When a charity merged- the legacy employment terms problem

Let’s here it for mergers!

Earlier this month, my colleague Jayne Adams wrote about top tips for a successful charity merger. In that article Jayne told us that if the charity is to become part of a larger whole, it should benefit from economies of scale. The increased capacity a merged structure would provide may alleviate existing pressures within the pre-merger charity. A merger may also resolve or at least assist with a charity’s financial struggles. There is much to be said for mergers of charities, when together they can support a greater number of beneficiaries or have greater bandwidth between them to provide public services. As long as they continue to further their public benefit charitable objectives.

Staff and TUPE

Staff and volunteers are likely to be significantly affected by the merger. The transfer of a charity as a going concern will bring with it the obligations under TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006, from collective information and consultation obligations (including whether measures will be implemented by the new merged vehicle or the dominant partner in the merger, in relation to employment, such as restructuring, relocation and change to terms and conditions). Legacy terms of employment for those transferring under TUPE, existing at the time just before the merger will be preserved and trying to change them quickly because of the TUPE transfer, such as to align them with terms prevailing for the rest of the larger organisation will be problematic; and will lead to people making a stand or resigning to claim unfair dismissal. Fire and re-hire may be one solution but the Labour Government have vowed to close this opportunity and make it more difficult to impose new terms.

2 charities merge with different terms for respective staff

We acted on an employee relations case involving the merger of 2 agricultural research charities, which in coming together would continue to develop new immunities to combat many forms of plant disease. The charities were geographically some distance from each other and both were formally agencies working within DEFRA (the Department for the Environment, Food and Rural Affairs), with access to different kinds of Government funding. Both were successful in their respective fields and yet one of them suffered from reduced Government funding. After the merger, an issue arose concerning the terms and conditions of the TUPE’d staff, which had been agreed with the recognised union through collective bargaining some years before.

Affordability of enhanced benefits

Fundamentally, there was an issue of affordability, because whilst the larger (charity A) acquiring organisation had access to Government Funding, the target charity (charity B) did not have access to the same funding. That meant that charity A feared that charity B would continue to make losses, particularly because their collective agreement with a trade union negotiated and codified many years earlier, in respect of staff terms and conditions, was more generous than for charity A’s staff. Particularly as regards sick pay and enhanced maternity leave pay.

No harmonisation but swings and roundabouts

Being at pains not to harmonise both charities’ staff terms and conditions, which TUPE frowns upon, charity A wanted to remove the enhancements for charity B’s staff that were unaffordable. They wanted to do so a year after the TUPE transfer took place, as there is a provision in the TUPE Regulations that say that any change made 1 year after the TUPE transfer is permissible, provided that overall the terms and conditions are no less favourable. That meant on a swings and roundabouts basis: what charity A sought to take away on enhanced sick pay and maternity pay, on the swings; would be gained on the roundabouts of other more generous benefits like group income protection and life assurance cover that would be offered.

Non-TUPE reason for change

There followed a frank exchange of views and legal positions. The union arguing that the changes that charity A proposed to make were due TUPE and unlawful, and with our help charity A arguing that changes had to be made, they were for a non-TUPE related reason, affordability and that charity B would have to have made them anyway, if it had not merged and continued to exist on its own.

Resolution

After a constructive meeting, the union reflected on the terms offered in return for sacrificing the sick pay and maternity pay enhancements and were willing to agree to the offer in the interest of ensuring that charity B remained financially viable within charity A’s business. No fire and rehire notices were necessary. Generous unaffordable legacy terms were successfully removed.