The employment law implications of charity mergers

Publication Date01 June 2001
Date01 June 2001
AuthorDebra Morris
SubjectHR & organizational behaviour
Employment law
implications for
charity mergers
Employee Relations,
Vol. 23 No. 3, 2001, pp. 271-289.
#MCB University Press, 0142-5455
Received November 2000
Revised January 2001
Accepted February 2001
The employment law
implications of charity
Debra Morris
University of Liverpool, Liverpool, UK
Keywords Employment law, Charities, Mergers, Employees, United Kingdom
Abstract Examines the employment law implications for charities considering merger.
Considers the employment law problems that are involved in charity mergers and the different
strategies that have been employed in practice to deal with them. Charities merging face particular
problems, not only from the natural concerns of staff about their jobs post-merger, but also
because the law which protects employees when organisations merge is not clear. The application
of the relevant legal principles may be particularly uncertain in the context of mergers between
charities due to the variety in the legal forms of the merger, and in the employment practices
adopted by charities. Illustrates these concerns with an empirical study of a number of charity
There are more than 185,000 registered charities in England and Wales. The
Charity Commission lists 620 cancer charities alone and more than 200
charities working with homeless people in London (The Guardian, 2000). It is
not surprising, therefore, that increasing numbers of charities are starting to
think about merger. This paper considers some of the employment law
implications of charity mergers. Following the introduction, the paper will
examine a number of employment law problems arising from charity mergers.
Within this section, an examination is made of the employment status of
charity workers and the law relating to transfers of undertakings, focussing on
the issues identified in a study (funded by the ESRC ± reference No.
R000222973) of the legal issues in charity mergers. The penultimate section will
draw more specifically on the findings of the empirical study. Having outlined
the methodology, particular employment-related problems experienced by
the charities within the study will be considered, together with some
discussion of possible solutions. The final section contains conclusions and
recommendations for reform.
The background
As a subset of the voluntary sector, charities are regulated by their own special
rules (Charities Act, 1993), yet like other voluntary agencies they have been
affected by reductions in funding and shifts from local authority grants to
payment for services performed under contract. To improve their capacity for
action, increasing numbers of charities have had to consider new ways of
organising themselves. The option to merge with another charity is only one
form of co-operation which may be appropriate in certain circumstances.
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Within the last few years, there has been an increase in merger activity
within the charitable sector. It was found in 1996 that, since 1988, there had
been at least 12 national voluntary organisations which had merged or
attempted to merge (Cowin and Moore, 1996). Against the background of a
recent MORI poll suggesting that the majority of people (58 per cent) think that
there are too many charities (MORI/Charity Commission, 1999), one in seven
charities in a recent survey were actively considering merger (Wethered, 1999)
and 75 per cent of businesses felt that charities carrying out similar purposes
should be encouraged to merge (Buzzacott and Third Sector, 2000). However,
although the question of merger is increasingly on the agenda for charities,
there is very little guidance available about the process of merging, especially
from a legal point of view.
The legal regulation of charities can impact upon merger activity in a
number of ways. For example, charities that are considering merger have to
grapple with special rules which may apply to their property holding, limiting
the use to which funds can be put (the general rule is that if funds are raised for
a specific purpose by a charity, they must be spent on that specific purpose).
Similarly, potentially merging charities have to ensure that what they want to
do is constitutionally possible (do they have the power to merge, or to transfer
property, for example?). These issues have to be set against the background of
the legal structures traditionally adopted by charities and a consideration of
who is accountable for their actions. In law, the board of management of a
charity plays a crucial role. Managers, who may be called trustees, are under
onerous obligations (both fiduciary and statutory) and are responsible for the
general management and control of the charity (Charities Act, 1993, s. 97).
Invariably, charity trustees are unpaid. With unincorporated charities (that is
those that adopt the legal structure of a trust or an unincorporated association ±
as opposed to a company limited by guarantee) the trustees are the legal
owners of the charities' property, they enter into contracts personally on behalf
of their charities and are consequently the employers of their staff.
Problems surrounding employment
Without underestimating the significance of other issues of concern to charities,
there is no doubt that the problems surrounding employment that arise during
merger situations have been some of the most difficult issues which merging
charities have had to face. There are a number of reasons for this: First, the
areas of employment law applicable to mergers are complex, often uncertain
and constantly evolving areas of law for all employers to understand and
implement; Second, the application of some areas of employment law may be
particularly difficult for charity employers. Diverse working practices within
the sector, together with uncertain funding regimes, may have contributed to
the fact that, in general, charities do not have the best records as employers. For
example, recent research has shown that employment tribunal cases involving
charity employers were at almost double the levels reported in private and
public sector organisations (Cunningham, 2000). One commentator on
voluntary sector management has noted the irony here:

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