In the event of a transfer of undertaking, employment relationships automatically transfer to the acquirer. What transferors and acquirers need to consider.
The Transfer of Undertaking as an Employment Law Challenge
The transfer of undertaking under § 613a BGB is one of the central provisions of German employment law. In corporate transactions, restructurings, and outsourcing projects, the question of whether a transfer of undertaking has occurred is of decisive importance for all parties involved.
When Does a Transfer of Undertaking Occur?
A transfer of undertaking requires, according to the case law of the BAG and the CJEU, that an economic entity retains its identity and is transferred to a new owner by way of a legal transaction.
The Economic Entity
An economic entity is an organised grouping of persons and assets facilitating the exercise of an economic activity that pursues a specific objective. It may be an entire business or a part of a business. The decisive factor is that the entity is sufficiently structured and autonomous.
Retention of Identity
The identity of the economic entity must be retained. The CJEU has developed seven criteria for this assessment:
- The type of business or undertaking
- Whether tangible assets (buildings, movable property, inventory) are transferred
- The value of intangible assets at the time of transfer
- Whether the majority of the workforce is taken over by the acquirer
- Whether the customer base is transferred
- The degree of similarity between the activities carried on before and after the transfer
- The duration of any interruption of activity
Legal Transaction
The transfer must be effected by way of a legal transaction. This includes purchase agreements, lease agreements, management agreements, and similar legal transactions. Universal succession (e.g., merger under the UmwG) is not covered by § 613a BGB, as specific rules apply.
Legal Consequences of the Transfer of Undertaking
Automatic Transfer of Employment Relationships
The central legal consequence of § 613a Abs. 1 Satz 1 BGB: the acquirer assumes the rights and obligations arising from the employment relationships existing at the time of transfer. The transfer occurs by operation of law, without requiring the employees' consent.
Protection of Existing Terms
The terms and conditions of employment may not be altered to the detriment of the employee for a period of one year following the transfer (§ 613a Abs. 1 Satz 2 BGB). This applies to both individual contractual and collective provisions that have become part of the employment relationship.
Continued Application of Collective Agreements and Works Agreements
Collective provisions from collective agreements and works agreements become part of the employment relationship pursuant to § 613a Abs. 1 Satz 2 BGB and may not be altered to the detriment of the employee within one year. Exception: where different collective agreements or works agreements on the same subject matter apply at the acquirer's business.
Joint and Several Liability
The former employer is jointly and severally liable alongside the acquirer for obligations that arose prior to the transfer (§ 613a Abs. 2 BGB). However, liability is limited to claims that fall due within one year of the transfer.
Duty to Inform Under § 613a Abs. 5 BGB
Content of the Information
The former employer or the acquirer must inform the affected employees in writing before the transfer about:
- The date or planned date of the transfer
- The reason for the transfer
- The legal, economic, and social consequences of the transfer for the employees
- The measures envisaged with regard to the employees
Defective Information
Defective or incomplete information has the consequence that the employee's one-month objection period does not begin to run. This may lead to an objection even years after the transfer, which entails considerable financial risks.
The Employee's Right to Object
Principle
The employee may object in writing to the transfer of their employment relationship within one month of receiving the information (§ 613a Abs. 6 BGB). The objection has the effect that the employment relationship remains with the former employer.
Consequences of Objection
Objecting can be risky for the employee: if the former employer no longer has any need for the employee's services (because the business has been transferred), the employee faces a redundancy dismissal. An employee who objects has no entitlement to employment with the acquirer.
Prohibition of Dismissal
Pursuant to § 613a Abs. 4 BGB, a dismissal on account of the transfer of undertaking is void. The right to dismiss for other reasons remains unaffected. In practice, distinguishing between a (void) dismissal on account of the transfer and a (permissible) dismissal for other reasons is often difficult.
Practical Structuring Advice
For the Transferor
- Early identification of the affected employees
- Careful preparation of the information letters
- Consideration of liability risks in purchase price negotiations
- Regulation of joint and several liability in the purchase agreement (indemnification clauses)
For the Acquirer
- Due diligence of employment relationships and works agreements
- Analysis of personnel costs and pension obligations
- Planning for the integration of transferred employees
- Consideration of the one-year moratorium on changes
Conclusion
The transfer of undertaking under § 613a BGB is a complex area of law that must be carefully considered in corporate transactions. Errors in the information process or in dealing with the legal consequences can give rise to considerable financial risks for both transferor and acquirer. Early and comprehensive legal advice is indispensable.
