Transfer of Undertaking

When a transfer of undertaking (transfer of business) is taking place, it is very important for both employers and employees to be aware of the rights and obligations associated with the employer’s business.

Definition

A transfer of undertaking within the meaning of the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 is the transfer of a public or private undertaking engaged in economic activities, whether or not it is operating for profit, which retains its identity.

The EC Regulations

Where there is a legal merger or transfer of a business, it will be taken over by another employer. In this situation, the rights of the employees are protected by the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003.

As noted, the Regulations apply to charities and non-profit-making organisations, as well as profit-making businesses.

Importantly, even where part of the undertaking is being sold off or contracted out, the Regulations still apply.

Requirements

The rules for a transfer of undertaking are:

  • There must be a change in the individual or company responsible for running the undertaking
  • The previous economic activity of the undertaking must be carried on by the new employer
  • The undertaking must be transferred as a “going concern”
  • A transfer under the Regulations does not occur in the case of a compulsory liquidation of the undertaking.

The Regulations legally oblige the new employer to take on the existing employees of the business after a business transfer.

The terms and conditions and employer’s obligations in the contract of employment are automatically transferred to the new employer during a transfer of undertaking, excluding pensions. The new employer is also obliged to continue existing collective agreements on their terms and conditions until they expire or are replaced.

Employee pension rights do not transfer to the new employment. However, where there is a pension scheme in operation in the original employer’s business at the time of the transfer, the legislation provides that:

  • If the scheme is an occupational pension scheme covered by the Pension Acts, then the protections given by that legislation apply
  • In the case of other pension schemes, the new employer must ensure that rights are protected

Continuity of service for the purposes of redundancy legislation is transferred to an employee’s new employment upon transfer of business.

Unfair dismissal

If the contract of employment is terminated because a transfer involves a substantial change in working conditions to the employee’s detriment, the new employer is regarded as responsible for the termination of the employment. If a new employer cuts wages because they feel an employee is over-paid, causing the employee to resign, the new employer is deemed responsible for the dismissal by failing to honour the employee’s contract of employment.

Consultation

The Employees (Provision of Information and Consultation) Act 2006 requires employers to inform and consult employees on any decisions likely to lead to substantial changes in work organisation or contractual relations – with particular reference to mergers and acquisitions and to collective redundancies. This applies to employers with at least 50 employees.

Under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 employees (including those working for an employer with fewer than 50 employees) must be given details of the transfer:

  • If the employees are in a union, the employer must provide the union with details of the reasons for the transfer; the date or proposed date of the transfer; and the legal, economic and social implications for the employees not later than 30 days before the transfer,
  • If the employees are not in a union, the employer must give these details in writing to each employee not later than 30 days before the transfer
  • The employer must consult with the employees’ union or chosen representative(s) of the employees.

 

“Buy Out” of Terms

Where it is not practical to maintain contractual terms and conditions, the new employer may seek to “buy it out”. The method of calculating the buy-out price is at the discretion of the new employer. However, the new employer must ensure that, where possible, the transferring employees are no worse off.

Often, employers calculate the buy-out by attributing a value to the benefit and multiplying this by two years. Specific legal advice should be sought in this regard.

Maternity Leave

If a transfer of undertaking has occurred while the employee has been on leave, she is still entitled to return to work (s. 26 of the Maternity Protection Act 1994).

However, the right to return to the previous position held is not absolute: Section 27 of the Act allows for the employer to provide “suitable alternative work” in certain circumstances.

Further, where an employee is entitled to return to work but it is not reasonably practicable for the employer to permit her to return to work, she is entitled to be offered suitable alternative employment under a new contract of employment.

Case Law

Symantec Ltd v Leddy & Lyons

The European Court of Justice has stated that employees are entitled to refuse to transfer to the Transferee. The legal effect of an objection on the contract of employment is a matter for each Member State, which has caused a level of ambiguity to arise regarding the effect of a refusal.

The position in Ireland has been particularly uncertain, resulting in a severe lack of clarity for businesses. This case finally provided clarity on the issue.

Employees refused to transfer when Symantec sold part of its business. The issue was whether the employees had been made redundant and were entitled to statutory redundancy payments.

The High Court overturned the EAT’s decision, holding that the refusal of an employee to transfer does not result in the employee being made redundant. Consequently the employee was not entitled to any severance payment, statutory or otherwise.

Conor Brennan v Irish Pride Bakeries (in Receivership) Case

In this case, the employee sought to use injunctive relief to compel the employer to provide him with his full contractual notice period (3 months) to terminate his employment. The employer purported to provide two weeks’ notice pursuant to the Redundancy Payments Acts, ignoring his contractual notice period.

The employee claimed that by failing to provide contractual notice, he was denied the ability to transfer (or at a minimum be involved in the consultation and information process) to Pat the Baker in accordance with the Transfer of Undertaking Regulations.

The Court held that Mr Brennan made out a strong case for the interlocutory relief and granted the mandatory injunction sought.

This case highlights that, particularly in a TUPE/Transfer of Undertakings redundancy situation, fair procedures and full contractual notice must be provided to employees no matter how clear the redundancy appears, as the employee would miss the entire information and consultation period in the event that his redundancy (and associated shorter statutory redundancy notice) was held to be valid.

This article is for information purposes only; specific legal advice should be taken before relying on information in this article.

If you are an employer seeking advice regarding a transfer of undertaking, or if you are an employee and need assistance in relation to your rights upon transfer of undertaking we would be delighted to assist you; contact us at 021- 425184 or via our contact form.

HALPIN & Co. SOLICITORS | Practical Experience, Trusted Advice