Employment rights on a business acquisition
THE ISSUE
On 6 April 2006 the law protecting employees’ rights on business transfers changes. This will assist companies tendering for outsourcing contracts but businesses will also need to do more preparatory work before sale.
Businesses who do not have strategic guidance on the new law could unwittingly incur significant liabilities.
THE CONSEQUENCES
Business transfer law gives all employees assigned to that transferring operation the right to transfer to the business purchaser with all their accrued rights and entitlements intact. Purchasers of businesses will need a full profile of the staff that they are acquiring and of their rights.
There is very little scope for alteration of employment terms after such a business transfer. Attempts to change terms as a result of the transfer will still generally be ineffective. This is often misunderstood. Staff are entitled to their old terms, better or worse, not to those of the workforce into which they may become integrated. Transferred employees who are better off overall but have lost an aspect of pre-transfer benefit can claim for its loss.
Service provider changes will be assisted by the new requirement on a transferor to provide employee liability information comprising an extensive portfolio of material on each employee who is being transferred and covering contractual terms as well as recent disciplinary and grievance history.
The strict rules prohibiting termination of employment consequent on a business transfer broadly remain and obligations to consult all affected employees or to pay up to 13 weeks’ gross pay as a penalty still apply but can be imposed now on either the seller or the purchaser.
However the new rules remove employee protection on a liquidation of assets in an insolvent liquidation. Also where the purpose of the transfer is to save the business the liabilities passing to the transferee can now be limited and there is greater flexibility in these cases to alter contractual terms on a transfer provided appropriate safeguards are met.
THE SOLUTION
Early analysis of the extent of the business being transferred is needed to assess whether it qualifies for employee rights protection and then to adjust strategy. A fact find for information on employees assigned to the business is essential.
Attempts to change terms of employment after transfer must be avoided, for a respectable period at least, and an alteration of working conditions can also bring employment liability risk for a business and should only be undertaken with specialist advice.
Outsourcing contracts will be able to be more transparently managed but an outgoing service provider must provide employee information to a new provider or pay a penalty sum to that provider.
Contractual terms allocating employment liabilities on a transfer are needed for all areas including the shared liability aspects of the new legislation which alters some of the risk focus.
We shall look at the service provision and insolvency changes in the new rules in more detail in our next two FSI employment E-alerts.
Information in this e-alert is a guide only. We recommend that you seek professional advice before taking or refraining from any action. No liability accepted by the firm for any action taken or not taken as a result of this publication.