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Restructuring when a business is sold or transferred

If a business or part of it is to be sold or transferred to another party the employer has to follow a set of rules that apply to the transfer of work.

The law refers to any proposal to sell, transfer or contract out work as 'restructuring' and has developed some specific requirements.

These rules provide for:

  • additional protection where work is sold, transferred or contracted out
  • protection for a specified group of workers, often referred to as ‘vulnerable workers’ (includes certain cleaning, catering, laundry services)
  • exemptions from some restructuring rules for some small and medium enterprises (SME).

Additional protection when work is sold, transferred or contracted out

Every employment agreement must contain an ‘employee protection provision’ clause to protect the employment of an affected employee in the event of a ‘restructuring’. A business can’t be restructured (ie sold, contracted or transferred out) unless the relevant employment agreements contain ‘employee protection provisions’. These provisions are intended to support a ‘fair’ process.

The Employment Agreement Builder has a sample clause for your use.

The effect of these clauses is limited to the specific restructuring situation where an employer sells, transfers or contracts out part or all of its business. It sets out the process for an employer to use in these situations. It is important to follow this process and also to understand if your employees have special protections. It does not apply to other types of change which are sometimes referred to as restructuring, such as when the employer removes (disestablishes/makes redundant) a position.

These clauses don’t apply in instances of the sale or transfer of shares in a company or when the employer is bankrupt, in receivership or in liquidation.

Extra rules for vulnerable workers

There are extra rules for ‘restructuring’ situations that protect certain groups of employees. These groups include those who do cleaning, catering, laundry and caretaking; they are sometimes called ‘vulnerable workers’.

Vulnerable workers are considered to be at greater risk of losing their job due to a lack of bargaining power and working in sectors that are often sold, transferred or contracted out. The extra requirements set out a process to follow in situations where an employee's work will be taken over by a different employer. The rules give these workers the right to transfer over to the new employer on their existing terms and conditions of employment.

The Ministry of Business, Innovation and Employment website (external link) has information about the employee protection provisions.

Protection in special circumstances for specified groups of employees

Specific groups of employees are protected in certain restructuring situations. The following information sets out which groups of employees and situations are included.

Groups of employees protected

Specific groups of employees protected during restructuring are those who work in various types of employment. These groups are:

  • cleaning services and food catering services in any place of work
  • laundry services for the education, health or age-related residential care sector
  • orderly services for the health or age-related residential care sector
  • caretaking services for the education sector.

All other employees are subject to different arrangements.

Types of restructuring covered

The restructuring situations involving the protection of specific groups of employees are where:

  • an employer sells or transfers the business (or part of it) to another person
  • an employer contracts another business to perform work that was being performed in-house
  • an employer is a contractor and they lose a contract to perform services and the contract is granted to another business, or
  • the business for whom the contractor is performing the work decides to undertake the work in-house.

Restructuring for vulnerable workers

Employees have the right to transfer to the new employer if: Employers must within 15 working days of decision to restructure:
they will no longer be required to do all or part of their work for their existing employer because of the restructuring notify all the employees whose work will be affected
AND tell them whether they have a choice to transfer to the new employer and, if so, the date by which they must make that choice
the new employer will perform the same type of work, or work that is substantially similar. give them relevant information about the restructuring so they can make an informed decision about transferring to the new employer.

The employees will be able to choose whether to transfer to the new employer on their existing terms and conditions. If they choose to do this, they will become employees of the new employer as if nothing had changed.

Employers, employees and unions can negotiate alternatives to the transfer of employees, such as redeployment within the existing business. Any alternative arrangements must be in writing.

Employees can also decide not to transfer to the new employer. This may mean, however, that their existing employer makes the employee redundant.

The new employer may make vulnerable workers redundant

Once employees have transferred, it’s up to the new employer to decide how best to manage their resources. This may mean that the new employer makes some employees redundant. If transferred employees are made redundant because of the transfer situation, they may become eligible for redundancy entitlements:

  • where an employee’s employment agreement covers redundancy entitlements in a restructuring situation, this agreement continues to apply after the transfer
  • if the employment agreement is silent on redundancy entitlements in a restructuring situation, the employee may be eligible for either:
    • redundancy entitlements agreed with the new employer, or
    • redundancy entitlements decided by the Employment Relations Authority (if the employee and the new employer can’t agree).

ERA can help negotiate redundancies

Employers, employees and their unions may get help from the Employment Relations Authority (ERA).

The ERA will examine the negotiation process used by the employee and employer, and tell them what more they should use to try and reach an agreement. If the ERA decides that further negotiation is not needed, they can set the redundancy entitlements to be provided to the employee. If they do this, then the ERA will take into account:

  • any other redundancy entitlements contained in the employment agreement
  • the employee’s length of service with their new employer and their previous employer
  • how much notice of the redundancy the employee received
  • the employer’s ability to provide redundancy entitlements
  • the likelihood of the employee being able to get another job, and
  • any other relevant matters.

It is a good idea for employers and employees to keep these things in mind when trying to agree on redundancy entitlements.

SMEs may be exempt

Employers and associated persons who collectively employ 19 or fewer employees are known as small and medium enterprises (SMEs). SMEs may be exempt from accepting employees who wish to transfer as a result of restructuring. The SME must give a written warranty that they (and any associated persons) have 19 or fewer employees.

Large employers will not be able to exploit this exemption. This is because the number of employees a business has includes anyone employed by associated persons. This includes subsidiaries, parent companies, subcontractors and some franchise relationships.

 

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