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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
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