by Breda O'Malley , Eddie Hynes January-25-2022 in Competition Law, Corporate, Employment Law, COVID-19
Businesses in the Irish hospitality sector have been afforded a glimmer of hope following the recent, nationwide, easing of restrictions. Unbeknownst to many employers, however, is the potential impact of the Transfer Regulations in circumstances where a business temporarily closes and reopens under new ownership. This article explores what the outcome could be for employees if such a scenario were to play out.
Introduction
In relation to the hospitality sector, if a business closes temporarily and reopens under new ownership, what will the outcome be for the employees? There is European case law and existing legislation that pre-dates Covid which provides that if this scenario were to arise, the employees (having been out of work for several months) might have a legal entitlement to continue their employment under the same conditions of their previous employment contract, and with their prior service. The legal basis for how and why this could occur comes from the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003.
The Transfer Regulations
The Transfer Regulations derive from the EU's Acquired Rights Directive. Its purpose is to protect employees if the business in which they are employed ‘changes hands’. Its effect is to move employees and any liabilities associated with them from the old employer to the new employer by operation of law. This means that an employee’s rights are protected, if an employer’s business is taken over by another employer as a result of a buyout, a legal merger or a transfer.
In what circumstances does a business transfer?
Several factors come into play when considering if a business (and hence the employees) transfer. These factors include the type of business concerned, whether the business retains its identity, whether customers are transferred and whether there has been a temporary cessation of activities. In a European Court case, Sigüenza v Ayuntamiento de Valladolid, In-Pulso Musical Sociedad Cooperativa & others (2019), the Court considered whether a business transfer had occurred, following the temporary cessation of business activities for five months in duration.
Mr Sigüenza and the music school
Mr. Sigüenza was a music teacher and had been employed under contract at a Municipal School for the academic year 2012-2013. However, the music school in which he taught saw a significant drop-off in students. The music school was closed down and Mr. Sigüenza’s contract of employment was ended on 31 March 2013.
The music school reopened five months later, in September 2013, under the responsibility of a new contractor. The school reopened using the same premises, instruments and resources as had been used previous. None of the former employees, such as Mr. Sigüenza, were taken on. Returning to the Transfer Regulations, if it were established that a business transfer had occurred, the employees would move from the old employer to the new employer under the same working conditions that they had prior to the school closure. This is exactly what Mr. Sigüenza claimed in his case before the European Court of Justice (the CJEU).
The Decision
Previously, when considering if a business had transferred, factors such as the potential loss of customers, the cessation of certain trading activities and the lack of commercial viability of the business, were factors which could sway a court in finding that a business transfer had not occurred.
In Mr. Sigüenza’s case however, the Court held that a business transfer had taken place despite the existence of the aforesaid factors. In respect of the temporary cessation of activities, the Court stated:
“a temporary suspension of only a few months, of the undertaking’s activities cannot preclude the possibility that the economic entity at issue.…retained its identity and that there was therefore a transfer of undertaking…”
In taking this approach, the Court demonstrated a willingness not only to apply, but to manipulate existing principles to ensure a transfer of employees to their new employer. A key element in reaching this decision was that the music school was heavily reliant on the continued use of the same physical assets (e.g. instruments and desks) in order to operate as a music school, from September 2013.
Pubs & Restaurants
In the context of the hospitality sector, we see similarities between the threat posed to the continued viability of pubs and restaurants, and the facts of the music school case; economic downturn, temporary closure, asset reliant businesses (tables, chairs, kitchens, kegs, bars), new owners - the similarities go on and on. So, what does this mean exactly for employers and employees?
Conclusion
For employees, EU jurisprudence is suggestive of a more liberal application of the TUPE Regulations where businesses transfer to new management or ownership and where there is a lapse of a period of time between one management ending the trade and another management resuming the same or a similar trade. Practically, this means that if it a business closes and reopens sometime later under new ownership, it is likely that an employee’s position will be protected under EU law. On the other hand, for employers who are purchasing a previously operational business, it will be difficult for them to start afresh, without ensuring that the previous employees (bar staff or kitchen staff, for example) continue their employment with the same terms and conditions that they previously worked under and carry with them all of their prior service.
For further information on the Transfer Regulations or any aspect of Employment Law, please contact Breda O'Malley bomalley@hayes-solicitors.ie or Eddie Hynes ehynes@hayes-solicitors.ie at Hayes solicitors LLP.
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About the Authors
Breda O'Malley
Breda practises in both Employment and Commercial Law and is Partner and Head of the Employment Law team at Hayes solicitors. Breda has trained and qualified as a mediator with the UK based, internationally renowned Centre for Effective Dispute Resolution (CEDR). Breda practices as a mediator of commercial, employment, boardroom, charity trustee and shareholder disputes.
Eddie Hynes
Eddie is a solicitor in the Employment Law team and advises both employees and employers on a range of HR and employment law issues, in relation to contentious and non-contentious matters, including employment contracts and workplace policies, compromise arrangements and redundancies, industrial relations matters, unfair dismissals and disciplinary matters.