Transfers of business

In short. Where an undertaking situated in Malta passes to a new employer and keeps its identity, the employees assigned to it transfer automatically, with their terms and length of service. Outsourcing, a change of contractor and bringing work back in-house can count. The transfer is not in itself a ground for dismissal, and both the old and the new employer must inform the staff representatives in good time.

When a transfer happens

The Transfer of Business (Protection of Employment) Regulations (S.L. 452.85) apply when an economic entity that keeps its identity passes from one employer to another. That covers:

• the sale of a business, or of part of one, and mergers;
• outsourcing: work the business did for itself is handed to a contractor;
• re-tendering: the work moves from one contractor to the next;
• insourcing: work done by a contractor is brought back in-house.

The last three are known as a service provision change. A transfer may take place through more than one transaction, and whether or not any property passes. A share sale is usually different: the employer stays the same company and only its owner changes. See change of control.

In practice. Whether the rules apply is often the whole question. Ending a service contract and making the in-house team redundant, when the staff should have moved to the incoming contractor, is a common and costly mistake. So is the reverse.

What happens to the staff

• Their contracts pass to the new employer automatically, with their existing terms, their length of service and the old employer's obligations towards them.
• The new employer is bound by the collective agreement that applied, for a period and on the conditions the regulations set.
• The transfer itself is not a lawful reason for dismissal. Dismissals for economic, technical or organisational reasons that entail changes in the workforce are not ruled out, but they need a reason of their own.
• If staff are made redundant before a transfer that would have moved them, the new employer must re-employ them if their posts become available within a year.

In practice. Changing terms on transfer and calling it harmonisation invites claims. Money already earned before the transfer can still be claimed from the seller: in Cassar v Montekristo Vineyards, the former employer stayed liable for a sales manager's accrued commissions.

Informing and consulting

Where the undertaking or part transferred employs more than twenty people, the old and the new employer must each give the employees' representatives a written statement of:

• the date or proposed date of the transfer and the reasons for it;
• its legal, economic and social implications for the staff;
• any measures envisaged in relation to them.

The statement is due at least fifteen working days before the transfer or before the staff are directly affected, whichever is earlier. Where measures affecting conditions of employment are envisaged, consultation must begin within seven working days, with a view to reaching agreement. A decision taken by a parent company does not change the local duty.

In practice. Consultation is often left until the deal has closed, when it can no longer influence anything. The fifteen working days should be built into the transaction timetable from the start, together with any representatives' ballot where there is no union.

Where it goes wrong

• treating a transfer as a redundancy, and dismissing staff who should have moved;
• treating a redundancy as a transfer, and moving staff who should not;
• changing terms on transfer without a lawful basis;
• leaving consultation until after completion;
• deal documents that say nothing about who bears which employment liabilities.