Transfer Regulations - the Commercial Context Explained


BREDA O’MALLEY*
To both interpret and correctly apply the Regulations governing transfer of undertakings is not easy, especially when managing the practical side of what actually happens when a businesses is transferring, writes Breda O’ Malley*. Breda explains how employers look to minimise their own liability, in a way that does not generate negative publicity as a result of staff being left “high and dry”.

Those of us who operate in the sphere of employment are likely to have some level of awareness of the EC (Protection of Employees on Transfer of Undertakings) Regulations 2003, more commonly referred to as the Transfer Regulations or TUPE.

These are the Regulations which apply when there is a business transfer. As you read on, you will appreciate, if not already aware, how unnecessarily complicated and uncertain the Regulations are in their application, in certain scenarios. Ironically, what was introduced in 1980 as a measure to protect employees on the transfer of a business has developed into one of the key areas for dispute and heated debate, a “run” for indemnity cover and a search for a basis to resist application of the Regulations.

The 2003 Regulations replaced quite similar Regulations from 1980. Both sets of Regulations reflect the underlying EU Directives, which are more commonly referred to as the Acquired Rights Directives. So, what applies in Ireland to a large extent reflects the EU rules in relation to protection of employees in a business transfer scenario.

Before we consider the practical ramifications of the Regulations, I should caution that much of the language used in the Regulations themselves and in the related case law is neither user friendly, nor readily penetrable, given its “euro-speak”, such as “undertaking”, “part of an undertaking”, “economic entity”, “stable economic entity”, “economic unit” and “economic activity”, amongst others.

The Regulations apply to:

“Any transfer of an undertaking, business, or part of an undertaking or a business from one employer to another employer as a result of a legal transfer (including the assignment or forfeiture of a lease) or merger.”

From this definition you will appreciate that the components which must exist for the Regulations to apply are: a transfer from one employer to another employer an undertaking and employees.

Let us look at those components individually:

1. A transfer from one employer to another
The definition of “Transfer” in the Regulations is “the transfer of an economic entity which retains its identity”. There must be a change of employer. This immediately rules out the application of the Regulations to a share sale. A “Transfer” captures many other sorts of business transfers or mergers, including asset sales, change of service providers, and sale by a receiver, assignment of a lease on a business premises, inter-group re-organisations and outsourcing.

In order to determine whether the Transfer Regulations apply a number of factors must be considered including:

  • What assets (tangible and intangible) are being transferred in the context of the commercial arrangement?
  • The nature of the business concerned;
  • Whether customer contracts are being transferred to the transferee;
  • Whether some or all of the employees attached to the economic entity are transferring; and
  • Whether the business will be operated in a similar manner post-transfer as was the case pre-transfer.


While it is less obvious, the Regulations also apply where services are being contracted out / outsourced, and also where out-sourced work is brought back in-house, or transferred to a new contractor/provider. Whether the outsourcing is of business activities which is either core or ancillary to that business is not material in the analysis of whether the Regulations apply. Hence, the Regulations are directly relevant to the initial outsourcing of ancillary activities such as cleaning, canteen services, data processing, IT services, logistics, supply-chain and a whole miscellany of commercial activities and sectors. Consideration of the Transfer Regulations also arises when a business tenders for change of its out-sourced business partners.

The key issue in determining whether the Regulations apply to a change in service provider (where the service has been outsourced) is whether the service being provided is a mere activity or whether it is an economic entity. For the Regulations to apply when one service provider is replaced by another, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract.

2. An undertaking
In order for the Regulations to apply, there must be a transfer of an undertaking. What is an undertaking?

As we have seen, the definition of a “Transfer” in the Regulations is the transfer of an economic entity which retains its identity. The Regulations define an “economic entity” as an organised group of resources which has as its objective the pursuit of an economic activity. It is immaterial whether or not that activity is for profit or conducted for a not-for-profit organisation. Neither is it relevant as to whether the economic entity or undertaking is central or ancillary to another economic or administrative entity.

All of the following are undertakings for the purpose of the Regulations:

  • Charities
  • Local Authorities
  • Health Boards
  • State and Semi-State Bodies
  • Schools and Colleges
  • Trade Associations
  • Trade Unions
  • Hospitals


Public administrative authorities, such as Government departments or other public service bodies, are outside the scope of the Regulations.

3. Employees
There must be employees connected to the business which is transferring. Employees (in the context of the Regulations) include: apprentices, certain agency workers and civil and public servants.

An independent contractor (a person retained on foot of a contract for services) does not transfer, by virtue of the Regulations. The Regulations only apply to those employees wholly or mainly employed (or deemed to be employed) in the transferring business at the time of the transfer.

When the Regulations apply, what Protection is afforded to affected employees?

In short, all the rights and obligations of the employee under their contract of employment (other than pension rights), and which exist on the day of the transfer are transferred to the new employer. The following therefore are amongst the rights which transfer:

  • prior service.
  • contractual rights and entitlements;
  • trade Union representation rights;
  • benefits under collective agreements;
  • certain, ex-gratia redundancy payments;
  • Liability to an employee for personal injuries, equality or other legal claim which arose while with the former employer;
  • Statutory employment rights (continuing maternity leave, carer’s leave etc.).
  • Disciplinary, grievance and other internal records and processes.
  • Restrictive covenants/post-termination restraints.


Crucially pension rights are excluded from the scope of the Regulations and do not automatically transfer, unless the new employer chooses at its sole discretion, and without obligation, to continue pension benefits which were previously enjoyed by the employees with the old employer.

Importantly, under Regulation 5, an employee cannot be dismissed as a result of the transfer, unless the employer can justify the dismissal by reference to “economic, technical or organisational” reasons. In practice, this is construed as the grounds which justify redundancy.

If an employee terminates a contract of employment because the transfer involves “a substantial change in working conditions to the detriment of the employee concerned”, the employer will be deemed to have terminated the employee’s employment. This is akin to a constructive dismissal claim.

Information and consultation requirements
When the Regulations apply, Regulation 8 imposes an obligation to inform and consult affected employees. The requirements can be summarised as follows:

The obligation to inform:
This obligation to inform staff rests with both the transferor employer and the transferee employer. Both have an obligation to inform not just their respective employees, but the employee representatives, of the following in writing:

  • The proposed date of the transfer.
  • The reasons for the transfer.
  • The legal implications of the transfer for the employees and a summary of any relevant economic and social implications of the transfer for them, and any measures envisaged in relation to the employees.


This information has to be given not later than 30 days before the transfer takes place, and in any event, in ‘good time’ before the transfer is carried out.

The obligation to consult:
There is an obligation to consult staff where there are measures envisaged by either the transferor or the transferee employer in relation to employees. The consultation must take place not later than 30 days before the transfer is carried out or in any event in good time before the transfer is effected. The Regulations state that the consultation must be carried out “with a view to seeking agreement”.

The 30 day timescale can often be problematic. Often, negotiations regarding the proposed transfer are still on-going until a short while before the transfer date. In practice, we advise clients to make the notification process to staff conditional on the deal for the business transfer actually taking place, so that if the deal falls through, the employees remain in their current employment.

A gaping hole in the Regulations is that there is no obligation on the proposed transferor employer to tell the transferee employer what measures it envisages for the staff once transferred. This is unsatisfactory because if there is not voluntary co-operation between the two employers, it can be impractical for the current employer to fulfil its obligation to notify staff of measures envisaged for them once their employment transfers. In business transfers involving changes of service providers, generally there is not co-operation as the parties tend to be direct competitors; one party losing a service provision contract and one winning it.

There has been an attempt to part-fill this “hole” with a legislative amendment in 2006. Section 21 of the Employees (Provision of Information and Consultation) Act 2006 supplements the Transfer Regulations in that it requires the transferor employer to notify the transferee employer of all of the rights and obligations arising from a contract of employment existing on the date of a transfer which will be transferred to the transferee. Failure by the transferor employer to fully and accurately disclose relevant information results in a cause of action for the transferee employer against the transferor employer for any loss which arises as a result.

In order to rely on Section 21 of the 2006 Act, a transferee employer must serve a written notice on the transferor employer indicating the particular obligation the transferee employer considers it owes to one or more employees and the class of information or documents which the transferee employer believes may be in possession of the transferor employer. The notice must request the transferor employer to furnish that information. In other words, the transferee has to ask specifically for the information before it can rely on the indemnity to recover financial loss as a result of the transferor’s failure to disclose the relevant employee-related information.

It is recommended that the prospective transferee employer should have a detailed list of questions which would be submitted to the transferor employer. Often, the transferee would be advised to go further and to request meetings with the affected staff and trade union representatives, in order to flush out any issues or entitlements which they may say they have.

Suffice to say that the exchange of information concerning employees is one of the key areas of due diligence prior to a transfer proceeding. From the transferee’s perspective, it is crucial it has an understanding of the workforce liabilities it is taking on.

Right of employees to be represented
The Regulations specifically recognise the right for employees to be represented. This includes a trade union, given that the definition of “employees’ representatives” includes a trade union, staff association or excepted body. If the employees do not have representatives already, the employer must arrange for the affected employees to choose representative(s) for the purposes of the consultation process provided for by the Regulations, including facilitating an election by the affected staff, if needs be.

It is important to note that employees’ representatives have a cause of action in their own right, if the obligations of the transferor or transferee to provide information and consultation are not met. This means that not only can the employees take a claim themselves (or have representatives represent them in a claim for themselves) but the employees’ representatives have their own right to take a claim for a breach. The transferor or transferee could theoretically be hit on the double; although that rarely occurs and there must be scope for an argument that if compensation is awarded in one claim (for example a claim by the employees) that has to count towards any claim being taken on behalf of the employees’ representatives.

Enforcement of the Regualtions - Options for Affected Employees:
An employee or the employee’s representative (trade union, staff association or excepted body) may bring a complaint to a Rights Commissioner in relation to an alleged breach of the Transfer Regulations. It must be brought within 6 months beginning on the date of the alleged contravention to which the complaint relates. In exceptional circumstances this can be extended to 12 months.

The Rights Commissioner convenes a hearing, hears the parties and subsequently gives a decision in writing. Whilst the hearing is private, the decision is made publicly available.

The Rights Commissioner can:

  • Find that the complaint is or is not well founded.
  • Require the employer to comply with the Regulations and, to that end, to take a specified course of action. This often means reinstatement or re-engagement.
  • Require the employer to pay the employee compensation of such amount as in the opinion of the Rights Commissioner is just and equitable in all of the circumstances, limited to:
    o  In the case of a breach of the information and consultation requirement, the maximum compensation of 4 weeks of that employee’s remuneration and,
    o  In the case of any other breach of the Regulations, maximum compensation of 2 years of that employee’s remuneration.


It is important to bear in mind that whilst the European Directive implemented by the Transfer Regulations allowed for either or both the old employer or new employer to be liable for a breach of the Regulations, the Regulations as implemented in Ireland result in the new employer inheriting all of the employee liabilities arising by virtue of the transfer including any breach of the Regulations (with the exception of the notification/consultation obligations for which both the new employer and previous employer can have a liability).

Court Proceedings?
While these are the remedies provided for in the Regulations, another option which is open to the employees is to institute Court proceedings. The employees may seek an injunctive order preventing the transfer from occurring until compliance with the Regulations has occurred. This can mean, for example, seeking a Court Order that the transfer does not occur until (1) the information and consultation requirements have been met; or (2) until the transferor and transferee employers adopt the position that the Regulations apply (or do not apply as the case may be).

Enforcement options for transferor/transferee
Steps which can be taken by employees (or their representatives) to enforce the Regulations are therefore clear. However, it is decidedly less clear as to how a transferor or transferee can seek to enforce their legal rights or to clarify whether in fact a transfer for the purposes of the Regulations is occurring at all.

There are some transfers where it is quite clear that the Regulations apply. However, in many more scenarios, there is a lack of clarity as to whether the Regulations apply. In deciding their respective views on whether the Regulations apply to a particular transfer, both the transferor and the transferee will of course have regard to commercial considerations. For example, if the transferor is a service provider which has lost an outsourced service contract and is being replaced by the transferee, then it may suit the transferor to argue that the Regulations apply so that the staff will transfer over to the new provider, and those staff will no longer be on the transferor’s wage bill.

On the other hand, the transferee may not need the transferee’s staff and may be intending to service the contract with its existing staff. The last thing that the transferee wants is to end up with the transferor’s staff and to have to foot the bill for redundancy costs and so the transferee may adopt the position that the Regulations do not apply. It will suit both parties in this scenario to exploit the lack of clarity which can often exist around the Regulations and for each to make the contrary argument suiting their own commercial position.

A costly route
How can this dispute be resolved? In other words, what options are open to get a determination as to whether the Regulations ought to apply? The answer is far from satisfactory. The Regulations provide no mechanism or forum for a pre-transfer determination as to whether the Regulations apply.

It might be possible for either the transferor or transferee to orchestrate that affected employees would take a complaint to the Rights Commissioner on the basis outlined earlier. However, apart from the practical difficulties which could arise with that, a Rights Commissioner hearing will not be scheduled for several months and the transfer of the business concerned will have already occurred, often times many months earlier and the employees are left in a state of limbo with neither employment nor redundancy payments.

It is possible for either the transferor or the transferee to issue injunctive proceedings and seek a declaration or an order from the High Court as to whether the Regulations apply. From the perspective of timing, an injunctive application of that type has a considerably better chance of being heard and decided before the transfer is due to occur. That option is a very costly way to get an answer to the question whether the Regulations apply in a given case.

In reality, what tends to occur in these situations is brinkmanship. The transferor employer and transferee employer adopt their respective positions and suggest they will hold firm. How does that stand-off get resolved in practice?

Take the scenario where a large corporation is transferring its office cleaning from one service provider to another. The outgoing cleaning company may argue that the Regulations apply and therefore a number of employees must transfer over to the new cleaning company. The incoming cleaning company might argue that the Regulations do not apply and therefore it is a matter for the outgoing cleaning company to either retain those staff or alternatively make them redundant. In the background, you have the corporation which contracts out the cleaning services which is not actually directly relevant to the Regulations as that client corporation is neither the transferor nor the transferee has a vested interest in the matter being resolved, as otherwise there is a risk of industrial action and disruption to its cleaning services if the matter remains unresolved.

The extent to which either party (the transferor or transferee) becomes entrenched in the position it has adopted (as to whether the Regulations apply) depend on a number of factors such as:

  • A risk analysis of the likelihood of whether the Regulations do in fact apply or not; if there is only a weak argument to say the Regulations apply, the outgoing cleaning company cannot be confident in the position it has adopted of endeavouring to transfer the staff. However, sometimes, this doesn’t stop an employer remaining intransigent.
  • What are the commercial dynamics? Who has the leverage? Who is in the strong bargaining position? Often, the corporation which has contracted out the service will put pressure on either transferor or transferee to move from its position. Oftentimes, financial incentives are involved in this bargaining.
  • What resources are available to the parties? Does the incoming cleaning company have a sufficient margin built into its contract where it can accept taking over the staff or agreeing to assist in funding redundancies? Is the corporation which is contracting out the services going to pay something in order to avoid the stand off?


All sorts of agreements can be reached to ultimately resolve the impasse. Either the transferor or transferee can accept that they were wrong in the position they adopted and act accordingly (in the case of the transferor, retaining the staff and if necessary funding redundancies, or in the case of the transferee accepting the transfer of the staff on foot of the Regulations). Alternatively, there can be arrangements whereby either the transferor or the transferee provide each other with indemnities or cost-sharing arrangements if claims are made by disgruntled employees.

* Breda O’Malley, Partner Accredited Mediator, Employment and Commercial Law, Hayes Solicitors, Dublin 2.
www.hayes-solicitors.ie

First published in Industrial Relation News on 12th January 2012
http://www.irn.ie