Buying and Selling a Business

12.4THE TRANSFER OF UNDERTAKINGS LEGISLATION

12.4.1Source of Legislation

The transfer of undertakings provisions were introduced by the EU Acquired Rights Directive of 1977 (77/187/EEC) which was later replaced by Council Directive 2001/23/EC (the "Directive"). The Directive sets out the principal provisions - each EU member state is required to incorporate the Directive into its national law and has some degree of flexibility in determining how the provisions of the Directive should be implemented. There are therefore variations in how the Directive has been implemented in each of the member states. The Directive is now incorporated into Irish law by the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (S.I. No. 131 of 2003) (the "Regulations") which were passed into law on 11 April 2003 and replace the European Communities (Safeguarding of Employees' Rights on Transfer of Undertakings) Regulations 1980 and 2000. The new Regulations provide additional protections for employees, greatly increase the ability of employees to enforce their rights and include detailed new provisions which offer clarification of some issues that were not dealt with comprehensively under the old regulations.

12.4.2.Summary of the Regulations

The purpose of the regulations is to ensure that in the event of:

"any transfer of an undertaking, business or part of an undertaking or business from one employer to another employer as a result of a legal transfer (including the assignment or forfeiture of a lease or merger,"

The rights of the individuals employed in the undertaking or business on the date of transfer will be safeguarded. Regulation 4(i) achieves this by providing that:

"the transferor's rights and obligations arising from a contract of employment existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee."

The result is that the new owner effectively "steps into the shoes" of the old owner and takes over all of the obligations owed to those individuals employed in the business as of the date of the transfer who are protected by the Regulations. Employees retain their existing terms and conditions of employment, continuity of service is preserved through the transfer and collective agreements in place with trade unions must be observed by the new owner. The only employee benefits which are specifically carved out of the Regulations are pension entitlements which do not have to be continued by the purchaser, although rights accrued prior to the transfer must be protected.

Termination of employment for transfer-connected reasons is automatically deemed to be unfair unless there are economic, technical or organizational reasons entailing changes in the workforce which justify the termination.

12.4.3Application of the Regulations

It is essential in the early stages of planning a business sale to determine what implications the Regulations may have. This can be done by asking and answering the following questions:

  1. Do the Regulations apply to this type of transaction?

  2. Do the Regulations apply to this particular transaction?

  3. If the Regulations apply, which employees are protected by them?

  4. What are the effects of the Regulations?

12.4.4Do the Regulations apply to this type of transaction?

Regulation 3(1) provides that "the Regulations shall apply to public and private undertakings engaged in economic activities whether or not they are operating for gain".

The Regulations therefore apply to business sales of many different kinds, e.g. a sale of an entire business as a going concern, the transfer of a business unit into a new joint venture arrangement or the sale of a non-profit undertaking. There is no requirement for a minimum number of employees or minimum value of the business.

Accordingly, the Regulations may apply equally to the purchase of a bed and breakfast establishment which has one part-time employee and to the sale of a business in which hundreds of individuals are employed.

The most clear-cut example of where the Regulations apply is where a purchaser takes over a business directly from the previous owner, including the assets and employees, and continues to operate it in much the same manner. However, it may also apply in less obvious circumstances. Two of the situations in which the application of the Regulations becomes most contentious and uncertain are in "contracting out" situations i.e. where a principal outsources a particular business function to a third party and "second generation transfers" where a contractor loses a contract to perform a particular service and the principal enters into a new contract for the same services with a new contractor.

The application of the Regulations in this type of situation creates particular difficulties for the new owner of the business as there is no direct relationship between it and the previous owner and therefore no obligation on the latter to provide information which may be relevant to ensure compliance with the Regulations.

The following are some examples of where the Regulations have been held to apply by the Irish and other EU member state courts or tribunals:

  • contracting out to a third party of security for a shopping centre (Bannon v. EAT and Drogheda Town Centre [1993] 1 I.R. 500)

  • transferring a contract to perform a dog warden service from one contractor to another (Grey v. ISPCA UD509/1994)

  • acquisition of the right to operate bus routes (Oy Liikenne AB [2001] IRLR)

  • purchase of a pub/restaurant (Walsh v. Denford Taverns [1998] E.L.R. 315)

  • purchase of a clothing store (Morris and Others v. Smart Brothers Ltd U.D. 688/1991)

The following types of transactions warrant particular consideration under the Regulations:

Share Sales

Because the Regulations apply only to transactions in which there is "another employer" i.e. a separate legal entity to the original owner, they have no application to a sale of shares. Where ownership of a business changes hands by means of a sale of shares in a company, there is a change in control of the company, but the employer, i.e. the company, does not itself change. The Regulations therefore do not apply. However, if assets are transferred out of the company in connection with or to facilitate the sale, then the Regulations may apply to that transfer.

Transfers pursuant to Insolvencies/Receiverships

The Regulations do not apply to "any transfer of an undertaking, business or part of an undertaking, business or part of a business where the transferor is the subject of bankruptcy proceedings or insolvency proceedings". (Regulation 6).

"Bankruptcy or insolvency proceedings" are;

(i) proceedings under sections 14 or 15 of the Bankruptcy Act 1988;

(ii) proceedings for the administration of the estate of a deceased transferor in bankruptcy under section 115 of the Bankruptcy Act 1988;

(iii) where the transferor is a partnership, bankruptcy proceedings under section 106 of the Bankruptcy Act 1988;

(iv) proceedings where the property of the transferor vests under section 93 of the Bankruptcy Act 1988 in the Official Assignee; and

(v) proceedings for the compulsory winding up of a company under section 213(e) of the Companies Act 1963.

In keeping with the Directive and case-law, these new provisions reflect that the Regulations do not apply in court-supervised proceedings but may apply in other unsupervised proceedings such as those set out below.

Creditors' Voluntary Winding Up. Under this procedure, a liquidator is appointed from the private sector by resolution of the company and the company's creditors and the company's assets are dealt with in accordance with a statutory scheme which determines priority of payment. As this is not a court-administered procedure, the Regulations apply.

Receivership. The appointment of a receiver is effected pursuant to a loan instrument and is entirely extra-judicial. Therefore, the Regulations apply and a party who purchases a business from a receiver will be bound to observe the rights of the employees of the business under the Regulations.

The Regulations include an anti-avoidance measure which states that they will apply to the situations described in (i) through (v) above if the sole or main reason for the institution of the relevant proceedings was to evade the obligations of the employer under the Regulations.

Transfer of less than full legal ownership

For the Regulations to apply, it is not necessary that the purchaser of the business acquire a full ownership interest in the business e.g. in the Daddy's Dance Hall case (Foreningen a.f. Arbejdsledere i Danmark v. Daddy's Dance Hall A/S. [1988] ECR 739), the Directive was held to apply where the new owner leased a restaurant premises from the owner.

Transfers that Occur in more than one Step

The Regulations have also been held to apply to transfers which occur over time by reason of a series of transactions (Teeside Times v Drury [1980] I.R.L.R. 72). Essentially, the courts will look at the substance of each transaction to determine whether a transfer has taken place.

12.4.5Do the Regulations apply to this particular transaction?

The Regulations define the "transfer of an undertaking" as "the transfer of an economic entity which retains its identity." Regulation 3 goes on to define an "economic entity" as "an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is for profit and whether it is central or ancillary to another economic activity or administrative entity." It is not possible to determine with absolute certainty in advance of a business sale whether or not it will constitute a transfer within the meaning of the Regulations. This can only be ascertained definitively by a tribunal or court after the transfer has taken place, based on the particular facts and circumstances of the transaction.

The case law in this area continues to develop and remains uncertain in some respects. However, a number of principles have been firmly established.

Undertaking

In each transfer, an examination of the particular facts and circumstances of the transaction needs to be undertaken to determine whether or not the Regulations apply. The factors to be considered would include the following:

  • the type of business e.g. whether it is labour-intensive or asset-reliant;

  • whether assets, tangible or intangible, are being transferred;

  • whether customers will be transferred;

  • whether employees will be transferred;

  • the degree of similarity between the business before and after the transfer; and

  • the period, if any, during which the business activities are suspended.

Identity

Of primary importance is whether the business will retain its identity after the transfer. This is a question of fact. For example, if a purchaser buys a ladies' hair salon premises and converts it to a butcher's shop, the basic economic entity has changed. However, if the purchaser buys the premises and converts it to a unisex hair salon, it is arguable that the same economic activity is being carried on.

It is clear that changes in the way of operating a business do not necessarily change its identity (Porter v Queens Medical Centre [1993] I.R.L.R. 486 and Kenny v South Manchester Colleges [1993] I.R.L.R. 265). However, this is a question of degree and in some circumstances, changes may alter the essential identity.

Transfer

The Suzen case in 1997 (Ayse Suzen [1997] I.R.L.R. 255) established that in order for the Directive to apply, in addition to the economic entity perserving its identity, there must be either a transfer of significant assets or, in a labour-intensive function, the transfer of a "major part in terms of their numbers and skills of the employees especially assigned by the predecessor to the task".

This decision restricted the application of the Directive to situations in which something real and tangible transferred between the parties. In several decisions courts had handed down prior to the Suzen case, the courts had emphasised the continuity of identity and held that the Directive applied where nothing more than the right or licence to perform a particular service e.g. the contract to clean a bank (Christel Schmidt v. Spar [1994] I.R.L.R. 302) had been transferred from one party to another, without any transfer of assets or personnel.

In summary, the principle established by Suzen was that in a labour-intensive business, the taking over of the major part of the workforce would attract the Directive. In the case of a non-labour intensive business, there must be a transfer of the principal assets.

The principle established in the Suzen case was upheld strictly in a number of European and Irish decisions with the result that purchasers succeeded in avoiding the Directive where the undertaking transferred was comprised largely of a workforce rather than any assets and the seller simply chose not to take over the workforce (Cannon v. Noonan Cleaning [1998] E.L.R. 153). However, the English courts have held that where a deliberate attempt is made to avoid the Directive by not acquiring assets or transferring employees, the Directive may be held to apply (ECM v. Cox [1999] I.R.L.R. 599 and ADI v. Willer [2001] I.R.L.R. 542). While the Irish courts have not gone so far, they have expressed reservations about this result, which runs contrary to the purpose of the Regulations, and will generally adopt a purposive approach and seek to apply the Regulations where possible to protect employees' rights.

12.4.6If the Regulations apply, which employees are protected by them?

(i) Classes of Employees Protected

The Regulations protect anyone who works under a contract of employment, whether written or oral, including civil servants, employees of health boards etc.

Regulation 2 defines a "contract of employment" as a contract of service or apprenticeship or a contract entered into with an employment agency to do work for a third party. In the case of the latter, the "employer" is deemed to be the person liable to pay the wages of the individual.

This is a very broad definition of the class of individuals protected by the Regulations. It does not distinguish between full or part-time or permanent or temporary employees and does not require that an employee have completed any minimum period of service.

The following classes of workers are not protected by the Regulations:

  • self-employed persons; and

  • partners.

Purchasers should be aware that while a worker may be described as an independent contractor rather than an employee, it may be that he or she should more properly be classified as an employee and therefore covered by the Regulations. The common law "control" test is applied by the court, which looks at a number of criteriaz in order to determine whether a worker is really under the control of the employer and therefore de facto an employee rather than a contractor.

(ii) Employees must be "assigned" to business transferred

The European Court of Justice has laid down the condition that the Directive protects only those employees who are "assigned to" the part of the business being transferred (Aire Botzen v. Rotterdamsche v. Droogdok Maatschappij BV [1985] E.C.R. 519).

As a practical matter, where only part of a business is being transferred and employees are involved with projects for both that part and other areas of the business, it can be difficult to identify precisely which employees are covered by the Regulations. By way of example, the Irish Employment Appeals Tribunal has held that the Regulations did not protect employees in the head office of a chain of retail outlets where only some of the individual outlets serviced by the head office were sold (Morris and Others v. Smart Bros. Ltd U.D. 688/91).

While in some cases the courts have adopted a very mathematical approach to determine whether an employee is assigned to the part of the business being transferred (e.g. by calculating the portion of total hours worked which he/she dedicates to that part of the business) (Hassard v. McGrath & Northern Ireland Housing Executive [1996] N.I. 586), more commonly, the courts will look at all of the relevant facts, e.g. the amount of time spent in that part of the business, the terms of the employee's contract, how the cost to the employer of the employee's services had been allocated between the different parts of the business etc. (Duncan Webb Offset v. Cooper [1995] I.R.L.R. 633)

(iii) Employees "On the Date of a Transfer"

The Regulations apply to those employees who are employed "on the date of" a transfer. It is important to note that this may cover both employees who are actually employed at the time of the transfer and those who are deemed to be constructively employed i.e. those who were dismissed in advance of the transfer, by reason of the transfer, but whose dismissal is void under the Regulations.

(iv) Employees May Refuse to Transfer

An employee may object to transferring to the new owner of the business (Katsikas v Konstanidis [1993] I.R.L.R. 179). However, while in the UK an employee who refuses to transfer may be deemed to have resigned and have no further rights against the seller, in Ireland, the situation is different. Here the employment of an individual who refuses to transfer is not automatically terminated and therefore must be terminated by the seller. Accordingly, the seller will be required to serve any required notice of termination and to ensure that the termination can be justified on grounds of redundancy. In a situation where only part of the business is being sold, this may require the owner to look for alternative employment within the remaining business. However, under Section 20 of the Redundancy Payments Act, 1967, an employee who is offered the same terms and conditions of employment with the purchaser and refuses the offer may be denied a right to receive a statutory redundancy payment.

12.4.7What are the effects of the Regulations?

Once the employees who will be protected by the Regulations have been identified, the following consequences will result:

(i) the employees will automatically transfer to the purchaser and their existing terms and conditions of the employment must be preserved;

(ii) the purchaser must observe the terms and conditions of existing collective agreements;

(iii) there will be special protection against dismissals connected with the sale; and

(iv) the employees must be informed and consulted in advance of the sale.

12.4.8Terms and Conditions of Employment

Regulation 4 (1) provides that:

"The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of transfer shall, by reason of such transfer, be transferred to the transferee".

Accordingly, for those employees of the seller who are covered by the Regulations, their employment will automatically transfer to the purchaser, their existing terms and conditions of employment must be honoured and their continuity of service must be preserved. Essentially, the employment contracts are novated from the seller to the purchaser. Unless otherwise specifically agreed between the parties, the purchaser will therefore assume all obligations that accrued before the date of transfer but which remain undischarged by the seller at the time of transfer.

Contractual Terms and Conditions.It is not always easy to identify what constitutes a term or condition of an individual's employment contract. Clearly, provisions which are identified as contractual terms in a written agreement must be observed. Other benefits may have become part of the contract by custom and practice over a period of time. Other benefits may be viewed as discretionary and not part of the contract. If it is unclear whether a particular benefit is a term or condition or employment, the essential question to ask is whether the seller could lawfully have taken away the benefit. If the answer is no, then the purchaser is likely to be bound by the term or condition.

Other Obligations of Seller.The purchaser may assume not only clear contractual obligations but obligations arising out of the more broad employment relationship. In Martin v Lancashire County Council and Bernadone v Pall Mall Services Group and Others ([2000] I.R.L.R 487) liability in tort for workplace injuries was deemed to pass to the purchaser of a business, although the benefit of the seller's employer's liability insurance was also deemed to pass.

Rights of Seller - Restrictive Covenants.In addition to the obligations of a seller, the rights of a seller will also be deemed to transfer to the purchaser e.g. to enforce a restrictive covenant owed by the employee (Morris Angel v. Hollande [1993] I.R.L.R. 169). However, the restrictive covenant will be interpreted as applying to the company at the time the employment contract was entered into i.e. the purchaser may not substitute itself for the seller to whom the covenant was given by the employee.

Pension Schemes Excluded.The only exceptions in the Regulations to the principle of the automatic transfer of rights are old age, invalidity and survivors' benefits under occupational pension schemes. However, if there is a contractual commitment by the seller to pay a percentage of an employee's salary into his personal pension scheme, this is not covered by the exemption and will be assumed by the purchaser. In addition, the European Court of Justice has held that the phrase "old age benefits" in the Directive does not extend to an early retirement benefit scheme and that such a scheme must be continued by the purchaser i.e. that "old age benefits" only include those benefits that would become payable at the end of the employee's normal working life (Beckmann v. Dynamco [2002] I.R.L.R. 578).

While the purchaser of a business may not be obliged under the Directive to continue to offer pension benefits to any employees who transfer, it is obliged to ensure that any benefits accrued up to the date of transfer are protected after the date of transfer.

Employee Share Schemes.Employee share schemes generally provide that the employee's participation in the scheme will automatically terminate if his/her employment with the company sponsoring the scheme terminates. Under the Directive, it is arguable that the purchaser is obliged to replicate any share scheme benefits previously offered to transferring employees by the seller. However, in practical terms, it is very often not possible for one company to replicate a predecessor's share schemes.

The entitlement of the transferred employee in such cases may be to participation in a scheme which offers substantially equivalent benefits.

12.4.9Variation of Terms and Conditions of Employment

The terms and conditions of employment of employees who transfer under the Regulations may not be amended for transfer-connected reasons, even where the employee consents to the the change.

However, the Regulations only prohibit the variation of terms consequent upon the transfer. Accordingly, if the reason for the variation can be justified on grounds other than the transfer e.g. because of a change in market or business conditions, or as part of a restructuring which has nothing to do with the transfer, it may be lawful.

The effect of the Regulations creates particular difficulties in business sales where the transferred employees are incorporated into a larger business where the existing employees may have less favourable terms and conditions. The employer is not entitled to change terms and conditions simply to harmonise all employee remuneration.

12.4.10Remedies for Unlawful Change to Terms and Conditions of Employment

Before the introduction of the new Regulations, there was no effective means for an employee to enforce his right to the same terms and conditions of employment which he enjoyed prior to the transfer of his employment. However, the new Regulations introduced the following provisions which significantly alter this situation and provide very strong protection of an employee's rights:

(i) Any provision in an agreement which purports to exclude or limit the application of the Regulations or is inconsistent with the Regulations is automatically deemed to be void. Accordingly, any contracting out of the Regulations is ineffective.

(ii) If a term or condition of employment is less favourable to an employee after the transfer of his employment, it is deemed to be modified so as not to be less favourable.

(iii) A term or condition which is more favourable to the employee is, however, permissible.

12.4.11Transfer of Collective Agreements/Union Recognition.

Regulations 4 (2) provides that "the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor".

In addition, provided the undertaking retains its autonomy after the transfer, any union recognition agreed by the seller will bind the purchaser.

12.4.12Special Protection against Dismissal

The effect of the Regulations is that any dismissal of an employee which is in connection with the transfer is automatically held to be an unfair dismissal. However, where the dismissal can be shown to be for an "economic, technical or organisational reason entailing changes in the workforce", it will not be automatically unfair. These provisions apply to both the seller and purchaser.

Under the provisions of the Directive, a dismissal would be examined in the following manner:

  1. Is the transfer of the business the ground for the dismissal?

    This is a question of fact. The burden will be on the employee to establish that the dismissal is transfer-related but this might be a reasonably easy burden to discharge if the dismissal occurs around the time of the transfer - it is then up to the employer to produce evidence to show that there was no connection between the two. The employer will have to show that the reasons for the dismissal were completely independent of the transfer e.g. serious misconduct or incompetence or a decision to reduce the workforce which was taken before the transfer was considered.

  2. Is there an economic, technical or organisational reason for the dismissal?

    The Regulations do not prohibit dismissals for "economic, technical or organisational reasons entailing changes in the workforce". This is known as the "ETO" defence. What this means is that the reason for the dismissal must be to do with the day-to-day running of the business. In particular, a dismissal which is effected solely, for example, because the purchaser has stated that he will not proceed with the sale unless a certain number of employees are dismissed will not fall within the scope of the ETO defence because this has nothing to do with the running of the business (Wheeler V Patel & Golding Group of Companies [1987] I.R.L.R. 211). In contrast, where an administrator is forced to reduce the workforce prior to a sale because there were no means left by which to pay the employees, this has been held to be a valid ETO defence (Honeycombe 78 Ltd v Cummins & others, unreported, EAT 100/99 (England)).

    The following grounds have been recognised as generating economic, technical or organisational reasons which may provide valid grounds for a dismissal:

    • the physical relocation of the business (Sewell v D.M.G. Realisations Ltd. Industrial Tribunal (England) 6 February 1990);

    • where employees are surplus to requirements e.g. where the business would cease to be viable if the employees were retained (Purcell v. Bewleys [1990] E.L.R. 68); and

    • the need to have the work done in a different manner (Porter v. Queen's Medical Centre [1993] I.R.L.R. 486).

12.4.13The ETO Defence and the Unfair Dismissals Legislation

It is important to note that satisfying the provisions of the Directive/Regulations that there are valid economic, technical or organisational grounds for a dismissal does not exhaust the remedies available to a terminated employee. It simply means that the requirements of the Regulations have been satisfied. The employer will also need to ensure that the employee has no claim under the Unfair Dismissals legislation. This can be achieved by ensuring, firstly, that the dismissal is for one of the legitimate grounds under that legislation and is reasonable. The legitimate purpose in many cases would be one of the grounds for redundancy under the Redundancy Payments Acts, 1967-1991. If this is the case, the employer must also show that the employee was selected fairly for redundancy. This requires that the purchaser look at its entire pool of employees after the transfer, not just those employees who transferred, and that employees are selected for redundancy using fair and objective criteria e.g. last in, first out.

12.4.14Remedies for Unfair Dismissals

An employee who is dismissed in contravention of the Regulations may be granted relief in respect of that dismissal under either the Regulations or the Unfair Dismissals legislation but not under both. In either case, an award may be made by a Rights Commissioner under the Regulations or by the Employment Appeals Tribunal under the Unfair Dismissals legislation in such amount as is just and equitable in the circumstances, subject to a maximum limit of two years' remuneration. Employees who have less than one year of service generally may not make a claim under the Unfair Dismissals legislation.

The Rights Commissioner also now has broad powers to order an employer to take a "specified course of action", which could include reinstatement of a terminated employee to his position.

12.4.15Obigation to Inform and Consult with Employees

If the Regulations apply to the sale of the business, they effectively mandate a process of consultation with employees in connection with the proposed transfer. In summary, the seller and purchaser must notify the representatives of their employees affected by the transfer of:

(i) the date of proposed date of the transfer

(ii) the reasons for the transfer;

(iii) the legal implications of the transfer for the employees and a summary of any relevant economic and social implications of the transfer for them; and

(iv) the measures envisaged in relation to the employees (e.g. the potential for a reduction in the number of employees after the transfer due to changes in the organisational structure of the undertaking, changes in work practices etc).

The seller must provide this information where reasonably practicable, not later than 30 days before the transfer is carried out and in any event in good time before the transfer is carried out. The purchaser must provide it where reasonably practicable not later than 30 days before the transfer is carried out and in any event in good time before the transfer directly affects its employees.

If the seller or purchaser envisages measures in relation to its employees, it must consult the representatives of its employees in good time on such measures, with a view to reaching agreement.

Under the new Regulations, that consultation process must begin, where reasonably practicable, not later than 30 days before the transfer is carried out and, in any event, in good time before the transfer is carried out, with a view to reaching agreement.

Where no employee representatives are appointed through no fault of the employees, each of the employees must be informed in writing, of the information set out in (i) through (iv) above, where reasonably practicable, not later than 30 days before the transfer is carried out and, in any event, in good time before the transfer is carried out, with a view to reaching agreement. Even in situations where there are employee representatives, it is accepted as good practice that each individual employee would receive this type of communication to confirm the transfer of his or her employment.

12.4.16Practical Considerations

The effect of the 30-day consultation period introduced by the new Regulations is likely to have a significant effect on the structure and timing of business sales to which the Regulations apply. Parties who do not allow time for this before completing a transaction run the risk that employees may make a complaint to the Rights Commissioner. The Rights Commissioner may award up to four weeks remuneration as compensation or, more significantly, may require the employer to comply with the Regulations or to take a specified course of action. This is a very broad power and may extend to the Rights Commissioner ordering that completion of the transaction be delayed until such time as the consultation process has been properly undertaken.

In the past, the approach of many employers to the consultation/information requirements of the legislation has been less than rigorous. However, under the new Regulations, the obligations in this regard are more onerous and employees have much more powerful remedies available to them to enforce their rights. While there appears to be some flexibility with regard to the 30-day consultation period, the prudent approach to ensure compliance with this aspect of the Regulations may be to allow for a 30-day period between signing of the business sale agreement and completion in order to allow for consultation. Employers would also be well-advised to be pro-active in putting in place a mechanism to allow employees to appoint employee-representatives where there are no trade union or other employee-representatives otherwise in place. In addition, written records should be kept of the consultation process as the purchaser will wish to be satisfied that there is no potential liability to employees for a breach of these provisions which it may inherit under the Regulations.

The Regulations do not require that actual agreement be reached with employees but rather that consultation take place with a view to reaching agreement.

12.4.17Enforcement of Employees' Rights under the Regulations

The new Regulations introduced the following very significant provisions to allow employees to enforce their rights under the Regulations.

Either the employee or a trade union, staff association or other excepted body on the employee's behalf, may make a complaint to a Rights Commissioner under the Regulations. Generally, the complaint must be made within 6 months of the breach. The Rights Commissioner is required to notify the other party of the complaint and may hear evidence from both parties before making a decision. Proceedings are held in private. If the complaint is held to be well-founded, the Rights Commissioner may:

(i) require the employer to comply with the Regulations by taking a specified course of action; or

(ii) make an award of such compensation as is just and equitable in the circumstances, subject to the following limits:

  • in the case of a contravention of information/consultation obligations under the Regulations, the award will not exceed 4 weeks remuneration; and

  • in the case of a contravention of any other obligation under the Regulations, the award will not exceed 2 years' remuneration.

Most significantly for a purchaser, where the ownership of a business changes after the alleged contravention, the "employer" for purposes of these provisions is deemed to be the new owner of the business. Accordingly, a purchaser will need to ensure that the seller has complied with all of its pre-transfer obligations under the Regulations and should seek an indemnity from the seller to protect it against any liability for failure by the seller to fulfill those obligations.

A right of appeal lies from the Rights Commissioner to the Employment Appeals Tribunal and the Tribunal may refer a question of law to the High Court. In the event an employer fails to carry out the decision of the Rights Commissioner or the Tribunal, the Circuit Court may make an order, without hearing the employer, to carry out the decision.