collective agreements negotiated and agreed after the date of transfer of the undertaking concerned that are intended to regulate changes in working conditions in the public sector is liable to limit considerably the room for manoeuvre necessary for a private transferee to make such adjustments and changes.

29 In such a situation, such a clause is liable to undermine the fair balance between the interests of the transferee in its capacity as employer, on the one hand, and those of the employees, on the other.”

That is all very well, but seems in stark contrast to a long line of cases in which the ECJ has emphasised the purpose of the Acquired Rights Directive as being the protection of employees. The concept that a transfer might “require significant adjustments and changes“, given “inevitable differences in working conditions” seems at odds with the views of previous generations of ECJ justices who have tended to emphasis the restrictions that the Acquired Rights Directive placed on an employers ability to make any changes at all, let alone “requiring significant … changes”. The concept that the Acquired Rights Directive needs “a fair balance” between the employer and employee also seems at odds with previous cases which have emphasised employee protection.

Beyond that, the CJEU held that the Acquired Rights Directive must be read subject to the Charter of Fundamental Rights of the European Union (to which the UK has a sort-of opt-out – see Protocol 30 here), and in particular Article 16:

“The freedom to conduct a business in accordance with Union law and national laws and practices is recognised.”

They held that this applied to the Alemo-Herron case:

“33 … it is apparent that, by reason of the freedom to conduct a business, 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.

34 However, the transferee in the main proceedings is unable to participate in the collective bargaining body at issue. In those circumstances, the transferee can neither assert its interests effectively in a contractual process nor negotiate the aspects determining changes in working conditions for its employees with a view to its future economic activity.

35 In those circumstances, the transferee’s contractual freedom is seriously reduced to the point that such a limitation is liable to adversely affect the very essence of its freedom to conduct a business.”

It is quite striking how far the “freedom to conduct a business” point is taken by the CJEU in this case. The right is supposed to be a right to conduct a business “in accordance with … national laws and practices”, but the CJEU held that “freedom to conduct a business” required overruling what had been established UK law and practice on the “dynamic” interpretation. A need “to negotiate the aspects determining changes in the working conditions of its employees with a view to its future economic activity” sits at odds with traditional interpretations on the question of changing working conditions following a TUPE transfer.

What is striking to me is that the Acquired Rights Directive now takes account of a “fair balance” between employers and employees, and the field seems open for creative arguments by lawyers as to when “freedom to conduct a business” might require UK laws to be interpreted in a more business-friendly manner.