APPENDIX D: STAFF DISPLACEMENT LEGISLATION

Within this publication we do not provide legal guidance. The intent here is to highlight the likely issues and provide examples of the considerations that might be required when designing and building the SIAM model.

Legislation, where available, is particular to a geography or country. Its purpose is to safeguard and protect the rights of employees in the event of a transfer of an undertaking, business or part of an undertaking or business to another employer as a result of a legal transfer or merger.

European legislation

There is a high-level of harmonization within European countries, but since European legislation is a directive, each member state has its own obligations. Some categories of workers are automatically protected, most fall under the directive and some are excluded.

Within Europe, the Acquired Rights Directive (ARD) exists. This is the name given to Directive 77/187 of 14 February 1977 (as amended and consolidated in Directive 2001/23 of 12 March 2001). It is implemented into national law in a variety of ways, for example:

Statutory Regulation Transfer Regulations, Transfer of Undertakings (TUPE, UK)

Statutory Regulation (French Labour Code L1224-1)

Section 613 Civil Code and Works Constitution Act (Germany)

The directive influences the interpretation of national implementation so that employee rights (for example, sanctions) depend on the national employment framework.

United Kingdom

TUPE is a significant and often complex piece of legislation adopted by the UK. The purpose of TUPE is to protect employees if the business in which they are employed changes hands or is outsourced. Its effect is to move employees and any liabilities associated with them from the old employer to the new employer by operation of law.

TUPE protection applies to employees of businesses in the UK even though the business could have its head office in another country, but the part of the business that is transferring ownership must be in the UK.

TUPE means that:

The employees’ jobs usually transfer over to the new company – exceptions could be if they are made redundant or, in some cases, where the business becomes insolvent

Their employment terms and conditions transfer

Continuity of employment is maintained

The size of the business does not matter. TUPE is in place to protect all employees that are affected by a transfer.

TUPE definition

TUPE protects employees' terms and conditions of employment when a business is transferred from one owner to another. Employees of the previous owner when the business changes hands, automatically become employees of the new employer on the same terms and conditions. It is as if their employment contracts had originally been made with the new employer. Their continuity of service and any other rights are all preserved. Both old and new employers are required to inform and consult employees affected directly or indirectly by the transfer.

The Regulations were first passed in 1981, and amended in 2006, with further amendments made in 2014.

TUPE example

The IT department of a curtain-making business was transferred from a factory in Tamworth, UK (owned by company A) to company B based in Israel. None of the affected employees wished to transfer to work in Israel and so they were made redundant.

The employees' representing union brought a claim in the Employment Tribunal against company A for breaches of its obligations under TUPE to inform and consult employees and collective redundancy consultation laws. For this claim to succeed, the union needed to show that TUPE can apply to a transfer of a business outside of the UK (and, indeed, the European Union). Company A argued that it was not bound by obligations under TUPE as it could only apply to transfers between businesses within the EU.

At the time, there had not previously been a decision by the UK courts on this, although many commentators and practitioners had operated on the assumption that there was certainly a strong possibility that TUPE had extra-territorial application.

The European Appeal Tribunal (EAT) acknowledged that TUPE applies to a business transfer in cases where the undertaking is situated in the UK immediately before the transfer, and a service provision change in cases where there is an organized grouping of employees situated in the UK immediately before the service provision change.

Rejecting company A’s arguments, the EAT agreed with the union that, in theory, TUPE can apply to cross-border transfers, even outside of the EU, despite the inherent difficulties in enforcing any consequential tribunal awards. Although acknowledging the common law presumption that legislation does not normally have extra-territorial effect, the EAT held that the UK courts had jurisdiction because employees can only avail themselves of rights under TUPE if the business was originally based within the UK. The purpose of TUPE is to protect employees upon the change of employer, and this applies to cross-border transactions.

This international element to TUPE was reflected in the service provision changes in 2006 which, the EAT stated, was “clearly aimed at the modern outsourcing of service provision, whether inside or outside the EU”. The EAT referred the case back to the Employment Tribunal to closely examine the evidence to determine whether TUPE applied to transfer the employees to the transferee company.

This decision avoids the unscrupulous practice whereby a company can set up an overseas subsidiary to avoid the impact of TUPE. The EAT did note that it may be that, upon transfer of a business to a different country, the transferred business does not retain its identity as an economic entity, negating TUPE's application in such cases. However, this point does not apply in relation to service provision changes and is judged on a case-by-case basis where it does apply.

This case raised legal and practical considerations for entities involved in international business transfers or off-shoring practices that fall within TUPE's scope, particularly those relating to call centers and IT support where UK-based services are often transferred to service providers abroad, either inside or outside the EU.

No doubt, the Acquired Rights Directive 2001, from which TUPE 2006 derives, will be revised to incorporate a definitive position on the cross-border application of its principles, allowing an opportunity for resolution of the complexities of extra-territorial application.

The Netherlands

In the Netherlands, the transferor and transferee generally have to consult the works council early enough for it to be able to influence the decision on whether and how to proceed with the transaction.

This involves at least one meeting with the works council, providing follow-up information, and considering the points it makes. If the works council is against the transfer, the transfer must be delayed by at least a month. The works council can also apply to the Enterprise Chamber, which can rule against the transaction going ahead.

France

In France, the sanctions for breaching consultation rules are criminal as well as civil. The criminal sanction is usually a fine though, theoretically, it can be a year's prison sentence – and the transaction may be put on hold until consultation is completed.

Both employers' works councils must be informed and consulted on the proposed transfer, and this process must be completed before any decision is made or any binding document is signed. Consultation runs for at least 15 days (though often collective agreements specify longer), then each works council has up to one month to issue its response. Works councils can delay, but not veto, any employee transfer.

Health and safety committees may need to be consulted, and sometimes prior authorization of the labor inspector is needed. Employees unlawfully dismissed as part of a transfer can achieve reinstatement as well as financial awards, and both employers can be held liable.

Considerations across the globe

Although most countries have no transfer laws, some have closely shadowed Europe's ARD, and others have introduced something that has similarities but radical differences too.

Below are some summary examples of transfer rules outside the EU. Of course, laws change regularly, and this is not legal advice. It is merely an indication of the current lack of consistency, leading to complexity and a requirement to act with caution and obtain the correct advice.

Singapore

In Singapore, the protection given to junior employees by the Employment Act has recently been extended and applies to many managerial and executive level staff too. These people have automatic transfer rights, similar to the ARD, so it is essential to work out who is covered, and who will not transfer and might therefore need to be recruited instead – perhaps receiving a contractual severance payment too.

In some ways, transfer laws are tougher on employers than in many EU countries, as the commissioner of labor can delay or prohibit a transfer, or can set conditions. Unlawful dismissals can lead to reinstatement, as well as compensation.

South Africa

South African law is similar to the ARD and unlawful dismissals can lead to reinstatement. Both employers have joint and several liabilities for a year after the transfer, and for events before the transfer. Consultation requirements are relatively mild, unless the employers want to agree a departure from the standard transfer laws.

Mexico

Mexican law uses the concept of a voluntary 'employer substitution letter' signed by the employee, or a procedure before the country's labor board, to achieve employee transfer. This applies in asset sales, but not outsourcing.

The employers share liability for six months after the transfer.

United States of America

Currently, the guidance covering the USA is very different to that in Europe. Regarding employee rights, there is no statute that governs the employment relationship when a business transfers to new ownership. As most employees are employed ‘at-will’, a new employer is free to offer employment to the employees of the seller/transferor employer or alter the terms and conditions of employment at the employment site.

In the instance where an organization is taken over by another company, there is no obligation for a party acquiring a business (an asset sale) to retain any of the seller’s employees. However, if the new employer reorganizes the workforce after the transfer that results in a covered plant closing or mass layoff, the new employer or ‘take over party’ must provide the employees with 60 days’ advance notice.

An employer who acquires a workforce consisting of unionized employees is required to bargain with the union in good faith regarding the effect of the layoff on unionized employees and, in certain situations, may be required to honor the terms and conditions of employment articulated in an existing collective bargaining agreement.

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