Under new regulations that came into force last year, employees have a right to be informed and treated fairly when a business is being sold or restructured.

Steps

There must be a consultation process and employees should be informed of:

1. The process the employer will follow in negotiating with a new employer about the sale as it affects employees
2. How and what, if anything, the employer has negotiated for the affected employees with the new employer including whether they will transfer to the new employer on the same or similar terms and conditions of employment
3. If there is no transfer of employment, what process the employer will follow at the time of sale and what, if any, entitlement the employee has for compensation such as redundancy.  Included should be any assistance offered for non transferring employees such as outplacement service.

Vulnerable Workers

Workers in certain industries at certain workplaces are classed as vulnerable workers.  Workers that perform

• catering services,
• cleaning services,
• laundry services (for health sector, education sector and elderly residential care sector),
• orderly services (for health sector or elderly residential care sector) and 
• caretaker services (for the education sector)

are all protected as vulnerable workers. 

If the company that they work for is sold or loses their contract for the work, or the work which they usually do is contracted out to someone else, they have the right to choose to move to the business taking over the work that they were doing or continue working for their current employer.  The new employer is obliged to take on any vulnerable employees who chose to shift from the old employer.  If they move to the new employer they have the right to work under the same terms and conditions as with the previous employer and will keep the same employment agreement unless both parties agree to change it.  They will also keep their accrued holidays and sick leave (i.e. they are guaranteed continuity).  If the employee decides to transfer to the new employer the old employer is not allowed to pay out their holiday entitlement.

The employer is required to give their employees enough time and information to make an informed decision.  These obligations apply to employers who

• lose a contract to provide services
• are selling their business
• bring in contractors to do work that was previously done in-house.

Once the new employer has taken on the vulnerable employees, they may decide that there isn’t enough work for them.  The new employer is allowed to make the employees redundant, but must follow due process and treat the employees as if they have been working for the new employer since they started employment with the previous employer.  The redundancy agreements set out in their previous employment agreement stand.  If there was no redundancy clause in the employment agreement the employer and employee can bargain on a redundancy settlement.

As of December 2006, potential new employers have the right to find out how much it would cost to keep on vulnerable employees in order for them to make an informed decision when taking over the company.

Non-vulnerable Employees

For employees who do not come under the protected category there is no legal definition of what compensation or indeed what assistance should be offered by the employer.

It is advisable to have an open forum approach at the start of consultation, and prepare staff for the sale of the business at the time an offer is conditional.  Individual meetings may then be necessary to discuss the particular circumstances for each person. 

Each employee should receive a letter outlining the process and exactly how this will affect the employee. 

A sale of a business is much like any other change in terms and conditions for an employee and must involve a consultation process. 

How the sale of the business affects the employee depends on how the sale and purchase agreement has been structured.

If the new owner has purchased the business by buying shares then the employees are not redundant and the change in ownership or shareholding does not affect the employment of the staff. The employment would be continuous and the new owner could not change the terms and conditions of employment without your consent.

If the new owner purchases the business by buying out the assets, then the employees may become redundant because the former employer will cease trading and the positions will no longer be required.

Whether the new owner offers employment different or similar pay and conditions will depend on the terms of the sale and purchase agreement. The outgoing employer may protect staff by adding a clause to the agreement requiring the purchaser to re-employ staff on the same terms and conditions as previously held. If there is no such clause in the agreement, then the new owner can offer you re-employment on reduced pay and conditions.

Unless the employees individual employment agreement specifically states there is no obligation to pay redundancy compensation. 

For the memo to staff click here. For further assistance contact info@hughesdirect.com