By Arj Arul of Mills and Bann Solicitors
It is commonplace in all sectors for businesses to be bought, sold or merged and in this article, Arj Arul highlights the effect that this might have on employees.
Employers may be aware of regulations relating to the transfer of undertakings, in particular that employee contracts of employment may transfer from one business to another when an undertaking is sold or otherwise transferred/merged. An undertaking for this purpose can include a small part of a business or organised grouping of resources such as physical assets or employees.
Where things go further is that a transfer of an undertaking can also apply where a business simply decides to outsource some of its work and employees dedicated to the tasks being outsourced may also constitute an undertaking for the purpose of the regulations. Equally, the same might well apply where work which was previously outsourced is brought in-house. The law relating to such transfers of service provision was clarified and extended through further regulations brought into effect in 2006.
The question one immediately asks is how such a transfer might affect an employer and their employees in practice? If the regulations apply, then the contracts of employment of staff affected automatically transfer to the new employer. The consequences of such a transfer are complicated, not least in a situation where either or both parties to the transfer have no idea that such operation of law has taken place. By way of example, if an employer sells part of their business and some of their employees were dedicated to that part of the business, those employment contracts may automatically transfer at the time of the sale, so that the employees move to the buyer’s business and no longer have a relationship with the seller. This principle is extended to a business that successfully tenders for provision of services to another organisation, for example where a business takes over the contract for providing school meals from a local authority – the employees of the local authority dedicated to the task previously would then automatically become employees of the business.
The significance of the regulations, particularly the enhanced provisions relating to service provision changes, is that employers may unwittingly lose or acquire employees when any significant changes to business ownership or operation take place. In doing so, obligations arise for the provision of information or indeed due diligence as to the scope of the liability being received. If receiving employees one might be concerned that terms of employment are more favourable and must be honoured. The scope for changing inherited terms of employment is limited and employers in this situation must tread carefully in seeking to change or end employment terms where connected with a transfer. In the event of not only sales, purchases or mergers, but also major operational changes, specialist advice should be sought.
Arj Arul can be contacted at Mills and Bann on 01635521545 or by email: firstname.lastname@example.org.