All EU member states are required to implement an EU Business Transfers Directive. The directive was issued in 2001. Its purpose? To protect employees when there is a transfer from the organisation in which they’ve been employed – the “transferor” – to a new organisation – the “transferee”.
What is the nature of the protection? The employees are entitled to transfer to the transferee. They retain the same rights they had under their employment contracts with the transferor. And the transferee has the same obligations towards them that the transferor had.
This is referred to by the acronym TUPE – Transfer of Undertakings (Protection of Employment).
TUPE may seem straightforward but it’s not.
Why? There are a number of problematic areas. One such area has been over how to deal with employees refusing to transfer. The employees have an entitlement to transfer – but they are not obliged to transfer. In its wisdom the EU has left it to individual member states to decide how to deal with such a scenario.
However, neither the Irish regulations nor the guide for employers adequately address this scenario. Is it a resignation? Or are the employees entitled to redundancy? Clarifying legislation would have helped but, in its absence, the vacuum has needed to be filled by case law – a situation not uncommon in Ireland.
The situation was brought into focus as a result of Symantec Limited transferring part of its business to another company. Symantec set out its stall by stating that any of its affected employees who chose to not transfer would be considered to have resigned. (That position, by the way, is consistent with the situation pertaining in the UK.)
Two of their employees brought a case to the Employment Appeals Tribunal (EAT) which ruled in favour of the two employees. If this ruling had stood it would have meant that Symantec would have been considered to have made the employees’ roles redundant and, correspondingly, that the employees would have been entitled to redundancy payments. The implications would have been significant.
However, Symantec appealed the EAT’s ruling to the High Court which ruled in Symantec’s favour. A refusal to transfer is therefore considered a resignation – bringing Ireland into line with the approach in the UK. It is possible that the case will be appealed to the Supreme Court but, until any such potential ruling, we now have a degree of clarity.
Another scenario : What if the transferee wants to vary working arrangements slightly? This came into focus before the EAT in 2013. A security guard in Limerick transferred to his new employer in January 2011 after a transfer of an undertaking. With his previous employer he had been used to getting paid for 47.5 hours weekly and earning time-in-lieu of 2.5 hours. Now he was being asked to work 50 hours. This though was in contravention of the Organisation of Working Time Act, 1997 which sets a limit of 48 hours to the working week. Partly as a result of that limit the employee was moved to 40 hours a week – as the employer operated 10-hour shifts for people in roles such as his – and was unable to pay him for 5 such shifts weekly. Further, the employer thought that this change (to 40 hours) was allowable under an agreement at national level that had been reached between the employee’s union and the employer.
How did the EAT rule? The EAT said that it was unable to find any “documentary evidence in support of this assertion“ of the employer’s that there was such a national agreement. This meant that the employee was entitled to remain on a 47.5 hour week. However, the EAT did acknowledge that such a number of hours was impractical for the employer. It would have required the employer to give the employee a 7.5 hour shift and then switch in another employee for the remaining 2.5 hours. The end result? The EAT awarded the employee €11500!
Another scenario : What if there is the appearance of a transferee cherry-picking employees at the transferring company? This issue arose in the case of a company that was making roles redundant – in the same period as negotiating a transfer of part of its business to another organisation. The transferee claimed it was overstaffed – and correspondingly it only wanted to absorb a portion of the workers in the particular division of the transferor that was being transferred. Some of the employees in the transferor were made redundant – including one person who brought a case. The transferor claimed that the claimant didn’t transfer because of the qualifications he did not possess.
Was the claimant protected by TUPE? Yes. The EAT quoted the Regulations which state that “The Transferor’s rights and obligations arising from a contract of employment existing on the date of the transfer, shall by reason of such transfer, be transferred to the Transferee”. And the EAT determined that “this clearly did not happen … since the claimant’s position was made redundant on the same day that 82 of the claimant’s colleagues were transferred to the Transferee”. The EAT also considered it unacceptable for a transferor to reduce the workforce to prime it for transfer. However, this situation could potentially change in the future. Why? The EAT was effectively guessing what the intention of the Regulations’ framers were: “If the legislature had intended this then it would have drafted this clause accordingly.” So on that issue – perhaps watch this space!
So this is a complex area – and we’ve just looked at a few examples – an employee refusing to transfer, an employee’s treatment being modified in the transferee organisation, and a transferor making someone redundant to prime their undertaking for transfer. Indeed the Irish Security Industry Association (ISIA) has developed its own code of practice to help its members deal with transfers.
Let’s look at another scenario – what if a contract is simply lost? What if company A loses a cleaning contract (with company X) to company B? Company B has now got the cleaning contract. Are the employees of company A entitled to transfer to company B? The EAT dealt with this quite recently – hearing the case in June 2014. The EAT ruled that TUPE did not apply. It emphasised that “the mere loss of a service contract to a competitor cannot therefore, by itself, disclose the existence of a transfer within the meaning of the Directive”. The workers bringing the case claimed that it wasn’t simply the loss of a contract. They claimed that there was a “transfer of substantial tangible assets”. The EAT disagreed ; “the vacuum system and the washing machines belonged to a third party, Liberty Insurance and therefore were not assets that could be transferred. Furthermore, evidence was adduced that the central vacuum system was inoperative and the washing machines were in the opinion of the appellant not suitable for washing material that contained cleaning chemicals and were not used.”
What would the ruling have been though if the assets had not belonged to a third party? And/or if the asserts were operational and suitable? Perhaps the EAT would have made its ruling based on an interpretation of whether the tangible assets were “substantial”! By the way – that EAT ruling referred to a 1997 European Court of Justice (ECJ) ruling – Suzen v Zehnacker Gebaudereinigung GmbH Krankenhauaaervice – again illustrating the complexity of case law – not least because that ECJ ruling predates the most recent EU directive!
There are two common types of transfers:
- A company (the transferee) has won a contract – displacing a competitor (the transferor). And the transferor’s employees are transferring to the transferee.
- Two businesses are working through a merger or acquisition.
In the first type there can often be contention – as the transferor is losing a contract. In the second type there is less likelihood of contention – as the transfer is often part of Win:Win situation. Whatever the context though, the company taking over the transferring employees will understandably look at matters from a different perspective than the transferor. The transferee may be happy to take on all the resources so that they avoid any kind of resourcing issues. However, this is not necessarily the case and there is often the need to delicately manage the complications that can arise from such a transfer. These complications can include:
- The transferee company can believe that they have sufficient in-house resources – at the required skill levels – to carry out the roles of the transferring employees but may not wish to deal with a collective redundancy situation post transfer.
- The structures and cultures of the two organisations may be different and therefore it can be difficult to merge with an existing management structure and culture.
- The transferee is liable for existing terms and conditions of employment – but also may require information on any disciplinary procedure or grievance procedures, information of any pending court or tribunal claims, and any collective agreements applicable to the employees. It is not always easy to gain this information from the transferor – particularly in cases where a small company has lost a lucrative contract. Such losses of contract are very common in the catering, security and contract cleaning sectors. When it comes to mergers or acquisitions it is not normally a problem as it forms part of a due diligence process. But in cases where contracts are lost this can sometimes be difficult as the loss is a fait accompli and may have left a bitter taste with the transferor.
- Transferring employees may be unionised and the company they are transferring to may not wish to recognise a trade union.
Expert and professional guidance is crucial. To explore any aspect of how TUPE could impact you, call Mary Cullen, Patrick Foley or Liam Barton on 056 770 1060 or email firstname.lastname@example.org.