HR Should Understand UK and Irish Business Transfer Rules

By Rosemarie Lally, J.D. November 21, 2019
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HR Should Understand UK and Irish Business Transfer Rules

​The European Union's (EU's) Transfers of Undertakings Directive of 2003 was issued to protect the employment contracts of people working in businesses that are transferred between owners. Ireland adopted the directive as the Protection of Employees on Transfer of Undertakings Regulations 2003 (SI 131/2003) and the United Kingdom (U.K.) implemented the directive as the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), known as TUPE.

The TUPE regulations, which apply to both private and public organizations, now play a dominant role in both Ireland's and the U.K.'s labor structures. Although the technical provisions may seem complex to U.S. employers, their purpose is straightforward: to protect employees when ownership of a business is transferred. The regulations ensure that employees are not dismissed, significant terms and conditions of contracts are not worsened, and affected employees are informed and consulted prior to a transfer.

The transferring entities are under TUPE obligations of protection before, during and after the transfer.

What's a Transfer?

A business transfer occurs when a business, or part of it, moves from one employer to another. For employees to be protected during a business transfer, the employer must change. For this reason, the sale of a company's shares is not considered a transfer covered by TUPE because the original company is still the employer, and all the same contractual obligations are in place.

Business transfers may arise in asset sales, mergers, lease assignments, reorganizations, creation of subsidiaries and service provision changes, according to Breda O'Malley, an attorney with Hayes Solicitors in Dublin. Service provision changes occur when an in-house service is outsourced to a contractor or when one contract ends and a new contract is awarded to a new contractor.

A change of service providers is not always considered a transfer under the EU directive. Ireland's regulations closely follow EU reasoning; service provision changes and their surrounding circumstances are analyzed to determine if protections will be extended to employees, O'Malley said.

The U.K. has taken a different approach, expanding TUPE in 2006 to cover service provision changes after intensive lobbying by companies "that wanted certainty that if they lost a contract, their workers would transfer to the new service provider," according to Michael Leftley, an attorney with Addleshaw Goddard LLP in London. "It's an instance of the U.K. gold-plating EU legislation."

In a transfer, the new employer takes over the workers' employment contracts, as well as all liabilities and obligations shouldered by the prior owner. A new employer's failure to meet the employment contract terms is a breach of contract.

Employee Protections Under TUPE

Prior to a transfer, employers must inform affected workers or their representatives of the planned action, its timing, the reasons for it and how it will affect them. For example, employees must be told if a reorganization is planned.

The regulations prohibit dismissals in connection with the transfer. All previous terms and conditions of employment must be observed by the new employer, including holiday entitlement and existing collective bargaining agreements. Pension rights accrued up to the time of transfer are protected, but the new employer is not obligated to continue the same pension program.

The one exception to the prohibition on dismissal is that the new employer can dismiss an employee for an economic, technical, or organizational (ETO) reason. These situations may arise when the new employer decides to conduct business from a different location, determines that a particular line of business is no longer viable or finds that changes in technology fundamentally alter the way a service is provided, according to Leftley.

Under Irish regulations, an employee can be dismissed on ETO grounds, but the new employer's contractual obligations toward the employees cannot be altered for an ETO reason, O'Malley noted.

U.K. regulations offer employers more latitude in ETO circumstances. In addition to allowing for dismissal of an employee, they also allow an employee's terms and conditions of employment to be altered for an ETO reason with the consent of the employee.

Employees dismissed for an ETO reason involving changes to the workforce may be entitled to a payment for a layoff.

In cases of transfer of ownership due to insolvency, neither set of regulations protects employees from dismissal.

In dealing with distressed businesses that are not insolvent, Irish regulations protect employees; the terms and conditions of employment may not be altered. In similar circumstances, U.K. regulations allow salary reductions and other changes to employment terms and conditions with employee consent if they would prevent job losses.

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Employer Concerns Addressed

O'Malley recommends that transferees proceed carefully in transfer situations in light of the duties and potential liabilities they are taking on. She advises transferees to do the following:

  • Conduct comprehensive due diligence to determine what accrued liabilities, such as employment claims and personal injury claims, it is acquiring as part of the transfer. If personal injury claims are discovered through due diligence, the transferee should find out if insurance against such claims can also be transferred.
  • Make sure that it knows the full extent of labor costs, whether the corporate cultures can be successfully integrated, all collective bargaining provisions and any other cost factors.
  • Seek contractual indemnities from a transferor for employment-related costs and risks.
  • Ensure that when there is a collective agreement in force between the transferor and the transferring employees, the transferee continues to observe the terms of the agreement.

Leftley's advice to transferring organizations is simple: "Communicate. Transfers happen smoothly where there is effective communication and consultation so that staff understand what will happen to them and when."

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.

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