When selling or restructuring a hospitality business, an outgoing employer must be mindful of the protected employee provisions in Part 6A of the Employment Relations Act 2000 and its subsequent amendment on 6 March this year.
The Act recognises there are a certain group of employees who are vulnerable due to constant restructuring and who therefore require greater statutory protection. These protected employees are listed in Schedule 1A of the Act as those who provide services such as cleaning, catering, caretaking, laundry and orderly services in specified sectors and workplaces. These people include chefs and cooks, kitchen hands, cleaners, managers, and waiting and service staff where they serve food and beverages in support of food. They can include persons for whom the employer/owner contracts out, or contracts in, as part of running their business.
The provisions of the Act provide that these categories of employees are given the right, should they wish, to transfer to a new employer on the same terms and conditions as their existing employment. These provisions, however, have caused complications and financial hardship to small employers negotiating a sale or business restructure. Concerns have arisen that former employers have boosted employee terms and conditions just before transferring the employees to impose greater costs on the new (and often competing) employer.
As a result, on 6 March 2015, The Employment Relations Amendment Act 2014 made a significant change to the Act by providing that new or incoming employers who employ 19 or fewer employees (including franchises which operate at arm’s length from the franchisor) are now exempt from the requirement to offer protected employees the same terms and conditions as they currently hold. There is an added proviso that the new or incoming employer gives a warranty regarding the number of people they employ.
The other changes made to Part 6A of the Act were as follows;
• Employees entitled to elect to transfer to a new employer in a restructure must notify the incoming employer of their election within 5 working days (or within a longer timeframe if agreed between the two employers) of being advised of their right to transfer, and being provided with the required information.
• The outgoing employer must provide detailed individualised employee information to the incoming employer, for example personnel files, employment agreements, as well as pay, time and leave records.
• Employers are allowed to negotiate the apportionment of service related entitlements they will have to pay. However, where the parties cannot agree, a default formula applies. The default requires the outgoing employer to be liable for holiday pay and the incoming employer liable for sick pay.
• The outgoing employer is subject to an implied warranty that they have not changed terms and conditions of their affected employees’ employment prior to the transfer without good reason, a breach of which could lead to an award of damages.
Where a business is a company, the sale or transfer of shares only is not restructuring in terms of the Act. However the term “restructuring” in the Act is wide reaching and as case law is lean in this area, employers should seek advice from their lawyer when considering any change in their business or its operations where it affects employees.
Purchasers of a hospitality business, as new employers, should ensure that their advisors, including their solicitor, are familiar with the protected employee provisions early on. Purchasers are also advised to work closely with their accountant during a due diligence period to ascertain the financial responsibilities being taken on.
This post was published in the FMCG Business magazine.