Concerns can limit the scope of application of the collective labor agreement

Yes, a group structure can limit the scope of a collective labour agreement (CLA). This is because whether a CLA applies is per company , not for the group as a whole. The Supreme Court confirmed this: even if different companies within a single group collaborate, it must be examined separately for each legal entity whether it falls within the scope of the CLA. By placing activities in separate companies, an entrepreneur can therefore influence which CLA applies to which part of the workforce. However, the actual activities, not the legal form on paper. Below, you can read exactly how this works, what the risks are, and what you should look out for.

What is the scope of a collective labour agreement?

The scope of application is the description in the collective labour agreement (CLA) of the type of enterprise and the activities to which that CLA applies. If your enterprise falls within that description, the CLA applies to your employees; if you fall outside of it, it does not. In the case of an industry-wide CLA, it usually concerns main activity : the activity to which the largest part of the wage bill, labour hours, or turnover is devoted.

The scope of application provision is usually located at the beginning of the collective labour agreement. Its interpretation requires careful attention: the wording, structure, and apparent purpose of the provision are decisive. Precisely because the formulations are often technical and detailed, disputes frequently arise in practice as to whether or not a company falls under a specific collective labour agreement. A careful assessment beforehand prevents subsequent claims and back payments.

Is a collective labour agreement assessed per group or per company?

The starting point is that the applicability of a collective labour agreement for each individual legal entity . Legally, a group is not an enterprise, but a group of independent companies. Therefore, the question applies separately to each company: does this entity, in view of its activities, fall within the scope of the collective labour agreement?

This means that within a single group, different companies may fall under different collective labour agreements – or that some companies may not fall under any collective labour agreement at all. For example, a holding company without its own production or service activities often falls outside an industry-wide collective labour agreement, whereas an operating company within the same group does fall under one.

What did the Supreme Court rule regarding collective labour agreements within a group of companies?

In a landmark ruling (Supreme Court 23 September 2016, ECLI:NL:HR:2016:2171), the case concerned a group of companies, one of which produced convenience food. The question was whether the collective labour agreement for the convenience food industry also applied to the other companies in the group, such as the holding company and the logistics and purchasing companies.

The Supreme Court ruled that the applicability of that collective labour agreement for each company individually . Even in the case of cooperation within a group or concern, the rule applies: whether the collective labour agreement applies must be examined per legal entity. In this specific collective labour agreement, the scope was linked to a threshold – in short: the agreement only applied when the company concerned spent a certain part (in that case, at least half) of its paid labour or turnover on the relevant production or wholesale trade. Companies that did not meet that threshold fell outside the scope.

The core issue: a group cannot simply be placed under a collective labour agreement as a single entity. Each company is assessed based on its own activities.

Please note: the precise threshold (such as the percentage of total payroll or turnover) always depends on the wording of the relevant collective labour agreement. What applies in one collective labour agreement may not apply in another. Therefore, always read the current scope of application provision of the collective labour agreement relevant to your industry.

How can a group structure limit the scope of application?

Because assessment is carried out per company, the way in which you distribute your activities across companies can affect which collective labour agreement applies. Consider situations such as:

• Activities covered by different industry-wide collective labour agreements are placed in separate operating companies , so that each company falls under the collective labour agreement of its own sector;
• Support functions (administration, logistics, ICT) are placed in a separate service or holding company that may fall outside a production collective labour agreement;
• A company with mixed activities is structured in such a way that its main activity clearly falls within one specific collective labour agreement.

The effect may be that not the entire workforce falls under the same (sometimes more expensive or stricter) collective labour agreement. This may be legitimate, but it requires careful consideration. Therefore, legally establish the division of activities and the associated employment contracts in advance and have them reviewed.

What are the risks and pitfalls?

A corporate structure does not provide a free pass. Important points to consider:

• The actual activities are decisive, not the label. Making a company “empty” on paper while the employees in practice continue to perform the same production activities offers no protection. What actually happens is what is assessed.
• Generally binding collective labour agreements have a broad scope. A generally binding collective labour agreement applies to every company falling within its scope, even without membership of an employers' association. Therefore, falling outside the scope requires a genuine, substantive assessment.
• Pension obligations do not always coincide. The scope of a mandatory industry-wide pension fund may be defined differently from that of the collective labour agreement. It is therefore possible that a company falls outside the scope of the collective labour agreement but is nevertheless subject to a mandatory pension fund – or vice versa. Assess both separately.
• Sham arrangements and abuse. A structure set up solely to evade collective labor agreement obligations can be compromised and lead to back payments.

Practical example: one group, two collective labour agreements

Suppose a family group consists of a holding company, a production company, and a separate transport company. The production company devotes by far the largest part of its working hours to manufacturing products and is therefore covered by the collective labour agreement (CLA) of that industry. The transport company independently drives freight for third parties and is covered by a transport CLA. The holding company has only a board of directors and some administration and may not be covered by any industry-wide CLA.

The result: within a single group, different collective labour agreements apply to different employees. However, if the transport division were in reality to handle only internal runs for its own production and be subordinate to the production activity, then that company could actually fall (partially) under the production collective labour agreement. The difference lies in the actual activities – and that is precisely where things go wrong in practice.

Step-by-step plan: how to determine which collective labour agreement applies

1. Map out the structure. Which companies does your group have, and where are which employees employed?
2. Determine the main activity for each company. Look at the actual activities and the distribution of payroll, working hours, and turnover.
3. Compare the scope provisions. Compare the actual activity of each company with the current scope of the potentially relevant collective labour agreement(s).
4. Check pension separately. Assess the mandatory participation in an industry-wide pension fund independently of the collective labor agreement question.
5. Have it legally reviewed. The interpretation of scope provisions is specialist work. Have your situation and your employment contracts reviewed before relying on a specific collective labour agreement.

Are you unsure which collective labour agreement applies to which company? Our employment assess your group structure and the scope of application per entity.

Frequently asked questions about the collective labour agreement and group structure

Does a collective labor agreement automatically apply to the entire group?

No. The applicability of a collective labour agreement is assessed per company. Within a single group, different companies may fall under different collective labour agreements, or be outside of any collective labour agreement.

Can I deliberately opt out of a collective labor agreement with a group structure?

It is possible to distribute activities among companies in such a way that a company falls outside a specific scope. However, the actual activities are decisive, not the legal form. A structure that exists only on paper offers no protection and can be challenged.

What determines whether a collective labour agreement applies?

The scope determination of the collective labour agreement, set against the actual main activity of the company. In this regard, the distribution of wage costs, working hours, or turnover across the activities is often examined.

Does the same scope apply to pensions as to the collective labour agreement?

Not necessarily. The scope of a mandatory industry-wide pension fund may be defined differently from that of the collective labour agreement. A company may fall outside the scope of the collective labour agreement but still be subject to a mandatory pension fund, or vice versa. Assess both separately.

Does this also apply to collective labour agreements declared generally binding?

Yes. Even a collective labour agreement declared generally binding applies only to companies that fall within its scope. Whether this is the case is likewise assessed on a company-by-company basis.

What happens if I accidentally apply the wrong collective labor agreement?

If you incorrectly fail to apply a collective labour agreement or apply an incorrect one, employees, trade unions, or a pension fund may still claim compliance and back payments. These costs can be substantial, especially with retroactive effect. A timely legal review of the scope of application for each company significantly limits this risk.

Need help with applying the collective labor agreement within your group?

Do you want to know for sure which collective labour agreement applies to which company, or are you considering structuring your group specifically based on this? Our legal experts map out the scope of application per entity and prevent unpleasant surprises. View our expertise in employment law or corporate law, read more about our legal assistance for entrepreneurs, or schedule a free intake consultation directly.