Employee rights on business takeover

undertaking/business must be transferred as a “going concern”.
What happens to your job if your employer sells or transfers the business?
On a takeover bid, control of the company passes to a new shareholder but its legal status remains the same and the employees’ contractual relationship is unaltered. If a business is sold as a going concern (as opposed to a mere sale of assets) the contracts of those employed immediately before the sale are automatically transferred on the completion of the sale to the purchaser.
The practical effect is that the employees transferred should be retained on the same terms and conditions after the sale as were enjoyed before, regardless of the basis on which other employees are retained. It has been the established view for years that this obligation does not apply to pension arrangements, but a recent industrial tribunal has challenged this view. Unilaterally changing the contracts of new employees may make business sense but it involves a degree of legal risk.
Imposition by the employer of new contracts without employee consent may allow affected employees to treat themselves as having been dismissed, which may leave the employer exposed to statutory and contractual claims.
Case law from a 1989 House of Lords decision states that any employee dismissed by the seller prior to the sale of the business, for a reason connected with the sale (for example, at the request of the purchaser), shall be treated as still being employed at the time the business is sold.
The practical legal effect is that the liability for the dismissal of employees is passed to the purchaser. Dismissals made as a result of such a request will be treated automatically as being unfair. However, as one employment law specialist points out: “The reality is that, on the sale of a business, the employee’s legal position is quite strong. Notwithstanding this, many employees, particularly in the present market, are more anxious to keep their jobs than sue for a pay-off.”
Employees employed by the previous employer when the undertaking changes hands automatically become employees of the new employer on the same terms and conditions. It is as if their contracts of employment had originally been made with the new employer. Thus employees’ continuity of employment is preserved, as are their terms and conditions of employment under their contracts of employment.
Representatives of employees affected have a right to be informed about the changes and they must also be consulted about any measures which the old or new employer envisages taking concerning affected employees. It should not be a secret as these issues concern bread and butter for the employees and the “chain” that depends on them.
When an undertaking is sold or transferred the position of the employees of the previous or new employers is as follows: An employee claiming to have been unfairly dismissed because of a transfer has the right to complain to an employment court. Affected employees who find that there has been a fundamental change for the worse in their terms and conditions of employment as a result of the transfer or sale generally have the right to terminate their contract and claim unfair dismissal before an employment tribunal or court, on the grounds that actions of the employer have forced them to resign.
There is a provision to that effect in terms of the Labour Act Chapter 28:01, section 12B (3a). However, employees may not make this type of claim solely on the grounds that the identity of their employer has changed unless the circumstances of an individual case change and that change is significant and to the employee’s detriment.
In both the above cases termination of contract or withdrawal of benefits, because of a relevant transfer or sale will be unfair unless an employment tribunal decides that an economic, technical or organisational reason entailing changes in the workforce was the main cause of the such action and that the employer acted reasonably in the circumstances in treating that reason as sufficient to justify termination of contract. Even if the dismissal is considered fair, employees may still be entitled to a redundancy payment.
Employees employed in the undertaking immediately before the transfer (or who would have been so employed had they not been unfairly dismissed) for a reason connected with the transfer automatically become employees of the new employer, unless they inform either the new or the previous employer that they object to being transferred.
In this case the contract of employment with the previous employer is terminated by the transfer of undertaking but the employee is not dismissed. The previous employer may re-engage the employee.
An employee’s period of continuous employment is not broken by a transfer, and, for the purposes of calculating entitlement to statutory employment rights, the date on which the period of continuous employment started is the date on which the employee started work with the old employer. This should be stated in the employee’s written statement of terms and conditions; if it is not, or if there is a dispute over the date on which the period of continuous employment started, the matter can be referred to an employment tribunal.
Transferred employees retain all the rights and obligations existing under their contracts of employment with the previous employer and these are transferred to the new employer. If the new employer does not provide comparable overall terms and conditions, including pension arrangements, an employee may have a claim for unfair treatment. Occupational pension rights earned up to the time of the transfer are protected by social security legislation and pension trust arrangements.
Disclaimer: I do not accept any liability for any damages or losses suffered as a result of actions taken based on information contained herein. The information contained herein does not serve as alternative to legal advice.
Taurai Musakaruka is a human resources practitioner. E-mail: [email protected] or [email protected]