Transfer Of Undertakings – Matters for Vendors and Purchasers to Consider when Transferring a Business

The European Communities (Protection of Employees on the transfer of Undertakings) Regulations 2003 (S.I.NO.131 of 2003) places a legal obligation on both the owners and the proposed purchasers in relation to Employees which transfer within a business.

Regulation 8 imposes an obligation on the current owner of the business and the proposed purchaser to inform and consult the Employees at least 30 days in advance of a transfer.  Regulation 4 provides that the rights and obligations, arising from a Contract of Employment that exists on the date of the transfer shall, by reason of such transfer be transferred to the new owner.  This appears to place liability upon a new owner for any failure to inform and consult with Employees.

Regulation 10 also expressly provides that the Employer who may be required to pay compensation is a person who by virtue of the change of Employer becomes entitled to ownership of the transferring business or undertaking.  There is however some uncertainty surrounding this as a result of two recent and arguably conflicting determinations from the Labour Court  the cases are J Donohue Beverages Limited and Elizabeth Collins (TUD183) and OSC1 Complete Solutions Limited v Paul Grant ( TUD186).

Mandatory Information

In the event of a transfer of undertakings, Regulation 8 provides that certain information must be given to Employee or Employee Representative at least 30 days prior to the date of the transfer:-

1. The date of the proposed transfer.
2. The reasons for the transfer.
3. The legal implications of the transfer for the Employees and a summary of any relevant economic and social implications of the transfer for them.
4. Any measures envisaged in relation to the Employees.

In addition where there are measures envisaged in relation to the Employees, there is an obligation on the owner and proposed purchaser to consult with the Employees in relation to these measures.

Liability

The position on liability for failure to properly inform and consult Employees remains unclear.  The text of the Regulations appears to support the contention that all liability arising from the Contracts of Employment of transferring Employees will transfer to the new owner on the date of the transfer however in practise, it is likely that disgruntled Employees will continue to sue both the existing owner and new owner.  Both the existing and new owner would be advised to take steps to ensure there is full compliance by the other party with their obligations under the Regulations to reduce the risk of being held liable for any breaches under the Regulations.  Regulation 8 envisions the Employees being informed (where reasonably practical) no later than 30 days before the transfer is carried out and in any event, in good time before the transfer is carried out by both the current owner and proposed new owner.  It is advisable for both parties to fully comply with the Regulations and to seek appropriate Indemnities from one another if the circumstances prevent them from complying.  To some parties, an award of 4 weeks for renumeration might appear to be a risk worth taking, however, this risk could be multiplied by the number of transferring Employees and could result in substantial liabilities and costs for either the original owner or new purchaser.

For more information, please contact Thomas Norris in our office ( tom@mwkeller.ie or direct dial number 051-840003).

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