ECJ: Reference clause remains dynamic even after the transfer of the business

With a recent ruling dated April 27, 2017 (ref.: C-680/15), the European Court of Justice (ECJ) ensured legal certainty on the question of the effect of so-called dynamic reference clauses in the transfer of operations.

Background:
Dynamic reference clauses in employment contracts stipulate that the working conditions are based on the collective agreements applicable to the employment relationship “in their respective version”. According to the established case law of the Federal Labor Court (BAG), this dynamic continued even after a transfer of operations to the detriment of the purchaser. In practice, this meant that the employees continued to benefit from wage increases from the collective agreements in force before the transfer of the business even after the transfer of the business. In the opinion of the BAG, the fact that the new employer was unable to influence this tariff development was irrelevant.
Since 2013, due to a decision by the European Court of Justice in the Alemo-Herron case, it has been questionable whether this case law is still compliant with European law. The ECJ ruled there that a clause that dynamically refers to collective agreements negotiated and concluded after the time of a transfer of a business only has a static effect on a business purchaser if the purchaser has no opportunity to take part in the negotiations on these collective agreements. “Static” means in the version that the collective agreements have at the time of the transfer of operations. Subsequent changes to the collective agreements and thus, in particular, wage increases no longer have any effect on the employment relationship in question. The significance of this decision for the BAG's case law has been unclear since then.
Current development:
The ECJ has now made a binding decision on this legal question, but with the result that there are no objections under European law to the BAG's established case law. Dynamic reference clauses therefore remain dynamic even after a transfer of operations.
The case involved two employees of a municipal hospital whose employment relationships had been transferred to the private clinic operator Asklepios through a partial transfer of operations. Asklepios did not belong to any employers' association and was therefore not bound by any industry collective agreement. The employees had agreed with their former municipal employer on a dynamic reference to the collective agreements that were valid at the time. They now claimed that Asklepios was also bound to tariff increases from these collective agreements.
The Advocate General at the ECJ, which the Court of Justice follows in the vast majority of cases, considered this legal opinion to be incompatible with EU law. He was of the opinion that when the business was transferred, the collective agreements would only continue to apply in the version that was valid at the time of the business transfer, i.e. statically. It therefore seemed as if the case law of the ECJ would now also mean the end of the dynamic reference clause in the transfer of operations in the sense of the BAG's understanding.
Surprisingly, however, the ECJ decided differently. The acquirer is also bound to a dynamic reference clause “if national law provides for both consensual and unilateral adjustment options for the acquirer”. However, these adjustment options do not have to consist of an opportunity to influence the collective agreements. The ECJ considered such adjustment options to be given in German federal law. In particular, the conclusion of amendment contracts (which the affected employees will often not agree to) and the issuing of amendment notices (which, however, will generally not meet the requirements of case law) should be considered here. In conclusion, the ECJ had no doubts about the conformity of the BAG's established case law with European law.
Conclusion:
The end of dynamic reference clauses in the transfer of operations, which some have already seen, has not occurred. The legal situation, which is perceived by many as unfortunate, according to which a business purchaser has to pass on tariff increases even after the transfer of the business, over which he has no influence whatsoever, remains in place. The adjustment options that the ECJ considers to be sufficient from a legal point of view are unlikely to be unilaterally implementable in the practice of national German law. Business acquirers must therefore continue to take into account costs for wage increases due to dynamic reference clauses after a business transfer.