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What Are the Employment Issues When Two Charities Merge?

on Friday, 19 February 2021.

For charities contemplating a merger, it is important to be aware of and comply with your employment law obligations. We explore potential employment issues involved in a merger between charities.

There are many reasons why two charities may decide to merge - from sharing a common objective to increasing geographic reach or improving resilience in difficult times. Current pressures caused by the pandemic have certainly brought these issues into sharper focus over the last year.

What Are the Employment Issues When a Charity Transfers Its Assets to Another Charity?

When two charities merge, this usually involves the transfer of one charity's (the Transferor) assets to the other (the Transferee) to create one consolidated organisation going forwards. This may constitute a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

If TUPE applies,

  • the Transferor's employees will transfer automatically to the Transferee on the same terms and conditions
  • the employees' continuity of employment will be protected and will transfer with them
  • all liabilities in relation to the transferring employees also transfers to the Transferee
  • all employees with at least two years' continuous service are protected from dismissal if the sole or principal reason for the dismissal is the transfer and is not an economic, technical or organisational reason entailing a change in the workforce (ETO Reason), such as a genuine redundancy situation
  • any changes to employees' terms and conditions will be void if the sole or principal reason for the change is the transfer itself and is not an ETO Reason - this can often be at odds with the understandable desire to harmonise employment terms within the newly merged organisation

Employee Due Diligence

TUPE requires the Transferor to give basic information about the employees in scope to transfer to the Transferee at least 28 days before the merger takes place. This allows the Transferee to undertake some basic due diligence on the employment related liabilities that it may inherit when the merger completes. This is called the Employee Liability Information (ELI) and it covers the employees' basic terms and conditions in relation to pay, hours, holiday and notice entitlement, whether there are any collective agreements in place and details of any disciplinaries, grievances or claims in in the last 2 years.

Duty to Inform and Consult Affected Staff

In good time before the merger, the charities will be required to inform and consult any employees who will be affected. Employee representatives will need to be elected if there is not a recognised Trade Union or staff body already in place. Very small charities with less than 10 staff can consult directly with their employees, without the need to appoint employee representatives.

TUPE requires that the following information must be provided to the affected employees via their representatives:

  • that a merger is going to take place, the rationale for it and the proposed date that it will happen
  • whether there are any legal, economic or social implications of the merger that will affect them
  • details of any measures that the Transferee may take following the transfer that could affect the transferring employees. 'Measures' can be interpreted widely and may include a positive act or omission by the Transferee (for example redundancies or changes to terms and conditions). Only where measures are 'envisaged' will the obligation to consult the employees, via their elected representatives, be triggered. Some examples of common measures include:
  • changes to any benefits or the provider of those benefits
  • a change to the pay date
  • any change to working hours
  • any redundancies resulting from a restructure

Consultation with employee representatives regarding any proposed measures should be meaningful, with a view to reaching agreement.

What Happens When There is a Staffing Surplus?

As may be expected, it can often be the case that when organisations merge, there is a staffing surplus and some duplication of roles. In these situations, charities would need to go through a redundancy exercise and undertake a fair redundancy consultation process before making any dismissal decisions, to avoid claims for unfair dismissal.

Where there are large scale redundancies of 20 or more employees within a period of 90 days or less, a collective consultation process must be followed in addition to consulting the employees at risk on an individual basis. Failure to do so could lead to compensation of up to 13 weeks gross pay being awarded per affected employee.

A fair process will involve identifying appropriate selection pools and conducting a scoring exercise to establish those who will be selected for redundancy. It is important that the redundancy pools include staff doing the same roles across both charities to ensure redundancy consultations can take place in parallel with the TUPE consultation, although any dismissals would not normally be confirmed until the merger has taken place. 

Coronavirus guidance employers

Best Practice

When contemplating a merger with another charity, it is important to consider the employment issues and liabilities at an early stage - especially if the workforce is large. The culture of both charities should be considered, and also thought given to how the newly merged charity will address any potential inequalities that might arise between the terms and conditions of the employees if one charity previously offered more advantageous terms than the other.

Carrying out a thorough due diligence exercise in preparation for a merger to identify potential issues and areas of risk will help with this and will inform a strategy for dealing with these issues and building a unified workforce once the merger completes.

During these challenging times, we understand that more charities are exploring the potential for new collaborations and structures to increase resilience and further their objects. If your charity is considering a merger and you have any queries or concerns regarding your obligations in relation to your staff, our employment lawyers can guide you through the requirements of TUPE and wider employment issues.

Find Out More - Join Our Free Webinar

Our upcoming webinar, 'Charity Mergers - A Look Behind the Legal Process', will give practical tips to trustees, chief executives, and finance directors (as well as other stakeholders) on the merger process, and improve knowledge and understanding on the topic to assist charities in making strategic decisions in the interests of their beneficiaries. Book your free place today.

For more information on the employment issues surrounding charity mergers, please contact Joanne Oliver in our Employment Law team on 0117 314 5361, or please complete the form below.

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