In a case pending before the Dutch Supreme Court, Advocate General Hartlief has issued an important opinion on what happens to dynamic incorporation clauses in employment agreements in the case of a transfer of undertaking (TUPE). The European Court of Justice previously ruled that these clauses pass to the transferee, subject to certain strict conditions.

In his opinion, the Advocate General examines if Dutch employment law also allows for this. His opinion includes some interesting insights into options for employers to unilaterally amend employment agreements.

Background

The case concerns a dispute between logistics company IDL and two employees, assisted by trade union FNV. The issue at stake is whether the employees, hired by IDL as part of a transfer of undertaking, can still claim rights to salary increases under a collective bargaining agreement (in Dutch, a "cao") concluded after the transfer of business to IDL. The position of the employees and their union is that they can, based on a "dynamic incorporation clause" in their employment contracts as concluded with the transferor or its predecessor. Those contracts referred to the application of current and future versions of a specific industry-wide collective bargaining agreement, the CAO Beroepsgoederenvervoer.

The court of first instance did not address this issue because it deemed that the employees had forfeited their rights[ES1] [PM2] by bringing their claim too late. The court of appeal ruled, on substantive grounds, that the claims were inadmissible. According to the court of appeal, the dynamic incorporation clause would normally have passed to IDL as the undertaking's transferee, but IDL chose to amend the employment terms by entering into new contracts with the employees with effect from the date of the transfer. According to the court of appeal, the employees knowingly agreed to the new employment contracts, which no longer referred to the relevant collective bagaining agreement.

Supreme Court appeal and the AG's opinion

The employees appealed to the Supreme Court, contesting the ruling of the court of appeal based on various grounds. IDL, in turn, filed a conditional cross appeal, raising the fundamental question of whether a dynamic incorporation clause can actually remain dynamic after the transfer of an undertaking (TUPE), given the limited amendment options offered to the transferee under Dutch employment law. Central to this case is how to apply case law from the Court of Justice of the European Union (CJEU) on the transfer of incorporation clauses, particularly its Asklepios judgment.

In his opinion, the AG gives guidance on the question currently pending before the Supreme Court: what happens with a dynamic incorporation clause in the event of a transfer of undertaking (article 7:662DCC)? Such a clause stipulates that a specific collective bargaining agreement applies to the individual employment contract, including future versions of that collective agreement. The question is which effect a transfer of undertaking has on the clause. Is the incorporation clause transferred directly to the new situation, therefore remaining "dynamic", and does this mean that employees retain the right to improvements in employment terms resulting from collective agreements that come into effect after the transfer of undertaking?

In its 2017 Asklepios judgment, the CJEU decided that dynamic incorporation clauses pass to the transferee upon a transfer of undertaking. However, the CJEU made an important caveat: dynamic incorporation clauses can only pass to the new owner if national law allows both mutually agreed and unilateral amendments to the employment terms. In his opinion, AG Hartlief examines whether Dutch employment law provides for such unilateral amendment options. He concludes that it does, based on articles 7:613, 7:611 and 6:248 (2) DCC and on how the Supreme Court has interpreted these general provisions in its case law on amendment of employment conditions at the employer's initiative. As a result, a dynamic incorporation clause under Dutch law passes to the transferee as part of a transfer of undertaking, and remains dynamic. According to the AG, this does not mean that amendment of employment conditions after a transfer of undertaking is never allowed. A transferee cans still amend employment conditions after a transfer of undertaking, to the same extent as the transferor could have done, as long as that amendment is not directly linked to the transfer. If the Supreme Court concurs with the AG, this will be an important outcome for the employment and M&A practice, with potentially significant consequences to be taken into account when a collective bargaining agreement applies in the case of a transfer of undertaking.

The Supreme Court is expected to deliver its ruling in this case in June 2024.