Preserved Rights
Cases
Symantec Ltd -v- Leddy
[2009] IEHC 256 Edwards J.
Legal Submissions
“Both sides have filed helpful written legal submissions for which the Court is grateful. Both sides principally rely on same two decisions of the European Court of Justice in support of their respective positions. These are the cases of Katsikas v. Konstantinidis (conjoined with Schroll v PCO Stauereibetrieb Paetz & Co Nfl GmbH) [1992] ECR I 6577 and Merckx & Neuhuys v. Ford Motor Co of Belgium [1996] ECR I – 1253, both of which considered the purpose and correct interpretation of Directive 77/187/EEC on the transfer of undertakings. Its successor Directive is 2001/23/EC. Counsel on both sides have also provided the Court with useful comparative law references.
The Plaintiff/Appellant’s Submissions
It was submitted on behalf of the Plaintiff/Appellant that the purpose of Directive 77/187/EEC and its successor Directive 2001/23/EC (hereinafter “the Directive) is to safeguard the rights of workers in the event of a change of employer by making it possible for them to continue to work for the new employer under the same conditions as those in place with the transferor.
It was submitted that as the Defendants/Respondents contracts of employment were in being at the date of the transfer then by virtue of Regulation 4(1) of the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 the obligations and liabilities thereunder are the responsibility of the transferee Corporate Occupier Solutions (Ireland) Limited and not of the Plaintiff/Appellant.
They say that the European Court of Justice (hereinafter the ECJ) accepted in the case of Berg v Besselen [1998] ECR 2559 that the first subparagraph of Article 3 (1) of the Directive (the equivalent of Regulation 4(1) of the 2003 Regulations) must be interpreted as meaning that after the date of transfer and by virtue of the transfer alone, the transferor is discharged from all obligations arising under the contract of employment or the employment relationship, even if the workers employed in the undertaking did not consent or if they object, subject however to the power of the Member States to provide pursuant to the second subparagraph of Article 3(1) of the Directive for the joint liability of the transferor and the transferee for obligations arising under the contract of employment before the date of the transfer. This power has not been taken up in this jurisdiction. They say it must be presumed that the legislature in promulgating the said regulations and in particular Regulation 4 (1) was lending clarity to the position of employees directly affected by a transfer. It was not simply repeating the words of the Directive to no effect.
The Katsikas Case
In Katsikas v. Konstantinidis (conjoined with Schroll v PCO Stauereibetrieb Paetz & Co Nfl GmbH) [1992] ECR I 6577 the ECJ was asked, by means of Article 177 references from the Courts of Bamburg and Hamburg respectively, to consider the interpretation of Article 3 (1) of the Directive. Article 3 (1) provides:
“The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.
Member States may provide that, after the date of transfer within the meaning of Article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship.”
In both the Bamburg and the Hamburg references the prospective employees refused to transfer to the employment of the transferee. The Bamburg Court referred the following question (inter alia) to the ECJ for a preliminary ruling:
“Is it possible under Article 3(1) of the Council Directive of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses (Directive 77/187/EEC) for an employee of the transferor at the date of transfer within the meaning of Article 1(1) of Directive 77/187/EEC to object to the transfer of rights and obligations from the transferor to the transferee, with the result that the transferor’s rights and obligations are not transferred to the transferee?”
At paragraphs 31 – 36 inclusive of its judgment the ECJ held :
“31 Whilst the directive, which effects only partial harmonization in the area in question (see the judgment in Case 105/84 (Foreningen af Arbejdsledere i Danmark v Danmols Inventar [1985] ECR 2639), cited above, paragraph 16), allows the employee to remain in the employ of his new employer on the same conditions as were agreed with the transferor, it cannot be interpreted as obliging the employee to continue his employment relationship with the transferee.
32 Such an obligation would jeopardize the fundamental rights of the employee, who must be free to choose his employer and cannot be obliged to work for an employer whom he has not freely chosen.
33 It follows that Article 3(1) of the directive does not preclude an employee from deciding to object to the transfer of his contract of employment or employment relationship and hence deciding not to take advantage of the protection afforded him by the directive.
34 However, as the Court has held (judgment in Berg v Besselsen, cited above, paragraph 12), the purpose of the directive is not to ensure that the contract of employment or employment relationship with the transferor is continued where the undertaking’s employees do not wish to remain in the transferee’s employ.
35 It follows that, in the event of the employee deciding of his own accord not to continue with the contract of employment or employment relationship with the transferee, the directive does not require the Member States to provide that the contract or relationship is to be maintained with the transferor. In such a case, it is for the Member States to determine what the fate of the contract of employment or employment relationship should be.
36 The Member States may, in particular, provide that in such a case the contract of employment or employment relationship must be regarded as terminated either by the employee or by the employer. They may also provide that the contract or relationship should be maintained with the transferor.”
The Merckx Case
In the case of Merckx & Neuhuys v. Ford Motor Co of Belgium [1996] ECR I – 1253 the Court of Appeal in Belgium had referred a question to the ECJ for its consideration in relation to the existence of a transfer of undertakings. The ECJ held that Article 3 (1) of the Directive did not preclude an employee employed by the transferor at the date of a transfer of an undertaking from objecting to the transfer to the transferee of the contract of employment or the employment relationship.
The question that had been asked by the Belgian Court is set out at para 14 of the judgment of the ECJ and was reformulated by the ECJ as a two part query which is set out at para 15 of the judgment. We are only concerned with the second part of the reformulated question. Paras 14 and 15 are as follows:
“14. Having regard to the foregoing, the Cour du Travail, Brussels, decided to stay the proceedings and to refer the following question, drafted in the same terms in both cases, to the Court of Justice for a preliminary ruling:
“Is there a transfer of an undertaking within the meaning of Directive 77/187 of 14 February 1977 if an undertaking which has decided to discontinue its activities on 31 December 1987 dismisses most of its staff, keeping only 14 out of a total of over 60, and decides that those 14 persons, while retaining their acquired rights, must work from 1 November 1987 for an undertaking with which that first undertaking has no formal agreement, but which has since 15 October 1987 held the dealership previously held by the first undertaking, and if the first undertaking has not transferred any of its assets to the second?”
15. That question seeks essentially to ascertain, first, whether Article 1(1) of the Directive must be interpreted as applying where an undertaking holding a motor vehicle dealership for a particular territory discontinues its business and the dealership is then transferred to another undertaking which takes on part of its staff and is recommended to customers, without any transfer of assets. Secondly, having regard to the facts in the main proceedings and in order to provide a helpful response to the national court, it is necessary to establish whether Article 3(1) of the Directive precludes an employee of the transferor at the date of transfer of the undertaking from objecting to the transfer of his contract of employment or employment relationship to the transferee.” (my emphasis)
The second part of the reformulated question was answered in paras 33 – 39 inclusive of the ECJ’s judgment:
“33. As regards the second part of the question as reformulated above, the Court held in Case 105/84 Foreningen af Arbejdsledere i Danmark v Danmols Inventar [1985] ECR 2639, paragraph 16, that the protection which the Directive is intended to guarantee is redundant where the person concerned decides of his own accord not to continue the employment relationship with the new employer after the transfer.
34. It also follows from the judgment in Joined Cases C-132/91, C-138/91 and C-139/91 Katsikas and Others v Konstandinidis [1992] ECR I-6577, paragraphs 31 and 32, that, whilst the Directive allows the employee to remain in the employ of his new employer on the same conditions as were agreed with the transferor, it cannot be interpreted as obliging the employee to continue his employment relationship with the transferee. Such an obligation would jeopardize the fundamental rights of the employee, who must be free to choose his employer and cannot be obliged to work for an employer whom he has not freely chosen.
35. It follows that, in the event of the employee deciding of his own accord not to continue with the contract of employment or employment relationship with the transferee, it is for the Member States to determine what the fate of the contract of employment or employment relationship should be. The Member States may provide, in particular, that in such a case the contract of employment or employment relationship must be regarded as terminated either by the employee or by the employer. They may also provide that the contract or employment relationship should be maintained with the transferor (judgment in Katsikas and Others, cited above, paragraphs 35 and 36).
36. Mr Merckx and Mr Neuhuys claimed, moreover, that in the case in point Novarobel refused to guarantee to maintain their level of remuneration, which was calculated by reference, in particular, to the turnover achieved.
37. In the light of that submission, it should be noted that Article 4(2) provides that if the contract of employment or the employment relationship is terminated because the transfer within the meaning of Article 1(1) involves a substantial change in working conditions to the detriment of the employee, the employer is to be regarded as having been responsible for termination.
38. A change in the level of remuneration awarded to an employee is a substantial change in working conditions within the meaning of that provision, even where the remuneration depends in particular on the turnover achieved. Where the contract of employment or the employment relationship is terminated because the transfer involves such a change, the employer must be regarded as having been responsible for the termination.
39. Consequently, the answer to the second part of the question as reformulated must be that Article 3(1) of the Directive does not preclude an employee employed by the transferor at the date of the transfer of an undertaking from objecting to the transfer to the transferee of the contract of employment or the employment relationship. In such a case, it is for the Member States to determine what the fate of the contract of employment or employment relationship with the transferor should be. However, where the contract of employment or the employment relationship is terminated on account of a change in the level of remuneration awarded to the employee, Article 4(2) of the Directive requires the Member States to provide that the employer is to be regarded as having been responsible for the termination.”
The Plaintiff/Appellant’s central contention
It was submitted on behalf of the Plaintiff/Appellant that it is clear that it has been accepted by the ECJ in both Katsikas and in Merckx that an employee of the transferor is entitled to object to the transfer and cannot be obliged to work for the transferee. It was further submitted that the fact that an employee is not so obliged does not mean that his contract of employment is not transferred automatically to the transferee by virtue of the transfer itself. Article 4 (1) of the 2003 Regulations reflects this in as much as it provides for the unqualified automatic transfer of an employee’s contract of employment at the date of the transfer of the undertaking.
It was submitted that in the circumstances the EAT erred in finding that the Defendants/Respondents were entitled to lump sum redundancy payments under the Redundancy Payments Acts 1967 – 2003. The Court was specifically referred to the definition of redundancy in s. 7(2) of the Redundancy Payments Acts 1967 (as amended) which states:
“….an employee who is dismissed shall be taken to be dismissed by reason of redundancy if for one or more reasons not related to the employee concerned the dismissal is attributable wholly or mainly to—
( a ) the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased or intends to cease, to carry on that business in the place where the employee was so employed, or
( b ) the fact that the requirements of that business for employees to carry out work of a particular kind in the place where he was so employed have ceased or diminished or are expected to cease or diminish, or
( c ) the fact that his employer has decided to carry on the business with fewer or no employees, whether by requiring the work for which the employee had been employed (or had been doing before his dismissal) to be done by other employees or otherwise, or
( d ) the fact that his employer has decided that the work for which the employee had been employed (or had been doing before his dismissal) should henceforward be done in a different manner for which the employee is not sufficiently qualified or trained, or
( e ) the fact that his employer has decided that the work for which the employee had been employed (or had been doing before his dismissal) should henceforward be done by a person who is also capable of doing other work for which the employee is not sufficiently qualified or trained.”
The Plaintiff/Appellant says: First, the EAT’s determinations are unsupported by authority. Secondly, there is no legal basis for the finding of redundancy within the meaning of the Redundancy Payments Acts 1967 – 2003. Thirdly, it is self evident that the Transfer Regulations had application and it was open to the Defendants/Respondents to challenge the transferee that in fact (and in law) their positions were redundant but it is not open to them to challenge the transferor in that regard. Its obligations are complete at the time of transfer.
The Defendants/Respondents’ submissions
As previously stated the Defendants/Respondents also rely on the decisions of the ECJ in Katsikas and in Merckx respectively. They contend those decisions in fact support their case.
The Defendants/Respondents’ central contention
Their central contention is contained at paragraphs 11 and 12 respectively of their written submissions and it is this. They say that in light of the fact that the Katsikas and Merckx cases, respectively, were opened before the Tribunal it is difficult to understand how the Plaintiff/Appellant’s argument is being maintained. They say that in circumstances where the court is dealing with a statutory instrument which implements a provision of European law the court must find that Regulation 4 (1) of the 2003 Regulations has the same effect as the ECJ has ascribed to article 3 (1) of the Directive. They say that if that is correct then the next question is to consider whether the Irish implementing legislation makes any particular provision as to what will occur if employees decide not to transfer. It does not. Accordingly, as determined by the Employment Appeals Tribunal and contrary to the contention made by the Plaintiff/Appellant in these proceedings, the 2003 Regulations had no relevance to the Defendants/Respondents respective claims for redundancy under the redundancy payments Acts 1967 to 2007. The tribunal said:
“The employee is not obliged to accept the new employer, and this is not inconsistent with the directive in relation to the transfer of undertakings.”
It was submitted that this statement is manifestly correct and that, in those circumstances, the Plaintiff/Appellant’s appeal, which is entirely based upon the supposed impact of the 2003 Regulations on the Defendants/Respondents employment, must fail.
Decision
With great respect to the arguments advanced on behalf of the Defendants/Respondents the court disagrees profoundly with their view of the implications for Irish labour law of the ECJ’s judgments in Katsikas and Merckx respectively. The court has no doubt but that the correct view of the matter is that which has been articulated on behalf of the Plaintiff/Appellant. As the Defendants/Respondents have rightly pointed out Irish implementing legislation does not make any particular provision as to what will occur if employees decide not to transfer. However, contrary to their belief, that fact operates against them. It does not follow that if an employee decides not to transfer a situation of redundancy automatically arises vis-à-vis the transferor. It cannot do so because the fact that an employee objects to the transfer does not of itself have the effect of negativing the transfer. It is just that an employee is not obliged to continue his employment relationship with the transferee. However, the transfer still goes ahead unless a member state expressly provides for the contrary in its implementing legislation. That this is so is clear from the judgment of the ECJ in Katsikas. That Court explained that the purpose of the Directive is to allow the employee to remain in the employ of his new employer on the same conditions as were agreed with the transferor. However, he is not obliged to avail of this facility. As the Court said “the directive does not preclude an employee from deciding to object to the transfer of his contract of employment or employment relationship and hence deciding not to take advantage of the protection afforded him by the directive.” However, “the purpose of the directive is not to ensure that the contract of employment or employment relationship with the transferor is continued where the undertaking’s employees do not wish to remain in the transferee’s employ.”
In my view nothing could be clearer. If the Irish legislature had wished the employment relationship with the transferor to continue so as to facilitate the employee in making a claim for redundancy it could have enacted legislation to that effect. It has not done so. This court is completely satisfied that by virtue of regulation 4 (1) it is not possible for the Defendants/Respondents in this case to make a redundancy claim against the Plaintiff/Appellant. In all the circumstances the court is satisfied to allow the appeals in both cases.”
Jackson v Computershare Investor Services Plc
[2007] EWCA Civ 1065 (
Lord Justice Mummery :
“The appeal
The issue in this appeal is whether there was an error of law in the decision of the employment tribunal (ET) upholding a claim by a former employee for breach of contract.
……
The discussion should then move to the part of the CIS contract expressly governing entitlement to enhanced severance pay. On the undisputed factual basis it is plain that, as a matter of their ordinary and natural meaning, the CIS enhanced severance provisions, which apply to the case of Mrs Jackson, are those relating to new entrants post-1 March 2002.
Mr Green submitted that the court should not stop there: it must then move to regulation 5(1) TUPE and interpret the CIS severance terms in the context of the TUPE stipulation that, after the transfer in June 2004, her employment contract with Ci(UK) Ltd “shall have effect …as if originally made” between Mrs Jackson and CIS.
A series of rulings of the Court of Justice on the interpretation of Article 3(1) of the Directive were cited by Mr Green: Molle Kro [1989] ICR 330 at paragraph 25; Daddy’s Dance Hall [1988] IRLR 315 at paragraphs 14 and 15; P Bork International [1989] IRLR 41 at paragraph 13; and Collini and Chiappero v. Telecom Italia spa [2000] IRLR 788 at paragraphs 49 to 51.
Mr Green also adopted the section dealing with Transfer of Undertakings in the most recent edition of the IDS Employment Law Handbook on Transfer of Undertakings (July 2007). The Handbook discusses the current 2006 Regulations. Although they do not apply to this case, the new Regulation 4(1) is in the same terms as the old Regulation 5(1) of TUPE 1981. The Handbook explains how, by a statutory novation, the provisions in the final clause of the Regulation commencing with the word “but”, are intended to override the common law position that an employment contract terminated on a change of employer. In consequence of legislative intervention, rather than of an agreement between the parties, the transferee is substituted for the transferor as one of the original parties to the employment contract. The original employment contract is not transferred: it is extinguished and replaced by another employment contract. The transferee steps into the shoes of the transferor, taking over the rights and obligations of the transferor under the employment contract, as if the transferee had contracted with the employee concerned from the date on which the employee was originally employed by the transferor.
I am unable to see how any of the cases cited or the discussion in the Handbook can assist Mrs Jackson on this appeal. It is not contended by Mr Green that TUPE applies so as to confer directly on Mrs Jackson a right to enhanced severance pay applicable to a pre-1 March 2002 joiner. It was not a right to which she was entitled before the transfer in 2004 and the variation by CIS of its relevant terms of contract.
The submission is rather that the contractual severance terms must be interpreted in the context of TUPE, which applied to the relevant transfer to CIS in 2004. What is that context? The purpose and effect of TUPE and the Directive, as implemented by TUPE, is to safeguard, as a matter of public policy, the existing rights of employees on a transfer of an undertaking and the change of employer by making it possible for an employee to work for the new employer on the same conditions as those agreed with the transferor. The employment relationship and its conditions continue unchanged as if agreed with the transferee. TUPE also enables the length of the employee’s service with the transferor to be used in the determination of certain rights of the employee (e.g calculation of redundancy and severance payments, calculation of length of notice and of qualifying periods).
The TUPE and Acquired Rights provisions aim at preventing the employee in an undertaking from being prejudiced as a result of the transfer of the undertaking: see, for example, Power v. Regent Security Services Ltd [2007] ICR 970 at paragraph 51-52. It is not, however, their objective to confer additional rights on the employee or to improve the situation of the employee: see Viggosdottir v. Islandspostur HF [2002] IRLR 425 at paragraphs 35 to 39.
So, the true effect of the deeming provision in regulation 5(1), on which the ET relied, is not to give a transferred employee access to employment benefits other than those to which the employee was entitled before the transfer of the undertaking. CIS, as transferee, is substituted for Ci(UK) Ltd, as the contracting party, and the prior obligations of Ci(UK)Ltd and the rights of Mrs Jackson continue to have effect after the transfer.
The fact that, when CIS treated Mrs Jackson as a new entrant post-1 March 2002, it calculated her severance pay on the basis of her deemed continuity of service from 1999, is irrelevant to the question whether she is or is not a new entrant within the meaning of the CIS enhanced severance terms. This question (i.e. new entrant or not) is determined by the date when, as a fact, she joined CIS. It is not determined by the direct or indirect application of Regulation 5(1), or by its alleged contextual effects or by Mrs Jackson’s deemed continuity of service from 1999, her previous service with Ci (UK)Ltd having been carried across by TUPE on the relevant transfer to CIS in June 2004.
In brief, I totally reject the attempt to make artificial use of TUPE in a contextual fashion for the purpose of interpreting CIS’s contract for enhanced severance pay terms in a way which displaces ET’s undoubtedly correct finding of fact that Mrs Jackson joined CIS after 1 March 2002 and miraculously transforms her from being a post-2002 new entrant into a pre- 2002 joiner.
Result
There was an error of law in the decision of the ET on Mrs Jackson’s claim for damages for non-payment of enhanced severance pay. The EAT correctly allowed the appeal by CIS. I would dismiss Mrs Jackson’s appeal to this court.”
Werhof
[2006] 2 CMLR 44, [2006] CEC 653, [2006] IRLR 400
“The first question
17 By its first question, the national court asks, essentially, whether Article 3(1) of the Directive must be interpreted as meaning that, where an undertaking is transferred and a contract of employment refers to a collective agreement to which the transferor is a party but not the transferee, the transferee is not bound by collective agreements subsequent to the one in force at the time of that transfer.
Observations submitted to the Court
18 The claimant submits that it follows from the case-law of the Court that, when an individual contract of employment includes a clause referring to collective agreements concluded in a particular sector, that clause must necessarily be “dynamic” and, in accordance with Article 3(1) of the Directive, refers to collective agreements concluded after the date of transfer of the undertaking (see, inter alia, Case C-343/98 Collino and Chiappero [2000] ECR I-6659, paragraph 53, and Case C-4/01 Martin and Others [2003] ECR I-12859, paragraphs 29, 48 and 54). Furthermore, such an interpretation of the Directive follows from its spirit and purpose, namely, the protection of employees in the event of a change of owner of the undertaking and, in particular, the safeguarding of their rights.
19 The defendant and the German Government take the view, on the other hand, that only the collective agreement in force at the time of the transfer is applicable. Otherwise, that is to say if collective agreements which came into force after the date of the transfer were to apply to employers who did not take part in the negotiations, employers” freedom to contract would be hindered, which would equate to expropriation. Moreover, it is important to take account of freedom of association which includes an employer’s right not to join an association or trade federation. Finally, it may be inferred from the objective of the directive and the wording of Article 3(1) thereof that only the transferor’s rights and obligations arising from a contract of employment existing on the date of a transfer are transferred to the transferee.
20 The Commission of the European Communities submits that Article 3(2) of the Directive, which is intended to safeguard the rights of employees acquired under collective agreements and requires employers to preserve employment relationships governed by a collective agreement, contains two requirements which apply in this case.
21 First, under the “parity clause” which makes collective agreements concluded by the transferor applicable to the contract of employment, the transferee’s obligation to continue to pay the claimant the wage which the transferor had agreed on an individual basis and the additional payments then provided for by the collective agreement lasts only “until the date of termination or expiry” of that collective agreement. The Commission takes the view that, with effect from 1 June 2003, the new collective agreement concluded on 23 May 2002 replaced the collective agreement which bound the transferee by reason of the transfer, so that the transferee was no longer bound by that agreement from 1 June 2003.
22 Secondly, since the right, provided for by the second subparagraph of Article 3(2) of the Directive, to limit the period for continued observance of terms and conditions was transposed into German law by the second sentence of Paragraph 613a(1) of the BGB, the defendant was also entitled to free itself from its obligation to observe the collective agreement before the latter expired, at the end of a period of one year from the transfer.
The Court’s answer
23 First, the general point should be made that a contract is characterised by the principle of freedom of the parties to arrange their own affairs, according to which, in particular, parties are free to enter into obligations with each other. Under that principle, and in a situation such as the one in the main proceedings where the defendant is not a member of any employers” association and is not bound by any collective agreement, the rights and obligations arising from such an agreement do not therefore apply to it, as a rule. Otherwise, as the Advocate General noted in point 52 of his Opinion, the principle that contracts cannot impose obligations on third parties would be infringed.
24 However, in respect of the transfer of an undertaking and its consequences on employment relationships, unconditional application of the abovementioned principle could result in erosion of the rights which the employee has under his contract of employment and the collective agreement to which the employer transferring the undertaking was party, but not the transferee. That is why the Community legislature sought to ensure that, on transfer of an undertaking, employees enjoy special protection designed to prevent the erosion which could result from application of that principle.
25 Furthermore, according to the case-law of the Court, the Directive is intended to safeguard the rights of employees in the event of a change of employer by allowing them to continue to work for the new employer on the same conditions as those agreed with the transferor (see, inter alia, Case 324/86 Daddy’s Dance Hall [1988] ECR 739, paragraph 9, Case C-362/89 D’Urso and Others [1991] ECR I-4105, paragraph 9, and Case C-399/96 Europièces [1998] ECR I-6965, paragraph 37).
26 It is also settled case-law that the rules of the Directive must be considered to be mandatory, so that it is not possible to derogate from them in a manner unfavourable to employees (see Martin, paragraph 39). It follows that the contracts of employment and employment relationships existing, on the date of the transfer of an undertaking, between the transferor and the workers employed in the undertaking transferred are automatically transferred to the transferee by the mere fact of the transfer of the undertaking (see, to that effect, D’Urso and Others, paragraph 20, and Case C-305/94 Rotsart de Hertaing [1996] ECR I-5927, paragraph 18).
27 Here, the contract of employment of the claimant in the main proceedings refers, as regards wages, to a collective agreement. That clause in the contract of employment is covered by Article 3(1) of the Directive. By virtue of the Directive, the rights and obligations arising from a collective agreement to which the contract of employment refers are automatically transferred to the new owner, even if, as in the main proceedings, the latter is not a party to any collective agreement. Accordingly, the rights and obligations arising out of a collective agreement continue to bind the new owner after the transfer of the business.
28 In respect of the interpretation of Article 3(1) of the Directive, 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.
29 First, the terms and conditions under that collective agreement are to continue to be observed only until the date of its termination or expiry, or the entry into force or application of another collective agreement. Thus the wording of the Directive does not in any way indicate that the Community legislature intended that the transferee be bound by collective agreements other than the one in force at the time of the transfer and, consequently, that the terms and conditions be subsequently amended through the application of a new collective agreement concluded after the transfer. Such an assessment is, moreover, consistent with the objective of the Directive, which is merely to safeguard the rights and obligations of employees in force on the day of the transfer. On the other hand, the Directive was not intended to protect mere expectations to rights and, therefore, hypothetical advantages flowing from future changes to collective agreements.
30 Secondly, the Member States may limit the period for observing the terms and conditions arising from a collective agreement, provided that that period is not less than one year. In a way, this limitation is subsidiary, since it is applicable if none of the abovementioned situations, that is, termination or expiry of the existing collective agreement, or entry into force or application of a new collective agreement, arises within a period of one year after the transfer.
31 In addition, although in accordance with the objective of the Directive the interests of the employees concerned by the transfer must be protected, those of the transferee, who must be in a position to make the adjustments and changes necessary to carry on his operations, cannot be disregarded.
32 In this connection, in accordance with the Court’s settled case-law, when interpreting the provisions of a directive account must be taken of the principle of the coherence of the Community legal order which requires secondary Community legislation to be interpreted in accordance with the general principles of Community law (see, to that effect, Case C-1/02 Borgmann [2004] ECR I-3219, paragraph 30).
33 Freedom of association, which also includes the right not to join an association or union (see, to that effect, Eur. Court of H.R., Sigurjónsson v Iceland, judgment of 30 June 1993, Series A, No 264, § 35, and Gustafsson v Sweden, judgment of 25 April 1996, Reports of Judgments and Decisions, 1996-II, p. 637, § 45) is enshrined in Article 11 of the European Convention for the Protection of Human Rights and Fundamental Freedoms signed in Rome on 4 November 1950 and is one of the fundamental rights which, in accordance with the Court’s settled case-law, are protected in the Community legal order (Case C-415/93 Bosman [1995] ECR I-4921, paragraph 79), as is restated in Article 6(2) EU (see Case C-274/99 P Connolly v Commission [2001] ECR I-1611).
34 If the “dynamic” interpretation, supported by the claimant, of the contractual reference clause mentioned in paragraph 18 of this judgment were applied, that would mean that future collective agreements apply to a transferee who is not party to a collective agreement and that his fundamental right not to join an association could be affected.
35 On the other hand, the “static” interpretation, supported by the defendant in the main proceedings and the German Government, makes it possible to avoid a situation in which the transferee of a business who is not party to a collective agreement is bound by future changes to that agreement. His right not to join an association is thus fully safeguarded.
36 In those circumstances, the claimant cannot maintain that a clause contained in an individual contract of employment and referring to collective agreements concluded in a particular sector must necessarily be “dynamic” and refers, by application of Article 3(1) of the Directive, to collective agreements concluded after the date of transfer of the undertaking.
37 It follows from the foregoing that the answer to the first question must be that Article 3(1) of the Directive must be interpreted as not precluding, 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 second question
38 In the light of the answer given to the first question, there is no need to answer the second question.
Costs
39 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Third Chamber) hereby rules:
Article 3(1) of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees” rights in the event of transfers of undertakings, businesses or parts of businesses must be interpreted as not precluding, 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.
…..
Discussion
It is a powerful argument that employees need to know where they are. It can be said with force that it is for the employers to know what the legal implications are so that the employees can be informed. But in my view it does not follow that the employer must, in effect, warrant the accuracy of the law. The arguments of RMG and their answers to the points made by CWU are, in my view, compelling.
In my view the language of Regulation 13(2) is not the language of strict liability or warranty. The opening paragraph shows the purpose – “Long enough before . . . to enable the employer . . . to consult the appropriate representatives . . . shall inform . . .”. It seems to me a powerful point that it is not simply in relation to “measures” that consultation is contemplated.
If one then goes through each subparagraph and considers the question of strict liability the position is as follows. I take first (a). Would the fact that the transfer did not ever take place give rise to liability? Would the fact that the date was changed give rise to liability? It seems to me that warranty of the accuracy of the subjects of this subparagraph could not have been contemplated. (b) Leaving aside “legal” – “economic” or “social” implications are highly unsuitable aspects to be the subject of some warranty as to accuracy as opposed to matters on which the employer should express a genuine view; (c) and (d) it is common ground are matters for the genuine belief of employers. It seems to me an unlikely construction that only one aspect of one subparagraph should be the subject of a warranty. The fact that a concession has to be made in relation to the language “measures” in (c) and (d) ultimately points in a direction opposite to that contended for by CWU.
I also find persuasive the fact that the subparagraphs are so inter-related. Economic and social implications will depend on the legal implications, and measures will depend on all three. All are to be the subject of interrelated consultation. It would be strange if part of the debate could not relate to the question whether the employer’s view as to the legal implications was right. If it is said “there can be debate”, it would seem stranger still that, if there is genuine disagreement and the employees’ argument ultimately turns out to be right, a penalty can be imposed on the employer, but there is no balancing system of penalty if the employer turns out to be right.
I am not in any way persuaded that to rule as the EAT did makes regulation 13(2)(b) meaningless, or will lead to employers abdicating their responsibility by shutting their eyes to problems. There must be an obligation on the employer to consider the legal implications. If he does not do so, then he will not be able to defend his view as being genuine. What representatives should be informed of is a considered view as to the legal implications and an employer will not be able simply to say without considering the point – “this is what I believed”.
Legal implications can in any event be difficult to be certain about. That, it seems to me, is important for a number of reasons. As RMG have said, a lawyer would not warrant the accuracy of his advice in any area of uncertainty if at all and it would take clear language to impose such a warranty on a non-lawyer. In addition it would seem to me that where consultation and debate is important, it is likely that the directive and regulations would be encouraging openness and allowing for an employer to be able to say the legal implications are not clear, where they are unclear, so that there can be a proper debate about it. An obligation to warrant the accuracy seems to make it impossible for an employer to say that the answer is not clear.
In my view the EAT were correct in their view that the language of Regulation 13(2)(b) obliges the employer to describe what he genuinely believes to be the legal social and economic implications.
There was some suggestion from Mr Reade that a question should be referred to the ECJ. Since I have formed a clear view I would not myself contemplate referring a question.
I would dismiss the appeal.
Collins v Excel Property Services Limited
[1998]
Mrs. Collins and four other employees transferred to a new cleaning contractor. However, they felt that the equipment was not of the same standard as previously provided with the respondent. They terminated their employment and Mrs. Collins claimed redundancy from the respondent. The respondent claimed there was no liability as it was a transfer of undertaking and the liability lay with the new contractor.
The EAT accepted that there would not be a transfer of undertaking if there was no transfer of significant tangible or intangible assets. However, the claimant had transferred under the Acquired Rights Directive. She has no case against the transferor / respondent.
There was no redundancy as the school cleaning was still required.