The European Communities (Protection of Employees on the Transfer of Undertakings) Regulations 2003 (S.I. No. 131 of 2003) place legal obligations on both the transferor and the transferee in relation to employees transferring with a business.

Regulation 8 of the Regulations requires both the transferor and transferee to inform and consult the employees at least 30 days in advance of a transfer.  Regulation 4 provides that the transferor’s rights and obligations, arising from a contract of employment that exists on the date of the transfer shall, by reason of such transfer, be transferred to the transferee.  This appears to place liability upon the transferee for any failure to inform and consult with employees.

Regulation 10 also expressly provides that the employer who may be required to pay compensation is the person who by virtue of the change of employer becomes entitled to ownership of the transferring business or undertaking.  However, two recent and arguably conflicting determinations from the Labour Court on this issue demonstrate the uncertainty confronting transferors, transferees and transferring employees: who is responsible for breaches of the Regulations?

Obligation to Inform and Consult

In the event of a transfer of undertakings, Regulation 8 provides that the following information must be given to employee representatives 30 days prior to the date of transfer.

• The date of the proposed transfer.
• The reasons for the transfer.
• The legal implications of the transfer for the employees and a summary of any relevant economic and social implications of the transfer for them.
• Any measures envisaged in relation to the employees.

In addition, where there are measures envisaged in relation to the employees, there is an obligation on the transferor and transferee to consult with the employees in relation to these measures.

Recent Labour Court Determinations

Only the Transferee is Liable?

In J Donohue Beverages Limited and Elizabeth Collins [TUD183], the employee, Elizabeth Collins, brought a claim against her former employer (the transferor), alleging a failure to comply with its obligations under Regulation 8.

The respondent, Donohue, argued that Directive 2001/23/EC, which was transposed into Irish law by the Regulations, allowed Member States to include a provision that both transferor and transferee would be jointly and severally liable in respect of contractual obligations arising prior to the date of transfer; but the State had chosen not to include this provision.  Therefore it followed that the correct interpretation of the Regulations is that the right to information and consultation granted to the employee is a statutory right implied into their contracts of employment and as such is subject to Regulation 4.

The Labour Court accepted the Respondent’s submissions that:

• Regulation 8 implied a term into the employee’s contract of employment that entitled her to a period of information and consultation through her chosen/elected representatives prior to the occurrence of a transfer within the meaning of the Regulations.
• Regulation 4(1) provides that any remedy for failure of her employer as transferor to fulfil its obligations under Regulation 8 can only be sought against the transferee.

Transferor Still on the Hook Post-transfer?

In OSC One Complete Solution Limited v Paul Grant [TUD186], heard by the Labour Court less than a month later,  there was a transfer of an undertaking in which the employee had not been informed or consulted with prior to the date of transfer.

The respondent contended that it was not reasonably practicable to consult with the employees affected 30 days in advance of the transfer due to a need for secrecy and confidentiality during the commercial negotiations, as the transferee was a publicly listed company.  The transferor also argued that it had consulted with the affected employees as soon as was practicable after the transfer.

The Labour Court held that as the transferor did not comply with its obligations prior to the date of transfer, it was liable for the failure to inform and consult.  There is no provision in the legislation for a transferor to waive its obligation to consult in advance of a transfer and the Labour Court awarded the transferor to pay the maximum compensation for this failure, four weeks of remuneration, to the employee.

Practical Implications for Employers and Employees

The position on liability for failure to properly inform and consult remains unclear.  Although the text of the Regulations appears to support the contention that all liability arising from the contracts of employment of transferring employees will transfer to the transferee on the date of the transfer, in practice it is likely that disgruntled employees will continue to sue both transferor and transferee.

Both transferor and transferee would be best advised to take steps to ensure there is full compliance by the other party with their obligations under the Regulations to reduce the risk of being held liable for any breach of the Regulations.

Although Regulation 8 envisions that both transferor and transferee will inform the employees "where reasonably practicable no later than 30 days before the transfer is carried out, and in any event, in good time before the transfer is carried out", it is advisable that both parties fully comply with the Regulations and seek appropriate indemnities from the other party if the circumstances prevent them from complying.

An award of four weeks of remuneration might appear to be a risk worth taking, but this risk could be multiplied by the number of transferring employees and could result in substantial liability and costs for either the transferor or the transferee.

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Note: Legal-Island is running a Contracts for the Modern Employment Relationship event on 6th June 2018 at the Gibson Hotel, Dublin.