Meaning
A labor law regulation protects the employment rights of workers when a business or a part of a business is sold or transferred to a new owner. In European and UK transactions, a transfer of undertakings automatically transfers all existing employment contracts and liabilities from the seller to the buyer. This regulation applies until the restructuring is fully completed and the new employer integrates the acquired workforce.
Employee Protection
Under these rules, the buyer cannot alter the terms of employment of the transferred workers. A transfer of undertakings protects employees from dismissal in connection with the transaction. Any changes to employment terms made solely because of the transfer are void.
Information Obligation
The parties must consult with employee representatives before the transfer occurs. In a transfer of undertakings, the seller must inform the employees about the timing and reasons for the transaction. Failure to consult can lead to substantial financial penalties for both the buyer and the seller.
Asset Deal Impact
The rules apply to asset sales as well as to share sales that change the operating entity. This ensures that employees are not left without recourse when a business changes ownership through an asset deal.
