Transfer of Undertakings Regulations

The European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (the “Regulations”) applies on the transfer of an undertaking, a business or part of an undertaking or business from one employer to another as a result of a legal transfer or merger when the core assets or employees required to carry on the business are transferred.

The Regulations impose four central obligations:-

(i)   Contracts of employment are transferred along with any transfer of business and after the date of transfer the transferee is responsible for any obligations arising from the contracts of employment.  It should be noted that there is a general exemption for certain pensions but if this is relevant we should discuss this matter further.

  • The transferee must observe the terms and conditions of collective agreements;
  • The transfer shall not constitute grounds for dismissal (save for economic, technical or organisational reasons entailing a change in the workforce); and
  • The respective employee representatives of the transferor and transferee must be informed of (i) the date or proposed date of the transfer; (ii) the reasons for any transfer; (iii) the legal, economic and social implications for the transfer for the employees; and (iv) the measures envisaged in relation to the employees. The transferor and transferee are obliged to inform their respective employee representatives, where reasonably practicable, not later than 30 days before the transfer is carried out and, in any event, in the case of the transferor, in good time before the transfer is carried out and in the case of the transferee in good time before the employees are directly affected by the transfer as regards their conditions of work and employment. The term “in good time” is not defined.

However, where measures are envisaged in relation to the employees, the employer must consult with the representatives of the employees where reasonably practicable, not later than 30 days before the transfer is carried out and, in any event, in good time before the transfer is carried out on such measures with a view to seeking agreement. “Measures envisaged” is not defined but would include for example, any change in the location of the work place where the employees are based.

The definition of “employees’ representatives” reads as follows:-

“(a)      a trade union, staff association or excepted body with which it has been the practice of the employees’ employer to conduct collective bargaining negotiations; or

(b)        in the absence of such a trade union, staff association or excepted body, a person or persons chosen by such employees (under an arrangement put in place by the employer under Regulation 7(2) or 8(5)) from among their number to represent them in negotiations with the employer.”

Therefore, if some of the employees are represented by unions it will be necessary to consult with the relevant parties under (a) above and in relation to those employees who are not members of a union they should be given the opportunity as set out in (b) above to appoint a representative to represent them.

Where notwithstanding the above there are still no representatives of the employees in an undertaking or business concerned (through no fault of the employees), each of the employees concerned must be informed in writing, where reasonably practicable, not later than 30 days before the transfer and, in any event in good time before the transfer, of the following:-

(a)        the date or proposed date of the transfer;

(b)        the reasons for the transfer;

(c)        the legal implications of the transfer for the employee and a summary of any relevant economic or social implications for that employee; and

(d)        any measures envisaged in relation to the employees.

Implications of failing to comply

A provision in any agreement shall be void insofar as it purports to exclude or limit the application of any provision of the Regulations or is inconsistent with any provisions of the regulations.

A complaint that an employer has contravened any of the Regulations in relation to an employee may be presented to a rights commissioner by the employee or by an employee representative but the complaint must be made within 6 months from the date of the alleged contravention to which the complaint relates or where an Adjudication Officer is satisfied that exceptional circumstances prevented the presentation of the complaint within that period, such further period not exceeding 6 months. The Adjudication Officer may require (a) that the employer comply with the Regulations and for that purpose take a specified course of action or (b) require the employer to pay to the employee, compensation of such amount as in the opinion of the rights commissioner is just and equitable in the circumstances but in the case of contravention of regulation 8 (information and consultation) not exceeding 4 weeks remuneration and in the case of contravention of any other regulation not exceeding 2 years remuneration calculated in accordance with the Unfair Dismissals Act 1977.  However, it should be noted that pursuant to the Regulations the liability on the transferor for failing to consult transfers to the transferee on the transfer of the business.

More Recent Additions to the Regulations

As mentioned above all of the rights and obligations arising from the contract of employment transfer with the business to the transferee. The Regulations however did not previously contain any obligation on the transferor to pass on the relevant information in relation to rights and obligations to the transferee.  However, it should be noted that the Regulations have very recently been amended by the Employees (Provision of Information & Consultation) Act 2006 (the “Act”) which came into effect earlier this month.  New provisions now impose an obligation on the transferor to notify the transferee of “all the rights and obligations, arising from a contract of employment existing on the date of a transfer, which will be transferred to the transferee, so far as those rights and obligations are, or ought to have been, known to the transferor at the time of transfer”.

If, (i) the provision of such documents or information is necessary to enable the transferee to fulfill an obligation owed to an employee by the transferee, (ii) the transferee is, in proceedings finally determined under the Regulations, required by a decision of an Adjudication Officer or the Labour Court, to pay compensation to an employee in respect of a complaint that the transferee has not fulfilled that obligation to one or more employees and (iii) the transferee has paid that amount of compensation to the relevant employee, then , the transferee will, save as stated below,  have a right of action to recover from the transferor such proportion of that amount of compensation as the court determines to be attributable to the failure to provide the information or documents concerned.

It is however provided that an action will not lie against the transferor as set out above unless it has been preceded by notice in writing served on the transferor setting out, in everyday language, the obligation the transferee believes he owes to one or more employee and the information or documents the transferee believes to be held by the transferor (which is not in the possession of any of the employees) and requesting the transferor to provide such information or documents to the transferee within a specified period, not being less than 21 days.

The Regulations were specifically designed to stop current employers from terminating contracts of employment in advance of the new owner taking over the business.

The transferee is obliged to retain all employees at the date of transfer, but may thereafter make redundancies that are for organizational and technical reasons and may, at that stage, reduce the workforce by 50%.