Explanation of European Court's Decision in Parkwood (TUPE and collective bargaining)

The facts in the Parkwood-case were as follows. In 2002, Lewisham London Borough Council (Lewisham) outsourced its leisure services to a British private undertaking, CCL Limited (CCL). Consequently, the employees working in the leisure department, pursuant to the TUPE-regulations, automatically entered into the service of CCL. The employment agreements entered into between Lewisham and the employees concerned, contained a clause pursuant to which Lewisham would respect the collective employment agreements negotiated by the NJC (the local government collective bargaining body) as “negotiated from time to time”. At the time of the transfer in 2002, an NJC collective employment agreement applied, so CCL, in accordance with the TUPE-regulations, respected the terms of this agreement.

The NJC agreement, however, expired on April 1st, 2004, and a month later, in May 2004, CCL transferred its leisure activities to another (British) private company: Parkwood. In June 2004, a new collective agreement was reached within the NJC, effective – retrospectively – as of April 1st, 2004. The new NJC agreement included a pay increase for the employees falling under the scope of this agreement so the employees that had automatically entered into the service of Parkwood in May 2004, now claimed a pay increase from Parkwood. Parkwood refused, arguing that the previous NJC agreement had already expired at the date of transfer in May 2004 and that it had not been a party to the new NJC agreement. The case eventually ended up with the UK Supreme Court who referred a number of questions to the European Court.

The European Court held that a strict reading of the employment agreements of the employees concerned (which, according to the Court, included a “dynamic” incorporation clause – i.e. a clause pursuant to which also the future NJC agreements applied) would normally imply that Parkwood also had to respect the new NJC agreement. However, since Parkwood had not been included in the negotiation of the new NJC agreement, it could not be reasonably expected from Parkwood to respect the new NJC agreement (and all the future versions thereof). The Court emphasizes Parkwood’s freedom to conduct a business. Therefore, Parkwood did not have to respect the new NJC collective employment agreement.

U.S. companies acquiring a business in the EU do well to check the employment agreements of the employees that, as a result of the acquisition, will enter into the service of the U.S. company (or its EU subsidiary). It’s crucial to know in advance whether or not you will have to respect a previously negotiated collective employment agreement.