The transfer of an undertaking from one employer to another is not a rare occurrence in a recession. Greater competitiveness in the private sector leads to situations where enterprises are seeking to consolidate resources in tight markets. Weak companies are also bought by stronger companies in the same field. Neither is the public sector immune from this phenomenon and it is now probable that education bodies, the HSE and local authorities will increasingly seek to outsource services which were once operated in-house. Indeed, there is now also a high incidence of transfer between state bodies as public spending cuts are implemented.
The resulting mergers and takeovers create an enormous sense of insecurity for employees. A European Directive resulted in the European Communities (Protection of Employees on Transfer of Undertakings Regulations) 2003. This is a complex area of law and it is always advised to seek Trade Union assistance when faced with such situations. This month’s “Know Your Rights” will look at the necessary basic components for the application of the Regulations. We will examine the situations where the regulations apply. We will consider also the protections afforded to employees as well as the information and consultations requirements. Finally we’ll look at the enforcement procedures inherent in the Regulations.
What are the necessary components for the Regulations to apply?
There are 3 fundamental components:
- A transfer from one employer to another
- An Undertaking
The Regulations do not apply in a situation where another company buys the majority of shares (share sale).
It can apply to a management buy-out and outsourcing, for example.
A legal transfer can include the assignment or forfeiture of a lease or a merger.
Could you be more specific on the transfer from one employer to another?
Yes. The transfer must be an economic entity which retains its identity and there must be a change of employer. In a simple example, a chocolate factory must retain its identity as a chocolate factory with the new employer. If the factory, for example, was immediately converted to a furniture factory by the new employer, then the regulations would not apply.
I work for a charitable organisation which has been taken over by another charity. Neither organisation operates for gain. Am I covered under the Regulations?
Yes. Operating for economic gain is not a necessity and it can therefore include charities, local authorities, health boards, schools and colleges, state and semi-state bodies etc.
What protections do employees get?
- Recognition of prior service in the previous employment
- Trade Union representational rights and collective bargaining if in existence at the time of the transfer
- Bonus entitlements, commission etc.
- All other terms and conditions of employment
Are my pension rights protected?
No. This is one of the weaknesses of the legislation. However, the new employer is obliged to protect and preserve the pension fund which was already in existence.
Can I be dismissed because of a Transfer?
An employee cannot be dismissed for grounds related to the transfer however an employer may use the ETO (Economic, Technical and Organisational reasons) defence to restructure an organisation after the transfer. This could an include an attempt to introduce redundancies.
Surely that is a major weakness from a worker’s point of view?
Agreed. There is no timeline specified as to when an employer can attempt to change conditions or introduce redundancies based on the ETO defence. However, third party bodies like the Rights Commissioner service and the EAT would demand a considerable amount of economic evidence from an employer if such a defence is invoked, especially in situations where such a restructuring is attempted within a relatively short time period after the transfer. The role of the Trade Union is crucial in such situations if such attempts by employers are to be successfully re-butted.
What are the obligations to consult?
The “transferor” (original employer) and “the transferee” (new employer) must give information to employees with regard to the date, reasons and the probable legal and social effects of the transfer on the employees. The employer must give this information and consult also with the trade union or representatives of the employees, in the absence of a trade union, not later than 30 days before the transfer is carried out, and in any event in good time before the transfer is carried out. This consultation must be carried out “with a view to seeking agreement”.
Where are complaints processed if I believe my rights are being denied?
Complaints must be made within 6 months to a Rights Commissioner. The Rights Commissioner can uphold the complaint and make the employer comply with a certain course of action. The Rights Commissioner can also award compensation of a maximum of up to 4 weeks’ pay for breach of the consultation and information requirements and up to 2 years pay for any other breach.
Appeal is to the Employment Appeals Tribunal within six weeks.