OPINION OF ADVOCATE GENERAL

RUIZ-JARABO COLOMER

delivered on 15 November 2005 1( )

Case C-499/04

Hans Werhof

v

Freeway Traffic Systems GmbH & Co. KG

(Reference for a preliminary ruling from the Landesarbeitsgericht Düsseldorf (Germany))

(Transfer of undertakings – Safeguarding of employees’ rights – Contract of employment which refers to a collective agreement in respect of salary increase – Employer who does not conclude collective agreements – Maintenance of the status quo where the agreement is replaced)

I – Introduction

1. The Landesarbeitsgericht (Higher Labour Court) Düsseldorf has referred two questions for a preliminary ruling under Article 234 EC on the interpretation of Article 3 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. ( )

2. The national court has experienced doubts when examining a contract of employment which, in respect of salary increases, refers to the wage agreement in force, negotiated and signed by an employers’ federation of which the vendor, but not the purchaser, is a member; it must also be taken into account that, since the change in ownership, a new collective agreement has been approved.

3. It is the first time that the Court of Justice has had to consider this situation, although it has ruled on many occasions on the aforementioned provision. ( )

II – Legal framework

A – Community law

4. The transfer of businesses is a controversial area affected by varied factors and interests. ( ) On the one hand, trends in production lead to organisational changes in order to adapt to a global economy characterised by uncertain demand and the rapid obsolescence of the goods offered. On the other, the concerns of employers coexist with those of workers and it is difficult to reconcile them, ( ) which explains the differences in the legislations of the Member States as regards the protection of the various spheres involved.

5. Directive 77/187 ( ) has achieved partial harmonisation; ( ) it grants employees collective and also individual support: ( ) the former, in order to encourage negotiation and consultation concerning the effects of the transfer of undertakings, so as to reduce its impact on employment relationships, and the latter, with the aim of protecting debts incurred and of ensuring the continuity of the contracts, ( ) which tend to be very volatile. ( )

6. According to the case-law, the rules ‘are intended to safeguard, in the interests of the employees, the existing employment relationships which are part of the economic entity transferred’, ( ) by making it possible for them to continue to work for the new employer on the same conditions as those agreed with his predecessor. ( )

7. To meet that objective, Article 3 provides:

‘1. The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.

...

2. Following the transfer within the meaning of Article 1(1), the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement.

Member States may limit the period for observing such terms and conditions, with the provision that it shall not be less than one year.

...’

8. The development of the internal market, legislative trends in the European countries and the work of the Court of Justice accounted for the changes made by Council Directive 98/50/EC of 29 June 1998, ( ) although the new wording of Article 3 was essentially the same as the original. ( )

9. Council Directive 2001/23/EC of 12 March 2001 ( ) has replaced Directive 77/187, although the tenor of Article 3 is retained in the wording used in Directive 98/50.

B – German legislation

10. I should draw your attention to the Tarifvertragsgesetz (Law on Collective Agreements; hereinafter ‘the TVG’) and the Bürgerliches Gesetzbuch (Civil Code; hereinafter ‘the BGB’), Paragraph 613a of which adapts the German legislation to the Community rules.

1. The TVG

11. Under Paragraph 1(1), collective agreements govern the rights and obligations of the parties to collective agreements and contain legal rules which may regulate the content, ( ) and the creation and termination of employment relationships, and other issues relating to employment and to provisions governing labour-management relations.

12. Under the first sentence of Paragraph 4(1) of the TVG, those rules shall be applied directly by the persons bound by the agreement, which, under Paragraph 2(3), are the trade unions, individual employers and employers’ federations who have concluded it.

13. Paragraph 5 provides for the declaration that an agreement is generally binding.

2. The BGB

14. The first sentence of Paragraph 613a(1) of the BGB provides: ‘Where a business or part of a business is transferred to another owner by a legal transaction, the rights and obligations arising from the employment relationship existing on the date of the transfer shall pass to that owner.’ ( )

15. The second sentence of the Paragraph adds: ‘Where those rights and obligations are governed by the provisions of a collective agreement or works agreement, they shall be incorporated into the employment relationship between the new owner and the employee and may not be amended to the employee’s disadvantage for at least one year following the date of the transfer.’ ( )

III – The facts, the main proceedings and the questions referred for a preliminary ruling

16. Mr Werhof began working for DUEWAG AG on 1 April 1985, initially on a temporary basis; with effect from 1 September 1985, his employment relationship became unlimited in time.

17. It was agreed that the employment relationship would be governed by the framework collective agreement and the wage agreement in force at the material time for workers in the North Rhine-Westphalia metal and electrical industry negotiated between the Industriegewerkschaft Metall (Trade Union for the Metal Industry), of which the claimant was not a member when he was taken on, and the Verband der Metall- und Elektroindustrie Nordrhein-Westfalen ((Metal and Electrical Industry Federation, North Rhine-Westphalia, hereinafter ‘the Employers’ Federation’), of which the undertaking was a member.

18. On 1 April 1999 the company was changed into Siemens DUEWAG GmbH and, some months later, transferred part of its business in Düsseldorf (Königsberger Strasse), in which Mr Werhof was employed, to Freeway Traffic Systems GmbH & Co. KG, which is not a member of an employers’ federation that concludes collective agreements. Mr Werhof’s employment relationship was also transferred.

19. On 2 August 2001 the new owner agreed with the works council a grid for the grading of employees on the basis of the collectively agreed provisions in force in the North Rhine-Westphalia metal and electrical industry. On 13 August 2001 they agreed a single payment for staff; in return, the claimant signed a document waiving all individual claims that might still subsist to standard wage increases relating to previous periods.

20. On 29 August 2001, the company concluded with Mr Werhof a supplement to the contract of employment concerning his salary.

21. The Union and the Federation concluded a new collective agreement on 23 May 2002, which provided for an increase in the wage rate of 2.6% and a further additional payment from 1 June 2003.

22. Mr Werhof brought legal proceedings claiming, with effect from 1 June 2003, payment of the difference between the sums he had received and those owing to him under the aforementioned agreement.

23. The Arbeitsgericht (Labour Court) Wuppertal dismissed the action by judgment of 7 January 2004.

24. An appeal has been lodged and the Landesarbeitsgericht Düsseldorf, after establishing that, under German law, the appellant is not entitled to the remuneration claimed, ( ) so that it may only be granted under European law, has stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling:

‘(1) Is it compatible with Article 3(1) of Council Directive 98/50/EC of 29 June 1998 amending Directive 77/187/EEC 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 (OJ 1998 L 201, p. 88) ( ) if a transferee of a business – who is not subject to a collective agreement – is bound by an agreement between the transferor of the business – who is subject to a collective agreement – and the employee, under which the collective wage agreements in force binding the transferor of the business are to apply, in such a way that the collective wage agreement in force at the time of the transfer of the business applies but collective wage agreements entering into force subsequently do not?

(2) If that is to be answered in the negative:

Is it compatible with Article 3(1) of Directive 98/50/EC if the transferee of the business – who is not subject to a collective agreement – is bound by collective wage agreements which have entered into force after the transfer of the business only so long as the transferor of the business is so bound?’

IV – Procedure before the Court of justice

25. Written observations have been submitted, within the time-limit laid down by Article 20 of the Statute of the Court of Justice, by Mr Werhof, Freeway Traffic Systems GmbH & Co. KG, the German Government and the Commission.

26. The representatives of Mr Werhof and of Freeway Traffic Systems GmbH & Co. KG and the Agent of the Commission presented oral argument at the hearing held on 12 October 2005.

V – Analysis of the questions referred for a preliminary ruling

A – A preliminary observation: the applicable Community provision

27. The Commission makes the preliminary point that the amendments made to Directive 77/187 by Directive 98/50 were implemented in German law in 2002, even though the period prescribed for implementation had ended on 17 July 2001 and, therefore, after the undertaking had been transferred on 1 October 1999, so that, in spite of the view the referring court, it is necessary to refer to the original version of the provision, as is clear from the judgment in Abler and Others. ( )

28. The date of change of ownership and, therefore, of subrogation, determines which provision applies. In the present case, transfer took place after the entry into force of Directive 98/50, ( ) but before the end of the period prescribed for implementation, so that it is necessary to disregard the period in which the national legislation was adapted and conduct the analysis according to the first version of the Community legislation.

29. A comparison of the two versions of Article 3 reveals that the first subparagraph of Article 3(1) is fundamentally the same in both ( ) and that what was Article 3(2) has become, after amendment, Article 3(3), although it retains its substance. ( )

B – The first question

1. Referring clauses

30. The contract of employment may refer, by means of flexibility clauses, to other legal instruments, such as collective agreements, which have not necessarily been concluded by the contracting parties. ( )

31. Those references introduce common rules for all or part of the staff and provide parity of treatment, irrespective of membership of a union. ( )

32. The clauses act statically or dynamically, depending on whether they refer to a specific agreement which is in force or to the agreement applicable at any time to the undertaking or economic sector in which the business is conducted. ( )

33. The problems in this case relate to the legal effects – once an undertaking has been transferred – of a contractual term establishing the applicability of wage agreements negotiated between a union and an employer’s federation of which the first employer, but not the purchaser of the business, was a member, because, since the transfer, the collective agreement has been replaced by another one.

34. Against this background, the referring court’s main doubt is whether the right to participate in amendments made to agreements following subrogation is one of the rights which pass to the new owner of the company pursuant to the first subparagraph of Article 3(1) of Directive 77/187.

35. The difficulty arises because, in Germany, the Bundesarbeitsgericht (Federal Labour Court) has interpreted Paragraph 613a of the BGB stating that, under the second sentence, the collectively agreed rules become a constituent part of the contract of employment with the content that they possess at the time when the business is transferred and subsequent amendments are not relevant, because a right to benefit from the advantages of the further dynamic development in negotiation cannot be inferred, since the protection granted to the rights of workers is static; the Bundesarbeitsgericht, combining the first sentence of the provision with Paragraphs 3 and 4 of the TVG, also considers that subjection of workers to subsequent collective agreements cannot do without the subjection of the employer; otherwise, if the company were transferred, the position of the employees would depend on the concluding of an arrangement for parity of treatment. ( )

2. The transfer of undertakings

36. The transfer of undertakings has complex consequences; therefore Directive 77/187 protects workers, both in respect of the past, by laying down special provisions to ensure payment of previous debts, and in respect of the future, by retaining contracts of employment without altering their terms, ( ) apart from the subjective novation connected with the change of employer.

37. In this regard, subrogation occurs automatically by the mere fact of the transfer, ( ) protecting the overriding interest in preserving the employment relationship in all its aspects, so that it is neither extinguished nor adversely affected, bearing in mind that the employer’s main function – to pay the wages – is not of a highly personal nature. ( )

38. Leaving aside the continuity of the relationship – which is not disputed in this case –, the powers and obligations of which it consists are laid down in individual or collective conditions. These differ greatly since, owing to their origin, the former arise out of the agreement between the worker and the employer, while the latter are the result of negotiations between their respective representatives; and, so far as concerns their consequences, individual conditions affect only the persons who conclude them, whereas collective conditions affect those who are represented by the unions and by the employers’ federations which adopt them.

39. These disparities appear in Article 3 of Directive 77/187; Article 3(1) refers to clauses applying to individuals and Article 3(2) to those stipulated in an agreement.

40. The distinction is very important, because the continuity of collective clauses is subject to temporal limits: the date on which the agreement ends or another comes into force, unless the Member States stipulate a term in that regard, which must not be less than one year.

41. However, as well as these two kinds of clause, there is a third, referred to above, which shares the characteristics of the other two; it is included when the document concluded by the worker and the employer refers to the collective agreement, with regard to the regulation of some matter, such as wages.

42. The referring clause, because it is included in an individual contract, is governed by Article 3(1) of Directive 77/187, which involves the extension of the agreed legal arrangement, subject always to a possible amendment which, in a situation other than transfer, is a general provision of labour legislation and safeguarded by Article 4(1) of the Directive. ( )

43. On the other hand, the collective provision to which the parties refer is governed by Article 3(2).

3. Analysis of the question

44. In the light of the foregoing considerations, various reasons lead me to propose that this question be answered in the affirmative since, in a situation such as the one in this case, where the present employer is not a member of a federation which negotiates with the unions, even though the individual contract stipulates that the salary is governed by the collective agreements binding on the previous employer, protection of the referral is not dynamic but static in nature, with the same temporal limits as ‘the working conditions established by collective agreements’. ( )

45. In principle, all the synallagmatic content of the employment relationship remains, since the purchaser of the undertaking assumes the position of the transferor, which means, on an individual basis, that the agreement which governed it continues, ( ) even if the new employer is not involved in its formation.

46. For the sake of argument, it could be said that the latest owner of the company is not bound by a collective agreement in which he has not participated, but this is not a sound basis on which to challenge the applicability of the collective agreement, since, if it is approved, it must be respected. The change of employer is as irrelevant as that of an employee or of the works council.

47. However, the referral cannot continue sine die, covering the agreement in force at the time of the transfer and all those which replace it.

48. The static nature of the conditions of employment limits the employer’s management power ( ) and means that any attempt at homogenisation is doomed to failure. ( )

49. When the binding conditions agreed on an individual basis refer to the rules governing salaries in subsequent collective agreements, without any temporal limit, a fundamental difficulty arises, since, if the new owner wished to participate in agreements with the unions, it would have to join the negotiating employers’ federation, which would undoubtedly curtail his freedom of association.

50. Freedom of association covers various additional aspects, including the freedom of non-association. ( ) It has been declared one of the human rights of the European Union. ( ) Previously, two judgments of 8 October 1974, Union Syndicale, Maasa and Kortner v Council, ( ) and General Union of Personnel v Commission, ( ) recognised the freedom of trade union activity within the Community. The judgment of 15 December 1995 in Bosman ( ) declared that this principle, ‘enshrined in Article 11 of the European Convention for the Protection of Human Rights and Fundamental Freedoms and resulting from the constitutional traditions common to the Member States, is one of the fundamental rights which, as the Court has consistently held ... are protected in the Community legal order’. ( )

51. That right of the person acquiring an undertaking must prevail over any other of lesser importance, such as the right of the employee to the financial advantages arising from the development of the collective agreements signed by the transferor of the company.

52. If future collective agreements were to have a permanent effect on an employer who had not participated in their negotiation, the consequences would be similar to those of contracts imposing obligations on third parties, in breach of the general principle pacta tertiis nec nocent. More obligations might be imposed on an employer who had not been a party to an agreement than on the person who had been, leaving the former in uncertainty and exposed to the risk that conditions might be introduced behind his back.

53. For these reasons, a ‘dynamic’ interpretation of a referring clause like the one in this case is inappropriate. In the question raised by the Landesarbeitsgericht, there is a temporary situation in which that clause takes full effect in relation to the agreement signed by the original owner, but ceases to do so in the circumstances referred to in Article 3(2) of Directive 77/187 – expiry, termination or substitution, and where the Member State has provided that it shall apply for a limited period, which must be at least one year from transfer of the undertaking –, and does not extend to subsequent union agreements unless, of course, the new employer wishes otherwise.

54. It should be pointed out that the judgment in Martin and Others ( ) stated that the Community provision precludes the transferee of an undertaking from offering the employees terms less favourable than those offered to them by the transferor in respect of early retirement, unless the more favourable treatment arises from a collective agreement which is no longer binding (paragraph 48), a situation which is reflected in the argument put forward.

55. Furthermore, as it is a transitional provision, it is reasonable that the position of the transferee’s employees should differ temporarily from that of the employees transferred by the transferor. ( ) The establishment of a minimum period during which the agreement must be observed allows the employees time to adapt to the new employer, ( ) regardless of the fate of those adopted later.

56. To turn to other points, the protection afforded by Directive 77/187, in accordance with its objective, covers the rights existing at the time of subrogation, namely, those which the claimant has consolidated and incorporated into his assets; ( ) it excludes mere expectations, which is why the hypothetical advantages arising under future agreements are not included. ( )

57. Finally, although nothing prevents the employer from taking the initiative and introducing appropriate amendments to the contract, using the formulae contained in the general legislation, ( ) this power does not relegate the specific provisions in respect of the transfer of businesses.

C – The second question

58. The Landesarbeitsgericht also wishes to know whether, even if Article 3(1) of the Directive does not authorise the purchaser of the undertaking to avoid collective wage agreements adopted after the transfer, he is bound only to the extent that the transferor of the business was bound.

59. In the light of the answer I propose for the first question referred for a preliminary ruling, any consideration of the second is redundant.

60. However, were the Court of Justice to decide to examine the problem raised in the alternative in these proceedings, I consider that, since the employer’s involvement is not intensely personal, subjection to the collective agreement would not depend on the transferor’s circumstances, and that it is the content of the contract which must be respected, regardless of the subjective novation which has taken place.

VI – Conclusion

61. In the light of the foregoing considerations, I suggest that the Court of Justice give the following reply to the first of the two questions referred by the Landesarbeitsgericht Düsseldorf for a preliminary ruling:

‘Where a worker’s contract of employment refers to a collective agreement binding on the transferor of a company, it is not contrary to 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, if the transferee, who is not a member of an employers’ federation which negotiates such agreements, does not apply those which have replaced the one which was in force at the time of change of ownership.’