What will the likely impact on employees be? Kate Palmer explains.

Merging one company with another is a technique that's often used to ensure company growth, while keeping expansion costs low.

The latest merger in the public eye is that of Britain’s second and third largest supermarkets, Asda and Sainsbury’s, which will create a combined workforce of 330,000 employees. But what might this merger mean for the companies' employees?

The TUPE rules

Employees of merging companies can be protected under the TUPE rules. The Transfer of Undertakings (Protection of Employment) Regulations 2006 applies to business transfers, usually where all or part of a business is transferred from one employer to a new employer.

A business transfer can, however, also apply where there is a merger between two companies that combine to form one new business. For TUPE to apply, the employer’s identity must change, for example, staff employed by Asda will transfer to the employment of the newly-formed merger company.

Where TUPE applies, the contracts of employment of all employees will automatically transfer to the new merger company. Importantly, the employees have a right to transfer their old employment terms, including pay, working hours and annual leave. This will leave the merger company with two sets of staff who work under different terms, with more variances likely for those who have been employed under different structures, or are long-standing employees.

The merger company’s new employees are protected from having their terms and conditions amended because they have transferred. For example, the new employer will not be able to simply harmonise contracts to have uniform terms for all.

Variations to terms can however take place where there is an economic, technical or organisational (ETO) reason applied that entails changes in the workforce, such as a change to numbers, location or function of the workforce. Common ETO reasons include a business reorganisation, or the use of new technology. Employees will also have to agree to these changes, which may be difficult to achieve if the new terms are detrimental to them. Changes to terms that are not because of the transfer, which the new employer will have to prove is the case, can be carried out under the normal consultation and agreement process.

What about job losses?

The supermarkets have publicly stated that there will be no job losses as a result of the merger. In fact, transferred employees are protected against dismissals where the sole, or principal, reason for the dismissal is the transfer. Such a dismissal will be automatically unfair.

Employers can, however, rely on an ETO reason, which entails changes in the workforce to dismiss staff. This will usually be the case where a normal redundancy situation arises following the transfer, which results in the number of employees needing to be reduced.

Culture change

As well as the legal impact on the transfer of their employment, mergers have a knock-on effect in many different areas.

For example, the culture of one business is often very different to that of another. When combined, employees who are accustomed to a particular way of working, or attitude from their managers, can find that this has changed, and not always to their liking. The values of the new employer are also likely to be slightly different as they amalgamate or update the values of the old employers.

However, once the merger has taken place, there may be new opportunities for development, or different training routes introduced for employees. In addition, mergers can provide employees with greater opportunities to share their development ideas or put forward future suggestions, allowing employees to contribute more towards the future of the merged business.

About the author

Kate Palmer is head of advisory and equality at Peninsula.