Companies have certain obligations to employees in M&A situations and the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) ensures that they are enforced.In basic terms, for TUPE to arise, there must be a change of employer.Ciara Ruane, employment associate at Pinsent Mason Dublin explains how it works:
“If the TUPE Regulations apply, the outgoing employer is obliged to provide certain information about the merger/acquisition to the transferring employees’ representatives and to consult with them about any measures envisaged in relation to their employment after the transfer; such as any proposed redundancies or changes to work practices. This information and consultation process should commence at least 30 days before the employees transfer to the new employer,” she says.
The information is provided to the employees’ trade union representatives or representatives selected from amongst the employees, depending on whether it is a unionised or non-unionised environment.
While the obligation is on the outgoing employer to conduct this information and consultation process, the new employer will often want to be involved so that they can respond to employee concerns about what will happen after the merger/acquisition,” she adds.
Thus, a share sale, where only the ownership of the employing company (or a company higher up the corporate chain) changes, will not trigger TUPE because there is no change of employer, says Cian Beecher, partner in employment group at Arthur Cox.“The most common scenarios giving rise to TUPE are asset/business sales, where the assets comprising a business or part of a business are sold.
If there are any obligations outstanding or liabilities existing in relation to an employee's employment, those will also transfer to the new employer
“TUPE creates certain obligations for both the seller and buyer. In summary, affected employees are entitled to be informed of the date of the transfer, the reasons for the transfer, certain information relating to agency workers, the legal implications of the transfer and to a summary of relevant economic and social implications. Employees are also entitled to be told of any ‘measures envisaged’ – typically understood to mean material changes to the workforce, for example, redundancies,” he says.
The new employer is required to employ the employees, who transfer, on their existing terms and conditions of employment, save for certain occupational pension scheme benefits which do not transfer.“If there are any obligations outstanding or liabilities existing in relation to an employee’s employment, those will also transfer to the new employer. For example, if a bonus payment is outstanding, the obligation to pay this will transfer to the new employer,” Ruane says.
It is essential that the new employer carries out due diligence on the employees before acquiring the business so it understands the number of employees, the terms and conditions of employment and any obligations that will transfer to them. Sometimes the outgoing employer and new employer will commercially agree to divide up TUPE liabilities between them,” she says.
It is difficult to envisage an immediate effect on TUPE resulting from Brexit, Beecher says, however, given that it emanates from EU Directives, if the UK was to repeal its TUPE laws after Brexit, this would throw up challenges as to how “cross-border” transfers are addressed. “Not only transfers between Ireland and the UK but also potentially transfers from one jurisdiction to the other on the island of Ireland,” he adds.
There has been some speculation about whether or not the UK government may implement changes to the TUPE Regulations, after Brexit, to simplify them and to reduce employers’ obligations. “If the UK TUPE Regulations were to be repealed or amended, this could impact on whether employees’ terms and conditions of employment would be protected in a situation where the TUPE Regulations applied to a transfer of an undertaking from the Republic of Ireland to the UK.
“However, for the time being, the UK TUPE Regulations will be incorporated into UK law as is after Brexit and there will be no immediate impact,” Ruane says.