What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
Employment & Labour Law
The Transfer of Undertakings (Protection of Employment) Regulations 2006, which implement the European Acquired Rights Directive in the UK protect the rights of employees on a business sale. The dismissal of an employee either before or after the transfer of their employment, where the transfer is the reason for the dismissal, will be automatically unfair, provided the employee has been employed for at least two years. The only exception is where an ‘economic, technical or organisational reason entailing changes in the workforce’ applies to the dismissal.
An employee dismissed in the context of a business transfer may also bring a claim if his employer has failed to inform and consult with him through employee representatives, about the transfer. The obligation to inform and consult representatives of affected employees applies to both transferors and transferees. Employers are required to provide a prescribed list of information, including what measures the employer envisages taking in relation to the employees in connection with the transfer. The transferor must also provide employees with information about measures that the transferee proposes to take in relation to the employees. If measures are proposed the employer must consult with the representatives of the affected employees about these, with a view to seeking their agreement.
The employer can be liable to pay a protected award of up to 13 weeks’ actual pay for each employee in respect of a failure to inform and consult affected employees.
A termination of employment as a result of a business sale that involves the sale of shares should be treated similarly to the termination of employment in the ordinary course. The same standards apply in respect of ensuring that there is a fair reason for the termination and that a proper process is followed. Employees are afforded the same level of protection by statute when it comes to termination in the context of a business sale. A share sale does not generally trigger any mandatory information and consultation obligations unless collective redundancies are proposed.
Additional protections do apply to employees who are the subject of an asset sale. The European Acquired Rights Directive is applied in Ireland by the EC (Protection of Employees on Transfer of Undertakings) Regulations 2003 (the “TUPE Regulations”).
The TUPE Regulations apply upon a transfer of undertaking (e.g. an asset sale) and provide that employees are entitled to transfer to the purchaser entity on the same terms and conditions of employment and with their continuity of employment intact. The TUPE Regulations do permit the termination of impacted individuals employment for economic, social or technological reasons, generally by way of redundancy. The TUPE Regulations also impose certain mandatory information and consultation obligations.
In a business sale, there are generally three potential outcomes for an employee’s employment.
First, under the EA, subject to conditions, it may be possible for the seller (outgoing employer) to automatically transfer the employees employed by the business to the buyer (the incoming employer).
Second, the affected employees may be transferred to the buyer by the seller terminating the services of the affected employees and buyer hiring the same employees.
Third, where the seller chooses not to transfer the affected employees, it would typically terminate their employment before the business sale. In this regard, please refer to our response in question 2 for more details on retrenchment exercises.
Should the employers wish to transfer foreign employees to the buyer, it would be important for the employers to consider if their work passes can be transferred to the buyer, or if the buyer can obtain fresh work passes for these employees.
No statute 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. If a union represents the employees of the seller, the new employer may be under a duty to bargain with the labor union and cannot change any terms and conditions of employment without first bargaining with the labor union.
There is no obligation for a party acquiring a business in an asset sale to retain any of the seller’s employees. However, if the new employer reorganizes the workforce after the transfer, which 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. In addition, 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.
The termination of an employment contract based on the sale of its business does not match nor correspond with any of the reasons stated by law for dismissals. Therefore, if the Company decides to make redundant some employees due to the sale of its business, the legal consequence would be the unfair dismissal declaration by Court , and hence the employees shall be entitled to the statutory unfair dismissal severance.
Pursuant to Article 6 of the Labour Law, in the case that workplace or a part of workplace and/or business is transferred to another legal entity by a business sale or any transaction whatsoever, the employment contracts that are in relation with the workplace and/or business will be automatically transferred to the new employer/owner along with the sale or transfer of the workplace, business and assets. Thus, the sale or transfer of the business itself does not constitute a valid reason or just cause to terminate the employment relationship.
However, the employer may terminate the employment relationship provided that the dismissal of the employees is required due to necessities of the enterprise (e.g. organizational and operational amendments made within the enterprise or workplace), which requires compliance with applicable notice periods and payment of legal and contractual rights (see also Question 1).
A business sale does not extinguish, suspend or modify the existing employment contracts; thus, all the employees’ rights are transferred.
Notwithstanding the above, if in connection with a business sale the former or the new employer unilaterally terminates the employment agreements of some employees of the company, those employees will have the right to receive payment of severance (indemnification) and the employer will have to respect the legal provisions regarding protections against mass lay-off.
First of all, one has to differentiate whether the business is sold by way of a share purchase agreement or by way of an asset purchase agreement.
In case of a share purchase agreement, no additional considerations apply.
In case an asset purchase agreement provides for a transfer of a business or a part thereof to a third party, however, the business’ employments and all attendant rights and obligations automatically pass to the third party as of the day of the transfer, unless the respective employee refuses such transfer. In the latter case, the employment ends on expiry of the statutory notice period (see art. 333 of the Swiss Code of Obligations). Before such transfer takes place, the employer must inform the organisation that represents the employees respectively the employees themselves on the reasons for the transfer and its consequences. Where measures affecting the employees are envisaged as a result of such transfer, the employer must furthermore consult the employees before the relevant decisions are taken (see art. 333a of the Swiss Code of Obligations). According to the prevailing doctrine, non-compliance with these provisions does not lead to the wrongfulness of notices given. Depending on the specific case, there might be other sanctions (such as a commercial register ban according to the Swiss Merger Act), however.
There are no additional considerations that would apply to termination in the context of a business sale. The business sale and surrounding facts would be considered in determining the existence of reasonable grounds for dismissal.
There are no specific additional legal requirements regarding termination arising from a business sale. However, in order to mitigate the risk of a claim for unfair termination, the employer must implement and use fair criteria to select employees whose employment is to be terminated.
Where the termination is pursuant to a business sale, the workmen category employees are entitled to notice and compensation under the ID Act as if they have been retrenched. This involves a notice of 1 month or pay in lieu thereof along with a retrenchment compensation of 15 days’ average pay for every year of service or any part in lieu thereof. However, where the worker is transferred on no less favourable terms of employment with continuity of service as part of the sale of the business undertaking, there is no requirement to provide any notice and compensation.
There are no additional considerations that would apply to termination in the context of a business sale.
An employee would not automatically be transferred to the new employer in the event of a business sale. Instead, it must be decided whether all or a portion of the work force will transfer to the new employer. For each of the employees who will not transfer, the employer must abide by the termination provisions of the Labour Law, Federal Law No. 8 of 1980, as amended.
In general, a worker’s employment cannot be terminated solely due to a business sale. Whether the employment relationship can be terminated legally depends on different scenarios. For example, in the case of shut-down and where the legal entity does not exist anymore, the employees can be terminated and the employer shall pay economic compensation to the employees. In circumstances where one company is merged into another company, the existing labour contract shall remain valid and the employing unit which succeeds to its rights and obligations shall continue to perform the original labour contract. If the business sale causes the objective situation to change significantly as provided in LCL, the company may have a reason to do unilateral termination after going through the legal procedures as well as paying the relevant compensation, etc.
Sweden has implemented the Transfer of Undertakings Directive. Thus, a transfer of a business does not, per se constitute objective grounds for terminating an employment. The EPA sets forth a general prohibition of terminations due to transfer of a business. A violation of this prohibition may imply a court to declare the termination invalid upon request from the employee.
In general, an employer cannot execute a unilateral termination of employment based on a business sale because it does not satisfy the just cause requirement. Please note however a business transfer or a merger or acquisition to prevent deterioration of the business may meet the urgency requirement for a massive layoff. Other requirements and procedures such as best efforts, fair selection criteria, notice and consultation must be satisfied for massive layoff.
Whenever a sale of assets entailing a transfer of undertaking occurs (TUPE transfer), the seller may not, except under a very limited derogation, carry out redundancies prior to the transfer. Failure to respect this prohibition causes dismissals to be null and void. Redundancies, if any, must be carried out once the transfer has taken place.
Under Austrian law there is a statutory protection of employees when a business sale or business transfer occurs. The Employment Contract Law Adaptation Act regulates the rights and obligations in connection with a business transfer. Pursuant to section 3, all rights and obligations under the employment relationship automatically transfer by virtue of the law to the new owner. In general, dismissals are legally invalid if they are made exclusively due to the transfer. The Court assumes such reasoning if terminated within six months after a transfer has occurred. However, they can be permitted if they are carried out due to economic, technical or organisational reasons.
Furthermore, an employee can only object to a transfer if a buyer either does not grant the protection against dismissal as specified in the relevant Collective Bargaining Agreements (CBA) or does not undertake to comply with the former company pension schemes.
If an employee is terminated in the context of a business sale, the applicable considerations depend on whether the sale is occurring as a share transaction or asset transaction.
In a share transaction, there is no change in the identity of the employer for employment law purposes and thus the status of all employees, whether union or non-union, remains the same. If the seller terminates employees prior to the sale of a business, the regular rules relating to termination without cause would apply and the seller would be responsible for the costs. Likewise, if the buyer terminates employees following the sale of a business, it would be responsible for the termination costs.
In an asset transaction, there is a change in the identity of the employer. Therefore, for non-unionised employees, an offer of employment is required in most jurisdictions in order for employment to be continued. If such offers are accepted and the employees commence working for the buyer post-closing, then their employment is deemed continuous under applicable employment standards legislation. If employees refuse offers of employment with the buyer and are then terminated by the seller, the seller is responsible for statutory termination costs. The employees’ common law entitlement to reasonable notice, however, is likely effectively lost because of their failure to mitigate their losses by accepting employment with the buyer, provided that the buyer offers employment on substantially similar terms as the employee enjoyed with the seller. Hence, the form and content of the buyer’s offer of employment is often described in the agreement of purchase and sale between the buyer and seller. Special considerations apply to employees who have contractual termination entitlements, because Canadian common law courts have held that contractual termination provisions are generally not subject to mitigation, subject of course to the wording of the contract.
In Québec, the Civil Code of Québec deems employment contracts to be binding on the purchaser of a business, regardless of whether the transaction is structured as an asset or share sale. . Therefore, a buyer may be liable for the termination costs if it fails to continue the employment of all employees, regardless of the structure of the transaction.
As such, a business sale (i.e. a transfer of undertaking entailing the application of Collective bargaining agreement 32bis, which implements the European Acquired Rights Directive in Belgium) is no valid ground for dismissal. This rule applies to both the former and the new employer. Therefore, any dismissal resulting from a business sale (either before or after the sale takes place) can be deemed as manifestly unfair, unless there are economic, technical or organisational reasons justifying the dismissal. The applicable legislation, however, does not provide for specific sanctions.
When the whole (or part) of the business is transferred, all employees belonging to the business being transferred have an automatic right to be transferred to the incoming employer.
The transfer is not a valid reason for dismissal. Therefore, the transferor cannot dismiss the employees on the grounds of the transfer (i.e. the dismissal will be considered null and void and the employment relationship will continue with the transferee). Any dismissal made in connection with the transfer will be considered null and void unless there is a reason that according to general rules would justify it. Therefore the transferor may dismiss the employee for an organisational reason which entails changes to the workforce (restructuring resulting in job losses) but this cannot be based solely on the transfer of business. In addition, the transfer does not prevent an employee from being dismissed for just cause, for example, where the employee has committed an act of gross misconduct.
A business sale may give rise to the application of the legal provisions governing the transfer of undertaking. However, the transfer of shares, as well as the reduction of capital within a company, may not be considered as a transfer of undertaking within the meaning of the law, as such operation only affects the ownership of the legal entity which remains the employer of the concerned employees.
However if such transfer takes the form of a transfer of the universality of a branch of activity, it will potentially trigger the application of the legal provisions governing the safeguarding of employees' rights in the event of transfers of undertakings, businesses or part of undertakings or businesses.
Such legal provisions shall apply to any transfer of an undertaking, business, or part of an undertaking or business (hereinafter referred to as “Transfer of Undertaking”) as a result of a contractual sale, merger, inheritance, scission and conversion of a business or incorporation of a company. Both European and Luxembourg case law accepts that all forms of outsourcing can amount to transfers of undertakings, but there is no presumption that they will.
The first step consists, for the purpose of determining whether such legal provisions apply, in identifying an undertaking or “economic entity” in the hands of the outgoing service provider, the Transferor. The economic entity is described as an organized grouping of resources (persons/assets) facilitating the exercise of an economic activity which pursues a specific objective. The activity may be central or ancillary.
The second step is to assess whether the economic activity has been transferred and has retained its identity after the operation of transfer.
A different and more restrictive test consists in concluding that there is no transfer of undertaking without the transfer of either significant assets or a transfer of the major part, in terms of numbers or skills, of the previous service provider’s workforce.
In case of a transfer of business the employment relationships automatically transfer from the seller to the acquirer. This is based on the EU directive 2001/23/EC. In general, dismissals made because of the transfer of business are invalid. The new employer can, however, dismiss employees afterwards for operational reasons if that is necessary for the implementation of an entrepreneurial decision.
There is no employment termination on business sales. If there is a purchase of shares or stock, then it does not trigger a termination (unless established otherwise in the employee’s individual employment agreement, which is not very common for regular employees, though sometimes it is established for officers). If the purchase is of assets, then an employer substitution is triggered.
The employer substitution will not affect employment relationships. The substituted employer will be jointly liable with the new employer for the obligations under the employment agreements and the law that were made before the substitution for six months, after which the new employer will be solely responsible.
The term of six months referred to in the last paragraph will begin on the date of the announcement of the employer substitution to the union and the employees.
A transfer of business is not considered as legal grounds for termination as such. Therefore, a termination of an employment contract may not be based solely on a business sale or a transfer of business. Therefore, the above described general provisions regarding dismissal and redundancies have to be followed.