Protections afforded by the Transfer Regulations
Protection in the area of transfer of undertakings has been in place since 1977, when the Acquired Rights Directive came into force. The current Irish legislation in the area is SI 131/2003 EC (Protection of Employees on Transfer of Undertakings) Regulations 2003 (the “Regulations”).
Before protections in this area existed, employees involved in a business transfer were in a precarious position. Employees could be made redundant or ‘cherry-picked’ for employment with the new employer. Even where a new employer agreed to take on employees of the former business/organisation, it had no obligation to continue to provide the same terms and conditions of employment.
The purpose of the Regulations is to protect employees if the business in which they are employed transfers. Business transfers arise in a number of situations including asset sales, mergers, lease assignments, intra-group re-organisations, hive downs and service provision changes.
The Regulations provide that transferring employees (i.e. employees who are wholly or mainly connected with the business/part of the organisation which is transferring) retain certain rights. The Regulations provide for two categories of protection:
- The automatic transfer principle: employees transfer to the transferee (new employer) which inherits pior service, and all rights, liabilities and obligations in relation to the employees.
- Protection against dismissal in connection with the transfer.
Automatic Transfer Principle
In circumstances where all rights, powers, duties and liabilities under or in connection with a contract of employment transfer to the transferee, the transferee should conduct a thorough due diligence exercise in order to ascertain what accrued liabilities and obligations it is acquiring as part of the transfer. For example, liability for employment claims and personal injury claims connected to the contract of employment of transferring employees can transfer to the transferee.
A transferee should seek protection in the form of contractual indemnities from a transferor in relation to employment related costs and risk issues.
In an asset transfer agreement, this will require indemnities within the asset purchase agreement. In an outsourcing/insourcing/service provision change scenario, the transferee should consider contractual protection, within the service level agreement, at all of the following points:
- at the entry point of the contract for employment costs and liabilities;
- during the performance of the relationship; and
- in the context of its termination.
Where the due diligences exercise discloses the existence of personal injury claims which are to transfer, the ability to transfer the benefit of insurance against such claims should be considered.
If there are collective agreements in force between the transferor and the transferring employees, the transferee must continue to observe the terms of such collective agreements, until either the date of termination of the relevant collective agreement, or when a new collective agreement comes into force.
In terms of representation, the transferee must preserve the status and function of employee representatives (including trade unions), if the transferring entity retains its autonomy. In UGT-FSP, the issue of retention of autonomy was addressed by the CJEU. It was determined that an economic entity preserves its autonomy provided that the management and authority of those in charge remain unchanged within the transferee. In situations in which a business is to be transferred, and managed, post transfer, without routine direct intervention from the transferee’s management, the transfer of union representation may not be required.
Protection Against Dismissal
The Regulations prohibit dismissals for reasons connected with the transfer. An employee whose employment is terminated may claim either under the Regulations, or the Unfair Dismissals Acts 1977 – 2015.
Exceptionally, employees may legitimately be dismissed for economic, technical or organisational reasons, involving changes in the workforce.
The Regulations also provide that if a contract of employment is terminated because the transfer involves a substantial detrimental change in working conditions of the employee concerned, the employer concerned shall be responsible for the termination. A situation in which an employee who resigns, following a detrimental change to his/her working conditions, could result in the employer being deemed to have terminated the employee’s employment.
Complaints under the Regulations are made to the Workplace Relations Commission (“WRC”), where they are heard by an Adjudication Officer. Complaints may be presented by an employee or a trade union/staff association/excepted body within six months of the alleged contravention to which the complaint relates.
The Adjudication Officer may award compensation of such amount as he/she considers just and equitable in the circumstances. This is based on the claimant employees’ remuneration and the maximum compensation is two years’ remuneration.
 Federación de Servicios Públicos de la UGT (UGT-FSP) v Ayuntamiento de La Línea de la Concepción, María del Rosario Vecino Uribe and Ministerio Fiscal (Case C-151/09 )
 Court of Justice of the European Union
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For further information, please contact Breda O'Malley email@example.com at Hayes solicitors.
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About the Author
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.