Transfer of Undertakings |
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| A transfer of undertakings is governed by the complex Transfer of Undertakings (Protection of Employment) Regulations 1981 (the Regulations). |
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| The Regulations protect employees’ rights when a business or undertaking, or part of one, is transferred to a new business. In effect the new employer stands in the shoes of the old employer and the employees maintain continuous employment for the purpose of all statutory employment rights. |
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| Employees and their representatives must be consulted about the changes that will take place. It is vital that consultation takes place between the employees, their representatives, their old employer and their new employer to ensure that all parties fully understand the details of the transfer and how it will affect them. When will the Regulations Apply. |
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| The Regulations will apply when there is a relevant transfer. A relevant transfer is a transfer from one legal person (i.e. a company, partnership, sole trader etc) to another of an undertaking, which is based immediately before the transfer in the United Kingdom or partly based the United Kingdom. The following are situations where a transfer would occur: |
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- Where a business is sold;
- Where a company, or part of a company, is purchased as a going concern;
- Where two or more businesses stop trading and form a new business; and
- Where a contract to provide goods or services is transferred which amount to a transfer of a business or undertaking to a new employer.
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| A transfer may also take place because of a series of transactions however, the business must retain its identity, see below: |
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- A lessee transfers a factory back to the owner and the factory is then sold to another company;
- A shopping centre cleaning contract can transfer between two successive cleaning contractors; and
- Voluntary organisations losing a local authority grant which is then awarded to another organisation to provide the same services.
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| When will the Regulations Not Apply |
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| The Regulations will not apply in the following situations: |
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- Where there is a sale of business assets only;
- Where there is a sale of shares to new shareholders only;
- Where there is a contract to provide goods or services but no transfer of a business; and
- Where undertakings are situated outside the United Kingdom.
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| The Situation of the Old Employer (The Transferor) |
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| The transferor cannot dismiss any employees because they are transferring their business unless there is an economic, technical or organisational reason necessitating changes to the workforce. This simply means that any employees no longer required will need to be fairly selected for redundancy and the correct procedures followed. If any employee is dismissed because of the transfer they may be able to bring a claim for automatic unfair dismissal. |
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| The transferor will need to consult all employees being transferred or their representatives. The following information must be provided: |
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- That a transfer is going to take place;
- When the transfer will take place;
- Why the transfer is taking place;
- How the transfer will affect the employees;
- The name of the new employer.
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| The Situation for the New Employer (the Transferee) |
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| The transferee cannot dismiss any employees because they have been transferred to their business unless there is an economic, technical or organisational reason, which necessitates changes to the workforce, and again a redundancy situation will arise. Which simply means that the transferee has taken on new employees and is then liable to pay them redundancy payments, not an ideal situation for all concerned? If any employee is dismissed because of the transfer they may be able to bring a claim for automatic unfair dismissal. |
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| The transferee must undertake the following: |
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- Not vary the terms or conditions of employment of their new employees;
- Agree who and how many employees are being transferred from the transferor;
- Agree with the transferor and the new employees when the transfer will take place;
- Agree that a transfer is going to take place;
- Agree what affect the transfer will have on any employees being transferred.
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| Common Problems Associated with Transfers |
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| Because transfers can be and are often complex it is vital to seek legal advice as soon as possible. The following are common problems associated with transfers: |
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- The transferor not providing sufficient details of who is being transferred along with the numbers of employees being transferred;
- The transferee not thoroughly checking who is being transferred along with the numbers of employees being transferred. It is important to identify for example if there are any employees on long-term sick leave;
- Transferors wanting to get rid of certain employees but not telling the transferee that they are transferring those employees. This is a common situation when cleaning contracts for shopping centres are being transferred to a new cleaning company.
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| In essence all problems that are encountered by both the transferor and the transferee involve a lack of communication between all parties involved in the transfer. |
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| Conclusion |
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| Because the Regulations are complex and each transfer or potential transfer is distinct these notes provide only a brief outline and are not intended for specific situations where legal advice is required to ensure that there are no nasty surprises waiting for all concerned, which are often very expensive to rectify after the event. |
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| If you require specific advice regarding a transfer of undertakings please do not hesitate to contact us at Net Lawman. |
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| Click to Buy : Employment Contract Template |
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| You can find links to employment documents here: Employment Contract |
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