Transfer of business

As already explored in our previous Short Read entitled Mergers & Acquisitions: The 5 stages of an M&A transaction, there are a number of steps to consider when dealing with transactions relating to a merger or acquisition of a business or part of a business. One of the major factors to consider is whether the business or part of the business being acquired will give rise to employment-related implications. 

The Transfer of Business (Protection of Employment) Regulations (S.L 452.85) (the Regulations) provide that a “transfer” refers to a transfer of an undertaking in Malta, which retains its identity as an organised group of resources having the objective of pursuing an economic activity (whether or not for gain), as well as instances which include a change in service provision. 

people discussing business

In the case of a transfer of business, Article 38 of the Employment and Industrial Relations Act, Chapter 452 of the Laws of Malta, provides that every employee of the transferor shall be deemed to be an employee of the transferee and the transferee shall take on all of the employee’s rights and responsibilities from the date of transfer. In fact, the Regulations provide that the contract of employment of each person previously employed by the transferor, shall have effect as if originally made between the employee and the transferee and that the transferee shall continue to abide by any terms and conditions laid out in any collective agreement on the same terms as applicable to the transferor until the date of the transfer.

Matters get more complicated when the undertaking being transferred employs more than 20 employees. In such a case, the transferor must provide a written statement to the employees’ representatives at least 15 working days before the transfer is carried out or before the employees are directly affected by the transfer, whichever instance occurs first. The aim of the such-written statement is to inform the employee representative about the transfer, the proposed date, the reasons for the transfer, what will be the legal, economic and social implications of the transfer for the employees and what measures are to be taken in relation to the employees.

A copy of this written statement needs also to be sent to the Director-General of the Department of Industrial and Employment Relations (DIER) on the same day that the employees are notified. 

Furthermore, if the transferee is envisaging that there will be changes in the conditions of employment of the employees, then within 7 working days from the day on which employees’ representatives are notified of the intended transfer, the transferor and the transferee must organise consultations between them and the employees’ representatives regarding the impact that such transfer will have on the employee’s employment conditions.

This short article focuses on the relevance of employment-related considerations to be analysed in the course of an undertaking being taken over in whole or in part, which may result from an asset sale or the sale of the business. Indeed, however, it is worth mentioning that other transactions may be deemed as a ‘transfer of an undertaking’ which may give rise to employment-related implications. The protection given to the employees may have far wider-reaching effects than the standard case of a business or undertaking being taken over in whole or in part. Indeed, in the 2020 case Grafe and Pohle v Sudbrandenburger Nahverkehrs GmBH, a company operating in public passenger transport in Germany preferred not to submit a tender for the transport service concerned as it was unable to submit an economically viable tender and ceased trading, giving its employees notice of termination. A separate company took up and successfully won the tender and subsequently employed the majority of the employees of the first company. The European Court of Justice (ECJ) ruled that the fact that there had been no transfer of operating resources, in so far as it results from legal, environmental or technical constraints, did not necessarily preclude the taking over of the activity concerned from being classified as a ‘transfer of an undertaking’ within the meaning of Article 1(1) of Directive 2001/23 (the Transfer of Undertakings Directive).

It is therefore always advisable that when considering a new venture, employers should also consider whether the arrangement in question may give rise to a transfer in terms of the Regulations, even though there is no acquisition or sale between the entities.

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Mark Lautier

Mark Lautier

Partner, PwC Malta

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Ruth Vella

Ruth Vella

Senior Manager, PwC Malta

Tel: +356 7973 8480

Stefania Attard Montalto

Stefania Attard Montalto

Manager, Tax, PwC Malta

Tel: +356 2564 4184

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