New law on redundancy
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A new government act, to be made law next May, will have a major effect on employee rights and employer obligations in company transfer and mergers. Douglas Ainley explains
= YOU are contemplating sell-1g, buying or merging any busk iess—be careful. The new
• ransfer of Undertakings (Proaction of Employment) RegulaIons 1981 will be operative by /lay 1982 and radically change mployee rights and employer ibligations in transfer or merger ituations.
Currently the common law of ontracts, modified by statutory edundancy payment proviions, governs employees' ights. When a business changes lands, no provision for continuiy of employer exists. No autonatic transfer of employees' ights occurs.
The employee's employment ontract with his old employer :nds, and he is, in law, dismised. If the new employer makes io offer of re-employment, or nakes an unsuitable offer, the imployee may claim a redunlancy payment from his old em'toyer.
However, if the new employer n ekes a valid offer of re:mployment which the emrloyee accepts, he is not relarded as dismissed. His coninuity of employment is preerved. No redundancy payment intitlement arises.
Entitlement to a redundancy rayment depends on the erm: rloyee having been dismissed. litherto transferring a business is a going concern constitutes lismissal.
In future, transferring a busk less will not automatically end imployees' employment conracts. They will be transferred yith the business and "inherted" by the new employer.
Since no dismissal occurs, no edundancy payment entitlenent arises. Selling a business is a going concern will no Ionper constitute a proposal to disniss existing employees as relundant. Existing law has been urned upside down.
Regulations 1 and 2 are the rsual citation, commencement Ind extent, and interpretation )rovisions. "The transfer of a )usiness" includes transfer of )nly part of a business, and hese Regulations cover cornnercial undertakings only.
Regulation 3 defines transfers iffected by these Regulations. fhey will only apply where the 3usiness is sold as a going con:ern and a legal change of em)loyer occurs. They will not appy where only the physical assets 3f a business are sold, nor where change in ownership is effected by a mere change in ownership of the share capital.
Regulation 4 operates to facilitate "hiving down" of businesses by receivers or liquidators who immediately sell a business to a wholly-owned subsidiary company which later sells the viable remnants to a third party purchaser.
This enables the liquidator or receiver to effect immediate salvage: operations and allows the real purchaser time to decide which parts of the business and which employees he wishes to acquire.
Since employment contracts will in future automatically transfer with a business, Regulation 4 provides that this will not occur in "hiving-down" situations until the real sale to the real purchaser occurs.
Regulation 5. The transfer of a business will no longer operate to terminate the employment contracts of employees employed in the undertaking transferred. Employment contracts will transfer automatically with the business. All rights and duties under the employment contract are deemed transferred to the new employer, including the employee's continuity of employment.
The new employer inherits the old employer's civil law liabilities — such as unfair dismissal claims— but not his criminal law liabilities. This concept of parties to the employment contract changing automatically is new.
Employees are guaranteed continuity of employment — in return their right to refuse to accept the transfer is restricted. Employees who resign are not unfairly dismissed and are not entitled to a redundancy payment unless they suffer detrimentally from a change in working conditions or from the change of employer. A mere change in the employer's identity will not suffice.
Regulation 6. Obligations arising from collective agreements between the old employer and
recognised trade unions including disciplinary or grievance procedures, pay structures and "closed shop" arrangements —
are automatically transferred to the new employer.
Regulation 7. Employees' rights under occupational pension schemes are, however, not automatically transferred to the new employer.
Regulation 8. Dismissals connected with a transfer will be automatically unfair. If the reason for dismissal is the transfer, dismissal of any employee of the old employer, whether or not that employee is actually transferred, and any employee of the new employer is unfair, whether carried out before or after the transfer.
However, employers will have a defence. Where an economic, technical or organisational reason, entailing changes in the workforce of either employer is the reason for dismissal, then dismissal is deemed to be for a substantial reason and is not unfair.
Employers will have to establish the reason for dismissal. If it relates to the transfer, they must then establish an "economic, technical or organisational" reason. Tribunals will apply the usual tests of fairness and reasonableness.
Regulation 9. Provided the undertaking transferred maintains a distinct identity, trade union recognition is deemed transferred to the new employer. Union rights to disclosure of information, time off, advance redundancy consultation and appointing safety representatives are transferred in respect of employees affected.
However, after the transfer, a new employer may re-negotiate any such agreements.
Regulation 10. Both the old and new employers will have a duty to inform and consult recognised trade union representatives. Two obligations arise: (i) To provide information to union officials representing employees who may be affected by the transfer or by measures taken in connection with it (ii) A narrower duty, arising only when either employer envisages that he will be taking measures in connection with the transfer which will affect his em ployees, to consult union reprE sentatives.
The duty to provide informs tion is wider and will arise i most transfer situations. lr formation must be given "Ion enough before a relevant trans fer to enable consultation to tak place". Union representative must be told of (A) The fact of the transfer, wh and when it will occur; (B) The "legal, economic an social implications" for err ployees; (C) The measures, if any, envis aged.
The new employer must te the old employer of any mes sures he envisages so the ol: employer's union represents tives are informed. If no Imes sures are envisaged, no duty t consult arises.
If measures will betaken, eaci employer must consult, by cor sidering and replying to unio. representations, giving reason for rejecting any.
Each employer need onty cor sult his own union represents tives about the measures he (ric the other employer) proposes. I special circumstances make i not reasonably practicable fo employers to inform or consuli they must still take all such step as are reasonably practicable ii the circumstances.
Regulation it Recognise trade unions may complain t Industrial Tribunals that err ployers have failed to inform c consult. Employers pleadin "special circumstances" mw prove them and that they sti took all reasonably practicabl steps.
The old employer, unable t inform or consult because th new employer failed to suppl necessary information, may— o notice — join the new employE who may become liable insteac
Tribunals upholding a con' plaint must make a declaratio and may award compensation Employers who fail to pay Con' pensation may, on complaint b employees, be ordered to do s by Tribunals.
The maximum amount c compensation awardable is tw weeks' pay per employee.
Regulations 12, 13 and 14 prt vide that parties to any agree merit may not contract out c their obligations, that emplo\ merit abroad or as a registere dock worker is excluded fror the Regulations, and for consE quential amendments to currer employment legislation.