In Malta, the transfer of business ownership can be a complex process, affecting both the company structures and the employees' rights and welfare. To this effect, to mitigate potential risks for employees and to safeguard their rights when a business or part of it is transferred to a new owner, the Transfer of Business (Protection of Employment) Regulations [S.L. 452.85] (hereinafter referred to as 'Regulations') were enacted.
Applicability of the Regulations
The Regulations shall apply to:
- Any transfer of an undertaking, business, or part of a business to another employer due to legal transfer or merger, as long as the transferred entity retains its identity and continues an economic activity;
- Changes in service provision;
- Any business involved in economic activities, regardless of whether these activities are central or ancillary, and whether or not they operate for profit;
- Transfers of businesses or parts of businesses located in Malta;
- Transfers involving seagoing ships that are part of a business transfer, provided the new owner or business remains in Malta;
- Businesses employing more than twenty (20) employees, whether employed on a full-time or part-time basis.
However, the Regulations do not apply if the transfer consists solely of seagoing ships. The Regulations also do not apply in the case of administrative reorganisations or transfers of administrative functions between public administrative authorities. This exclusion ensures that the Regulations focus on private sector business transfers and do not interfere with the internal restructuring or function transfers within government or public entities.
According to the Regulations, the key requirement is that there must be a "transfer of an economic entity which retains its identity." This means that the core of the business, its operations, and structure must continue under the new ownership for the Regulations to apply.
Employees' Rights and Protections
Continuity of Employment
One of the key protections offered by the Regulations is the continuity of employment contracts. When a business changes ownership, the new employer (referred to in the Regulations as the transferee) is required to take over the existing employment contracts of the workers involved in the transfer. This includes retaining all the rights, obligations, and duties laid out in those contracts.
Preservation of Working Conditions
In addition to the continuity of the employment agreement, employees who are being transferred to the new business shall retain the same working conditions as were established in the original employment agreement. These working conditions include provisions on wages, working hours, job functions, seniority, and any additional benefit entitlement. Thus, the Regulations emphasise that these conditions cannot be altered purely because of the business transfer. The Regulations, however, provide for the exceptional circumstance that the new employer negotiates the changes being proposed, so long as such changes shall be done fairly and in consultation with employees.
Accrued Rights
With reference to any unpaid wages, or any dues owed, such as unutilised vacation leave, severance payments, and contributions to social security or pension schemes, the Regulations stipulate that these shall be settled by the next pay date falling immediately after the transfer of the undertaking or part of the undertaking which would have been the next pay date had the employees concerned been still in an employment relationship with the original employer (referred to in the Regulations as transferor).
Similarly, any liabilities which were held by the previous employer in regard to these entitlements must be transferred to the new owner.
Obligations of Employers During a Transfer
Information and Consultation
Both the transferor and transferee have a duty to inform and consult with employees or their representatives (such as trade unions) about the transfer. This must be done at least 15 working days prior to the actual transfer date and must include details such as:
- The date or proposed date of the transfer;
- The reasons for the transfer;
- The legal, economic, and social implications of the transfer for employees;
- Any measures that the new employer intends to take concerning the employees (such as restructuring, layoffs, or changes to work conditions);
Failure to meet these consultation and information obligations may lead to legal action, with penalties or remedies for affected employees.
In addition to consulting the representatives, the transferee shall also be bound to forward this information to the Director responsible for employment and industrial relations.
Restrictions on Dismissals
The legislation expressly prohibits the dismissal of employees solely because of the business transfer. If an employer attempts to terminate employment due to the transfer, this will be considered unfair dismissal. However, if there are legitimate economic, technical, or organisational reasons that justify a dismissal, the employer may be able to dismiss workers, provided that these reasons are unrelated to the transfer itself.
Conversely, if employees are made redundant before a business transfer, and their jobs would have been transferred otherwise, the new employer must rehire them under the same conditions if their previous roles become available within one year of redundancy. The former employer is required to provide all necessary information to ensure the new employer can meet this obligation.
No adverse effects on the employee
The Regulations protect employees by making sure that the transfer does not adversely affect their current employment terms unless there are good economic reasons to make changes, even though it does not contain a general provision that expressly permits employees to refuse the transfer. This means that employees cannot automatically reject being transferred when a business or a portion of it is transferred. Employees will have the option to leave after the transfer is completed if they do not agree with the new terms, even if the Regulations do not address this clause.
Implications for Employers and Employees
The Regulations give clear instructions for business transitions, ensuring fairness for employees. They offer job security, even in cases where employers change. Meanwhile, employers acquiring a business must understand the employee-related obligations they inherit.
Conclusion
The Transfer of Business Regulations introduced vital elements protecting workers during business transitions. By maintaining employment contracts and working conditions, these regulations safeguard employee rights while ensuring that employers meet their responsibilities. Careful adherence to the law helps businesses avoid legal issues while keeping employees secure in their positions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
