A win for employers

Irish High Court Rules: refusal to transfer employment is not an automatic redundancy situation. GEORGINA KABEMBA of Matheson Ormsby Prentice reports

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The legal transfer of an undertaking, business or part of a business, from one employer to another is a common occurrence. In the current economic climate retail outlets and chains of stores are bought, sold or merge every week. The European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 protects certain rights of employees in the event that the business in which they are employed is transferred to a new employer.  

Up until recently employees who refused to transfer from one employer to another could claim that they were being made redundant and therefore receive redundancy payment from the old employer. The Courts’ stance on this has finally been clarified by the recent High Court judgment in Symantec Ltd versus Leddy and Lyons [2009] IEHC 256. 

Case background

In November 2006, software manufacturer Symantec transferred part of its business to Corporate Occupier Solutions (Ireland) Ltd (COS). The respondents to this High Court appeal, Declan Leddy and Diarmuid Lyons were employed by Symantec at the time of the transfer of the business.

Just under a year previously, Leddy and Lyons were informed about the proposed transfer in their contracts of employment to COS, as part of the outsourcing exercise. On 10 November 2006, the two objected to the move and chose not to transfer even though the terms and conditions of their employment were to remain the same. They had been informed in advance that a failure to transfer would be treated as a resignation from their respective positions. The respondents contended that they had been dismissed by reason of redundancy and claimed to be entitled to redundancy payments under the Redundancy Payments Acts (1967-2007). They also claimed to be entitled to ex-gratia redundancy payments.

Leddy and Lyons brought their claims to the Employment Appeals Tribunal (EAT) which found for the two men. In its view: “in a transfer of undertaking, the employee is not obliged to accept the new employer.” The EAT adopted the position that the employees had a right to refuse to transfer, and that in refusing to transfer the employee would remain employed by the transferor. If the transferor had no alternative position to offer the employee, then the position would effectively be redundant and the transferor would be liable for any redundancy payment which may be payable.

High Court judgment

Symantec appealed the decision to the High Court. Both parties made extensive written legal submissions, with both relying on different interpretations of the same European Court of Justice (ECJ) caselaw in this area.

Symantec cited the decision of the ECJ in Berg v Besselen [1998] ECR 2559, where it was pointed out that the Directive on the Transfer of Undertakings (TUPE) “must be interpreted as meaning that after the date of transfer … the transferor is discharged from all obligations arising under the contract of employment, or the employment relationship.”

In the High Court ruling given on 28 May 2009, Mr Justice John Edwards outlined: “The fact that an employee objects to the transfer does not of itself have the effect of negativing the transfer. It is just that an employee is not obliged to continue his employment relationship with the transferee.”

So the High Court overturned the EAT’s decision, holding that the refusal of an employee to transfer does not result in the employee being made redundant. Consequently the employee will not be entitled to any severance payment, statutory or otherwise. It is clear, therefore, that the Irish High Court has aligned itself with the UK approach.

Important implications

The judgement in the Symantec case appears to be of huge significance to any retail sector employers who are, or become, involved in a transfer to which the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 apply, as it finally clarifies how employees who object to a transfer should be treated by the transferor. The High Court has ruled that such a refusal to transfer is, in fact, a resignation. With the prevailing uncertainty in the economy, employees may therefore think twice before refusing to transfer with the undertaking.

It is important to note that there may still be a remedy open to employees in situations where the refusal to transfer is due to a substantial change in working conditions to the detriment of the employee. The 2003 Regulations outline that, in such circumstances, the contract is deemed to be terminated by the employer. Liabilities in those circumstances could include constructive dismissal and, therefore, compensation of up to two years remuneration per employee. However, this will be the transferee’s liability not the transferor.

The possibility remains that the decision may be appealed to the Supreme Court or that the position may be amended by legislation. Yet for now at least, employers can rely on the fact that an employee’s refusal to transfer does not automatically constitute a redundancy. The decision brings the law in this area into line with UK law, leaving employees in such a position without entitlement to redundancy pay.

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