TRANSFER OF BUSINESS. NOT SO FAST, WHAT ABOUT THE EMPLOYEES? Mario Barros García 26 April 2012

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1 Mario Barros García 26 April 2012

2 Stock (shares) deal vs. assets deal: No change of employer Employee information / consultation obligations? 2

3 Asset deals: Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses A.k.a. TUPE Directive or Acquired Rights Directive 3

4 Principles of Directive 2001/23/EC Premise: transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that the activity is central or ancillary [art. 1.(b)] Issues: Identification of TUPE transfers Shared employees? Groups of companies? 4

5 Principles of Directive 2001/23/EC The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee [art. 3.1] Possible exception: employees rights to old-age, invalidity or survivors' benefits under supplementary company or intercompany pension schemes outside the statutory social security schemes in Member States [art. 3.4.(a)] 5

6 Principles of Directive 2001/23/EC The transfer shall not in itself constitute grounds for dismissal [art. 4.1.(a)] And grounds for the grounds for dismissal? 6

7 Principles of Directive 2001/23/EC Member States may provide that, after the date of transfer, the transferor and the transferee shall be jointly and severally liable in respect of obligations which arose before the date of transfer from a contract of employment or an employment relationship existing on the date of the transfer [art. 3.1.p.2] Need for a pre-transfer due diligence 7

8 Principles of Directive 2001/23/EC Following the transfer, the transferee shall continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement. Member States may limit the period for observing such terms and conditions with the provision that it shall not be less than one year 8

9 Principles of Directive 2001/23/EC If the undertaking, business or part of an undertaking or business preserves its autonomy, the status and function of the representatives or of the representation of the employees affected by the transfer shall be preserved on the same terms and subject to the same conditions as existed before the date of the transfer by virtue of law, regulation, administrative provision or agreement, provided that the conditions necessary for the constitution of the employee's representation are fulfilled 9

10 Principles of Directive 2001/23/EC The transferor and transferee shall be required to inform the representatives of their respective employees affected by the transfer of the following: the date or proposed date of the transfer, the reasons for the transfer, the legal, economic and social implications of the transfer for the employees, any measures envisaged in relation to the employees. [art. 7.1] 10

11 Principles of Directive 2001/23/EC Where the transferor or the transferee envisages measures in relation to his employees, he shall consult the representatives of this employees in good time on such measures with a view to reaching an agreement 11

12 Questions? 12

13 Edward Copeland Tel: April

14 Is it a stock (shares) transaction or a transfer of assets? In US depending on structure of transaction, different sets of issues. 14

15 Stock Sale. Does not change employee status at closing. In many respects from employee perspective, stock sale is invisible. Employer stays the same. 15

16 Stock transaction may trigger obligations. Stock sale can trigger change of control provisions in employment contracts or executive compensation arrangements. 16

17 Anticipating changes in operations. Lay-offs. The Worker Adjustment and Retraining Act (Warn Act), 29 U.S.C et seq., and similar state notice laws in 10 states. Require notice of mass layoffs and plant closings. 17

18 Federal, state and local antidiscrimination laws. Need to analyze layoffs and other changes against these laws. Increasing complexity in these laws. 18

19 Changes in benefits. Analyze benefit by benefit. Is there a plan governed by the Employee Retirement Income Security Act (ERISA)? Union rights. 19

20 Asset Sales. As a general matter, no statutory rights to jobs following the assets. The company buying the assets is not obligated to hire the employees. If do, generally free to set terms and conditions. 20

21 There are limits and have to examine carefully. If transaction includes a provision for hiring of selling company s employees, pay attention to the criteria used in the provision. 21

22 For example, if refer only to active employees, may create an issue with respect to employees on leave who have protection under the Family Medical Leave Act, 29 U.S.C et seq., the Americans with Disabilities Act, 42 U.S.C et seq., or similar state or local statutes. 22

23 Possible Exceptions Obligations that may pass to the entity buying the assets. Unions. Successor liability. Alter egos. 23

24 For selling company, may have obligations. WARN Act and similar state laws. Must determine the fate of benefit plans and satisfy certain obligations (e.g., claims under health plans). 24

25 May owe severance under severance plan, executive compensation arrangements or pursuant to contract. May be able to define entitlement to avoid the problem, e.g., not triggered if hired by company buying assets. 25

26 Questions? Edward Copeland Tel: April

27 Patrick Walsh 26 April 2012 ION Trading 27

28 An in-house lawyer s perspective. Can TUPE be avoided? Preference for stock purchase transactions Due Diligence Time 28

29 Know your jurisdiction. Don t apply UK law in Ireland. Ireland continues to follow the jurisprudence of the European Court of Justice. The 2006 UK TUPE Regulations codified ECJ jurisprudence at that point in time. UK courts look first to the TUPE Regulations. 29

30 Example -- Süzen Ireland s EAT is bound by the decision of the ECJ in Süzen Therefore necessary to consider all the facts around the transaction: type of business transfer of tangible assets transfer of customers a majority of employees 30

31 Unlike in Ireland, no argument in the UK that a transfer in/out of public sector organisations is outside the scope of the regulations. Regulations cover any situation where activities performed by a group of employees on behalf of a client are transferred to another employer. No additional requirement in those situations that there is an economic entity that retained its identity. 31

32 Regulations apply to relevant transfers. A relevant transfer occurs when there has been: A business transfer transfer of a business from one employer to another as a going concern or A service provision change bringing work in-house 32

33 Recent Developments Parkwood Leisure Werhof 33

34 Questions? 34