Employment contracts – automatic transfer principle

The contracts of employment of those employees employed by the company transferring (known as the “transferor”) automatically transfer to the company taking over the business or service provision (known as the “transferee”). The employees are entitled to transfer on their existing terms of employment, subject to certain limited exceptions (including old age, invalidity and survivors’ benefits under occupational pension schemes).

This principle applies to all employees who were employed immediately before the transfer or who would have been so employed if they had not been dismissed because of the transfer or a reason connected with it. The only exception to this is where employees are dismissed for a reason which is an economic, technical or organisational (ETO) reason that entails changes in the workforce. There is no legislative definition of an ‘ETO reason’ and case law has made this a complex area so you should seek legal advice whenever contract changes are contemplated and they could be found to be connected with a transfer.