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Takeover on the horizon? Here’s how it will impact your staff

Friday, November 9, 2018

As published in on 4th November 2018. Mergers and acquisitions are a fact of life in Ireland – and a welcome reminder that the travails of the recent recession are largely behind us.  In 2018, we have seen a number of acquisitions of companies with the most prominent recent example being the takeover of the Irish Examiner by the Irish Times.


What are the implications for employees where their employer is acquired by a new owner?


Employment law is prevalent in this space and there are a number of protections in place for employees.  Generally speaking, there are two main ways in which a company can be acquired: either (a) the entirety of the shareholding is bought by a new owner or (b) the assets of the employer are acquired by a new owner.  It’s interesting to look at each of these in more detail.


The first point to note is that where the shares in a company are acquired by a new owner, the employer does not actually change – the company’s identity is exactly the same.  In this scenario, the implications are pretty straightforward – employee terms and conditions of employment (including any accrued benefits and length of service) are completely preserved.  The employees are still working for the same employer.


The new owner of the shares in the employer company is not entitled to tinker with terms and conditions any more than the previous owner of the shareholder was: the employees’ contracts of employment are wholly unaffected.  Of course, the new owner may seek to operate the business in a different way – but it has no enhanced powers to do so and restructuring of the operation will still have to follow accepted fair procedures (consulting with employees, considering alternatives to restructuring etc).


As well as that, if restructuring results in the elimination of roles, the employees have the same entitlement to redundancy payments and fair procedures as they did before the acquisition happened.


The second scenario is more complex.  This is where you aren’t dealing with the acquisition of shares (either because the business isn’t a limited company or the purchaser doesn’t actually try to acquire the shareholding).  In this scenario, there’s no change in share ownership but key assets of the company (plant/premises/customer lists/goodwill etc) are bought by a third party.


A particular piece of legislation derived from the EU – the Transfer of Undertakings Regulations – are likely to apply in this situation.  These Regulations, generally referred to informally as “TUPE”, act to prevent asset stripping.  Without TUPE, the old owner of the assets could dispose of the workforce without consequences and so could the new owner.  The new owner can say that he has no contract with the workers and the old owner can say the business is nothing to do with him any more – he has sold it.


TUPE steps in and prevents this.  If the assets of a company are sold as a going concern, the employees automatically travel with them and the purchaser of the assets will be forced to take on the workers.  Deciding whether TUPE applies can be tricky – but generally speaking, if there is no significant difference between the operation of the business the day before the sale and after, TUPE will apply.


With limited exceptions (mainly relating to pensions) TUPE is quite a powerful tool in the employee’s armoury.  This is because TUPE acts to preserve terms and conditions and continuity of employment very effectively – if TUPE applies, the purchaser will have to take on the employees on exactly the same terms and conditions that they enjoyed previously.


Again, the new employer can take steps to restructure the business but, crucially, the same fair procedures apply and among other things employees cannot be summarily dismissed merely because the new employer wants to do things in a different way.


In either scenario – acquisition of shares or acquisition of assets – a new owner does not have carte blanche to unilaterally introduce changes to terms and conditions of employment – the new owner/purchaser cannot for example insist that employees sign up to new contracts, sign up to reduced salaries or otherwise sign up to changes that are to their detriment.


It’s quite common when businesses change hands in this way for high level employees to depart but inevitably money changes hands in these situations and there is usually a significant chance that the employees have only agreed to waive their accumulated employment law rights because they received a hefty pay out.


In summary, employment law is pretty vigilant when it comes to the sale of businesses – and new owners/new employers ignore this at their peril.



Patrick Walshe