The Gazette 1984

GAZETTE SUPPLEMENT

APRIL. 1984

Transfer of a Business and

Protection of Employees' Rights

Gary Byrne, Solicitor

N the event of a change in ownership of a business, an

employee who remains in employment with the

transferee 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) Regulations 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

interpretation. Some of the more difficult provisions are

capable of interpretation by reference to the Directive

itself but, in some instances, the Directive is also

unfortunately 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 safeguarding 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 legislat ion, 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