Consultation on business transfers

When a transfer under the 1981 Transfer Regulations takes place, the
employer transferring the employees is under a duty to consult with
representatives of the employees (regulation 10). The legal obligation of the
transferring employer is to undertake meaningful consultation in good time with
the representatives of the affected staff, setting out the legal, economic and
social implications of the transfer.

If any measures – as legally defined – are envisaged, the transferor
employer should state what those are or state that there are none. If measures
are to be taken, there is a legal duty to negotiate with a view to seeking
agreement with the elected representatives.

Until recently, there was also a very significant incentive to ensure that
these consultation duties were carried out; if an employer failed to carry out
the consultation without being able to rely on a very limited "special
circumstances" defence, the individuals concerned could all claim a
protective award of up to 13 weeks’ pay per employee. This usually meant there
was every incentive for the consultation to take place

Current difficulties

Two very recent decisions of the courts now mean there is little or no
incentive on a transferring employer to do any consultation at all. Recently,
the Employment Appeal Tribunal surprisingly held that where a transferor
employer fails to consult with the employee representatives before a transfer,
the liability for the protective award passes to the transferee employer,
rather than staying with the transferor. As well as removing from the
transferor any real incentive to comply with the duty of consultation, this
decision is unfortunate since it will require buyers of businesses in future to
seek a warranty that the consultation requirement has been complied with, as
well as an indemnity, in order to avoid the potentially very substantial
liability for protective awards.

Worse still, the Court of Appeal has recently confirmed that when an
employee objects to being transferred under the regulations because of
detrimental changes – which will happen to him once the transfer has taken
place – he may sue his original employer for constructive dismissal. That claim
will not, says the Court of Appeal, pass over to the transferee provided that
the objection to the transfer is made clear.

Taken together, therefore, these two decisions give the transferor employer
a positive incentive not to consult. If it does not, the liability passes to
the transferee and, furthermore, if it does not tell the employees what will
happen to them after the transfer, it avoids the risk of a constructive
dismissal claim arising. By the time the detrimental changes are known, it may
be too late to object.

Conclusion

The moral is clear. If you are in the position of taking on a business under
the Transfer Regulations, you should now be including a warranty from the
transferor employer confirming that consultation duties have been complied
with, together ideally with an indemnity covering the risks of any protective
award.

Conversely, transferor employers could risk carrying out minimal
consultation. But watch for new decisions very closely.

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