United Kingdom

    1.1 In what circumstances does the employee transfer law apply?

    The employee transfer law applies to:

    • the transfer of an economic entity which retains its identity after the transfer; and
    • a service provision change (contracting activities out, bringing them in-house, or changing contractors).

    In general terms the UK has a wider view of what amounts to a transfer of an undertaking than most other EU member states.

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    Author: Lewis Silkin LLP

    Date: September 2016

    1.2 Does the employee transfer law apply to (a) a sale of a business or (b) outsourcing?

    (a) Sale of a business

    The employee transfer law applies to the sale of a business.  A business typically comprises assets such as premises, equipment, customers, staff and goodwill. If those are sold and the business is continued, transfer of an economic entity has taken place.

    (b) Outsourcing

    The employee transfer law also applies to a service provision change such as outsourcing. Before the change, there must be an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities being outsourced on behalf of the client. A single employee can be an organised grouping.  There is no requirement in the UK for transfer of assets – simply continuation of the activities.

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    Author: Lewis Silkin LLP

    Date: September 2016

    1.3 In outline, what are the implications of the employee transfer law?

    If the employee transfer law applies:

    • employees assigned to the undertaking or organised grouping transfer from the transferor to the transferee on their existing (pre-transfer) terms of employment;
    • collective agreements and union recognition arrangements transfer;
    • the transferor is required to provide information on the transfer to employee representatives, and if measures are proposed, to consult the representatives about them with a view to reaching agreement;
    • if employees have claims relating to employment with the transferor (e.g. for pay, for personal injury or for discrimination) the transferee becomes liable in place of the transferor;
    • if an employee is dismissed and the sole or principal reason for the dismissal is the transfer, the dismissal is automatically unfair;
    • if an employee’s contract is varied and the sole or principal reason for the variation is the transfer, the variation is void.
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    Author: Lewis Silkin LLP

    Date: September 2016

    2.1 Who transfers?

    The employee transfer law applies to employees assigned to the relevant undertaking.  If the employee works only within the transferring undertaking he or she will be assigned to it.  If an employee’s role involves work partly within the transferring undertaking and partly in a different part of the transferor’s undertaking, the position is more complicated and will depend on matters such as:

    • the proportion of time spent within the transferring undertaking as compared to other parts of the business;
    • the value given to each part by the employee;
    • the employee’s job description and employment contract; and
    • how the employer allocates the costs of the employee’s services.

    In outsourcings, these factors are also relevant:

    • was the grouping deliberately and consciously organised to service the activities?
    • is the grouping recognisable?
    • are employees outside the grouping involved in providing the service?
    • is the employee involved in front-line delivery of the service (excluding executives and support staff).
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    Author: Lewis Silkin LLP

    Date: September 2016

    2.2 Can employees object to transferring?

    Employees can refuse to transfer by formally objecting.  In most cases, this will bring their employment to an end without a dismissal or any other rights to bring a claim.  However, if employees object in circumstances in which the transfer involves a substantial change in working conditions to their material detriment, they will be treated as having been dismissed and may have claims against the transferor and transferee.

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    Author: Lewis Silkin LLP

    Date: September 2016

    2.3 What happens to terms of employment contracts?

    Employment terms transfer. The transferee ‘steps into the shoes’ of the transferor and becomes the employer on the transferor’s terms.  All rights and obligations under the employment contract transfer to the transferee other than certain pension rights.

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    Author: Lewis Silkin LLP

    Date: September 2016

    2.4 What about other employee benefits?

    The transferee is required to maintain contractual benefits. This can be difficult in relation to benefits which are linked directly to the transferor’s business. Examples may include bonuses, commission, profit share schemes and share options. In such cases, the transferee is generally required to provide schemes of broad equivalence.

    Past employment with the transferor will count as ‘continuous employment’ with the transferee. This is relevant for certain statutory employment rights, for example unfair dismissal and for service-related contractual benefits.

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    Author: Lewis Silkin LLP

    Date: September 2016

    2.5 What happens to pension rights?

    Most defined contribution pension entitlements go across under the employee transfer law in the same way as any other benefit. Examples include personal pension schemes, group personal pension schemes, ‘stakeholder’ schemes and most auto-enrolment schemes. So if the transferor paid 10% of the employee’s salary into a personal pension scheme, that obligation is binding on the transferee.

    Occupational pension schemes are different. If an employer has an occupational pension scheme (normally a scheme set up by the employer with trustees), the transferee does not have to replicate it. The transferee may either admit transferred employees to its own occupational pension scheme or make a contribution to a stakeholder scheme. The transferee is required to match employee contributions up to 6% of salary. If employees were previously members of an occupational defined benefit scheme, they generally end up with significantly worse pension rights. 

    Some rights under occupational pension schemes transfer under the employee transfer law, for example a right to enhanced pension benefits upon early retirement due to redundancy.

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    Author: Lewis Silkin LLP

    Date: September 2016

    2.6 What liabilities transfer?

    The transferee will be responsible for any liabilities referable to employment before the transfer.  Any act or omission of the transferor will be treated as an act or omission of the transferee.  In contrast to some EU jurisdictions where there is joint liability, in the UK the transferee becomes responsible in place of the transferor (other than for consultation obligations where liability is joint). 

    So for example, claims may be in respect of unlawful discrimination by the transferor, accrued holiday rights or unpaid bonus. The transferee also assumes responsibility for outstanding personal injury claims.  The transferor and transferee are jointly and individually liable for any failure to inform and consult about the transfer.

    Because of the transfer of pre-transfer liabilities to a potentially innocent transferee, it is common for indemnities to be negotiated in the governing agreement (sale of business agreement, or service provision agreement) under which the transferor indemnifies the transferee for matters that occurred when the transferor was the employer.

    There are a few exceptions to the rule that the transferee becomes liable. Criminal liabilities and obligations to withhold income tax from pay do not transfer.

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    Author: Lewis Silkin LLP

    Date: September 2016

    2.7 Do collective agreements transfer?

    Collective agreements with a recognised trade union transfer. In the UK virtually no collective agreements are legally binding. So the parties can disregard the terms at any time – though they tend not to do so for industrial relations reasons.

    In the UK, terms of collective agreements are sometimes incorporated within individual contracts.  Changes to collective terms negotiated after the transfer do not bind the transferee if it was not involved in the collective negotiation process. Transferees may change collective terms one year after the transfer, provided the overall change is no less favourable to the employee.

    If a transferred undertaking maintains an identity distinct from the rest of the transferee’s undertaking, a trade union that was recognised by the transferor is deemed to be recognised by the transferee. 

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    Author: Lewis Silkin LLP

    Date: September 2016

    2.8 How does the transferee obtain information on transferring employees?

    If the transferor and transferee negotiate the terms of a transfer (e.g. on a business sale) there is usually an agreement that the transferor will provide the transferee with information about transferring employees and their employment terms. When there is a change of contractor, there may be no direct contact between a transferor and transferee and an agreement is less common. 

    The employee transfer law requires the transferor to give ‘employee liability information’ to the transferee at least 28 days before the transfer.  This is information on:

    • the identity and age of the employees subject to transfer;
    • contractual terms;
    • any relevant collective agreements;
    • any disciplinary action or grievances within the preceding two years;
    • any legal proceedings by employees within the preceding two years and any prospective proceedings.

    If a transferor fails to comply with the rules on providing ‘employee liability information’, an employment tribunal may order payment of compensation to the transferee.

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    Author: Lewis Silkin LLP

    Date: September 2016

    3.1 Can employers make changes to employment contracts?

    Variation of contractual terms is void if the sole or principal reason for the variation is the transfer.

    Variations are permitted if:

    • the reason for the change is unconnected with the transfer; or
    • there is an economic, technical, or organisational reason entailing changes in the workforce (‘ETO reason’) and the employer and employee agree the variation; or
    • the contract permits the employer to make the variation.

    Changes made in order to ‘harmonise’ the terms of transferring employees with those of the transferee’s existing workforce are likely to be regarded as being for the sole or principal reason of the transfer.  If the contract does not permit the variation, the transferee would try to make out an ETO reason.  The UK interprets ‘ETO reason’ very narrowly. Changes must relate to the conduct of the business and entail changes to the overall number or functions or location of the workforce: mere harmonisation of terms is unlikely to constitute such a change.  Even if the transferee has consent, this would not be sufficient without an ETO reason. The employee transfer law provisions on changing terms are highly restrictive and far less flexible than in many other EU countries.

    If a change is by reason of a transfer (and therefore void) the only reliable way to make the change is to dismiss employees and offer continuing employment on new terms.  It is likely that a dismissal in these circumstances would be automatically unfair.  Employees may be willing to waive such claims under a binding settlement agreement.

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    Author: Lewis Silkin LLP

    Date: September 2016

    3.2 When can employers safely dismiss employees before or after a transfer?

    The employee transfer law envisages three categories of dismissal:

    • If the reason for the dismissal is not the transfer – these dismissals are fair or unfair according to normal unfair dismissal rules.
    • If the sole or principal reason for the dismissal is the transfer and:
      • there is an ETO reason entailing changes in the workforce of either the transferor or the transferee, these are potentially fair if the employer acts ‘reasonably’ under unfair dismissal rules (following proper procedure, consulting etc).
      • there is no ETO reason – the dismissal is effective (and cannot be set aside) but is automatically unfair.

    The reason for the dismissal depends on the facts.  There is no fixed period after which one can safely say that a reason is not connected with the transfer.  In some cases, dismissals a few years after the transfer are considered connected.

    An ETO reason must relate to the conduct of the business and entail changes in the workforce (i.e. changes to the overall number or functions or location of the employees). A desire to obtain a higher price for the business or to cut wages to provide a service at a lower cost would not constitute an ETO reason.  Genuine redundancy is likely to be an ETO reason if the transferee can operate the function with fewer employees. An ETO reason may also be established if a change in business operations creates a need for skills which the dismissed employee did not have.

    Claims for unfair dismissal may be made by an employee with over two years’ service with maximum compensation of the lower of one year’s pay or around EUR 93,000.

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    Author: Lewis Silkin LLP

    Date: September 2016

    4.1 Who must employers consult?

    Employers must inform and in some cases consult ‘appropriate representatives’ of employees affected by a transfer. These are either:

    • representatives of a trade union recognised in respect of affected employees or
    • in any other case, employee representatives appointed or elected by affected employees.

    Employee representatives can be either:

    • previously appointed or elected by the affected employees with authority to be informed and consulted in the context of the employee transfer law or
    • (more often) specifically elected in the context of a particular transfer.  Detailed requirements govern representative elections.

    Employers with fewer than 10 employees may inform and consult with the affected employees directly rather than with representatives.

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    Author: Lewis Silkin LLP

    Date: September 2016

    4.2	What information must they provide?

    They must provide information about:

    • the fact of the transfer, when it will occur and the reasons for it;
    • any legal, economic and social implications for affected employees;
    • use of agency workers; and
    • any ‘measures’ envisaged in connection with the transfer in relation to affected employees.

    ‘Affected employees’ may include those who do not transfer. Information must be provided ‘long enough before the transfer to enable the employer to consult’ the representatives.

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    Author: Lewis Silkin LLP

    Date: September 2016

    4.3	What does consultation involve?

    The duty to consult arises only if the transferor or transferee envisages taking measures in relation to affected employees. If no measures are envisaged, the obligation is merely to provide information.

    Where measures are envisaged, the employer must consult the appropriate representatives ‘with a view to seeking their agreement to the measures’. The employer must actively engage with the representatives, consider representations made and reply to them. If the employer rejects representations, it must give its reasons.

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    Author: Lewis Silkin LLP

    Date: September 2016

    4.4	How long does consultation last?

    The length of consultation varies but except in particularly simple or complex cases typically lasts two to four weeks.  If election of employee representatives is necessary, that typically takes a week.

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    Author: Lewis Silkin LLP

    Date: September 2016

    4.5	What happens if an employer fails properly to inform or consult?

    A complaint regarding information or consultation may be made to an employment tribunal.  If the complaint is upheld, the tribunal may order the employer to pay ‘appropriate’ compensation of up to 13 weeks’ pay.  The worst case award is 13 weeks’ pay per affected employee.  Complaints must be made within three months of the transfer.

    There is no right in the UK to declare the transfer ineffective or to suspend or delay the transfer process.

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    Author: Lewis Silkin LLP

    Date: September 2016

    5.1	Identify up to three issues in this country of which employers should be aware?

    First, UK law takes a significantly more liberal view of when the employee transfer law applies than do most other EU member states.  The aim is to promote certainty, to reduce transaction costs and to create a ‘level playing field’ for contractors.

    Second, the UK approach to making change connected to transfers is highly restrictive.  UK employers are often unable to make legally binding changes to terms and conditions even if employees would agree to them.

    Third, where transfers involve the public sector (or former public sector) there may be a requirement to maintain equivalent pension provisions and expensive terms relating to early retirement and redundancy. 

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    Author: Lewis Silkin LLP

    Date: September 2016

    5.2	Would the employee transfer law apply on a cross-border transfer into or out of this country?

    The employee transfer law applies to the transfer of an undertaking (or part) ‘situated immediately before the transfer in the United Kingdom’.  The employee transfer law would not apply to a transfer into the UK (though transfer legislation of the country from which the undertaking was transferred might apply).  As soon as the undertaking relocated to the UK its employees would become entitled to UK statutory employment rights.

    In principle the employee transfer law applies to a transfer to another EU state (and in one case it was considered might apply to a transfer to Israel - outside the EU).  In practice, it is very unusual for any employee to move and a proposal to change their geographical location post-transfer would likely constitute a redundancy under UK law rather than actually be enforceable on an employee reluctant to relocate.

    Given the uncertain legal position, parties to a cross-border transfer into or out of the UK should negotiate suitable indemnities.

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    Author: Lewis Silkin LLP

    Date: September 2016

    6.1	What are the main national laws protecting employees upon transfers of businesses?

    The main law is the Transfer of Undertakings (Protection of Employment) Regulations 2006. 

    Provisions relating to occupational pension rights are contained in the Transfer of Employment (Pension Protection) Regulations 2005.

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    Author: Lewis Silkin LLP

    Date: September 2016

     

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