The Gazette 1983

GAZETTE

JULY/AUGUST

198

Transfer of a Business and Protection of Employees 5 Rights by Gary Byrne, Solicitor

I N the event of a change in ownership of a business, an employee who remains in employment with the trans- feree retains his or her rights under the Redundancy Payments Acts 1967 to 1979, by virtue of the protections afforded by Section 20 of the 1967 Act, as amended, and the provisions of paragraphs 4 to 6 of the Third Schedule to that Act. Similar protection is afforded under the Unfair Dismissals Act 1977 and Minimum Notice and Terms of Employment Act 1973 by virtue of the provisions of the First Schedule to the 1973 Act, as amended by Section 20 of the 1977 Act. Apart from employment rights deriving from this legislation, there are a large number of other terms and conditions of employment covered by contract law. These rights were not specifically protected by law until the enactment of Statutory Instrument No. 306 of 1980, The European Communities (Safeguarding of Employees' Rights on Transfer of Undertakings) Regula- tions 1980. The purpose of this article is to outline the principle features of that Statutory Instrument. The Regulations were made for the purpose of giving effect to E.E.C. Council Directive No. 77/187/EEC of 14th February 1977 and took effect in Ireland on 3rd November 1980. The Statutory Instrument is unfortunately very badly worded and, in some instances, incapable of precise inter- pretation. Some of the more difficult provisions are capable of interpretation by reference to the Directive itself but in some instances, the Directive is also unfor- tunately and imprecisely worded. The first thing to note is that the Regulations are expressed to apply to a transfer of a business. The expression "transfer", however, is not defined in the Regulations. The Council Directive states that it shall apply to the transfer of an undertaking, business, or part of a business to another employer as a result of a legal transfer or merger. There is no elaboration on this to explain what type of legal transfer or merger it is proposed to cover. The preamble to the Directive does state that it is necessary to provide for the protection of employees' rights in the event of a change of employer. In the explanatory memorandum to the Regulations, the Department of Labour stated, in November 1980, that the Regulations are aimed at safe- guarding the rights of employees' in the event of the transfer of ownership of undertakings which entailed a change of employer. This point is further reinforced by the fact that Ireland inserted a statement in the Council Minutes of 31st January 1977, when the draft Directive was discussed, to the effect that the Irish Delegation was seriously concerned that the Directive, designed to safeguard the acquired rights of employees in the cases of

mergers and take-overs, had failed to make provision in relation to mergers involving changes in control over undertakings. It appears clear, therefore, that the Regulations apply only to a legal transfer or merger which involves a change in identity of the employer. Share mergers by means of which one company acquires control of another without any change in identity of the employer company would, therefore, be excluded from the scope of the Regulations. As this is the most important and most common type of change of ownership in our system of company law, the Regulations might appear to have little effect in this country. There remain, however, a number of situations where a transfer is effected by asset merger, including between members of a group of companies. In the event of such mergers the Regulations would apply. The Regulations to some extent aim at protecting certain statutory rights which are already protected by our domestic legislation, as stated above, but go further to protect various contractual rights which would not normally be protected in the absence of express agreement between the parties. This automatic protection takes a number of forms. Paragraph 3 of the Regulations simply states that the rights and obligations of a transferor arising from contracts of employment, or employment relationships existing on the date of a transfer, shall, by reason of such transfer, be transferred to the transferee. There is, therefore, an automatic transfer of all contractual obligations. The Regulations do not totally prohibit the termination or variation of contracts of employment consequent on, or preceding, a transfer, subject to the provisions of paragraph 5, below. Paragraph 4(1) states that a transferee shall continue to observe terms and conditions of any collective agreement until the termination of such agreement. There is nothing in this to prevent a transferee or a transferor negotiating a new collective agreement, either prior to the transfer or subsequent to the transfer. This would be an essential requirement for most employers who are taking over a business, if they were not satisfied with the provisions of an existing collective agreement. Re-negotiation of the collective agreement prior to the date of transfer would be unaffected by the provisions of these Regulations. Regulation 4(2) purports to deal with the difficult problem of employees' rights to old age, invalidity, or survivors benefits under supplementary company or inter-company pension schemes outside the Social Welfare Acts 1952 to 1979 (now the Social Welfare Consolidation Act 1981). This sub-paragraph is most unfortunately worded, but the poor draftsmanship cannot be laid totally at the door of the Irish draftsman, as a 129