Is it time for a new business transfer law?

A recent Employment Court decision demonstrates in a rather stark way a gap in the law relating to the employment implications of the sale of a business (or an outsourcing, in-sourcing or re-tendering). The existing rules are up for review this year - and this case raises the question of whether fundamental change is needed.

Jennie Gamble is an experienced lab technician who started work in 1972 for Canesis Network Ltd at its lab in Lincoln. In 2006, Canesis sold its assets to AgResearch Ltd . Canesis employed 116 staff, and in the lead up to the sale, AgResearch decided it would need 100 of them. It informed Canesis of this. Mrs Gamble was one of the un-needed 16.

On the day the sale and purchase agreement was concluded, Canesis told Mrs Gamble about it and said that her position was likely to be made redundant. After a period of consultation, during which both AgResearch and Canesis considered Mrs Gamble's comments, she was given notice by Canesis, to expire a few days before the expected date of settlement of the transaction.

Two months later, AgResearch advertised positions for research technicians at its Lincoln lab. Mrs Gamble saw those ads and, believing them to be for jobs similar to hers, claimed she had been unjustifiably dismissed by AgResearch.

Both the Employment Relations Authority and (on appeal) the Employment Court rejected her claim on the ground that she was never employed (nor offered employment) by AgResearch. Her representative sought to rely on Part 6A of the Employment Relations Act, which contains provisions misleadingly titled "Continuity of employment if employees' work affected by restructuring".

Subpart 1 of this creates a legal right for certain employees (mainly cleaning and food catering service workers) to transfer to the new owner of the business, or the new service provider, in an outsourcing situation. However, this did not apply to Mrs Gamble (and nor does it to the vast majority of employees), as she was not among the limited category of workers covered.

And that was the end of her claim. There are some limited protections in the Act that apply to all employees in Mrs Gamble's situation, but these essentially relate to what an employment agreement must say about the process the employer will follow in negotiating the transaction, and in particular how the employer will decide how the employees will be dealt with. It does not provide any automatic right to transfer.

This is in contrast to a number of jurisdictions in Europe, which by virtue of a European-wide directive have had compulsory employee transfer laws for decades. This includes the UK, where the law provides for employees such as Mrs Gamble to be entitled to transfer to the purchaser of the business (or the new service provider). It also allows them to be able to claim unfair dismissal if the purchaser fails to take them on, or if they are made redundant by the seller before the transaction goes ahead, at the purchaser's request.

There are some qualifications to the above. For example, it is possible for the buyer to take on the employees and then make them redundant, but even then, the buyer needs a what is essentially good business reason for doing so and must follow a fair process (just as it would with an employee it had recruited itself rather than inherited).

We don't know if AgResearch had a genuine reason for not taking Mrs Gamble on and then two months later, apparently advertising a position that she could have filled. It is quite possible that they did. However, the law meant that they had no need to be concerned about the possibility of a successful claim by Mrs Gamble, and of course she had no opportunity to challenge their decision not to employ her.

This area of the law is in something of a mess right now. The restructuring rules referred to above were well-intentioned, but the requirements for a valid clause dealing with transfer situations are couched in such legalese that many employment agreements simply don't comply.

This led to a somewhat farcical situation recently where an employer (Norske Skog) was prevented from carrying out a restructuring, by an order of the Authority, simply because its employment agreements didn't use the right language. This case has been appealed and the Authority's decision may be reversed, but as things stand at the moment, it is possible for an employee or union to stop a restructuring that may save a business from going under by complaining about the technical wording in the employment agreement.

All this demonstrates that the review that is due to take place is certainly needed. Whether it will result in the rules just being clarified, or expanded to provide for a universal right to transfer, remains to be seen. There is no doubt this would impose a burden on some employers, and is therefore likely to be resisted by employer groups. It's not hard to guess what Mrs Gamble's view on the subject would be.




Greg Cain

 

Greg Cain is an employment lawyer at Minter Ellison Rudd Watts.