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TRANSFER OF UNDERTAKINGS
Purpose
The Transfer of Undertakings (Protection of Employment) Regulations 1991 (“the
Regulations”) are designed to preserve employees' terms and conditions
when a business or undertaking, or part of one, is transferred to a new employer.
Any provision of any agreement (whether a contract of employment or not) is
void so far as it would exclude or limit the rights granted under the Regulations.
The Regulations have the effect that:
- Employees employed
by the previous employer when the undertaking changes hands automatically
become employees of the new employer on the same terms and conditions.
It is as if their contracts of employment had originally been made with the
new employer. Thus employees' continuity of employment is preserved, as are
their terms and conditions of employment under their contracts of employment
(except for certain occupational pension rights).
- Representatives of employees
affected have a right to be informed about the transfer. They must also
be consulted about any measures which the old or
new
employer envisages taking concerning affected employees.
Transfers covered by the Regulations
The Regulations apply when an undertaking or part of an
undertaking is transferred from one employer to another.
Some examples of transfers
are:
- where all or part of a sole trader's business or partnership
is sold or otherwise transferred;
- where a company, or part of it, is bought
or acquired by another, provided this is done by the second company buying
or acquiring the assets and then
running the business and not acquiring the shares only;
- where two companies
cease to exist and combine to form a third;
- where a contract to provide goods
or services is transferred in circumstances which amount to the transfer
of a business or undertaking to a new employer.
The Regulations can apply regardless of the size of the
transferred undertaking. Thus the Regulations equally apply to the transfer
of a large business with
many thousand employees or of a very small one (such as a shop, pub or garage).
The Regulations apply equally to public or private sector undertakings.
Transfers
not covered by the Regulations
The Regulations do not apply to the following:
- transfers
by share take-over because, when a company's shares are sold to new shareholders,
there is no transfer of the business - the same company
continues
to be the employer;
- transfers of assets only (for example, the sale of
equipment alone would not be covered, but the sale of a going concern including
equipment would
be covered);
- transfers of a contract to provide goods or services where this does
not involve the transfer of a business or part of a business;
- transfers of
undertakings situated outside the United Kingdom.
Those provisions of the
Regulations which relate to dismissal of employees because of the transfer,
the duty to inform and consult representatives
and the failure to inform and consult them as required, do not apply to
employees who, under their contracts of employment, normally work outside the
United
Kingdom.
Employer's position in a Transfer
Under the Regulations, when an undertaking is transferred
the position of the previous employer and the new employer is as follows:
- The new employer takes over the contracts of employment of all employees
who were employed in the undertaking immediately before the transfer,
or who would
have been so employed if they had not been unfairly dismissed for
a reason connected with the transfer.1 An employer cannot just pick and choose
which employees to take on.
- The new employer takes over all rights and obligations
arising from those
contracts of employment, except criminal liabilities and rights and obligations
relating
to provisions about benefits for old age, invalidity or survivors
in employees' occupational pension schemes.
- The new employer takes over any collective
agreements made on behalf of the employees and in force immediately before
the transfer (see also
Trade union
recognition).
- Neither the new employer nor the previous one may fairly
dismiss an employee because of the transfer or a reason connected with it,
unless the
reason for the dismissal is an economic, technical or organisational reason entailing
changes in the workforce. If there is no such reason, the dismissal
will be
unfair. If there is such a reason, and it is the cause or main cause
of the dismissal, the dismissal will be fair provided an employment tribunal
decides
that the employer acted reasonably in the circumstances in treating
that reason as sufficient to justify dismissal. If, in this case, there is
a
redundancy
situation, the usual redundancy procedures will apply (see Redundancy).
- The new employer may not unless the contract of employment so provides
unilaterally worsen the terms and conditions of employment of any transferred
employee.
- The previous and new employers must inform and consult representatives
of the employees (see Information and consultation).
Employees' position in a Transfer
When an undertaking is transferred the position of the employees
of the previous or new employers is as follows:
- An employee claiming to have been unfairly dismissed because of a transfer
has the right to complain to an employment tribunal.
- Transferred
employees who find that there has been a fundamental change for the worse
in their terms and conditions of employment as a result
of the transfer
generally have the right to terminate their contract and claim
unfair dismissal before an employment tribunal, on the grounds that actions of
the
employer have forced them to resign. Employees may not make this type of
claim solely
on the grounds that the identity of their employer has changed
unless the circumstances of an individual case change and that change is significant
and
to the employee's
detriment.
In both the above cases dismissal because of a relevant transfer
will be unfair unless an employment tribunal decides that an economic,
technical
or organisational
reason entailing changes in the workforce was the main cause of
the dismissal and that the employer acted reasonably in the circumstances
in treating
that reason as sufficient to justify dismissal. Even if the dismissal
is
considered
fair, employees may still be entitled to a redundancy payment (see
Redundancy).
- Employees employed in the undertaking immediately before the transfer
(or who would have been so employed had they not been unfairly dismissed)
for a reason
connected with the transfer automatically become employees of
the new employer, unless they inform either the new or the previous employer
that
they
object
to being transferred. In this case the contract of employment
with the previous employer is terminated by the transfer of undertaking but
the
employee is
not dismissed. The previous employer may re-engage the employee.
An employee's period of continuous employment is not broken
by a transfer, and, for the purposes of calculating entitlement to statutory
employment rights, the date on which the period of continuous employment
started
is the date on
which the employee started work with the old employer. This should
be stated in the employee's written statement of terms and conditions;
if it
is not,
or if there is a dispute over the date on which the period of
continuous employment started, the matter can be referred to an employment
tribunal.
- Transferred employees retain all the rights and obligations existing
under their contracts of employment with the previous employer
and these are transferred
to the new employer, with the exception that the previous employer's
rights and obligations relating to benefits for old age, invalidity
or survivors under any employees' occupational pension schemes are not transferred.
If the
new
employer does not provide comparable overall terms and conditions,
including pension arrangements, it is possible that an employee may have
a
claim for unfair dismissal, although this has never been tested in the
courts.
Occupational pension rights earned up to the time of the
transfer are protected by social security legislation and pension trust arrangements.
Redundancy
Dismissed employees may be entitled to redundancy payments.
Employers must also ensure that the required period for consultation
with
employees' representatives
is allowed.
Entitlement to redundancy payments will not be affected by
the failure of any claim which an employee may make for unfair
dismissal
compensation.
Where there are redundancies and it is unclear whether the
Regulations apply, it will also be unclear whether the previous
or the new
employer is responsible
for making redundancy payments. In such cases employees should
consider whether to make any claims against both employers.
Trade Union Recognition
If the transferred undertaking maintains an identity distinct
from the remainder of the new employer's business, the new
employer will be considered
to recognise
an independent trade union, in respect of employees transferred,
to the same extent that it was recognised by the previous employer.
If
the undertaking
does not keep its separate identity, the previous trade union
recognition
lapses, and it will then be up to the union and the employer
to renegotiate recognition.
Information and Consultation
Who must be informed and consulted?
Where employees who may be affected by the transfer are
represented by an independent trade union recognised for collective bargaining
purposes,
the
employer must
inform and consult an authorised official of that union. This
may be a shop steward or a district union official or, if appropriate,
a national
or regional
official. The employer is not required to inform and consult
any
other employee representatives in such circumstances, but may
do so voluntarily
if desired.
A trade union may be recognised for one group of employees,
but not for another.
Where employees who may be affected by the transfer are
not represented by a trade union as described above, the employer
must inform
and consult other
appropriate representatives of those employees. These may be
either existing representatives or new ones specially elected
for the
purpose. It is
the employer's responsibility to ensure that consultation is
offered to appropriate
representatives.
If they are to be existing representatives, their remit and
method of election or appointment must give them suitable authority
from the employees
concerned.
It would not, for example, be appropriate to inform and consult
a committee specially established to consider the operation
of
a staff
canteen
about a transfer affecting, say, sales staff; but it may well
be appropriate to inform
and consult a fairly elected or appointed committee of employees,
such as a works council, that is regularly informed or consulted
more generally
about
the business's financial position and personnel matters. If
the representatives are to be specially elected ones, certain
election
conditions must
be
met. These are described below.
What are the election rules applying in cases where employee
representatives are to be specially elected?
The rules are:
a. The employer shall make such arrangements as are reasonably
practical to ensure the election is fair.
b. The employer shall determine the number of representatives
to be elected so that there are sufficient representatives
to represent
the
interests
of all the affected employees, having regard to the number
and classes of those
employees.
c. The employer shall determine whether the affected employees
should be represented either by representatives of all the
affected employees
or
by representatives
of particular classes of those employees.
d. Before the election the employer shall determine the term
of office as employee representatives so that it is of sufficient
length to
enable relevant
information
to be given and consultations to be completed.
e. The candidates for election as employee representatives
are affected employees on the date of the election.
f. No affected employee is unreasonably excluded from standing
for election.
g. All affected employees on the date of the election are entitled
to vote for employee representatives.
h. The employees entitled to vote may vote as many candidates
as there are representatives to be elected to represent them;
or,
if there are
to be representatives
for particular classes of employees, for as many candidates
as there are representatives to be elected to represent their
particular
class
of employee.
i. The election is conducted so as to secure that:
- so far as reasonably
practicable, those voting do do in secret, and
- the votes given at the election
are accurately counted.
Where an employee representative is elected in accordance with these rules
but subsequently ceases to act as such and, in consequence,
certain employees are no longer represented, another election should be held
satisfying
the rules set out at (a), (e), (f) and (i) above.
The legislation does not specify how many representatives must be
elected or the process by which they are to be chosen. An employment
tribunal may wish
to consider, in determining a claim that the employer has
not
informed or consulted in accordance with the requirements, whether
the arrangements
were
such that
the purpose of the legislation could not be met. An employer
will therefore need to consider such matters as whether:
- the arrangements adequately cover all the categories of employees who
may be affected by the transfer and provide a reasonable balance
between the interests
of the different groups;
- the employees have sufficient
time to nominate and consider candidates;
- the employees (including any who
are absent from work for any reason) can freely choose who to vote for;
- there
is any normal company custom and practice for similar elections and, if so,
whether there are good reasons for departing from
it.
What must an employer do?
First, the employer of any employee who may be affected
must tell their representatives:
- that the transfer is going to take place,
approximately when, and why;
- the legal, economic and social implications
of the transfer for the affected employees;
- whether the employer envisages
taking any action (reorganisation for example) in connection with the transfer
which will affect
the employees, and if so,
what action is envisaged;
- where the previous employer
is required to give the information, he or she must disclose whether the
prospective new employer envisages
carrying out any
action which will affect the employees, and if so, what.
The new employer must give the previous employer the necessary information
so that
the previous
employer
is able to meet this requirement. The information must
be provided long enough before the transfer to give adequate time for consultation.
Second, if action is envisaged which will affect the employees,
the employer must consult the representatives of the employees affected
about that action. The consultation must be undertaken with a view
to seeking
agreement. During
these consultations the employer must consider and respond
to any representations
made by the representatives. If the employer rejects
these representations he/she must state the reasons.
If there are special circumstances which make it not reasonably
practicable for an employer to fulfil any of the information
or consultation
requirements, he/she must take such steps to meet the
requirements as are reasonably
practicable.
Rights of Representatives
Representatives and candidates for election have certain
rights and protections to enable them to carry out their
function
properly. The rights and protections
of trade union members, including officials, are in some
cases contained
in separate provisions to those of elected representatives
but are essentially the same as those of elected representatives
described below.
The employer must allow access to the affected workforce
and to such accommodation and facilities, eg use of a
telephone, as is
appropriate.
What is "appropriate" will
vary according to circumstances.
The dismissal of an elected representative will be automatically
unfair if the reason, or the main reason, related to
the employee's status
or activities
as a representative. An elected representative also has
the right not to suffer any detriment short of dismissal
on the
grounds
of their
status or activities.
Candidates for election enjoy the same protection. Where
an employment tribunal finds that a dismissal was unfair,
it may
order the
employer to
reinstate
or re-engage the employee or make an appropriate award
of compensation. Where an employment tribunal finds that
a representative
or
a candidate for election
has suffered detriment short of dismissal it may order
that compensation be
paid.
An elected representative also has a right to reasonable
time off with pay during normal working hours to carry
out representative
duties.
Representatives should be paid the appropriate hourly
rate for the period of absence
from work. This is arrived at by dividing the amount
of a week's pay by the
number
of
normal working hours in the week. The method of calculation
is similar to that used for computing redundancy payments.
Complaining to an Employment Tribunal
The following may complain to an employment tribunal:
- an employee who has been dismissed or who has resigned in circumstances
in which they consider they were entitled to resign because
of the consequences of the transfer. An employee must complain within three
months of the date when their employment ended.
- It may be unclear whether
claims should be made against the previous or the new employer. In such cases,
employees should
consider whether to claim against
both employers.
- an elected or trade union representative,
if the employer does not comply with the information or consultation requirements.
A
representative must complain within three months of the date of the transfer;
- a representative or candidate for election who has been dismissed, or
suffered detriment short of dismissal. A complaint must
be made within three months
of the effective date of termination (or, in the
case of a detriment short of dismissal, within three months of the action complained
of);
- a representative who has been unreasonably refused time off by an
employer, or whose employer has refused to make the appropriate
payment for time off, may also complain to an employment tribunal. A complaint
must be made within three months of the date on which it is alleged time
off should
have
been allowed or was taken;
- an affected employee where the employer
has not complied with the information or consultation requirements other
than in relation
to a recognised trade union or an elected representative. A complaint must be
made within
three months of the date of the transfer.
(In any one of the above cases the tribunal can extend the
time limit if it considers that it was not reasonably practicable for
the
complaint to be made
within three months.)
- an employee who wishes to claim
a redundancy payment. The application should normally be made within six
months of the dismissal.
If a representative complains to an employment tribunal
that an employer has not given information about action
proposed
by a prospective
new employer, and if the employer wishes to show that
it was "not reasonably practicable" to
give that information because the new employer
failed to hand over the necessary information at the
right time,
the
employer must tell
the new
employer that
he or she intends to give that reason for non-compliance.
The
effect of this will be to make the new employer a party
to the tribunal proceedings.
Conciliation
The tribunal will send a copy of the completed form
to a conciliator of the Advisory, Conciliation
and Arbitration
Service (ACAS),
who will try to promote
a settlement of the complaint without a tribunal
hearing.
The services of a conciliator will also
be available in the absence of a formal complaint, if the
employee or either
employer requests
them.
In such
a case
the employee or employer can get in touch
with a conciliator through an office of ACAS. Information
given to conciliators
in the course
of their
duties
will be treated as confidential. It may not
be divulged
to
the tribunal without the consent of the person
who gave it.
Tribunal Hearing and Awards
If no settlement is reached,
the employment tribunal will hear the case. If complaints are upheld,
awards may be
made against
the previous
or
new employer,
depending on the circumstances of the
transfer.
Unfair dismissal awards - Employment
tribunals may order reinstatement or
re-engagement
of the dismissed
employee
if the complaint
is upheld, and/or
make an award
of compensation.
Detriment awards -
The employer may be ordered to pay compensation to the
person(s)
concerned.
The
compensation
will be whatever
amount the
tribunal
considers
just and equitable in all the circumstances
having regard for any loss incurred
by the employee.
Information and
consultation awards - The employer who is at fault may
be ordered
to pay compensation
to each
affected
employee,
up
to 13 weeks'
pay.
If employees
are not paid the compensation,
they may present individual complaints
to the
tribunal,
which
may order payment
of the amount due to
them. These complaints must be
presented within three months from the
date of the
original
award
(although
the tribunal may extend the time-limit
if it considers that it was not
reasonably practicable
for the
complaint to be
presented within
three months).
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