Survival in the age of merger mania

The registered social landlord sector is said to be in the grip of merger mania. In the face of competition from private sector arm’s-length management organisations and other bodies, RSLs are either scrambling to increase their stock and expertise – or accepting that they are too small or too specialist to survive.

Press announcements about the mergers inevitably predict cost savings and no loss of jobs. The Greeks called such a contradiction an oxymoron, derived from their words for sharp and stupid. It is certainly sharp to try to allay fears about job cuts – but it may be stupid to believe such statements. Sooner or later there will be a shake-out of staff, otherwise the new group won’t deliver savings and will in turn be vulnerable to a predator.

Staff facing a merger often accept that their jobs will be safe. After all, they have an employment contract (ironically the more vulnerable the RSL, the plumper those contracts tend to be). And isn’t there UK and European Union legislation giving protection against unfair dismissal on the transfer of a business – “transfer of undertaking protection of employment regulations” or “TUPE” – anyway?

In fact RSLs are more likely to undergo take-overs than mergers, so that one RSL becomes the subsidiary of an existing or a newly created group parent. That means one RSL is now controlled by another body – and the only staff who can claim TUPE protection will be central administrative staff whose services tend to be carried out by the parent.

TUPE will apply if the “merger” goes down a different route where the assets and business of one RSL are transferred to another – and the one being taken over is deregistered and dissolved. Tupe ensures that employees’ contracts transfer intact and any employee dismissal for reasons connected with the business transfer is automatically deemed unfair, leading to compensation or reinstatement.

But the trend of recent cases suggests that the time that must elapse after transfer before the automatic unfair dismissal rule is disapplied may well be quite short. Two years used to be common; now it is more likely to be around three or six months. Furthermore, the employer has a defence against charges of unfair dismissal if it can show the main reason for the dismissal was an economic and technical reorganisation changing the number and/or job functions of employees.

Pension protection

TUPE will protect enhanced redundancy entitlements and early retirement benefits, as confirmed in 2004 with the Beckman case ruling. Enhanced pension protection should be also be given under the Pensions Bill.

But for the majority of employees in mergers, Tupe will not apply and every aspect of their employment will be up for review by their new employer.

Staff often get a raw deal because they are alone, frightened and unable to afford good advice

Letting staff go through redundancy is unlikely to be an option; it is expensive as long-serving staff have generous contracts and will only be used where it is simple and cheap. In other circumstances employers will look to cut costs by “renegotiating” employment terms. An employer can even terminate the old contract, offer a new, less favourable one – and then if the employee rejects it say that they are only entitled to minimal or no compensation even if they believe they were unfairly dismissed from their old contract.

A dismissal is automatically unfair where the employee asserts a breach of their statutory rights. Otherwise the employer must prove the dismissal was for a fair reason: incapability, misconduct, redundancy, contravention of a duty or the catch-all – some other substantial reason.

That could include a reorganisation for “sound, good business reasons” – and remember, an RSL often joins a group because it faces viability problems, so a sound business reason for a staff shake-out may not be difficult to prove. In such a situation any changes in employment terms, working hours, relocation and confidentiality requirements are deemed acceptable, even if the employee doesn’t think they are.

Fair reason can also apply to a breakdown of the working relationship, not an unlikely scenario in a post-merger situation.

While employers have all these caveats at their disposal, on paper the obstacles they must overcome still seem formidable. Even if they can establish sound business reasons they must go though the proper disciplinary procedures, recently tightened by law, avoid unfair selection and then demonstrate that they were acting reasonably in all the circumstances. They must also be mindful of equality and discrimination claims.

But in the end, the reason staff get a raw deal is often just that employees are alone, frightened and unable to afford good advice. Union protection helps, as is shown in local authority transfers to arm’s-length management organisations.

Of course, RSLs must stay trim to survive and staff need to adapt – it’s just a shame RSL boards often seem to prefer slash-and-burn tactics to the option of retraining staff.