You’ve been looking to expand your UK attractions portfolio for several months now; could this be the acquisition you’ve been waiting for? With some strategic changes, you can see real potential. Streamline the admissions function to reduce employee overheads, get rid of that over-generous commission scheme and, before you know it, those margins will start to look on point.
Job done – or is it? Well, although post-acquisition restructuring is certainly possible, legal protections afforded to any employees you take on might limit your options and could leave you facing employment claims and unstable industrial relations, rather than the streamlined organisation you had in mind.
ACQUIRING ATTRACTIONS
The Acquired Rights Directive (the “Directive”) is European Union legislation which protects employees in the event that the business in which they work is transferred to a new employer. This generally means that when you buy a business in the EU, any employees who work in that business transfer to you automatically. You will inherit the employees on the same terms and conditions they enjoyed pre-transfer, together with any rights and liabilities relating to their contracts of employment. The employees are also protected from being dismissed (if the transfer is the reason for the dismissal) and attempts to change their terms and conditions will be difficult.
All EU member states are obliged to comply with the Directive but each has interpreted it slightly differently. This feature focuses on business transfers within the UK but similar protective regimes apply across the EU. Some important differences in how the Directive has been interpreted by different member states are given in Figure 1. The UK has adopted the Directive through the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).*
TUPE IN THE UK
So, how does the regime work in the UK? You should generally expect TUPE to apply in the following scenarios:
1. Where there is a transfer of a business or part of a business provided that business “retains its identity” (i.e. carries out the same type of work in broadly the same way) following the transfer.
2. Where there is a “service provision change” (SPC). This usually occurs where a function – such as IT, security or cleaning services – is outsourced to a service provider or there is a change in service provider, including where the function is brought back in-house.
For an SPC to be triggered:
• there must be an “organised grouping of employees” (which can be just one person) where the main purpose is carrying out the relevant activities; and
• essentially the same activities must be continued after the transfer.
TUPE OBLIGATIONS
So, what happens if TUPE applies? In that case, a number of obligations are imposed on both seller and purchaser (or customer and contractor) in relation to the employees. These are significant both in financial terms and in terms of timescale (see Figure 2).
‘In-scope’ employees transfer
On the date the business is transferred, the employees assigned to the business or function immediately before that date (other than on a temporary basis) will transfer automatically to the new employer.
Rights & liabilities come too
As the new employer, you inherit those employees (whether you want them or not) on their existing terms and conditions of employment, so pay, holiday and contractual benefits will remain the same.
As we will summarise below, it will be difficult for you to change those terms and conditions, certainly in the short term. In terms of knowing what you are taking on, the previous employer must provide you with certain information about the employees who are transferring at least 28 days before the date of the transfer. This information will include details of the key terms of employment, any disciplinary matters or grievances in the course of the last two years and details of any claims or potential claims an employee might have against the former employer.
You also inherit all the accrued rights and liabilities connected with those employees’ contracts of employment, such as unpaid wages or holiday pay, even if the previous employer should have paid for these. For this reason, there is often provision in the commercial agreement which will require the previous employer to indemnify the new employer for any outstanding liabilities.
You also need to be very careful in relation to existing pension schemes as some – particularly public sector schemes – will include benefits with potentially significant liabilities. If you are looking at acquiring an attraction from a local council, or another public body, be very careful to explore any associated pension risks before committing yourself.
LEGAL OBLIGATIONS
Both the old and new employer are under an obligation to inform appropriate representatives of the affected employees about the transfer and to consult with them regarding any measures that they are proposing to take. As the incoming employer, these obligations apply to any existing employees you have who may be affected (rather than the new employees).
These requirements are detailed, but bear in mind:
• The information and consultation process must be undertaken with “appropriate representatives” – appropriate representatives are either recognised trade union representatives for the relevant business/function or elected employee representatives.
• Specific information must be provided to the representatives, including: the fact that a transfer is taking place; when it is to take place and the reasons for it; the legal, economic and social implications of the transfer; and any measures (or changes) that are to be taken in connection with the transfer.
• There are no specific timeframes as to when the information must be provided but it must be long enough before the transfer to enable consultation to take place.
• Breach of these obligations could result in a penalty of up to 13 weeks’ actual pay per affected employee. This could be a significant liability. This is a joint and several liability, so claims can be brought against either or both the old and new employer.
Transferred employees – special protection
As the new employer, TUPE might restrict your ability to dismiss employees who have transferred or to change their terms and conditions of employment. Where the principal reason for the dismissal is the transfer itself, that dismissal will be automatically unfair and will allow the employee to bring a claim of unfair dismissal (if they have two years’ service). However, if the new employer has an economic, technical or organisational (ETO) reason which entails a change in the workforce (essentially a reduction in headcount or change in function), it may be possible to achieve a fair dismissal. Relocation or restructuring exercises may allow for this if structured properly.
Changes to terms and conditions can only be made in limited circumstances. Changes will be void if the principal reason for the change is the transfer itself, unless there is an ETO reason (see above) or the terms of the employment contract permit the change in any event.
It is worth noting that some of these protections are relaxed when the former employer is insolvent.
UNWANTED EMPLOYEES
It is not possible to contract out of TUPE, as it will apply as a matter of law irrespective of any commercial agreement between the parties. However, parties can, and often do, negotiate indemnities to apportion any liabilities associated with the employees as part of the commercial agreement (including, for example, in relation to dismissal costs). This means that it may be possible to agree that the old employer should retain or dismiss employees and/or be responsible for employee costs.
There will often be wider commercial considerations as to whether to progress the deal and employment issues can take a back seat. However, occasionally, the cost of taking on the workforce can be critical in determining the viability and/or price of the purchase.