Employment law solicitor Richard Grogan of Richard Grogan & Associates writes on an issue of key interest to many Irish businesses.

There are a number of problem issues we see arising in relation to cases where there is a transfer under the Transfer of Undertakings Regulations. What are these?

The most usual issue relates to terms and conditions of employment. Many of those purchasing business where the Transfer of Undertaking Regulations apply fail to recognise that the employees being taken over, except in very limited circumstances, come to the new employer with their existing contract of employment and any agreement which has been agreed with them and their previous employer being the transferor.

The Regulations are clear. Where an employment contract transfers then the employee transfers on the existing terms of employment, effectively, as if the contract was made between the employees and the person acquiring the new business.

Some of the problem issues which arise are that an employee comes to the new employer in relation to their claim for an increased wage or bonus or other benefit which has been agreed with them in advance of the transfer. The fact that the new owner does not know about these does not mean that they are not bound. They are bound by these agreements between the old employer, if we call them that, and the new employer.

The issue sometimes arise as to whether the new employer can simply ignore any such agreement with the employees. The answer is no! Any unilateral variation of the contract is void under the Regulations if the sole or principal reason for the attempted change is the transfer itself. An attempt to revoke a pay rise or other benefit that has been agreed with the employee or employees will be void. In the case of wages the employer can be subject to claim under the Payment of Wages Act for an illegal deduction of wages. This can issue week-by-week or month-by-month.

An employee is also protected from having their working conditions substantially altered by the transfer. If this happens, the employee can treat themselves as effectively being dismissed.

The argument is often raised that the old employer should be responsible. That is not the law in Ireland. The new employer is responsible for any breach. This includes a breach which may have occurred prior to the transfer. This comes as a shock to many employers. For example if an employee has a claim that they did not get their annual leave in the year ending 31 March 2018 and the transfer takes place in June and the employee issues proceedings in July, it is the new employer, not the old employer, who is responsible for that breach. If equally an employee issues a claim under the employment equality legislation for sexual harassment, for example, or racial discrimination or any other employment claim, that claim goes against the new employer not the old employer.

The issue we are often asked is how can the new employer protect themselves.

The first issue is that before any transfer takes place, the new employer should meet with an employment law solicitor. This is different than meeting with their commercial solicitor. An employment law solicitor is needed to go through the various issues. Equally, an employment law solicitor will help guide the new employer in relation to the due diligence which needs to be undertaken prior to any transfer being completed.

In practice, this means that the contracts for all employees need to be reviewed. Particulars or any agreements with employees need to be furnished. Particulars of any claims need to be notified to the new employer. It is useful to require a list of all employees and that a check-list is sent to them to ensure that they confirm that they have received their contract, that they have obtained their holiday pay, they received their holidays, that they have no claims for underpayment of wages, and to get confirmation from them as to whether they have any other claims against the existing employer.

There will be resistance from the seller of the business. However, as claims have a six months’ time limit, even if the old employer in certain circumstances will not know about any potential claims, in any transaction the recommended approach to deal with the risk is to include a series of warranties and indemnities written into the contractual agreement that covers the business transfer.

Equally, it is important between the time that negotiations start and the completion of this sale to the new owner that there is a warranty from the transferor, being the seller of the business, that they will not agree any pay rises between exchange of contracts and the transfer date itself or any change in terms and conditions of employment without the approval of the purchaser of the business.

There should be an agreement and the seller of the business should indemnify the purchaser for any cost resulting from a breach of that warranty or in respect of any possible claims that can arise.

In larger organisations or even in smaller company and business situations, it is now advisable that a certain sum of money will be set aside and held by the solicitors acting for the seller of the company or business until such time as the statutory period for issuing proceedings has elapsed and that if any such proceedings issue, that these monies will be held pending the outcome of any such case and that any award and costs resulting in defending out of any such case of defending such cases will be discharged out of those sums, with the solicitor for the vendor giving an irrevocable undertaking not to release the money and to pay the said sums.

When acting for anybody selling a business, it is worthwhile to include a provision that if any claim issues that they should have the right to nominate a firm of solicitors to defend the case. In some cases there will require to be a consultation with the employees and it is vitally important that if you are involved in the purchase or sale of a business that the appropriate notification is sent by both the vendor and purchaser of the business notifying them of the pending sale and advising as to whom the new employer will be. Both parties need to provide this information and it should be provided in writing along with evidence that same has been complied with.

As economic activity increases in Ireland, the issue of the Transfer of Undertaking Regulations is becoming a common problem and is leading to litigation. We believe that there will be substantially more litigation in this area by employees in the future.