Tom Bray: European Court rules against collective pay negotiations

Employers, particularly those in the private sector that have recently acquired employees from the public sector or plan to do so, will be relieved by a recent decision of the European Court of Justice (ECJ) concerning the interpretation of the Transfer of Undertaking (Protection of Employment) (Tupe) regulations.

The ECJ found that employees cannot continue to benefit from collectively agreed pay rises once they have transferred to a new employer which is neither party or privy to the pay negotiations.

This case has very real implications for employers that have acquired, or will acquire, employees to whom industry- or sector-wide negotiated terms apply. This is by no means limited to scenarios where public sector employees governed by collective bargaining have transferred to the private sector, as arose in this case.

Many transferee employers will have been unaware that the operation of the 2006 Tupe regulations might mean they inherit liability for year-on-year pay rises over which they have no control or say. Conversely, those that were aware of this litigation may have been put off taking on such businesses.

The decision of the ECJ should, therefore, provide much-needed certainty for employers and employees alike by clarifying that pay levels will generally be preserved on transfer, but are unlikely to be subject to subsequent increases not agreed or negotiated by the transferee employer. 

The decision could also have wider implications. The ECJ has now made it clear that the underlying principle of the Tupe directive is not solely to safeguard the interests of employees on a business transfer, but also to ensure a fair balance between the interests of those employees and the transferee.

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In the past, court emphasis in the context of business transfers has been very much on protecting the interests of the employees. While common sense suggests such protection would be finite, the directive has not previously been referred to as involving a balancing exercise in the way described in this latest ruling.

Tom Bray is principal associate in the employment and labour department at Eversheds