transfers of undertakings guide · transfers of undertakings guide nothing stated in this document...

Transfers of Undertakings Guide

Nothing stated in this document should be treated as an authoritative statement ofthe law on any particular aspect or in any specific case. Action should not be takenon this document alone. For specific advice on any particular aspect you should consult the relevant country representative listed inside. The law is stated as at August 2009.

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A Ius Laboris Publication

Printed: December 2009

Ius Laboris280 Boulevard du SouverainB-1160 Brussels, BelgiumT +32 2 761 46 10F +32 2 761 46 15E [email protected]

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Transfers of UndertakingsGuide





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In today’s global marketplace, businesses increasingly operate on a regional orinternational scale. Companies that coordinate their employees across multiplejurisdictions must comply with the rules and regulations governing employment, labour, pensions, and immigration law in each of those jurisdictions. As a result, retaining legal experts with knowledge and experience in both international and local Human Resources law is essential forbusinesses of all sizes.

Ius Laboris is an alliance of leading Human Resources law practitioners. We have more than 2,500 lawyers providing local expertise across the globe,with member firms in over 45 countries and coverage in more than 100 jurisdictions. Human Resources challenges require local expertise within aglobal framework. The complexities of national employment law demand itand the Ius Laboris members provide it.

Each of our members must be a top-ranking Human Resources or Pensions lawfirm in their respective locality to be invited to join Ius Laboris. We welcomeinto our Alliance only firms that possess focused expertise in all disciplines oflabour, employment and pensions law. Our lawyers understand the issues andchallenges associated with managing a workforce, wherever it is located.

The Alliance focuses on specific areas of expertise within our six InternationalPractice Groups (IPGs). The IPGs bring together lawyers from across theAlliance with expertise in key areas of Human Resources law; includingIndividual Employment Rights, Discrimination, Restructuring and LabourRelations, Pensions, Employee Benefits and Tax, and Immigration.

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Contributors

AUSTRIABirgit Vogt-MajarekSusanne KappelKunz Schima WallentinPorzellangasse 41090 ViennaAustriaT +43 1 313 74 0F +43 1 313 74 80E [email protected]

[email protected] www.ksw.at

BELGIUMJean-Paul LacombleChris EngelsClaeys & Engels280 Boulevard du Souverain1160 BrusselsBelgiumT +32 2 761 46 00F +32 2 761 47 00E [email protected]

[email protected]

CYPRUSGeorge Z. GeorgiouAnna PraxitelousThe Law Offices of George ZGeorgiou1st Floor, 1 Eras Street1060 NicosiaCyprusT +357 22 76 33 40F +357 22 76 33 43E [email protected]

CZECH REPUBLICJaroslav SkubalPRK Partners s.r.o.Jachymova 2110 00 Prague 1Czech RepublicT +420 2 21 43 01 11F +420 2 24 23 54 50E [email protected]

In our experience, local expertise in these areas of law is crucial to developing coherent Human Resources strategies that work within a globalframework. Our IPGs meet regularly and are well placed to coordinate regional and worldwide requests, drawing on each individual lawyer’s wealthof experience. Clients can access the work of our IPGs, which complement ourextensive portfolio of legal services.

The Restructuring and Labour Relations IPG members advise clients on a widerange of restructuring and labour-related matters around the world, such ascorporate restructuring, including sale of businesses and outsourcing; largescale redundancies or reductions in workforce; employee consultation obligations; negotiation with employee representative bodies, such as tradeunions and works councils; and dealing with strikes and industrial actions.

For any additional information, please visit our website (www.iuslaboris.com)or feel free to contact us:

Ius Laboris

280 Boulevard du Souverain1160 Brussels BelgiumT +32 2 761 46 10F +32 2 761 46 15E [email protected]

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DENMARKChristian K ClasenNorrbom VindingAmerikakaj Dampfaergevej 262100 CopenhagenDenmarkT +45 35 25 39 40F +45 35 25 39 50E [email protected]

FINLANDNina Isokorpi Olav HermansonTiina HakriRoschierKeskuskatu 7A00100 HelsinkiFinlandT +358 20 506 6000F +358 20 506 6100E [email protected]

[email protected]@roschier.com

www.roschier.com

FRANCELaetitia BoettoCapstanLe Carat – Les bouillides200 chemin du Vallon06560 Sophia-AntipolisFranceT +33 0 4 92 38 87 88F +33 0 1 45 63 99 62E [email protected]

GERMANYAlexander UlrichKliemt & VollstädtGeorg-Glock-Straße 840474 DüsseldorfGermanyT +49 211 88288 0F +49 211 88288 200E [email protected]

GREECEAlexia StratouKremalis Law Firm35, Kyrillou Loukareos Str.114 75 AthensGreeceT +30 210 6431387F +30 210 6460313E [email protected]

HUNGARYAndrea SoosPRK Bellák & PartnersPauler IrodahazPauler u.111013 BudapestHungaryT +36 1 331 4580F +36 1 354 0125E [email protected]

IRELANDJennifer O’NeillLK Shields Solicitors39/40 Upper Mount StreetDublin 2IrelandT +353 1 661 0866F +353 1 661 0883E [email protected]

ITALYEmanuela NespoliToffoletto e SociVia Rovello, 1220121 MilanItalyT +39 02 721 44 1F +39 02 721 44 500E [email protected]

LATVIAAiga Klimovica Raidla Lejins & NorcousValdemara 201010 RigaLatviaT +371 6724 0689F +371 6782 1524 E [email protected]

LUXEMBOURGGuy CastegnaroCastegnaro Cabinet d’Avocats33, Allée Scheffer2520 LuxembourgLuxembourgT +352 26 86 82 1F +352 26 86 82 82E [email protected]

NETHERLANDSRuth CampmanBronsgeest Deur Advocaten De Lairessestraat 137-1431075 HJ AmsterdamNetherlandsT +31 20 305 33 33F +31 20 305 33 30E [email protected]

NORWAYAmund Fougner Claude A. LenthTherese Høyer GrimstadAdvokatfirmaet Hjort DA P.O. Box 471 Sentrum0105 OsloNorway T +47 22 47 18 00 F +47 22 47 18 18 E [email protected]

[email protected] [email protected]

www.hjort.no

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SWITZERLANDMatthias OertleLenz & Staehelin Bleicherweg 588027 ZurichSwitzerlandT +41 58 450 80 00F +41 58 450 80 01E [email protected]

Benoît ChappuisLenz & StaehelinRoute de Chêne 301211 Geneva 17SwitzerlandT +41 58 450 70 00F +41 58 450 70 01E [email protected]

TURKEYMaria CelebiPelin TuncaBener Law OfficeYapi Kredi Plaza, C blok, Kat.434330 LeventIstanbulTurkeyT +90 212 270 70 50F +90 212 270 68 65E [email protected]

UNITED KINGDOMSteven LorberLewis Silkin LLP5 Chancery LaneClifford's InnLondon EC4A 1BLUnited KingdomT +44 20 7074 8000F +44 20 7864 1200E [email protected]

POLANDBartlomiej RaczkowskiBartlomiej Raczkowski KancelariaPrawa Pracyul. Ciasna 600-232 WarsawPolandT +48 22 531 52 80F +48 22 531 52 81E [email protected]

PORTUGALBruno Soeiro Barbosa Pedro Pinto, Reis & AssociadosAv. Fontes Pereira de Melo,No.21,71050-116 LisbonPortugalT +351 21 350 9400F +351 21 352 7212E [email protected]

RUSSIAOlga Pimanova ALRUD Law Firm2nd floor17 Skakovaya Street125040 MoscowRussiaT +7 495 234 96 92F +7 495 956 37 18E [email protected]

SLOVAK REPUBLICJaroslav SkubalPeter VargaPRK Partners s.r.o.Gorkeho 3811 01 BratislavaSlovak RepublicT +421 259 241 180F +421 254 432 733E [email protected]

[email protected]

SPAINJosé María Carpena Sagardoy AbogadosC/Tutor 2728008 MadridSpainT +34 91 542 90 40F +34 91 542 26 57E [email protected]

SWEDENLars Hartzell Jenny HellbergElmzell Advokatbyrå ABGamla Brogatan 32111 20 StockholmSwedenT +46 8 21 16 04F +46 8 21 00 03E [email protected]

[email protected]

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Contents

INTRODUCTION 12

AUSTRIA 17

BELGIUM 29

CYPRUS 43

CZECH REPUBLIC 51

DENMARK 63

FINLAND 75

FRANCE 87

GERMANY 101

GREECE 119

HUNGARY 129

IRELAND 137

ITALY 151

LATVIA 161

LUXEMBOURG 171

NETHERLANDS 183

NORWAY 195

POLAND 205

PORTUGAL 217

RUSSIA 227

SLOVAK REPUBLIC 235

SPAIN 247

SWEDEN 255

SWITZERLAND 267

TURKEY 277

UNITED KINGDOM 285

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13

Introduction

This book is a guide to the employment implications of transfers of undertakings in Europe. As will become apparent, what constitutes a ‘transfer of an undertaking’ varies between member states. However, itincludes a sale of a business and, at least in some circumstances, an outsourcing of a function. The book focuses primarily on states within theEuropean Economic Area but also includes information on Russia and Turkey.

OUTLINE OF THE EU LAW ON TRANSFERS OF UNDERTAKINGS

Within the EEA there is core legislation on transfers of undertakings thatapplies in all member states. This derives from an EU Directive agreed originallyin 1977 but now set out in Directive 2001/23/EC. The legislation was firstintroduced because it was anticipated that the single market within Europewould lead to restructuring both at a national level and trans-national leveland, in particular, that there would be an intensification of mergers and acquisitions. The Directive aims to protect the position of employees in suchcircumstances.

In outline, the Directive works as follows:

• The law applies where there is a transfer of an undertaking or business (or part of one) from one employer (transferor) to another (transferee).Such a transfer arises if there is a transfer of an organised grouping of resources which has the objective of pursuing an economic activity with asubstantial retention of the grouping’s identity in the hands of the transferee.

• If the law applies: - The employees assigned to the undertaking transfer from the

transferor to the transferee. - Rights and obligations arising under a contract of employment or an

employment relationship transfer to the transferee (other than rights inrelation to pensions). Although liability falls on the transferee, memberstates have the option to make the transferor and transferee jointly liable for obligations arising before the transfer.

- The transferee must continue to observe collective agreements.- As long as the undertaking transferred preserves its autonomy,

employee representation arrangements continue to operate on the pre-transfer basis.

INTRODUCTION

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- There are constraints on dismissal. The transfer of undertaking must not itself constitute grounds for dismissal by the transferor or the transferee – though that does not prevent dismissals for economic, social or organisational reasons entailing changes in the workforce.

- The transferor and transferee are required to inform representatives of employees of• The date of the transfer• Reasons for the transfer• The legal, economic and social implications of the transfer• Any measures that they envisage in relation to employees

- Where the transferor or transferee envisages measures affecting its employees, it is required to consult employee representatives with a view to reaching agreement.

A COMMON BASE BUT DIFFERENT OUTCOMES

Although the Directive provides for a common approach, member states haveconsiderable flexibility in how they implement the Directive. In practice, as willbe apparent from this guide, an employer contemplating a transfer of anundertaking will find that there are significant differences between memberstates. These differences arise mainly because of the diverse approaches of theunderlying labour law (for example on the consequences of dismissingemployees) and in relation to arrangements for employee representation.They also arise because courts in individual states have interpreted the law indifferent ways.

For example, the UK has developed a much more liberal interpretation of ‘transfer of an undertaking’ than many member states. In the UK the outsourcing of an activity or a change in the contractor providing the outsourced activity will be a transfer of an undertaking even if there is noretention of identity and no assets transfer. In other member states outsourcing may also constitute a transfer of an undertaking but in more limited circumstances. Where there is a transfer of an undertaking, the UKinterprets the law in a more literal and less business-friendly way (and sometimes less employee-friendly way) than most other states.

CROSS-BORDER TRANSFERS

The Directive applies to transfers within a member state. It may also apply, in principle, to a transfer between member states, for example on the outsourcing of an IT function from France, Germany and Sweden to a contractor based in Poland. Perhaps rather surprisingly, there is nothing in theDirective dealing with cross-border transfers and there have been very fewcourt decisions on such transfers. There is therefore considerable uncertaintyas to the legal position.

If there were a transfer from within the EU to a third country outside the EU(for example, India or Mauritius), one would think it unlikely that the Directivewould apply – if only because the EU and its member states have no jurisdiction to legislate outside the EU. Nonetheless, the position in not beyonddoubt and a recent UK case has gone as far as to suggest that a transfer might arise between the UK and Israel!

Where a cross-border transfer occurs, although consideration should be givento the Directive and its implications, it is very unlikely that many (and probablyany) of the existing staff will wish to transfer. The issue is therefore better dealtwith in practical HR terms than by reference to legal theory.

FURTHER INFORMATION

For further information on the law in a particular state, please contact the relevant Ius Laboris member firm (listed above) orSteve Lorber (Lewis Silkin LLP, UK)Doug Gilbert (Heenan Blaikie, Canada)Co-chairs of Restructuring and Labour Relations International Practice Group

INTRODUCTION

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Austria

1. TRANSFERS 19

1.1 When, in broad terms, does the legislation apply? 191.2 What specific factors trigger the transfer of an undertaking? 191.3 Are there any forms of transaction to which the legislation

does not apply? 20

2. TERMS OF EMPLOYMENT 20

2.1 Who is protected? 202.2 What if employees object to the transfer? 212.3 What happens to terms of employment contracts? 222.4 What about other employee benefits? 222.5 What happens to pension rights? 222.6 What liabilities transfer? 232.7 What if employees are covered by a collective agreement? 23

3. CHANGE MANAGEMENT 24

3.1 Can employers make changes to employment contracts? 243.2 When can employers safely dismiss employees before

or after a transfer? 24

4. FOLLOWING THE RIGHT PROCEDURE 25

4.1 Who must employers consult? 254.2 What information must they provide? 254.3 What does consultation involve? 254.4 What happens if an employer fails properly to inform or consult? 25

5. ISSUES PECULIAR TO THIS COUNTRY 26

5.1 Are there any special issues employers should be aware of when 26transferring an undertaking in this country? 26

5.2 What are the main areas of legal uncertainty relating to transfers of undertakings in this jurisdiction? 26

5.3 What other factors would employers need to consider in the case of a cross-border transfer into or out of this country? 26

6. IMPLEMENTING LEGISLATION 27

6.1 What are the main national laws implementing the EU acquired rights legislation? 27

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Transfers of Undertakings Guide - AUSTRIA

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? The legislation (i.e. the Employment Law Harmonisation Act,‘Arbeitsvertragsrechtsanpassungsgesetz’) takes effect upon the change in theownership of an undertaking, business or part of a business. This might be theresult of, for example, a purchase or a lease contract. It might also be the resultof a business reorganisation such as a merger, a joint venture or a divestment.

Operations that result only in the transfer of business functions(‘Funktionsnachfolge’) do not qualify as transfers of undertakings in the meaning of the law, and therefore differentiating between these two definitions is crucial.

The splitting off of operational duties without any tangible or intangible assetsand (in general) without the transfer of more than 10% of the employees dedicated to the operation, is considered to be merely a transfer of businessfunctions. However, once a transfer of licences, patents, copyright, logisticssystems, specific software or the like takes place, this is normally considered tobe no longer a simple transfer of functions but instead a transfer of (part of)an undertaking.

When it comes to outsourcing, both scenarios might be applicable. It will notbe considered to be the transfer of an undertaking if the outsourcing partner possesses sufficient business organisation and staff to be able to fulfil the outsourced task completely with its own know-how, staff and assets and without further support from the outsourcing company.

1.2 What specific factors trigger the transfer of an undertaking? Austrian courts interpret the meaning of transfer of undertakings in accordance with the European Court of Justice by applying the following indicators:

• the transfer covers an economic entity (‘an organised grouping of personsand assets facilitating the exercise of an economic activity which pursues an objective specific to it’)

• the undertaking retains its identity as an economic entity following the transaction

• tangible and/or intangible assets are transferred • the activities carried on before and after the transfer are similar • customers are transferred • a significant number of employees (in number or expertise) are taken over.

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The employment contracts of employees working in the transferor’s undertaking as secondees or employees temporarily hired out to the transferor’s undertaking, are not affected since they themselves have no contractual relationship with the transferring business but only with a thirdparty. Only if the undertaking which seconds or hires out the employee is itselftransferred does Section 3 of the Employment Law Harmonisation Act apply,and only then if the employees qualify as such in the way described above. Ifthe device of seconding or hiring out employees and utilising the transferor’sstaff is used to bypass the rules on transfers of undertakings, the provisionsdiscussed here will still apply.

2.2 What if employees object to the transfer? The employee’s right to object is restricted to two situations:

• the new owner refuses to acknowledge special protections against dismissal as set out in a collective agreement that applied at the time of thetransfer or

• the new owner refuses to take over the occupational pension fund.

In addition, the Austrian Supreme Court has ruled that the right to object mustbe extended to cases where the employee’s reason for objecting is that continuation of the employment contract with the new owner has becomeunacceptable, because, for example, of the loss of his or her position as aworks council member. However, this ruling was very controversial and highlycriticised by legal practitioners as it extended the rules on objection and sincethen no comparable ruling has followed. Therefore, if and how far employees’rights of objection extend over the two situations described above is unclearat the time of writing. Currently, objections for other general reasons are notcovered by law.

The employee must raise his or her objection within one month of the newowner’s refusal to accept special protections against dismissal or to take overthe occupational pension fund. If the employee objects within one month, theemployment contract is deemed to remain with the original employer.

If working conditions change for the worse owing to the application of a different collective agreement or works agreement after the transfer, then theemployee is entitled to resign and to have his or her resignation deemed to bea constructive dismissal (although it is open to the transferee to agree the previous conditions on an individual basis). In such cases of resignation, theemployee will have the same rights as if the employer had terminated the contract. The employee may apply to court for a declaratory judgment in relation to the unfavourable conditions.

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None of these factors is decisive and the absence of any one of these factorsis not fatal. The actual circumstances characterising the transfer in questionmust be considered in an overall assessment in order to determine whether theconditions are met for it to be deemed to be a transfer of an undertaking.

1.3 Are there any forms of transaction to which the legislation does not apply? If the above-mentioned conditions are met, it is not possible for a business anda contractor to agree not to apply the Employment Law Harmonisation Act.Courts and tribunals will look behind obvious attempts to bypass it, no matterwhat arrangements were made at the point of transfer.

The Employment Law Harmonisation Act does not cover share deals.Outsourcing operations might be excluded depending on the circumstances,as described above. In addition, no automatic transfer of undertakings takesplace in the event of a transferor´s insolvency.

2. TERMS OF EMPLOYMENT

2.1 Who is protected? The protection covers all ‘employees’, defined as follows:

• where both parties have obligations under a contractual relationship • the employee works under guidance and control • work equipment is provided by the employer • the employee owes individual and personal commitment • the employee is liable for care and attention but not for the outcome of

his or her work.

Not all of the above characteristics need be present, but overall assessmentmust demonstrate a certain level of dependence with regard to personal andeconomic subordination.

Apprentices and executive staff members (as long as the latter are not alsoinfluential, independent statutory agents of the company) are deemed to beemployees as well. All government employees are excluded.

In the case of the transfer of only a part of an undertaking, only those employees who are functionally and organisationally assigned to that part ofthe business would be transferred. The other employees are not affected.

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2.3 What happens to terms of employment contracts? The transferee, as the new employer, must take over all rights and obligationscontained in each individual employment contract.

After the transfer, if a different collective agreement applies to the newemployer, then it will also apply to the transferred employees. Therefore, rightsbased solely on collective agreements may be lost if they are not covered bythe terms of the collective agreement of the new employer. Please see section3.1 below for further details on the impact of a transfer on collective agreements.

Changes in ownership do not influence existing works agreements, whichremain effective after the transfer. The same applies if part of an undertakingis split off and becomes a new, independent entity. In a merger by consolidation, if (part of) an undertaking forms a new, independent businesstogether with another undertaking, the works agreements remain effectiveonly for those employees who had previously been covered.

On the other hand, if (part of) an undertaking merges into an existing undertaking (merger through acquisition), then the only provisions of theworks agreements to remain in effect for transferred employees are those thatdeal with subjects not covered by the acquiring undertaking’s works agreements. In the case of merger through acquisition, works agreementsregarding occupational pension schemes may be terminated with a month-long notice period by the dominant business.

So-called ‘free’ works agreements, which are not covered by statutory provisions or collective agreements, are treated like individual employmentcontract provisions (see above).

2.4 What about other employee benefits? Past employment with the transferor will count as continuous employmentwith the transferee. Even if the applicable collective agreement changes, thecompensation provided for in the previous collective agreement (see below)may not be reduced. Other benefits resulting from the ‘old’ contractual agreement that affect working conditions may be changed by individual contract only after a retention period of one year.

2.5 What happens to pension rights? An occupational pension scheme that is based on an individual agreementbecomes part of the employment contract and the obligation passes to theacquirer of the business (if the latter is a universal successor).

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However, if the deal in question was, for example, an asset deal and not a caseof universal succession, then by declining in due time, the new employer mayrefuse to take over a company pension commitment. In this case the employeeis entitled to object as mentioned above, with the effect that his or heremployment contract is not transferred.

If the employee does not object even though the acquirer refuses to take overa company pension commitment and his or her contract is transferred to theacquirer, no future pension benefits will accrue to him or her as of the date ofthe business transfer. The employee is entitled to claim compensation from theformer employer for pension rights that accrued up to the date of the transferof the business.

As mentioned above, in cases of merger through acquisition the new employermay terminate works agreements regulating occupational pension schemeswithin a period of one month following the transfer.

2.6 What liabilities transfer? As soon as the transferee steps into the existing employment contract as thenew employer, replacing the transferor, any liabilities resulting from that contract are also transferred. For obligations arising from the period prior tothe transfer, the transferor and the transferee are held jointly liable.

As concerns severance payment claims and claims relating to an occupationalpension which become due after the transfer took place, the transferorremains liable for severance payment claims and accrued pension rights on apro-rata basis relative to the date of transfer.

2.7 What if employees are covered by a collective agreement? In general terms, as of the date of the transfer the employment contract willbe governed by the collective agreement to which the transferee is subject.Any more advantageous provisions of the former collective agreement regarding remuneration for regular non-overtime work or protection againstdismissal, are exempt.

Conversely, if the transferee is not subject to any collective agreement, the former collective agreement remains applicable. Individual agreements thatamend the terms of an applicable collective agreement may be made onlyafter a retention period of one year.

As soon as the transferee becomes part of a collective agreement after thetransfer, employees are automatically covered. If both the transferee and thetransferor are subject to the same collective agreement, there will be nochange.

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3. CHANGE MANAGEMENT

3.1 Can employers make changes to employment contracts? Changes to individual contracts can be made only by mutual agreement. Theemployee must agree to the new provisions.

However, this general rule does not fully apply when it comes to reducing theemployee’s compensation. By law, where an employee is switched to a newcollective agreement, that does not permit any reduction in compensation forregular non-overtime work as compared to the previously applicable collectiveagreement. Although an individual agreement that reduces compensationbelow this higher level would be allowed, it would require special justificationsuch as personal or business-related interests. Even if the employee consents,a reduction motivated only by the transfer is not permitted.

Changes for the worse effected very shortly after the transfer may be declaredvoid if the employee can prove that he or she has agreed as a result of (director indirect) pressure. This could be an issue if structural changes are expectedafter the transfer and the employee agrees to some disadvantageous changeonly where he or she might otherwise expect to be dismissed.

3.2 When can employers safely dismiss employees before or after a transfer? Neither the transferor nor the transferee may dismiss employees by reason ofthe transfer. Such a termination might be effective at first, but the employeecould bring an action for a declaratory judgment that the dismissal was basedon the transfer alone and is therefore void.

Dismissals for reasons other than the transfer are allowed only if they wouldhave been made regardless of the transfer, i.e. if they were not made merelyto bypass the provision forbidding dismissals by reason of the transfer. Thecloser the dismissal is to the transfer, the more convincing the evidence mustbe that the dismissal was for business-related reasons or for reasons of personal behaviour.

Waiting 6 to 9 months before terminating employment contracts should suffice to ensure that the terminations are deemed not to be a result of thetransfer, i.e. that they are deemed to be legally valid. The above also applies to dismissals with the option of altered conditions of employment.

4. FOLLOWING THE RIGHT PROCEDURE

4.1 Who must employers consult? The transferee must inform and consult in advance with the works council, ifone exists, about planned transfers. If no works council is established, eitherthe transferee or the transferor must inform the employees in advance in writing. It is good practice also for the information to be made available on relevant company bulletin boards.

4.2 What information must they provide? They must provide:

• the date or proposed date of the transfer • the reason for the transfer• the legal, economic and social implications of the transfer for

the employees• any measures envisaged in relation to the employees.

In addition, the new employer must inform the employees about changes inapplicable collective agreements, changes in works agreements and anyrefusal to take over occupational pensions or dismissal protection agreed uponby previous collective agreement or individually.

4.3 What does consultation involve? If a works council has been established and if the changes are to the detrimentof the employees, the works council may make recommendations on optionsfor alleviating or avoiding the negative effects, and might wish to co-operatein establishing a social plan for affected employees. As the works council mayenforce a social plan, it is common practice for employers to consider any suggestions made by the works council and discuss them in order to come toan agreement.

4.4 What happens if an employer fails properly to inform or consult? There are no direct sanctions if these obligations are breached, but theemployer might be found liable if the employee claims damages resulting fromsuch a breach.

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5. ISSUES PECULIAR TO THIS COUNTRY

5.1 Are there any special issues employers should be aware ofwhen transferring an undertaking in this country?

As discussed above, the employee’s right to object is very restricted and, if justified, has the result that the contract with the transferor remains in effect.

The employee may resign within a one month period if, as a result of the transfer, the applicable collective agreements or works agreements lead to adeterioration of working conditions which the new employer does not compensate by means of an individual offer. In such a case the employeewould not lose the right to claim benefits such as severance payment, and heor she will not be bound by a restrictive covenant (i.e. a non-competitionclause). Generally speaking, employment contracts can be amended by mutual agreement after the transfer. Working conditions resulting from thetransferor’s collective agreement and not replaced by another collective agreement may be changed only after a retention period of one year.

Another issue worth mentioning is that the transferee is liable jointly with thetransferor for all claims resulting from the employment relationship that arosein the period before the transfer.

5.2 What are the main areas of legal uncertainty relating to transfers of undertakings in this jurisdiction?

Case law indicates that there are two main areas that are subject to interpretation:

• whether certain circumstances and procedures are deemed to be transfers of undertakings which are subject to the Employment LawHarmonisation Act

• what kind of agreements are considered void because they bypass mandatory protection provisions.

Please see above for guidelines on these issues.

5.3 What other factors would employers need to consider in the case of a cross-border transfer into or out of this country?

In general terms, the Employment Law Harmonisation Act provisions also applyif (parts of) undertakings are transferred outside of Austria, at least as long asthe foreign transferee operates the transferred business within Austria. In addition, in such cases, the transferee will enter into an employment contractand difficulties might arise if the transferee can only offer employment abroad,

since the employment contract will most probably not include an obligationfor the employee to work abroad. If the employees do not agree to go abroad,the new employer would have no option but to dismiss them.

Equally, the provisions of the Employment Law Harmonisation Act apply in thecase of transfers into Austria as soon as the undertaking is relocated to Austria.

Other provisions may apply if there is an explicit choice of law in the individualemployment contract.

6. IMPLEMENTING LEGISLATION

6.1 What are the main national laws implementing the EU acquired rights legislation?

Austria has implemented Council Directive 2001/23/EC of 12 March 2001 bymeans of Sections 3 to 6 of the Employment Law Harmonisation Act.

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Belgium

1. TRANSFERS 31


does not apply? 32









5.1 Are there any special issues employers should be aware of when transferring an undertaking in this country? 39





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Transfers of Undertakings Guide - BELGIUM

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? Under Belgian law, the transfer of an undertaking (or part thereof) is governedby Collective Bargaining Agreement no. 32bis of 7 June 1985 (CBA no. 32bis)and applies as soon as an employee is confronted with a new employer (newlegal entity), following a transfer of an undertaking (or part thereof) as a goingconcern, by virtue of an agreement.

A transfer involves the replacement of the natural or legal person who runs acompany and has obligations vis-à-vis the employees, by another natural orlegal person.

CBA no. 32bis also applies to transfers between two companies belonging tothe same corporate group (i.e. which have the same management, performthe same activities, have their registered offices in the same building etc). Thisis because the two companies are different ‘legal’ entities. The fact that twocompanies constitute one economic player for the purposes of European competition law is irrelevant for the purposes of the application of CBA no. 32bis.

1.2 What specific factors trigger the transfer of an undertaking? Under Belgian law, the transfer of an undertaking (or part thereof) requires thetransfer of ‘an economic entity which will keep its identity after the transfer’(a ‘going concern’). This definition of ‘economic entity’ is in line with EuropeanCourt of Justice case law.

A division of a part of an undertaking will therefore be covered by CBA no. 32bis if it has an ‘autonomous activity’ and is considered to be a ‘separateoperating unit’.

Different criteria must be considered to determine whether the undertaking(or part thereof) will retain its identity after the transfer, including:

• the type of business or undertaking being transferred• whether the transfer includes tangible assets such as buildings and stock

(it does not necessarily have to involve the transfer of property rights) • the value of intangible assets (lease contracts, licenses etc.) on the date of

the transfer• whether the majority or a significant portion of the staff (both in size and

in strategic importance in the organisation) are being taken over by the transferee

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• whether there is a transfer of customers• the degree of similarity of activities before and after the transfer• the duration of any interruption in those activities (and any other criterion

specific to the business that would point to the continuation of a business).

None of the above criteria will alone be sufficient to determine the applicabilityof CBA no. 32bis. Each criterion is merely a single factor to be considered inthe overall assessment of the transfer of the undertaking. In addition, all of thecriteria must be evaluated against the background in which the company isoperating.

Outsourcing activities will not necessarily fall within the scope of CBA no. 32bis, if this only involves the transfer of a mere economic activity. If outsourcing involves the transfer of more than a mere economic activity, it mayfall within the scope of CBA no. 32bis, depending on how much of the business is being transferred.

The European Court of Justice has ruled in several cases that, with respect tocontracted-out service transfers from one contractor to another, it does notautomatically follow that there is a transfer of a business merely because theservice provided by the old and new contractors is similar. In the court’s view,an entity cannot be reduced to the activity entrusted to it – its identity alsoderives from other factors, such as its workforce, its managers, the way inwhich the work is organised, its operating methods and, where appropriate,the operational resources available to it.

To determine whether a company maintains its ‘identity’ after transfer, theEuropean Court of Justice considers the nature of the transferred activity bylooking at the assets and any service-providing activities.

As to a service-providing activity, where assets are of less importance, theEuropean Court of Justice has ruled that the mere transfer of a significant partof the workforce, in terms of number and skills, may constitute a transfer ofthe undertaking. In the case of an asset-driven activity, the Directive essentiallyapplies when the change of contractor involves the transfer of significant tangible or intangible assets (including any assets that the company has put atthe disposal of the contractor).

1.3 Are there any forms of transaction to which the legislation does not apply? Selling the company’s stock (share deals) will not trigger the application of CBAno. 32bis. Share deals result in a new ‘economic’ employer, but not a new‘legal’ employer. As the legal employer remains the same, all rights and

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obligations (including those under supplementary pension schemes) are maintained. Therefore, no additional protection of the employees is consideredto be necessary.


2.1 Who is protected? Protection is provided to employees who are attached to and predominantlyperform their services for the part of the business that is being transferred tothe transferee.

Only employees are protected (i.e. persons who perform work in exchange forpay in a subordinate position). Self-employed persons who are in substanceemployees can also claim to be protected by CBA no. 32bis.

Protection is only provided to those who have employee status both beforeand after the transfer. For example, if an employee voluntarily resigns theiremployee status at the time of transfer in order to become self-employed, heor she loses the protection of CBA no. 32bis.

The Belgian courts adopt the theory of a ‘suspect period’, which enables theextension of CBA no. 32bis to employees who have been dismissed prior tobut in close proximity to the date of the transfer. These employees have theright to be employed by the transferee under the same terms and conditionsas applied under their old contract of employment.

2.2 What if employees object to the transfer? CBA no. 32bis does not give a clear answer to the consequences of an employee’s refusal to be transferred to a transferee. The majority of case lawand legal doctrine states that, if the employee is not confronted with significant changes to his or her employment conditions and he or she refuses to transfer, it will be deemed that the employee has resigned.

2.3 What happens to terms of employment contracts? There is an automatic transfer of the employment contract. The employmentcontract is passed on as it exists at the moment of transfer of the undertaking(or part of it). This implies that notice periods or periods of leave (pregnancy,time credit etc) continue to run, seniority continues to accrue, and so on.

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As to periods of service to be performed after the transfer date, the transfereewill in most cases be obliged to provide some sort of compensation. The formthis takes will be a matter of negotiation between the employees or employeerepresentatives.

2.6 What liabilities transfer? CBA no. 32bis provides that the transferor and transferee are jointly liable forthe payment of debts flowing from employment contracts, insofar as the debtsexisted at the moment of transfer. This means that, for example, arrears ofsalaries and severance indemnities can be claimed from both the transferorand transferee. However, there is no joint liability for debts stemming fromsupplementary social security schemes, such as occupational pension rights orwhere the transfer takes place within the framework of an insolvency (wherespecific conditions must be fulfilled).

2.7 What if employees are covered by a collective agreement? CBA no. 32bis does not contain specific provisions regarding the fate of collective bargaining agreements in the event of transfer of an undertaking (or part of one). Therefore, this issue falls under Articles 20 and 23 of the CBA-Act of 5 December 1968. These measures are equivalent to the protection required by the Directive:

Article 20 of the CBA-Act Article 20 provides that ‘in the event of a transfer of a company or a part ofthe company, the transferee must respect the CBAs by which the formeremployer was bound until these CBAs cease to have effect’.

The effect of Article 20 depends on the level the CBA has been concluded at.A national CBA is concluded at the level of the National Work Council andbinds the entire private sector. These CBA's will thus apply to both transferorand transferee.

The fate of a sector level CBA (concluded at the level of a branch of industryand applicable to companies belonging to this industry), depends on whetherboth the transferor and transferee belong to the same branch of industry. Ifboth parties do belong to the same branch of industry, the sector level CBAsremain applicable. The applicability of Article 20 on a transfer involving achange of branch of industry is controversial. There is some argument thatwhere the transferee carries out a completely different activity, and thusbelongs to another industry, the transferee will not continue to be bound byCBAs concluded within the industry of the transferor.


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2.4 What about other employee benefits? The transfer should not have any impact on the terms and conditions of employment. The transferee is obliged to guarantee the same terms andconditions, which means not just similar ones or ones that are substantially thesame. This means that if the transferee does not have the facilities to providea benefit that the transferor used to provide to its former employees, the transferee will be obliged to provide them with an equivalent benefit or tocompensate them in some way unless they (the transferee and the employees)agree otherwise (see section 3.1).

One exception is explicitly made with respect to the rights the transferredemployees may have within the context of extra-legal benefit schemes (including invalidity) such as occupational company pension schemes (groupinsurance and pension funds).

2.5 What happens to pension rights? As mentioned above, CBA no. 32bis does not apply to supplementary socialsecurity schemes, including occupational company pension schemes. As a consequence, there will be no automatic transfer of occupational pensionrights in the event of a transfer. It is therefore up to the transferor and transferee to negotiate occupational pension arrangements for the employeesbeing transferred. However, if the occupational pension scheme of the transferor arises from a collective bargaining agreement, the transferee will beobliged to respect this scheme until the CBA ceases to have effect (see below).

The transferee is not obliged to take over the employees’ pension rights relating to periods of service performed prior to the transfer date. Further, thetransferee is not required to continue the transferor’s occupational pensionscheme. Employees being transferred will, however, not lose vested rightsrelating to past service periods. Vested rights will be maintained in accordancewith the terms and conditions of the transferor’s occupational pensionscheme. The parties may agree that vested rights will be transferred to thetransferee’s benefit plan. This involves a transfer of assets from the transferor’soccupational pension scheme to the transferee’s occupational pensionscheme.

If the occupational pension scheme is not transferred to the transferee, theemployee is considered by Belgian law as leaving the scheme of the transferor.In such cases, the employee will by law benefit from different choices concerning his or her pension rights as vested in the transferor (e.g. to transfer to the pension scheme of the transferee, to leave vested reserves inthe pension institution of the transferor, etc).

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such. Sometimes a modification of the work regulations (which complete theindividual employment contract) may be necessary to bring them into line withthose existing in the transferee’s undertaking.

A change in the terms and conditions of employment to the detriment of thetransferred employees, without agreement and outside the scope of ius variandi, can amount to a constructive dismissal.

A waiver of the restriction on amending the terms and conditions may benegotiated with trade union representatives when the transfer takes placewithin the framework of insolvency.

3.2 When can employers safely dismiss employees before or after a transfer? CBA no. 32bis provides that the transfer of an undertaking (or part thereof)does not give the transferor or transferee a right to dismiss employees.However, dismissal is permitted for serious cause, or for economic, technical ororganisational reasons entailing changes in the workforce. According to a preliminary ruling delivered by the European Court of Justice, these groundsfor dismissal are available to both the transferor and transferee.

CBA no. 32bis does not provide for any particular sanction in the case of dismissal despite the general prohibition. Nevertheless, the violation of anyarticle of CBA no. 32bis (which has been declared generally binding by RoyalDecree) can result in criminal sanctions (fines and/or imprisonment) or, alternatively, in administrative sanctions for the transferor and/or the transferee.The courts have taken the unusual step of treating a dismissal which breachesthe protection of CBA no. 32bis as illegal and subject to an award of damages.For white-collar employees, the level of compensation is not usually very high.

There is discussion in Belgian legal doctrine and case law as to whether a dismissal prior to or following a transfer must be considered as unlawful andconsequently, whether to allow the employee to claim an extra indemnity ontop of the indemnity in lieu of notice, or notice period. One thesis seems to consider that a short time span between the dismissal and the transfer isnot sufficient to consider the dismissal as unlawful. Others consider the termination of an employment agreement within a short period prior to or following the transfer as being sufficient for the dismissal to be consideredunlawful.

In any event this protection against dismissal only relates to employees who arepart of the transfer.


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A CBA concluded at the level of the company binds the transferee in the sameway as the transferor was bound. This means that if the CBA is for a fixed termit will automatically cease to have effect on its expiry. If the CBA is for indefinite duration the transferee will have the right to give notice. The so-called principle of incorporation of individual normative provisions, provided by Article 23, applies in both cases.

Article 23 of the CBA Article 23 provides that ‘an individual employment contract which is implicitlymodified by a CBA remains effective as such when the CBA ceases to haveeffect, unless otherwise provided in the CBA’.

Article 23 thus establishes that the so-called principle of incorporation of theindividual normative provisions of CBAs applies to individual employment contracts. Individual normative provisions regulate the employment relationship and contain terms and conditions such as salary scales, classification of functions, indexation, year-end premiums, working time,annual holiday entitlement, and so on.

By virtue of Article 23, the individual normative provisions of CBAs of the relevant Joint Committees are incorporated into individual employment contracts of employees of the transferor, even though these CBAs will ceaseto have effect upon expiry of their term or on notice. This principle applies toCBAs at all levels: national, company and sector level. However, once the CBAsno longer apply, the transferee and the employees (as parties to individualemployment contracts) are legally entitled to modify the terms and conditionsof these employment contracts for the future by entering into a new employment contract. This can only be done with the consent of the employee(generally in exchange for some kind of financial compensation).


3.1 Can employers make changes to employment contracts? Although the employment contract has transferred, the transferee can undercertain conditions modify it by agreement with employees. The transferee alsoenjoys ‘ius variandi’, i.e. the right to make reasonable changes to the employment contract.

CBA no. 32bis does not provide an automatic transfer of the work regulations.The transferee appears to be bound only by rights and obligations containedin the work regulations, and not by the actual text of the work regulations as

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5.1 Are there any special issues employers should be aware of when transferring an undertaking in this country?

The transfer of an undertaking (or part of one) may have an influence on theexistence of the employee representative bodies:

Works Council and/or Committee for Prevention and Protection at Work(CPPW) With regard to the establishment of a works council and/or CPPW, the word‘employer’ does not refer to the legal entity but to the ‘technical operatingunit’ (TOU). A TOU is determined on the basis of economic criteria (i.e. belonging to the same economic group, identical or similar activities and soon) and social criteria (i.e. employees work in the same buildings, there is common personnel administration, common HR management, common workregulations or CBA’s and so on). If there is any conflict between the results ofapplying the two sets of criteria, the social criteria will prevail.

If the transferee and the undertaking (or part of one) transferred are separateTOUs, the existing works council and/or CPPW (if any) of the transferor willcontinue to function until the next social elections. At these elections, it shouldbe verified for each TOU whether social elections must be held to establish aworks council and/or a CPPW.

If the transferee and the undertaking transferred (or part of it) constitute oneTOU, the works council and/or CPPW (if any) of the transferee will function forboth companies, unless the parties decide otherwise. At the next social elections, a works council and a CPPW will have to be established coveringboth companies, provided certain thresholds are met.

Union delegation The fate of the union delegation in the case of a transfer of an undertaking (orpart of one) depends on what is provided for at the level of the branch ofindustry. If nothing is provided for at industry level, national CBA no. 5 willapply. Under this CBA, the fate of the union delegation in the case of a transfer is as follows:

When the transferee and the undertaking transferred remain separate TOUs,the existing trade union delegates of the transferor continue to perform theirmandate until it would normally have ended. If the transferee and the undertaking transferred constitute one TOU, a new union delegation will need


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4.1 Who must employers consult? Prior to the decision to carry out the transfer of the undertaking, both thetransferee and the transferor must inform and consult their respective employeerepresentative bodies, i.e. the works council or, in its absence, the trade uniondelegation or, in their absence, all of the employees and the Committee forProtection and Prevention at Work (CPPW). Depending on the factual and contractual circumstances, the European works council, if any, may also needto be consulted.

4.2 What information must they provide? If a company has a works council (or if not, a trade union), it must be informedof the intended transfer and the consequences of it on the company’s socialclimate.

Where there are no employee representative bodies the CPPW must beinformed and CBA no. 32bis provides that employees must be informed of:

• the intended date of the transfer• the reasons for the transfer• the legal, economic and social consequences of the transfer • the measures intended to be taken with respect to employees.

4.3 What does consultation involve? Prior to making the decision concerning the transfer, both the transferor andthe transferee must consult with the employee representative bodies.

Information and consultation is carried out through contacts with the workscouncil or, in its absence, with the trade union. The aim of the information andconsultation procedure is to give the employee representative bodies theopportunity to ask questions and advance their opinions and proposals.

4.4 What happens if an employer fails properly to inform or consult? CBA no. 32bis does not provide for any particular sanction. However, theinfringement of a CBA which has been declared generally binding is subject tocriminal penalties.

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The main laws are:

• CBA no. 32bis of 7 June 1985, which implements Directive 2001/23/EC • CBA no. 9 of 9 March 1972 concerning the information and consultation

of the employee representative bodies (works council, trade union or employees)

• Act of 20 September 1948 concerning the works council • CBA no. 5 of 24 May 1971 concerning trade unions • Act of 4 August 1996 concerning the well being of workers in the

execution of their employment contract and • Act of 5 December 1968 concerning CBAs and joint committees

of industry.


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to be established within a period of 6 months after the transfer. The previousunion delegates will continue to perform their mandate until the new uniondelegation has been established.


One area of uncertainty is the fate of a sector level CBA (concluded at the levelof a branch of industry and applicable to companies belonging to this branch)if the transferor and the transferee belong to separate branches of industry. Itcan mean that the transferee must simultaneously apply the sector level CBAsof two different branches of industry until the CBAs of the transferor cease tohave effect. However, even if the transferee does not have to comply with theCBAs of the branch of industry to which the transferor belongs, individual normative provisions will be incorporated in the individual employment contract of the transferred employees in accordance with Article 23 of theCBA Act.


A transfer of an undertaking (or part of one) to another country could triggerthe application of the provisions regarding collective dismissal. These provisions apply if a certain number of dismissals (the number of employees tobe affected by dismissal varies depending on the size of the organisation) takeplace within a period of 60 days, for reasons unrelated to an employee’s performance or competence.

As a rule, an employer cannot unilaterally and significantly modify any essential element of the employment contract, such as the place of employment. The move to another country will most probably be consideredas a significant modification of an essential element of the employment contract which is tantamount to a breach of contract giving rise to the payment of an indemnity in lieu of notice. If several employees refuse to transfer abroad, the company could be faced with a collective dismissal.

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Cyprus

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does not apply? 45














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? The Law Providing for the Preservation and Safeguard of the Rights ofEmployees on the Transfer of Businesses, Facilities or Sections of Businesses(Law No 104(I)/2000) as amended, takes effect upon the transfer of a businessor part of one, plus any facilities, as a result of a legal transfer or merger. Thelegislation covers both public and private businesses irrespective of whether ornot they have profitable economic activities.

1.2 What specific factors trigger the transfer of an undertaking? The transfer of an economic entity occurs when an undertaking or part of oneis transferred from one employer to another as a going concern. This caninclude cases where two companies cease to exist and combine to form athird. A ‘transfer’ means the transfer of an economic entity which retains itsidentity and which can be seen as a group of organised resources and whichhas the objective of pursuing an economic activity, whether or not that activity is central or ancillary.

1.3 Are there any forms of transaction to which the legislation does not apply?To be covered by the legislation and for affected employees to enjoy the rightsunder it a business transfer must involve the transfer of an economic entitywhich retains its identity. The legislation does not apply to:

• vessels and ships • transfers by share take-overs• transfers involving insolvent businesses• re-organisation or re-distribution of functions amongst public bodies.


2.1 Who is protected? The legislation applies to employees and their representatives. An ‘employee’means any person who works for another person under a contract of employment or apprenticeship or under conditions where an employmentrelationship between employer and employee can be identified. A ‘representative’ means the representative of any employee provided for by legislation or practice. The transfer of a business, or part of one, is not a goodenough reason in itself to terminate the employment of any person.

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2.7 What if employees are covered by a collective agreement? After the transfer, the transferee retains the working terms that have beenagreed in any collective agreement, in the same way as was done by the transferor, for the remainder of the term of the collective agreement, with aminimum duration of one year.


3.1 Can employers make changes to employment contracts? The basic rule is that no detrimental variation of any working terms by reasonof a transfer, is permitted. The transferee retains the working terms that havebeen agreed in any collective agreement, in the same way as was done by thetransferor, for the remainder of the term of the collective agreement, with aminimum duration of one year. If the transferee agrees to detrimental changesto an employment contract he may be found be guilty of a criminal offenceand liable, on conviction, to a fine not exceeding EUR 1,708 and to possibleclaims for compensation brought by every employee whose rights are affected.

3.2 When can employers safely dismiss employees before or after a transfer? The transfer of a business or part of one, is not in itself a reason for dismissal.However, dismissals may take place for economic, technical or organisationalreasons that require changes to the workforce as long as it is done in accordance with the provisions of the Termination of Employment Law.However, a dismissal made for reasons to do with the transfer which takeplace before the date of the transfer, will be considered as a dismissal by reason of the transfer.


4.1 Who must employers consult?Both the transferor and transferee must consult either the employees affectedby the transfer or their representatives.

4.2 What information must they provide? They must provide:

• the date of the transfer • the reason for the transfer • the legal, economical and social consequences of the transfer upon the

employees • the measures that are going to be taken regarding the employees.


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2.2 What if employees object to the transfer? Employees are not entitled to object to a transfer. Objecting to working for anew employer may constitute a material breach of the employment contract.

2.3 What happens to terms of employment contracts? If the working conditions or the contract of employment are changed to theemployee’s detriment, e. g. meaning that the employee’s duties radically change,this may be a breach of contract by the employer. All rights and duties of thetransferor stemming from the employment contract or work relationship as itexists at the date of the transfer must be transferred to the transferee.

The transferee must retain the same terms and conditions of employment forat least a year after the transfer.

2.4 What about other employee benefits? Employees retain all rights that they had with the transferor regarding old ageand disability, plus any rights to supplementary occupational retirement benefits. Employees who have already left the transferor’s business at the timeof transfer, retain the rights they have obtained and have the right to claim further employee benefits from their new employer.

In the event that the new employer does not have the facilities to provide abenefit that the old employer used to provide the employers must consultabout this with the employees and the employee’s trade unions in order to finda solution.

In general, past employment with the transferor counts as past employmentwith the transferee.

2.5 What happens to pension rights? Pension entitlements rights remain unaffected. Occupational pension rightsearned up to the time of the transfer are protected by social security legislation and pension trust arrangements. If the transferor used to provide ascheme, e.g. a provident fund but the transferee does not, the employee hasthe right to withdraw the amount that he or she deposited with the providentfund up to the date the transfer occurred, in accordance with the regulations contained in the articles of association of the provident fund.

2.6 What liabilities transfer? The transferee will be liable for all claims made by transferring employees,whether made before or after the transfer and including claims in respect ofany acts or omissions of the transferor. The transferor and the transferee mayjointly agree to retain all responsibilities after the date of the transfer withregard to employment-related claims made in connection with the transfer.

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Both the transferor and transferee must provide all of this information to theemployees or their representatives before the date of the transfer. This is anoligation, even if the transfer decision was taken by an employer of the transferor.

4.3 What does consultation involve? If the transferor or the transferee intend to take measures which will changethe working conditions of employees, they must consult about the measureswith employees or their representatives, with the aim of concluding an agreement. The consultation must be conducted before the date of the transfer.

4.4 What happens if an employer fails properly to inform or consult? A complaint may be made to the Employment Tribunal. Any employer inbreach of any information and consultation requirements will be guilty of anoffence and liable, on conviction, to a fine not exceeding EUR 854.



It is advisable in cases where a large transfer of employees may take place, thatthe relevant Government departments are notified prior to the transferalthough the law does not set out any such obligation.


The law on this subject is relatively new and rather general. There is also a lackof case law in Cyprus on transfers. For example, there is no precedent at all ontermination distribution agreements. In such cases the Cyprus courts largelyrely on precedents from other EU jurisdictions and European Court of Justicecase law.


The current legislation applies to the transfer of an undertaking situated inCyprus. With regard to the transfer of an undertaking out of Cyprus, the relevant European legislation and respective national legislation would have tobe considered as well.

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The Law Providing for the Preservation and Safeguard of the Rights ofEmployees on the Transfer of Businesses, Facilities or Sections of BusinessesNo. 104(I)/2000, as amended.

The Termination of Employment Laws of 1967 – 1994, as amended.

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Czech Republic

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does not apply? 54














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? According to the Labour Code, a transfer occurs on the transfer of an employer’s tasks or activities, or a part thereof, to another employer.

Czech law therefore does not require the business or part of the business tobe transferred in order for a transfer to take place: a transfer of the activityitself (or a part thereof) is sufficient. In addition, the Labour Code provides fortransfers of undertakings upon the splitting up of an employer. In such casesthe entity which has made the decision to divide up the entity must determinewhich of the new companies will be considered to be the transferee andassume the rights and obligations arising from the employment relationship.

According to the Commercial Code a transfer occurs in the following cases:

• a merger • the transfer of all assets to a sole shareholder • where a company ceases to exist as a result of division • the sale of an enterprise or part of an enterprise • the lease of an enterprise or part of an enterprise.

Although outsourcing should (as the transfer of an activity) in principle be considered a transfer of undertaking, in practice this does not apply. Moreover,there is no Czech case law known to us at the time of writing on this point.

1.2 What specific factors trigger the transfer of an undertaking? There is no legal definition of the term ‘transfer’ under Czech law, and Czechlaw does not use the term ‘undertaking’ in connection with transfers. TheLabour Code defines the employer's tasks and activities as, ‘primarily the tasksconnected with the production or provision of services or any analogous activity as defined in special laws, which the employer performs in premisesdedicated to such activity or at the usual places for such performance, underits own name and own responsibility’.

Based on the government’s explanatory report concerning the law implementing the Acquired Rights Directives, a transfer is to be understood as‘a change of legal or natural person responsible in the legal sense for the activities of the present employer, regardless of the legal reason for the transfer and regardless of whether ownership of the undertaking was transferred’.

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The decisive criterion for a transfer is the ability of the transferee to continuethe current business activity.

1.3 Are there any forms of transaction to which the legislation does not apply? The general rule is that all employees performing duties within the transferredassets (or activities) are automatically transferred. Since the transfer of employees is automatic, any agreement modifying the employee transfer in away other than that stipulated by law would be void. The rules governing thetransfer cannot be contracted out, even with consent of the relevant employees.

The rules on employee transfers do not apply to share sales.

Cases of reorganisation within the state administration as well as the death ofan employer (natural person) are covered by special regulations in the LabourCode and are not considered to be transfers.


2.1 Who is protected? Czech law provides protection to all employees employed by the transferorwhere transfers are concerned. If only some of the tasks and activities aretransferred, the transfer applies only to the employees affected by the transfer, i.e. those who work within the transferred activity or task. In practiceit can be somewhat problematic in certain cases to ascertain whether particular employees should be considered to be working within the transferred activity (see below).

This protection only applies to persons employed by the transferor, i.e. the protection does not apply to employees temporarily seconded to the transferor.This includes agency workers, i.e. workers hired by work agencies andassigned to the transferor.

The Labour Code also expressly excludes employees whose employment terminated before the effective day of the transfer (their rights do not pass tothe transferee). However, employees whose employment terminated beforethe transfer but who challenged the validity of the termination in court, willalso be transferred (because at the time of the transfer it was unclear whetheror not their employment persisted).

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2.2 What if employees object to the transfer? Czech employment regulations provide no specific solution in a situationwhere an employee objects to the transfer. Employees may raise objectionsduring the consultation procedure, but neither the transferor nor the transfereeis obliged to accept the objections. If an employee refuses to be transferred,he or she must give notice of termination of at least two months (withoutrequiring any special grounds for the notice) or make an agreement on termination with the transferor/transferee. Otherwise, a refusal to performwork for the transferee could be considered a breach of the employee’s workobligations, which could have various consequences, including dismissal.

An employee may nevertheless object that the transfer was invalid (i.e. that theconditions for a transfer were not met), or, conversely, that he or she was nottransferred but should have been. In the latter case, the employee may bringan action against either the transferor or the transferee. The court will thendecide whether or not the rules on transfer were breached, and thus whetheror not the employee should have been transferred.

2.3 What happens to terms of employment contracts? The transferee, as the new employer, assumes all existing rights and obligations arising from the employment relationship. All rights and obligations arising from both individual and collective agreements must betransferred to the transferor.

2.4 What about other employee benefits? Since employees' rights arising from the transfer are interpreted broadly (especially by the European Court of Justice) the new employer, as transferee,is obliged to take over any benefits of the transferred employee which arosefrom his or her relationship with the transferor as the previous employer. Incertain cases it is not possible for the transferee to provide the same benefitsas the transferor, for example where the transferor has agreed a special discount for its employees for certain services by a service provider, but thetransferee is not able to agree the same discount. In such cases the transfereeshould make efforts to grant employees benefits of a corresponding value.

Past employment with the transferor counts as continuous employment withthe transferee for the purposes of benefits connected with length of service.

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2.5 What happens to pension rights? In addition to the state pension, in the Czech Republic voluntary membershipof a supplementary pension scheme with state contributions through pensionfunds is available. At present, there is no intention to set up an occupationalretirement scheme based on contracts agreed by and between employers andtheir employees in the Czech Republic.

An employer may contribute to its employees’ supplementary pension scheme,and such contributions are tax-deductible. Czech law does not explicitly regulate employee rights to this contribution when a transfer occurs, but suchrights are usually agreed in the employment contract, collective agreement orinternal regulations and are therefore transferred together with other rightsand obligations arising from the employment relationship.

2.6 What liabilities transfer? The transferee assumes all of the transferor’s employment liabilities, but Czechcase law provides that the transferee does not assume obligations arising frompublic law (such as tax obligations).

2.7 What if employees are covered by a collective agreement? All rights and obligations arising from the employment relationship (includingunder a collective agreement) transfer automatically from the transferor to thetransferee at the time of the transfer, and are enforceable until the collectiveagreement expires.

Collective agreements may not be unilaterally changed by the transferee, thusboth contracting parties must agree to any change.


3.1 Can employers make changes to employment contracts? Terms and conditions of employment may not be unilaterally changed by thetransferee as a result of the change in the employment relationship on the part of the employer. Employment contracts are subject to the transfer of rights andobligations arising from the employment relationship. The terms and conditionscontained in an employment contract may be changed only with the prior consent of the employee. From a Czech law perspective, however, nothing prevents the transferee from agreeing changes to the employment contracts withthe transferred employees. Moreover, there is no case law known to us thatwould consider an employee's consent to changes in his or her employment contract to be as a result of the transfer. In terms of European Court of Justice

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case law, it is our view that the employee could claim that by giving consent heor she waived his or her rights and that the change to the employment contractwas made as a result of the transfer, but at the time of writing there is no caselaw in the Czech Republic to back this up.

In this connection the equal treatment rule is somewhat problematic. Accordingto Czech law employees performing the same (or similar) work must receive thesame (or similar) wage. This principle applies to all employees performing thesame work, not only as between men and women. In most cases, following thetransfer the transferred employees will have different wage entitlements thanother employees of the transferee, and the transferee thus risks being chargedwith claims that it has breached the principle of equal treatment.

3.2 When can employers safely dismiss employees before or after a transfer? In general, the mandatory principle of the continuation of the employmentcontracts applies. Therefore, employees may not be dismissed by reason of thetransfer. This principle does not prevent the transferor or transferee from dismissing the employee for other reasons stipulated in the Labour Code (e.g.organisational reasons, health reasons and disciplinary reasons). If a transfereewants to make any kind of organisational changes other than those based onthe transfer itself (where the dismissal of employees is a consequence) it maydo so, but all the statutory requirements set out in the Labour Code must bemet (including the observance of a notice period, the provision of severancepay, etc). A transfer of employees is not grounds for dismissal, but organisational changes can be. In terms of European Court of Justice case law,however, we believe that employees dismissed on organisational groundscould argue that the real ground for termination was the transfer and not theorganisational changes. However, at the time of writing there is no case lawknown to us on this point.


4.1 Who must employers consult? The employers (i.e. both the transferor and transferee) have two general obligations They must (i) inform and (ii) consult, with the employee representatives.

If no employee representatives exist at either the transferor's or transferee'senterprise, the transferor and transferee must fulfil the information and consultation duties towards all individual employees affected by the transfer byinforming and consulting each employee directly. For simplicity the followingtext refers only to the employee representatives.

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4.2 What information must they provide? Employers (both the transferor and transferee) must inform the employee representatives that the transfer will take place. In addition they must consultwith the aim of reaching a consensus on the following issues:

• the date or proposed day of transfer • reasons for the transfer • legal, economic and social implications of the transfer with respect to

employees • measures envisaged which would affect the employees.

4.3 What does consultation involve? The employers must arrange for a consultation to take place in a mannerwhich is appropriate and sufficiently timely to enable the employee representatives to express their views on the basis of the information suppliedand to have these views taken into account before measures are implementedby the employer. In the course of consultation, the employee representativesare entitled to be provided with a reasoned answer to the views they haveexpressed as well as to a personal meeting.

The consultation must cover the issues mentioned in section 4.2 above. Theemployee representatives must be consulted with the aim of reaching anagreement, but agreement does not have to be reached.

4.4 What happens if an employer fails properly to inform or consult? If the transferor and/or the transferee fail to inform and consult the employeerepresentatives, the transfer remains valid, but the relevant employer (transferor or transferee as appropriate) can be fined up to CZK 200,000(approximately EUR 8,000).


5.1 Are there any special issues employers should be aware of when transferring an undertaking in this country

As mentioned above Czech law considers the transfer of an activity or task,either in whole or in part, as a transfer. Therefore, it seems that Czech protection in respect of a transfer of employees is broader than EuropeanCourt of Justice case law and Directive 2001/23/EC, which consider only thetransfer of an ‘economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity’ to be a transfer.

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Moreover, as Czech legislation on transfers is quite brief and national caselaw on the subject is underdeveloped, European Court of Justice case lawis highly relevant. Therefore we recommend taking into consideration thereasoning of the European Court of Justice whenever the issue of transfercomes into question.


Under Czech law problems arise in identifying which tasks and activities orparts of them have actually transferred, as in practice this could cover avery broad spectrum of situations. As the transfer of tasks and activitiesseems broader than both European Court of Justice case law decisions andthe scope of Directive 2001/23/EC, it is questionable whether EuropeanCourt of Justice case law (Spijkers criteria) can actually be used to interpretCzech law in this context.

Since the transfer is automatic and concerns all employees performing thetransferred activity, uncertainty can arise when part of an undertaking istransferred, such as the practical problem of specifying which employeeshave transferred, especially in relation to duties not performed exclusivelywith the aid of assets belonging to the transferred part of the undertaking.In such cases we recommend taking into account the reasoning of theEuropean Court of Justice. In practice problems also arise with respect to achange of employment conditions following transfer and the principle ofequal treatment (see section 3.1 above).


In our view it is important to keep in mind that Czech law recognises therelocation of the employer as grounds for termination. Therefore, if certainactivities are physically relocated from the Czech Republic (i.e. not onlydoes the employer become a foreign entity but the employees are alsorequired to leave the territory of the Czech Republic), grounds for termination would arise. If this relocation occurs the affected employeescould then be served notice of termination with a notice period of at leasttwo months and a severance payment equal to three months’ averageearnings.

Czech law has no rules on the applicability of Czech law to cross-bordertransfers, either into or out of the Czech Republic. We believe that if thetransfer were from the Czech Republic to a location abroad, Czech ruleswould apply (provided that the transferred employees are employed underCzech law). For transfers to the Czech Republic, foreign law would apply.

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In any event, the effect of cross-border transfers with respect to the consultation duty of the transferee towards its own workforce is not clear, asthe workforce would be employed under a different national law than thetransferred workforce. We believe that the transferee should fulfil the consultation duty according to the law under which its workforce is employedand not under the law of the transferred workforce.



The Acquired Rights Directive 77/187/EEC as amended by Directive 98/50/EChas been implemented by the Labour Code (Act No. 262/2006 Coll.).

The fines which can be imposed for failure to comply with the information andconsultation duties are included in the Act on Labour Inspection (Act No.251/2005 Coll.).

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1. TRANFERS

1.1 When, in broad terms, does the legislation apply? The Danish Act on Employees’ Rights in the event of Transfers of Undertakings2002 applies to any transfer of an undertaking or part of an undertakingwhere the entity to be transferred is located within the European EconomicArea and where the employees affected by the transfer are subject to Danishlaw.

The legislation applies regardless of the nature of the activities of the entityand regardless of whether the entity is a private or public undertaking so longas the entity is pursuing an economic activity.

The legislation may apply even where there is no change of ownership. Thus,the decisive factor is whether there is a transfer of de facto managerial authority from a legal person or entity to another.

1.2 What specific factors trigger the transfer of an undertaking? The legislation does not define what constitutes an undertaking (or part of anundertaking). The expression ‘undertaking or part of an undertaking’ has beendefined by European Court of Justice case law, which must therefore be takeninto account in the assessment of whether an entity constitutes an undertaking (or part of an undertaking). Danish case law has evolved on thisbasis.

Pursuant to Danish and European Court of Justice case law, an entity is considered to be an undertaking under the legislation if it constitutes anautonomous economic entity with a minimum of organisational independenceand retains its economic identity after transfer. Assessment must be made ona case by case basis based on the above factors. Generally, Danish courts havefollowed European Court of Justice case law and applied the legislation broadly.

The legislation applies regardless of the purpose, object, size and financingmodel of the entity transferred and regardless of how significant the entitytransferred is to the transferor. However, it is a general requirement that theemployee(s) must be part of and/or affiliated with the entity transferred.

By contrast, although there is no general requirement that tangible and/orintangible assets must transfer in order for the entity to be considered anundertaking (or part of one) under the legislation, this will depend on the typeof entity transferred, and a transfer of assets will be an important factor in

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authority of the employer and whether the employee is obliged to perform thework and cannot pass his or her responsibilities on to anyone else. Another relevant guideline is how the income derived from the work is taxed.Consequently, it has been established through Danish case law that the protection does not generally cover managing directors, although the finalassessment will always be made on a case-by-case basis depending onwhether the managing director is de facto carrying out the day-to-day management of the company and performing the independent duties of amanaging director.

Where only part of an undertaking is transferred, it is the employees belonging to that part of the undertaking who are transferred. As a guideline,employees can be said to belong if they spend 50 per cent or more of theirtime working in that part of the undertaking.

2.2 What if employees object to the transfer? Employees are not entitled to object to a transfer and objecting to work forthe new employer may thus constitute a material breach of the employmentcontract. The only exception is where the employee has such a strong personal relationship with the employer that the transfer of the identity of theemployer as such constitutes a material change in employment terms. See alsosection 3 below.

2.3 What happens to terms of employment contracts? From the date of the transfer, the transferee will become a party to theemployment contract and thus take over all rights and obligations under theemployment contract. Thus, as a general rule, the employment will continueunaffected by the transfer, unless changes are introduced in accordance withthe relevant procedure. See also section 3 below.

2.4 What about other employee benefits? All rights and obligations transfer with the employee meaning, for example,that past employment with the transferor is regarded as continuous employment with the transferee.

Since all rights and obligations will transfer, employee benefits will, as a starting point, be considered as being part of the salary package/employmentconditions which must remain unaffected by the transfer. However, if thetransferee is unable to provide certain benefits, for example free housing, theentitlement to the relevant benefit will not transfer but the employees are likely to be entitled to compensation instead.


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assessing whether the entity retains its economic identity. On the other hand,the transfer of a function which does not involve transferring an ongoing activity will not in itself constitute a transfer of an undertaking (or a part ofone).

The transfer of an undertaking (or part of one) requires a transfer from onelegal entity to another and a change of employer. As discussed above, whetherthere is a change of ownership is not crucial. In other words, the transfer ofan undertaking will be triggered only if the de facto managerial authority ofthe former employer transfers. Case law shows that the transfer of an undertaking can be established either by agreement or by a de facto transferof the entity and its management. A variety of transfer types are recognised incase law. Gifts and mergers, for example, qualify as transfers of undertakings,whereas the sale and/or purchase of stock in a limited liability company doesnot. More specific transfer types which are equivalent to a sale and where thetransferee assumes the position of the transferor in relation to the employeesare also covered by the definition of transfer of undertakings. These transfertypes may include rental and leasing agreements, outsourcing, contracting-in,franchising and certain types of construction contracts or tenders, etc.

The legislation also applies to transfers of public entities, e.g. the outsourcingof public activities, but an administrative re-organisation of public administrative authorities or the transfer of government or administrativefunctions between public administrative authorities, do not constitute transfers under the legislation.

1.3 Are there any forms of transaction to which the legislation does not apply? As discussed above, the legislation does not apply to the sale and/or purchaseof stock in (limited liability) companies, as the legal entity/identity of theemployer remains intact regardless of the transfer of the underlying ownershipof stock. Nor do the administrative re-organisation of public administrativeauthorities or transfers of government or administrative functions betweenpublic administrative authorities fall within the scope of the legislation.


2.1 Who is protected? The protection afforded by the legislation covers ‘employees’ as defined byDanish law in general. In cases where there is doubt, the relevant factors fordetermining whether a person is an employee are whether there is an employment contract subordinating the employee to the managerial

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3.1 Can employers make changes to employment contracts? By virtue of their managerial authority, employers – both the transferor and thetransferee – are entitled to introduce non-material changes to the employmentterms. With respect to material changes to the employment contracts, theemployer must give contractual notice to the relevant employees and allowthem the option of considering themselves dismissed. As notifying materialchanges thus involves a risk that the employee will decide to consider him/herself dismissed, the material change(s) must be reasonably justified byeconomic, technical or organisational reasons – as if the employee had beendirectly dismissed for the same reasons. (See also section 3.2 below).

Although the question of what changes qualify as material changes is decidedon a case-by-case basis, various general standards do apply. Changes involvinga decrease in income or a limitation of authority, for example, are always considered material.

3.2 When can employers safely dismiss employees before or after a transfer? The transfer of an undertaking (or part of one) is not in itself a valid reason fordismissing employees, but the employees affected by the transfer can be dismissed provided that the dismissals are for economic, technical or organisational reasons entailing changes in the workforce.

In the absence of these reasons – and if the dismissals are thus unjustified – theemployees can claim protection against unfair dismissal on basic principles,regardless of whether this protection is afforded by legislation, a contract or acollective agreement.

There is no ‘safe’ time for an employer to carry out dismissals in the event ofa transfer and a substantial burden of proof must be satisfied by the employerin order to justify any dismissals which have been carried out. In many cases,the transferee and the transferor will be held jointly and severally liable.


4.1 Who must employers consult? The employer must inform the employee representatives or, if there are none,the affected employees themselves, within a reasonable time before the transfer.

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2.5 What happens to pension rights? Pension contributions are considered part of the employees’ remuneration andthe employees’ rights to pension contributions will thus transfer. Additionally,the transferee must pay any outstanding contributions even where these contributions accrued before the transfer.

Nevertheless, the transferee will not be liable for employees’ entitlements tobenefits (payments) from a pension scheme. However, this exception is of limited practical importance, as all Danish employers are obliged to secure pension guarantees with pension funds/insurance companies under the supervision and control of the Danish Financial Supervisory Authority(Finanstilsynet).

2.6 What liabilities transfer? Only liabilities arising directly from a) a collective agreement, b) terms relatingto pay and working conditions laid down or approved by a public authority,and c) an individual agreement concerning pay and working conditions, willtransfer. Claims for compensation for industrial injuries, for example, will nottransfer as these are claims in tort law.

In respect of compensation under protective labour market legislation, i.e. theDanish Act on Equal Treatment and various other anti-discrimination laws, caselaw suggests that the transferee will not be liable if any such claims are madebefore the transfer. However, case law is very sparse on this issue and this isconsequently subject to some uncertainty. It is likely that the transferee will beliable to pay compensation for defective employment contracts.

2.7 What if employees are covered by a collective agreement?As a general rule, the obligation to be party to and bound by any collectiveagreements will also transfer. Thus, if the transferee does not wish to becomea party to the transferor’s collective agreement(s), the transferee must notifythe relevant trade unions. This notification must be sent within five weeks afterthe transferee became aware (or should have become aware) that some or allof the employees affected by the transfer are covered by a collective agreement. However, the notification procedure is not required to take placeearlier than three weeks after the date of the transfer. If the transferee doesnot wish to become a party to the collective agreement(s), the employees’ individual rights under the collective agreement(s), e.g. minimum pay, workinghours and protection against unfair dismissal, will still apply unless the termsare changed according to the change management procedures (see section 3below).

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When transferring an undertaking in Denmark, it is important to be aware ofthe rules on the transfer of collective agreements as the transferee will becomea party to the applicable collective agreement(s) unless the union is notifiedwithin the timeframes set out above. If an employer unintentionally becomesa party to a collective agreement because the union was not duly notified, theemployer can only be released from it by following the procedure prescribedin Danish collective labour law – and it is a highly complicated and lengthy procedure.

It is also important to be aware of the rules on the introduction of changes toemployment terms, especially those rules on material changes describedabove.


The definition of what constitutes an undertaking (or part of an undertaking),as used in the legislation, is constantly developing through case law. Thus,recent case law should always be consulted to see if the definition of this termand the scope of the legislation have changed.

In addition, case law on the transfer of liability under the protective labourmarket legislation (anti-discrimination Acts etc) is still very sparse and not yetsettled.


As already mentioned in the introductory paragraph, the legislation appliesonly if the employees are covered by Danish law in general. Thus, in the eventof a cross-border transfer into or out of Denmark, it is important to considerthe laws of each jurisdiction that applies to the employees when determiningwhether the transfer or part of it is governed by Danish law. It will alwaysremain a condition for Danish law to apply that the entity to be transferred islocated within the European Economic Area.


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4.2 What information must they provide?When informing the employee representatives or the affected employees, theemployer must, as a minimum, provide the following information:

• the actual or proposed date of the transfer • the reason for the transfer • the legal, economic and social implications of the transfer for

the employees • any envisaged measures which will affect the employees.

4.3 What does consultation involve? If measures are to be implemented as a consequence of the transfer which willaffect employees, the employer must consult the employee representatives orthe employees affected, as the case may be, and commence negotiations inorder to seek agreement within a reasonable time before the date of the transfer.

Such consultation/negotiations are only required in the case of measureswhich cannot be implemented on the basis of the employer’s managerialauthority, e.g. material changes in employment terms such as pay cuts,changes in the company structure limiting the responsibilities and authority ofspecific employees or certain changes concerning the location of the workplace.

An employer must commence negotiations in accordance with the above procedure, but there is no requirement to reach agreement with the employeerepresentatives or the employees affected.

4.4 What happens if an employer fails properly to inform or consult?If an employer fails to properly inform the employees of a transfer, the employermay be liable jointly and severally with the transferee in respect of any claimsby the employees until the employees have been properly informed. In addition, any failure to comply with the information and consultation procedure is subject to a penalty in the form of a fine (which has no upperlimit). However, such a penalty has been of no practical relevance in case lawso far.

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EU Directives 77/187/EEC and 98/50/EC were implemented into Danish law byAct no. 111 of 21 March 1979 and subsequently (related to 98/50/EC) amendedby Act no. 441 of 7 June 2001 and Consolidation Act No. 710 of 20 August2002 on Employees’ Rights in the event of Transfers of Undertakings.

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Finland

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? The legislation applies, in broad terms, upon:

• transfers of an economic entity which retains its identity after the transfer(e.g. the sale of a business or a merger) and

• a ‘service provision change’ (i.e. outsourcing, bringing activities in-house, or a change of contractors).

1.2 What specific factors trigger the transfer of an undertaking? The transfer of an undertaking refers to the transfer, by an employer, of anenterprise, business, corporate body, foundation or an operative part thereofto another employer, where the business or the transferring part of it remainsthe same or similar after the transfer, regardless of whether it is a central or ancillary activity. The Finnish Employment Contracts Act (55/2001, asamended) does not exhaustively define the concept of ‘transfer of an undertaking’ and therefore its existence will be determined on a case-by-casebasis.

The deciding factors, to be assessed as a whole, when determining whether atransaction constitutes the transfer of an undertaking are typically:

• the legal relationship, e.g. contract for sale or statutory merger, between the transferor and the transferee (this relationship can, however, also be implied)

• the concept of the ‘operative identity’ of the business • the continuance of operations without interruption after the transfer (the

business should continue without any major delay but not necessarily immediately) and

• a change of employer.

The sale or acquisition of the shares in a Finnish company does not qualify asthe transfer of an undertaking under the Employment Contracts Act, as theemployer does not change. However, changes of corporate form may constitute a transfer of an undertaking if the identity of the undertaking assuch remains unchanged. Changes in sub-contracting relations may also beconsidered as a transfer of an undertaking.

A transfer of an undertaking typically involves a transfer of personnel, goodwill, clients, assets and sales contracts. In certain labour-intensive industries, such as service industries, a transfer of assets is not essential whendetermining whether the transaction should be regarded as the transfer of anundertaking.

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Employees on parental or other leave are transferred, as well as employeeswho have been laid off.

As a general rule, an employee whose main duties are outside the transferringbusiness and who is performing duties only temporarily in the transferringbusiness will not transfer. When only a part of the transferor’s business is transferred, it is, in practice, often rather difficult to define which employeesbelong to the transferring business and are accordingly transferred. Generally,the employees who are necessary to keep the transferring business operationalwill transfer.

2.2 What if employees object to the transfer? The employees are transferred automatically by operation of law and thus theirconsent is not required for the transfer. A transferring employee has no rightto continue his or her employment with the transferor without the transferor’sspecific consent. An employee who does not wish to transfer may terminatehis or her employment.

It should be noted that, in connection with the transfer of an undertaking,employees have a special termination right, i.e. they are entitled to terminatetheir employment contracts as of the date of the transfer, regardless of thenotice period which would otherwise apply. If the employee was informed ofthe transfer less than one month before its completion, he or she may terminate the agreement to end upon or after the transfer, however not morethan within one month from the date he or she was informed of the transfer.

According to the Co-determination Act the transferor and the transferee areobliged to inform the relevant employees about the transfer well in advance.This enables the employees to consider whether they want to continue theiremployment with the transferee or whether they wish to terminate theiremployment contract by using the special termination right referred to above.The transferor and the transferee are not entitled to terminate employmentcontracts by reason of the transfer.

It should also be noted that, although the employees transfer automatically tothe transferee, it is possible to conclude so-called tripartite agreements in orderto deviate from the automatic transfer. This means that the employee, transferor and transferee can agree that an employee not belonging to thetransferring business transfers to the transferee, or that an employee belonging to the transferring business remains with the transferor.

The mutual understanding and common purpose of the transfer between thetransferor and the transferee are also significant characteristics of transfers ofundertakings. It should be noted that the definition of a transfer is set out instatute and thus, e.g. the parties to a transaction cannot decide themselveswhether the criteria for the transfer are met and, thus, whether their transaction should be deemed to constitute a transfer. As the law provides protection for employees in cases of transfers of undertakings, the transferorand transferee may not diminish this protection by mutual agreement.

The relevant praxis of the European Court of Justice regarding the definitionof a transfer of an undertaking on the basis of the Acquired Rights Directive isused by the national courts of Finland when determining whether a transaction constitutes a transfer in accordance with the EmploymentContracts Act. The decisions of the European Court of Justice and the court’sinterpretation of the Acquired Rights Directive are therefore highly relevant inFinland.

Furthermore, it should be noted that mergers and de-mergers are comparableto transfers of undertakings as regards the co-determination procedurerequired. However, bankruptcy or the death of an entrepreneur do not constitute transfers of undertakings and those events do not give rise to obligations pursuant to the Finnish Act on Co-operation within Enterprises(334/2007, as amended) (the ‘Co-determination Act’).

1.3 Are there any forms of transaction to which the legislation does not apply? The sale or acquisition of the shares in a Finnish company, where the employerdoes not change, does not qualify as a transfer of an undertaking under the Employment Contracts Act and does not require any co-determinationprocedure.


2.1 Who is protected? In general, employees working for the transferring business are protected.Which employees transfer is determined by reference to the employees’ actual tasks within the transferring business, and not merely by reference tojob titles. Whether an employee belongs to the transferring business willdepend on:

• the nature of the transferring business • the duties of the employee and • the organisational position of the employee within the transferor.

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2.6 What liabilities transfer? All liabilities based on the employment relationship between the transferor andthe transferring employees transfer to the transferee. In general, the transferorand the transferee are jointly and severally liable for the employees’ pay andany other claims that derive from the employment relationships and that falldue before the date of the transfer. As between the parties, however, thetransferor is liable for any claims of employees which fall due before the transfer, unless otherwise agreed between the transferor and the transferee.

In light of this, it should be noted that the employer’s so-called re-employmentobligation is transferred to the transferee. In practice this means that the transferee is liable to re-employ an employee made redundant by the transferoron financial or production-related grounds before the transfer, if the transfereeneeds a new employee for tasks similar to those performed by the redundantemployee, within 9 months of the expiry of the employment contract. Thetransferee has an obligation to ask the local labour authority whether any ofthe transferor’s former employees, within 9 months or less from the expiry oftheir employment, have reported as job-seekers, in which case it must give firstpriority to those former employees.

2.7 What if employees are covered by a collective agreement?According to the Finnish Collective Bargaining Agreements Act (436/1946, asamended) the terms of a binding collective bargaining agreement supersedeany conflicting terms of an employment contract which are less favourable tothe employee. The Collective Bargaining Agreements Act provides that a collective bargaining agreement binds not only the parties to the agreementthemselves but also their registered sub-associations and the employers andemployees who during the period of validity of the agreement are or havebeen members of an organisation which is bound by the agreement. Further,the employer must observe the provisions of national collective bargainingagreement(s) considered to be representative in the field of industry concerned(i.e. so-called generally applicable collective bargaining agreements) even if theemployer is not bound as a member of an organisation.

If the transferring employees are covered by a collective bargaining agreement,all rights and obligations of the agreement are transferred to the transferee.Therefore, the transferee must follow the provisions of the collective bargaining agreement until it expires. In practice, this means that the transfereemay have to apply two (or even several) different collective bargaining agreements to its employees, i.e. one for its old employees and another (orothers) to the transferred employees.

2.3 What happens to terms of employment contracts? In the case of a transfer of an undertaking the rights and obligations of thetransferor towards the transferring employees pass automatically, by operationof law, to the transferee. In practice, this means that the transferring employees will be regarded as ‘old employees’, i.e. their employment historywithin the transferor will be factored in when determining benefits based onlength of service (e.g. holiday entitlement and service years).

The transferee must comply with the terms of the employment contracts,including salary and other benefits, as at the time of transfer. Additionally, allrights and obligations of a transferor bound by a collective bargaining agreement transfer to the transferee.

2.4 What about other employee benefits? The transferee must provide to the employees any additional benefits offeredto them by the transferor to the extent that those benefits have been incorporated into the employment contracts of the transferring employees (i.e.as an implied term).

In addition, the transferee is generally obliged to provide employees with comparable benefits where those benefits are based on the employment relationship (i.e. company policy), such as the right to subsidised massage.Benefits that the transferee is not able to provide (e.g. subsidised lunch at astaff canteen, if the transferee does not have a staff canteen) are not transferable.

2.5 What happens to pension rights? In Finland mandatory pension security is, in general, arranged in accordancewith the Employee Pension Act (395/2006, as amended). The mandatoryemployment pension (so-called TyEL-pension) can be regarded as a ‘definedbenefit’, as the Finnish pension system provides that future pension liabilitiesare covered by pension insurance companies and the state of Finland. Theemployer company is not liable to cover any future pension liabilities or toensure the availability of the required funds. Consequently, the employer’s onlyresponsibility is to pay the costs of the mandatory TyEL-pension insurance tothe insurance company for the term of the employment.

In the case of the transfer of an undertaking, the transferee, as the newemployer, is obliged to take out the mandatory TyEL-pension insurance with apension insurance company for the benefit of the transferred employees. Thetransferee must also comply with any additional pension provision made by thetransferor where this has been incorporated into the employment contracts ofthe transferring employees.

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4.1 Who must employers consult? If the number of people employed by the transferee, including the acquiredbusiness, is at least 20, the transferee must comply with the information andconsultation obligations imposed by the Co-determination Act. The parties tothe co-determination procedure are the employer and the relevant employees.The employees may be represented e.g. by a shop steward, specifically elected employee representative(s) or the works council.

The transferor of an undertaking need not consult the employees about the transfer, but the transferor (and transferee) must inform the relevantemployees about certain issues related to it (see section 4.2 below). If thetransfer does not result in any redundancies, lay-offs or other changes relevantto the employees, the transferee has no co-determination obligation otherthan to provide this information.

4.2 What information must they provide? The transferor and the transferee must inform the employees affected by thetransfer of an undertaking of the following:

• the time, or the estimated time, of the transfer • the reasons for the transfer• the legal, economic and social consequences of the transfer for the

employees and • any contemplated measures which will affect the employees.

The above information must be given to the employees well in advance ofcompletion of the transfer. The law does not stipulate any minimum period oftime for this advance notice but precedent indicates that one or several weeksin advance of the actual execution of the transfer should be sufficient.However, for confidentiality and business reasons, the information is, in practice, often not given to employees before the transaction becomes public.

4.3 What does consultation involve? As stated in section 4.1 above, if the transfer does not result in redundancies,lay-offs or other changes relevant to the employees, there are no consultationobligations but simply an obligation to inform the employees of the transfer.

4.4 What happens if an employer fails properly to inform or consult? A person belonging to the management of the employer who deliberately orcarelessly fails to observe the obligation to inform the employees of mattersrelating to a transfer of an undertaking may be sentenced to a fine.


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3.1 Can employers make changes to employment contracts? The employer is not entitled to change the terms of an employment contractto the detriment of the employee. Therefore, the terms of an employmentcontract as well as other terms of an employment relationship which havebeen specifically agreed may not, as a general rule, be amended or revisedwithout the consent of the employee in question. If the employee consents,changes can also be made which are detrimental to the employee, providedthey are not contrary to mandatory law or a binding collective bargainingagreement.

Changes may, however, be implemented in lieu of termination of the employment if grounds for termination exist. In such cases, the same overallprocedure must be followed as when terminating the employment contractand therefore, e.g., the relevant notice period must be observed.

3.2 When can employers safely dismiss employees before or after a transfer? According to the Employment Contracts Act, an employment contract may be terminated by the employer solely for collective reasons (i.e. financial, production or reorganisation-related reasons) or personal reasons. The transferof an undertaking does not as such constitute a legal reason to terminate anemployment contract. Therefore, the transferor’s right to terminate employment contracts before the transfer and the transferee’s right to terminate employment contracts after the transfer do not differ from anemployer’s normal right to terminate an employment contract.

Pursuant to the Employment Contracts Act, if an employee terminates his orher employment contract because the terms of employment have been weakened substantially as a result of the transfer, the transferee is deemed tobe responsible for terminating the employment contract. In other words, substantial weakening of the terms of employment as a result of the transferis considered to constitute unlawful termination by the transferee, since thetransfer itself does not qualify as acceptable grounds for termination of anemployment contract.

The transferee (as the new employer) may decide to carry out redundanciesand give notice of these only if it has a valid and lawful collective reason tomake employees redundant, and after fulfilling any consultation obligations inaccordance with the Co-determination Act.

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The statutes implementing the EU acquired rights legislation in Finland are the Employment Contracts Act (55/2001, as amended) and the Act on Co-operation within Enterprises (334/2007, as amended).

The employer may be liable to re-employ an employee who has been maderedundant on financial or production-related grounds if, within 9 months ofthe expiry of the employment contract, the employer needs a new employeefor tasks similar to those performed by the redundant employee. This obligation transfers from the transferor to the transferee.

The transferee is obliged to follow the provisions of any collective bargainingagreement covering the transferring employees until the expiry of the collective bargaining agreement. In practice this can mean that the transfereemust simultaneously apply different collective bargaining agreements to itsemployees.


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The employer may be liable to re-employ an employee who has been maderedundant on financial or production-related grounds if, within 9 months ofthe expiry of the employment contract, the employer needs a new employeefor tasks similar to those performed by the redundant employee. This obligation transfers from the transferor to the transferee.

The transferee is obliged to follow the provisions of any collective bargainingagreement covering the transferring employees until the expiry of the collective bargaining agreement. In practice this can mean that the transfereemust simultaneously apply different collective bargaining agreements to itsemployees.


The main areas of uncertainty are:

• the identification of the existence of a transfer of an undertaking, and• the special termination right of an employee in connection with the

transfer of an undertaking, as this right means that the transferee may notnecessarily obtain the employees it wishes to obtain.


The Finnish Employment Contracts Act applies, in general, to all work performed in Finland. Therefore, if a transfer of an undertaking is made intoFinland, the employees would be entitled to protection under Finnish law assoon as the undertaking has relocated to Finland. The only exception would befor employees sent to Finland only on a temporary assignment.

The Finnish Employment Contracts Act may in certain cases also apply to workperformed abroad (e.g. to an employee sent by his or her Finnish employer ona temporary assignment abroad). There is therefore nothing in principle to prevent the Finnish Employment Contracts Act applying to a transfer of anundertaking out of Finland when the transferee is located abroad (whetherinside or outside the EU). The employees would, however, often probably not wish to transfer abroad and would therefore have to terminate theiremployment contracts with the company. Given the uncertainty of the legalposition, it is in some cases advisable for the parties to negotiate suitableindemnities.

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? According to Article L.1124-1 of the Labour Code, in the event of a transferof undertaking ‘if there is a change in the legal status of the employer, including without limitation through inheritance, sale, transformation of thebusiness, or creation of a company’ the contracts of employment in force atthe time of the transfer will continue to operate with the transferee. ThisArticle provides that the transfer may take the form of a sale, inheritance,transformation of a business, or sale of a company, but the list is not exhaustive. According to case law of the Supreme Court (the ‘Cour deCassation’) contracts of employment will automatically be transferred if theoperation involves the transfer of an autonomous economic entity whichretains its identity and where the activity is continued or renewed.

The courts look at the circumstances as a whole to determine whether thereis a transfer of an economic entity. Thus, according to case law a transfer isdeemed to have taken place when the transferee takes possession of the property and rights comprising the entity, even if the transfer documents havenot been signed at that date.

It is not necessary that the actual ownership of the assets of the business betransferred: a lease of the business (‘location-gérance’) can constitute thetransfer of a business under Article L.1224-1 of the Labour Code.

If the organisation of the activity remains the same, a transfer can take placeby means of a series of outsourcing or franchising deals.

1.2 What specific factors trigger the transfer of an undertaking? For Article L.1224-1 of the Labour Code to apply to a transfer of an undertaking requires (i) an autonomous economic entity and (ii) a transfer ofthis autonomous economic entity. Case law defines specific elements for both,as follows:

Autonomous economic entity EU Directive of 28 June 1998 provides that an autonomous economic entity ischaracterised by ‘an organised series of means with a view to carrying out aneconomic activity, whether this activity is essential or accessory’. The transfermay concern the whole of a firm’s activity, or may be restricted to only a partof the activity. Where there is a partial transfer of activity, Article L.1224-1 willapply only if the branch of activity in question constitutes an autonomous economic entity.

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1.3 Are there any forms of transaction to which the legislation does not apply? In principle, legislation does not apply in cases of:

• creation of an economic interest grouping (‘GIE’) of an European partnership (‘GEIE’) and

• the taking over of an undertaking in financial difficulties by its former employees.


2.1 Who is protected? The protection covers all the transferor’s employees with a contract of employment in force at the date of transfer (even any who have been suspended).

It does not matter if the contract is a fixed term or permanent contract.

In case of a partial transfer of activity only the employees who are assigned tothe transferred activity will have their contracts of employment transferred.

2.2 What if employees object to the transfer? If Article L.1224-1 applies, the transfer of the employment contract is obligatory both for the transferee and for the employees, who cannot blockthe change of employer.

In the past, the courts have considered that the refusal by the employee of atransfer under L.1224-1 was equivalent to a resignation. However, accordingto recent developments in case law which provide that resignations must beclear and unequivocal decisions by the employee, it is unlikely that the refusalof a transfer would now be considered to be a resignation.

A refusal could therefore constitute grounds for dismissal for disciplinaryreasons.

2.3 What happens to terms of employment contracts? The transferee takes over all the elements of the individual contract of employment:

• length of service with the previous employer• the amount and types of remuneration and their method of calculation

(particularly with regards to variable remuneration) • position, classification, place of work, etc.

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The three essential elements to an autonomous economic entity are:

• the carrying out of an activity which is specific or distinct from any other activities of the transferor

• the activity is distinguishable not only as a trade or business, but as a specific organisation with employees who belong exclusively or principallyto it. The employees must be stable, and depending on the activity carriedout, qualified and trained for the specific tasks involved

• the presence of the tangible or intangible assets (i.e. specific premises, production equipment etc) which are necessary for carrying out the activity.

If the activity to be transferred does not have the means to enable it to achievespecific results or its own economic purpose, the court will not consider it tobe an autonomous legal entity. Such was the case for a workshop that wastransferred, but which did not have dedicated personnel, as they also performed other functions and the management did not have independentdecision-making powers. By contrast, a specific activity, with its own dedicatedpersonnel, trained for its specific activities, with all necessary operating equipment, including data processing, its own administrative organisation, inclearly identified premises, was considered to constitute an autonomous economic entity.

Transfer of the autonomous economic entity The main requirement and crucial condition for the existence of the transfer ofan undertaking is that the transferred autonomous economic entity must keepits identity and the same activity must be continued by the transferee. In otherwords, the entity must be transferred exactly as it is, with all the elements thatconstitute it and are required for the continuation of its activity.

The requirement for ‘continuation of the same activity’ is fulfilled if the economic entity transferred does not change its purpose (i.e. it performs thesame or similar activities).

One of the most important criteria is the assessment of whether the operational means necessary for the activity have been transferred to thetransferee. If elements which form a significant part of the activity carried outby the transferor are not transferred, this may not be recognised as the transfer of an undertaking (or part of one).

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Indeed, by law an employer can only join one complementary pension schemefor each of two main categories of employees (one fund for managerial andone fund for non-managerial employees). The employer must also apply thesame contribution rate to employees in same the category.

The rules of harmonisation depend on how the undertaking is transferred (e.g.sale, merger etc).

Welfare schemes can also be an issue in cases of transfer. The way the transferee is required to handle the transferor’s welfare scheme (if any) willdepend on how it was implemented (e.g. was it a collective agreement, a unilateral commitment of the transferor? etc).

2.6 What liabilities transfer?Unless the change of employer takes place either in the context of involvencyproceedings or without any agreement between the transferor and transferee,the transferee will be liable for all obligations for which the transferor wasresponsible at the date of the transfer (Article L.1224-2 of the Labour Code).

Employees can make claims for amounts due before the transfer, but can alsochoose to make claims against the transferor.

Article L.1224-2 of the Labour Code provides that the transferor must reimburse the transferee with any sums paid by the transferee for debts arising before the transfer, unless the costs were taken into account in thetransfer agreement.

2.7 What if employees are covered by a collective agreement?If, after the transfer the main activity remains the same (e.g. in case of a merger, the transferee is engaged in the same main activity as the transferor)there will be no change to the collective bargaining agreement, as it will applyto all companies in the same sector of industry or business.

By contrast, if the main activity changes (e.g. in case of a merger, the transferred activity becomes a small part of the business of the transfereebecause the transferee is engaged in a different sector of the market) the rulesprovided by L.2261-14 will apply (see below).

Article L.2261-14 of the Labour Code, which applies to transfers of undertakings, provides that a collective agreement (e.g. a company-wide, orindustry-wide agreement) will continue to apply after, for example, a merger,a sale, the division of an undertaking or a change of activity, until a substitute

Contracts that have been terminated prior to the transfer are not transferred(except with regards to the performance of notice periods).

However, certain rights and obligations concerning previously dismissedemployees may be transferred to the transferee, including:

• rights and obligations under a non-competition undertaking • the right of a redundant employee to priority for rehiring• the right to reinstatement of a ‘protected’ employee (i.e. employee

representatives) in the event that his or her dismissal is found to be void.

2.4 What about other employee benefits? Employees will continue to enjoy any other benefits that they were entitled to as a result of the custom or ‘usage’ of the transferor or any unilateral commitments made by the transferor.

After the transfer, the transferee has the right to challenge them by followinga specific procedure and respecting the relevant notice period (usually threemonths).

Employees will continue to benefit from any existing profit sharing agreement(‘accord d’intéressement’ or ‘accord de participation’) unless the change in thelegal status of the employer makes the implementation of this agreementimpossible for the transferee. If implementation is impossible and the newemployer has no profit sharing agreement, it must open negotiations withinsix months from the date of the transfer (for an ‘accord d’intéressement’) andsix months from the date of the end of the financial year during which thetransfer took place (for an ‘accord de participation’) to try to reach a profitsharing agreement. There is no obligation to reach agreement but negotiations must be conducted in good faith. (Articles L.3313-4 and L.3323-8 of Labour Code).

Note that past employment with the transferor counts as continuous employment with the transferee.

2.5 What happens to pension rights? In France there are two pension systems: the social security system and thecomplementary system (managed by the AGIRC/ARRCO pension funds).

As regards the social security system, the transfer will have no impact at all. Bycontrast, with the complementary system, the transfer of an undertakingcould require the complementary schemes of the transferor and transferee tobe harmonised.

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employers cannot override by agreement. The effect of this principle is that thetransferor cannot dismiss employees before the transfer is effective, and the transferee cannot refuse to employ the employees at the date of transfer.

Although the possibility of redundancies before a transfer was at one time recognised by the courts, recent case law considers that redundancies of this kindwould be ‘without effect’. Indeed, a decision of 20 March 2002 (Cour deCassation, Social Chamber 20 March 2002, Maldonado) takes the position thatthe dismissal of an employee decided at the time of the transfer of anautonomous economic entity of which the activity is continued, has no effect.However, it concluded that the employee can choose either to require the transferee to continue the illegally terminated contract, or claim damages fromthe transferor for harm that resulted from the unlawful dismissal. However, amore recent decision states that, if the transferee informs the employee of itsintention to continue the contract of employment before expiry of the notice period, then the employee can no longer claim damages for unlawful dismissal,and he or she cannot refuse to transfer (Cour de Cassation, Social Chamber 11March 2003).

It should be noted that an agreement between the parties to the transfer whichis made in order to avoid the effects of Article L.1224-1 of the Labour Code, isnot a ‘real and serious’ cause for dismissal, even if the dismissal notice indicatedthat there was a need for a reorganisation which eliminates certain jobs in orderto reduce costs (Cour de Cassation, Social Chamber 10 May 1999, Billon c/ Adamand others).

There are no restrictions on the dismissal of employees after the transfer orchanges to contracts of employment other than those applicable to dismissals orchanges of contracts in general.


4.1 Who must employers consult?If the transferor and/or the transferee has a works council then this must beconsulted prior to any decision being made on the transfer of the undertaking. If there is no works council but there are more than 50 employees, their representatives must be consulted. If the undertaking is smaller than that, consultation is not mandatory.

4.2 What information must they provide?The information to be provided must include the reasons for the transfer, adescription of the transfer and its consequences, including consequences for

agreement is concluded, or in the absence of one, for a period of one yearfrom the end of the notice period, i.e. three months. If no substitute agreement has been concluded after 15 months (see below), the employeeswill keep their acquired rights under the agreement.

The transitional period The transitional period is 15 months (three months corresponding to the noticewhich would have had to be given if the employer had voluntarily terminatedthe agreement, plus 12 months corresponding to a period of potential negotiation). If a new agreement is concluded between the unions and thetransferee before the end of the transitional period, the new agreement willreplace the previous collective agreement.

During the transitional period transferred employees will in fact be covered bythe collective agreements of both the transferor and the transferee and willbenefit from the most favorable rights and advantages provided by both.According to case law, any comparisons made must be between similar typesof advantages.

Continued applicability of individual acquired rights If no agreement is concluded during the transitional period, the individualacquired rights of the employees under the previous collective agreement aremaintained. Moreover, it is only possible to amend the terms of this agreementwith the express consent of the employee, and amendments are subject to theconditions and procedures that apply to changes to employment contracts.

In a decision of 13 March 2001, the Cour de Cassation defined an individualacquired right as being one which, at the date when the collective agreementceased to apply, assured the employee either remuneration or a right which heor she benefited from personally and which corresponded to a right which wasalready in existence and not to one which was merely potential.


3.1 Can employers make changes to employment contracts? Before and after a transfer, changes in contracts of employment require theconsent of the employee, but this is the case for changes of contracts in general, not only on transfers of undertakings.

3.2 When can employers safely dismiss employees before or after a transfer? Article L.1224-1of the Labour Code provides the principle of continuation of thecontracts of employment. This article is a public policy provision, which

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to the transferee were those assigned exclusively to the branch of activitybeing transferred. Subsequently, the Cour de Cassation abandoned thisrequirement and held that the contract of employment could be split, whenemployees carried out activities partially within the branch of activity transferred.

Initially, it appeared that this would only apply when an employee's activitywas split evenly between two or more branches of activity. However, the Courde Cassation has more recently held that when an employee works for 40%of his or her time for the transferred activity, the contract of employment istransferred to the transferee in a piecemeal fashion (Cour de Cassation, SocialChamber 2 May 2001). Case law does not define the conditions for evaluating the assignment of the employee to one sector of activity or another in the firm.


In cases where two collective agreements apply, it is not easy to compare theadvantages in practice. As explained above, according to case law, comparisonmust be made between similar types of advantages. However, an uncertaintyremains about what the Court meant precisely by ‘similar type of advantages’.Moreover, there is no clear definition in French labour law of the concept of‘most favourable rights/advantages’.

Case law relating to the conditions required for the existence of a transfer ofundertaking may sometimes appear confusing. Thus, whether Article L.1224-1 is interpreted to apply can be simply a matter of which factor is givenmost weight.


In France, Article L.1224-1 is considered to be part of public law. Therefore, if a transfer of an undertaking is made into France, the employees should be entitled to benefit from the rules explained above. In the case of a cross-border transfer out of France, theoretically, employees originallyemployed in France should benefit from the French rules on transfer.Nevertheless, as the transfer will lead to a change of workplace, employees willbe entitled to refuse to transfer their contracts of employment. Thus, in thecase of transfers both into and out of the country, it is necessary to look at thelaw of the other country involved.


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the employees. The information must include details of the business and financial rationale, the legal and financial structure of the operation, etc.

If the works council considers the information insufficient, it may request further information, and even take court action to obtain it if the transfereedoes not respond adequately to its requests. The court can order the provisionof additional information to the works council, as well as extra time to review it.

There is no specific requirement in law as to the information to be provided totransferred employees (although such requirements are contained in certaincollective bargaining agreements).

Employers do commonly send a brief letter advising employees of the changeof employer. However, except where this is a requirement under a collectivebargaining agreement, there is no legal sanction if this is not done.

4.3 What does consultation involve? The transferor must obtain from the works council an expression of its opinionon the proposed transfer prior to any decision being made. This opinion canonly be obtained once the works council has been provided with all the necessary information on the transfer, and has had sufficient time to reviewthe information. Consultation will generally require at least two meetings ofthe works council and any opinion they express will not be binding on eitherthe transferor or transferee. The transferor must simply inform the workscouncil of the decision taken, and of the reasons why the works council’s opinion or suggestions were not followed (if this is the case).

4.4 What happens if an employer fails properly to inform or consult? Failure to consult the works council prior to making a decision to transfer anundertaking (or part of one) is a criminal offence which carries penalties of upto one year’s imprisonment and/or a fine of up to EUR 3,750. The works council may also bring an action before the court in summary proceedings tohave the transfer suspended until the consultation procedure has been properly carried out.



In the event of a partial transfer of activity to which Article L.1224-1 applies,the Cour de Cassation initially considered that the only employees transferred

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Articles L.1224-1 and L.1224-2 of the Labour Code.

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? Section 613a of the German Civil Code (Bürgerliches Gesetzbuch, the ‘BGB’)applies to the transfer of an undertaking, business or part of a business fromthe old owner (transferor) to a new owner (transferee) by agreement. Anundertaking, a business or a part of a business for this purpose means an economic entity which retains its identity irrespective of the transfer.

According to Section 324 of the Transformation Act (Umwandlungsgesetz,UmwG) Section 613a BGB also applies in the case of mergers and splits.However, if the legal entity or commercial partnership in question has ceasedto exist following a change of corporate form, it follows that the formeremployer will no longer exist. Therefore, the former employer cannot be liable(see section 2.6) and cannot be party to the employment relationship following any objection raised by the employee (see section 2.2).

1.2 What specific factors trigger the transfer of an undertaking? The meaning of a transfer The legislation merely refers to the transfer of an economic entity by agreement. Therefore, sale contracts are within the primary scope of the legislation, but also lease contracts and tenancy agreements etc (i.e. transfersof assets). However, there is no requirement that a transfer must involve a contractual relationship directly between the transferor and the transferee.

In principle, Section 613a BGB does not apply to the transfer of shares, sincethe identity of the employer is not affected by a share deal.

Further, legal succession by an act of state or by operation of law, e.g. universal succession in the event of death, is excluded.

The transfer of ocean-going vessels and the transfer of assets in the context ofinsolvency proceedings instituted with the view to a liquidation of assets arealso covered by Section 613a BGB.

Economic entity A further prerequisite relates to the quality of the undertaking. The ‘transferof an undertaking’ will only occur if an economic entity is transferred. Theterm ‘entity’ refers to an organised group of persons and assets facilitating theexercise of an economic activity performed with a specific objective. An entitycannot be reduced to the activity entrusted to it.

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If a service provider is affected, a takeover of most of the staff (engaged in ajoint activity on a permanent basis) and succession of the activities might indicate the transfer of an undertaking. In contrast, the identity of a manufacturing company is characterised by its production facilities, machinesand other equipment. However, the transfer of equipment (and not theemployees taken over) might also be crucial on a service provision change, ifthe equipment is essential and indispensable to the performance of the activity (e.g. the location of a kitchen including its equipment for catering services in a hospital).

Prior to 2006, a transfer of tangible assets was critical if they were not left tothe independent commercial use of the new owner. In 2006, however, theGerman Federal Labour Court held (in accordance with the European Court ofJustice decision of 15 December 2005, C-232, 233/04) that independentcommercial use is no longer decisive with regard to the legislation.

Nevertheless, the transfer of an undertaking does not take place if the organisation of work and its methods are completely altered, e.g. where theproduction facilities are transferred but the manufacture of shoes is now donemanually and no longer fully automatically.

1.3 Are there any forms of transaction to which the legislation does not apply? The mere succession of a function without being connected with any transferof assets or staff does not trigger the legislation and nor does the mere transfer of shares. The latter is not considered to be a transfer of an undertaking, provided it is not accompanied by a merger.


2.1 Who is protected? All employees engaged in the transferred undertaking at the date of the transfer are protected by law, from the beginning of their employment relationship. Retired employees are not protected. Employees who would havebeen employed in the undertaking if they had not been unfairly dismissed fora reason connected with the transfer are also included.

If only part of a business is transferred (e.g. the outsourcing of specific services),employees will only fall within the legislation if they worked within the economic entity transferred. This should be determined by looking at:

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A part of a business may be considered to be an economic entity as well. Tobe subject to the legislation it must be an autonomous entity, organised so asto be separable, which only performs particular labour-specific functions within the business as a whole. Section 613a BGB covers all businesses, irrespective of whether they are owned by native or foreign legal or naturalpersons, or whether or not a works council exists.

Economic identity The economic entity must retain its identity irrespective of the transfer. If theessential means of operations which are necessary to manage the businesseffectively are transferred to the transferee and the activities can be carried onin the same way as before, a transfer within the meaning of the legislation hastaken place.

Upon the sale of an undertaking which includes all tangible and intangibleassets and staff, the entity will certainly retain its identity. In other circumstances, whether or not a relevant transfer exists must be assessed on acase-by-case basis, by considering the relevant characteristics of the entity andthe question of whether a meaningful continuation of the undertaking is possible once the business means or staff have been taken over.

The following seven facts identified by the European Court of Justice and theGerman Federal Labour Court (Bundesarbeitsgericht, the ‘BAG’) are helpful inassessing the identity of a transferred business:

• the type of business• the transfer of tangible assets such as buildings, machines etc and their

value and significance to the undertaking • the transfer of intangible assets (e.g. patents and design rights) and their

value • the duration of any interruption in business operations• the similarity between the activities • the retention of the majority of employees and • the adoption of customer and supplier relationships.

In evaluating these factors, an entity cannot be reduced to the activity entrusted to it. Other criteria, such as the transfer of executives or other highly qualified employees, the location, methods of operation and equipmentrelinquished, must also be considered. Different criteria will be relevantdepending on the type of undertaking. Thus, a distinction will be madebetween a manufacturing company and a service provider.

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employee will have no legal effect. However, the employee is entitled to terminate the employment contract with the transferee for cause with immediate effect within a period of two weeks after gaining knowledge of thetransfer.

When the employee receives notification of the transfer (see section 4.2), theemployee must object within a one month period. The written objection mustbe addressed either to the transferor or the transferee. This one month periodapplies irrespective whether the information is given before or after the transaction has taken place. If the prerequisites as to the form and contents ofthe notification are not fulfilled, the notification is invalid, i.e. the one monthperiod only starts to run if correct notification has been delivered.

2.3 What happens to terms of employment contracts? If an undertaking or part of it is transferred to a new owner, by Section 613a(1) BGB the transferee is bound by all rights and obligations resulting from theemployment relationships in existence at the time of the transfer.

Rights which depend on the duration of the employment relationship with thetransferor are also an integral part of the relationship to the transferee. Theemployee is deemed to have been employed by the new owner since thebeginning of the employment relationship to the transferor.

However, the new owner is under no obligation to treat the employees transferred and its other employees on equal terms.

2.4 What about other employee benefits? The transferee’s obligations include honouring any benefits granted by the former employer, e.g. special payments such as Christmas bonuses, attendance bonuses or claims from employee stock options.

Other benefits, such as profit share schemes and commission, may be basedon circumstances which exist only with the transferor. The transferee mustadopt them by tailoring them to the circumstances of the business. If this isimpossible to do, the transferee must compensate employees for the loss ofthese benefits.

However, products which are manufactured and sold by the transferor to theemployees for less than market price are not required to be offered by thetransferee unless it is continuing to produce them.

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• the contract under which a person works for this part of the business • the job description • integration in the work organisation • actual time spent working for/with this part of the business and • the allocation of costs.

All existing employment contracts are included, even short-term work and ‘defacto’ employment relationships as well as dormant ones (e.g. workers onmaternity leave and paid parental leave).

Prevailing case law strictly defines which employees are covered and protectedby Section 613a BGB.

Managing directors (Geschäftsführer) of a limited liability company(Gesellschaft mit beschränkter Haftung, GmbH) and members of the board ofdirectors (Vorstandsmitglieder) of a stock corporation (Aktiengesellschaft, AG)are not covered by Section 613a BGB.

2.2 What if employees object to the transfer? According to Section 613a (6) BGB the employee is entitled to object to thetransfer of his or her employment relationship without giving a reason for thedecision. If he or she objects, the employment relationship will continue withthe transferor.

If the whole undertaking was transferred and the employee has objected tothe transfer of his or her employment relationship, the transferor will no longerbe in a position to offer a workplace to the employee. In such a case a dismissal for compelling business reasons is usually considered to be sociallyjustified. If only a part of the undertaking was transferred, employers may havedifficulty proving that a termination for compelling business reasons is sociallyjustified, e.g. because a comparable position may exist in the remaining partof the undertaking.

If the employee does not wish to work either for the transferor or the transferee, the employee can terminate his or her contract by observing theapplicable notice period.

However, if the legal entity or commercial partnership in question has ceasedto exist following a change of corporate form, the transferor will no longerexist and therefore cannot continue to be a party to the employment relationship. In such a case according to a ruling of the Federal Labour Court(Bundesarbeitsgericht, BAG, of 21 February 2008), any objection by the

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are now protected by these provisions) or if the old collective agreement hasterminated vis-à-vis the transferor following the transfer (because the employees would lose this protection even without the transfer).


3.1 Can employers make changes to employment contracts? Acquired rights resulting from a single employment contract (e.g. salaries inarrears or claims for company pension) can only be waived if there is an objective reason, e.g. the preservation of jobs. There is a high risk that if theemployee subsequently takes court action, the court may declare the agreement void by reason of circumvention of Section 613a BGB.

In respect of rights based on single employment contracts which will arise infuture, the transferee and the employee may amend the terms and conditionsof individual employment contracts immediately following the transfer, e.g.the transferee can agree to pay the employee less salary in the future (this, bya ruling of the BAG of 7 November 2007). However, if the employer did notinform the employee of the transfer before the agreement to change theterms of his or her employment contract is made, the employee may rescindthe agreement on the grounds of wilful deceit.

Rights resulting from a collective bargaining agreement must not be amendedduring the first year after the transfer, with exceptions under certain circum-stances (see section 2.7).

3.2 When can employers safely dismiss employees before or after a transfer? According to Section 613a (4) BGB, the dismissal of an employee either by thetransferor before the transfer or by the transferee after the transfer is invalid ifthe transfer was the main reason for the dismissal. Transfer does not in itselfconstitute grounds for dismissal.

The right to terminate the agreement for other reasons remains, however,unaffected. The legislation does not protect against other risks of dismissal,including illness, the misconduct of the employee or restructuring measureswhich make the employee’s position redundant.

Every employee is protected by this provision regardless of the size of theundertaking and period of service. The provision enters into force as soon asthe transfer has been planned and organised.

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2.5 What happens to pension rights? The transferee is liable for pension commitments made by the transferor andthe resulting forfeitable or non-forfeitable benefits.

By contrast, the transferee is not liable for the pension entitlement of employees who have already retired at the time of the business transfer, or fornon-forfeitable benefits of employees whose employment terminated beforethe transfer.

2.6 What liabilities transfer? Although the transferee assumes all liabilities vis-à-vis transferred employees,by Section 613a (2) BGB the transferor remains (jointly and severally with thetransferee) liable for all obligations under the employment relationship whicharose prior to the transfer and fall due within one year after the date of thetransfer. Where the obligations become due after the date of the transfer, thetransferor is liable, however, only for the proportion of the total assessmentperiod that reflects the time elapsed before the date of the transfer. If anemployee is entitled to a special payment in November in an amount of EUR 12,000 for example, and a transfer took place on 30 April of that year,the transferee will be liable for the whole amount of this special payment, whereas the transferor will only be liable for 4/12 of the amount, as it wasemployer for only 4 months of the year in question (i.e. the time that elapsedbefore the date of the transfer).

The transferor and the transferee are not entitled to limit their liability vis-à-visemployees by agreement. However, they are free to agree between themselveson the allocation of any financial risks arising from their joint and several lia-bility and to negotiate indemnities. However, if the legal entity or commercialpartnership in question has ceased to exist following a change of corporateform, the transferor will no longer exist and therefore the transferor will notbe liable.

2.7 What if employees are covered by a collective agreement? If the employment relationships are subject to the provisions of a collective bargaining agreement (Tarifvertrag) or a works agreement(Betriebsvereinbarung), the transferee is bound by the provisions contained init. Those provisions will be transposed into the individual employmentagreement between the employee and the transferee and cannot be modifiedto the detriment of the employee before one year from the date of the transfer. An exception can only be made if the relevant rights and obligationsvis-à-vis the transferee are regulated by the provisions of another collectivebargaining agreement or another works agreement (because the employees

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offering sensible suggestions. In addition it must forward information andadvice to the works committee. Its function is to promote co-operation andexchanges of information between the owner and the works council. In theevent of a major asset deal and/or transfer of an undertaking, it is generallypresumed that the Economic Committee must be informed.

Spokespersons’ Committee According to the Spokespersons’ Committee Act (Sprecherausschussgesetz,SprAuG) its function is to work together with the employer for the benefit ofthe executives and the business. The works council does not represent managerial employees and therefore in businesses with more than 10 managerial employees, those employees are permitted to elect their own representation, known as the Spokespersons’ Committee. Before concluding aworks agreement or any other agreement with the works council which affectsthe legal interests of the managerial employees, the employer must consult theSpokespersons’ Committee in good time. By Section 32 (1) SprAuG, the ownermust inform the Spokespersons’ Committee at least once during the calendaryear about the economic affairs of the company on the same issues aboutwhich the Economic Committee must be informed.

4.2 What information must they provide? According to Section 613a (5) BGB either the transferor or the transferee ofthe business must inform each employee affected by the transfer of the following:

• the date or proposed date of the transfer • the reason for the transfer • the legal, economical and social implications of the transfer for the

employee and • the measures envisaged in relation to employees.

In order to fulfil these requirements, the notification should contain all theessential facts that might affect terms of employment, especially those relating to remuneration. This includes the continuation or alteration of collective bargaining agreements and/or work agreements (e.g. terms concerning bonus payments, pensions etc.) which apply to the employmentcontract. ‘Measures in relation to employees’ include any relocation or trainingplans as part of any restructuring programme in connection with the transfer.

The notification must be given in so-called ‘textual form’. This means it doesnot have to be in writing with an original signature, but can be sent by fax oremail if the employee normally consents to being notified about legally

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The same applies in the event that an employment relationship is modified tothe detriment of the employee by a dismissal with the option of altered conditions of employment (Änderungskündigung).

Even a termination agreement is invalid, if it is combined with a new job offerby the transferee under amended terms and conditions, as this is deemed tobe evasion of the legislation.

If the dismissal by the transferor was effective because of compelling businessreasons (e.g. closure of the undertaking) and the opportunity for the transferarose during the period of notice, the employee can claim to be reinstated. Itis still in dispute whether this right also exists if the notice period has expiredbefore the transfer. In any case the employee must claim to be reinstated within three weeks of gaining knowledge of the transfer.


4.1 Who must employers consult? In contrast to what is provided in the Acquired Rights Directive, by Section613a (5) BGB, the transferor and transferee must inform every individualemployee about the transfer – it is not sufficient to inform the employee representatives. This is to enable every employee to consider his or her objections to the transfer.

Other provisions outside Section 613a BGB regulate the information that mustbe provided to employee representatives. Under German Law there are threetypes of representatives of employees who could be involved: by Sections 111-113 of the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG),the works council must be informed; by Section 106 of the Works ConstitutionAct, the Economic Committee must be informed; and by Section 32 of theSpokespersons’ Committee Act (Sprecherausschussgesetz, SprAuG), theSpokespersons’ Committee must be informed. What follows is an explanationof the latter two:

Economic Committee According to Section 106 of the Works Constitution Act(Betriebsverfassungsgesetz, BetrVG) an Economic Committee must be established in a company with more than 100 regular employees. It comprisesthree to seven members belonging to the company, one of whom must be amember of the works council. The Economic Committee must discuss economic matters with the owner with a view to influencing his plans and

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relevant issues in these ways. However, mere oral notification is no longer sufficient.

According to Sections 111-113 of the Works Constitution Act(Betriebsverfassungsgesetz, BetrVG), the employer must inform the workscouncil promptly and fully of planned operational changes which could resultin significant disadvantages for employees or a considerable proportion of theemployees. It must also confer with the works council with respect to theplanned operational changes. This only applies in companies with more than20 regular employees entitled to vote for a works council. Operational changesinclude:

• the reduction or closure of operations either at the entire establishment orparts of it

• the relocation of businesses or parts of businesses • the merging or splitting of enterprises or operations • fundamental changes in the organisation, purpose or technical facilities of

the company and • the introduction of completely new work or manufacturing methods.

Generally, the transfer of the whole undertaking does not in itself constitute achange in the company's structure or its operations. However, the transfer ofa part of a business is in most cases deemed to be an operational change, asit involves the splitting of the enterprise or operation – even if, at first sight, nofurther measures affecting the employees are planned or will be carried out.

The employer must provide any information necessary for the works council to evaluate the forthcoming change in the business structure and the detrimental effects of this change for the employees.

It is also the employer's duty to provide comprehensive information to the Economic Committee. The Economic Committee must be given the opportunity to discuss the matter with the owner and to inform the workscouncil. The Economic Committee needs to be provided with all of the information that the owner used to make its decision. The information mustbe provided in a comprehensible form, and the context and any unknownterms must be explained. However, the employer is not under an obligation toobtain or create information specifically for the purpose of passing it on to theEconomic Committee.

By Section 32 (2) SprAuG, the employer must also inform the Spokespersons’Committee of any planned changes in operations (parallel to the information

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to be given to the works council) which could cause serious disadvantage tomanagerial employees. If the managerial employees suffer any economic disadvantage as a result of changes in operations, the employer must discussmeasures to compensate for or reduce this with the Spokespersons’Committee. However, the owner is under no obligation to conclude any agreements which correspond to a reconciliation of interests or a social plan(see section 4.3 below).

4.3 What does consultation involve? The works council and the employer are required to agree on a reconciliationof interests (Interessenausgleich) and, if necessary, on a social plan (Sozialplan).

In relation to the reconciliation of interests, the employer and the works council will stipulate if, when and how the planned operational changes willbe implemented. In relation to the social plan, they must agree on a settlementor a mitigation of financial disadvantages that will be suffered by employeesas a result of the planned operational changes. Agreements are often achievedon re-training opportunities, the reimbursement of additional expenses (moving expenses or increased expenses for transportation to the workplace)by the employer, redundancy pay for the loss of jobs, etc.

If no agreement about the reconciliation of interests or the social plan can beachieved, the parties may call upon the Governing Board of the FederalEmployment Agency to mediate. If no agreement about the social plan isreached, the conciliation board (Einigungsstelle), which is a type of arbitrationtribunal, will make a final and binding decision on the establishment of thesocial plan. The employer and the works council can agree on who the chairman of the conciliation board should be, but failing this he or she will beappointed by the labour court. The employer and the works council will alsoappoint 1-3 members each. The conciliation board will hold oral discussionsand reach a decision by majority vote. The employer and the works councilmay seek review of the conciliation board’s decision by the labour court.

In order to prepare the Economic Committee for discussions the owner mustinform the Economic Committee promptly and comprehensively providing thenecessary documents unless the company’s trade and business secrets arejeopardised. The owner must also describe the impact these matters will haveon personnel planning.

4.4 What happens if an employer fails properly to inform or consult? Failure to negotiate a reconciliation of interests may result in claims by theemployees for compensation for disadvantages. If the owner fails to provide

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the works council with timely and sufficient information and to consult withthe works council it could incur a fine of up to EUR 10,000.

Moreover, failure to provide sufficient information or breach of consultationobligations may prevent the implementation of the planned transfer of theundertaking, because the works council may apply for preliminary injunctionproceedings (until the works council's claims have been satisfied by theemployer). However, only certain labour courts in Germany will grant preliminary injunctions upon application of the works council against theemployer. These would force the employer to abstain from implementing anymeasures before full compliance with legal requirements.

The Economic Committee is not entitled to block the decision of the owner,even if it has been informed late, but in such cases the owner could incur afine of up to EUR 10,000.

In the event of a serious offence, the works council may institute legal proceedings against the owner for breach of statutory duties. In these proceedings the owner could be placed under an injunction or a specific performance order and the court may rule that in the event of repeatedbreaches administrative fines of up to EUR 10,000 per breach will be imposed.

In the event of a dispute about the existence or the extent of the right toreceive information a conciliation committee (Einigungsstelle) may be calledupon to make a decision.



A transfer of undertaking or business does not affect the existing representation of employees, as established under the Works Constitution Act(Betriebsverfassungsgesetz, BetrVG) or other laws. If the undertaking is transferred as a whole, the works council of the transferred undertaking continues its work as before. If the transferred undertaking however loses itsorganisational identity, e.g. because the undertaking is integrated into another operation, a transitional or remaining mandate for the works councilmay exist in line with Section 21a and 21 b of the Works Constitution Act. Ifpart of a business is transferred, the works council of the transferor’s businesswill remain in office if the organisational identity of the transferor’s remainingbusiness is maintained. As to the transferred part of the business, the works

council of the transferor’s business may have a transitional mandate if thetransferred business is continued by the new owner as an independent operation. If part of a business is transferred and the transferor’s business losesits organisational identity, the works council has a remaining mandate in linewith Section 21b of the Works Constitution Act.

Further, the obligations to inform and consult the Economic Committee(Wirtschaftsausschuss), the Works Council (Betriebsrat) and theSpokespersons’ Committee (Sprecherausschuss) must be borne in mind. Theseinclude the establishment of a reconciliation of interests (Interessenausgleich)and a social plan (Sozialplan) with the works council.

Please note that no parallel information requirements exist vis-à-vis the tradeunions.

Where the transferor or transferee plans collective dismissals (e.g. dismissalswithin a 30 day period affecting more than 5 employees in an establishmentof 20-59 employees; more than 25 employees or at least 10% of the workforce in an establishment of 60-499 employees; and at least 30 employees in an establishment of 500 or more employees) either before orafter transfer, the competent employment agency must be notified.Otherwise, any termination of employment will be invalid.


The main legal uncertainty concerns whether a transfer of an undertaking hasoccurred within the meaning of the legislation. One of the prerequisites is theretention of the business’s identity. One has to consider which main characteristics identify the entity. The rules established by the German FederalLabour Court and the European Court of Justice on assessing continuing identity are still in flux.


It is generally accepted that in the case of a transfer of an undertaking or busi-ness from abroad into Germany the law of the state where the undertaking or business was domiciled before the transfer applies.

Where an undertaking or business is transferred from Germany into a memberstate of the EU, whether German law applies is a matter of debate. The prevailing opinion seems to be that Section 613a BGB does apply if the undertaking was domiciled in Germany and German law applied to theemployment contract. However, it is possible to choose foreign law for the

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employment contract and therefore to exclude Section 613a BGB, althoughchoice of the law does not prevent the application of Section 613a BGB ifGerman Law would have applied without this choice.

As a result, a foreign transferee would become the employer of the Germanemployees. In such a case the employees cannot be employed in Germanybecause of the relocation of the undertaking, but equally they cannot beforced to work abroad unless their employment contract contains a provisionthat covers relocation. Therefore the transferee will need to terminate theemployment contracts, duly observing the notice period, in order to changethe conditions. In other words, the transferee will need simultaneously to dismiss the employees and offer them an employment contract with the sameconditions as before, other than the change of the work place.

After the transfer/relocation abroad, foreign collective bargaining agreements might replace the conditions of individual employment contracts.Foreign public law might also take priority, for example, social security law,protection in the case of pregnancy/maternity and provisions concerning working time may be subject to the rules of the new jurisdiction.

Note however that Section 613a BGB does not apply if the undertakingchanges its identity as a result of the relocation abroad.

If the undertaking is transferred into a state outside the EU, Section 613a BGBdoes not apply.



The German implementation of the Acquired Rights Directive is Section 613aBGB (German Civil Code). In the case of mergers and splits Section 324 UmwG(German Transformation Act) must also be considered.

The rights of the works council are contained in Sections 111 et sqq. BetrVG(Works Constitution Act).

The rights of the Economic Committee are covered by Sections 106 et sqq.BetrVG (Works Constitution Act).

It is also necessary to consider the rights of the Spokespersons’ Committeeaccording to Section 32 SprAuG (Spokespersons’ Committee Act).

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Greece

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? The provisions of Presidential Degree 178/2002 apply to every contractual ormandatory business transfer, merger, takeover or acquisition of a company orof its business facilities or any part of one to another employer.

‘Business facilities’ includes not only physical assets or facilities but also thepeople and technical or other means of production, as organised by theemployer for the purpose of realising a productive or technical goal.

1.2 What specific factors trigger the transfer of an undertaking? A ‘transfer’ is the transfer of an economic unit that keeps its identity and thisis defined as ‘the sum of organised resources whose purpose is the exercise ofeither primary or secondary activities’. The rights of employees must be protected irrespective of whether the transfer is lawful or not. For exampleunder Greek law a transfer will occur if a) an undertaking is permanently relinquished by the employer either by sale or by any other legal transactionsuch as by division or gift etc; b) an undertaking is reorganised, e.g. by hiringa co-partner, etc or c) by hereditary succession.

It should be noted that for the provisions which protect employees to apply,the transferred enterprise must continue to be operated as a financial unit bythe transferee. Thus, for it to be regarded as a transfer, sufficient business elements must be transferred to enable the transferee to continue the activities of the transferor’s enterprise. If, for example, the assets of the enterprise are merely rented out and the enterprise as a whole is not transferred as a fiscal unit, this will not be deemed to constitute a businesstransfer.

1.3 Are there any forms of transaction to which the legislation does not apply? The legislation does not apply to vessels and ships, or to share deals or bankruptcy or other insolvency proceedings in connection with the transferor.

The law does apply in cases involving transfers from the private to the publicsector, but (by Article 2.1 of Presidential Decree 178/2002) the law does notcover ‘the administrative reorganisation of public administrative authorities orthe transfer of administrative functions between public administrative authorities’.

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• the employee’s duties should remain the same after the transfer and • the terms of the employment contract (which should remain unchanged)

should reflect years of service and seniority accrued with the transferor andinclude terms relating to the configuration of the employee’s pay.

2.5 What happens to pension rights? The transferee can refuse to continue an insurance agreement (for life insurance, medical cover etc.) whether in the form of a policy with an insurance company or in the form of an account operated by the company, ifthe costs involved would substantially impede the transfer of the undertaking.Alternatively, the transferee may either continue the policy under the same, ordifferent, terms.

2.6 What liabilities transfer? Even after the transfer has taken place the transferor is jointly liable with thetransferee for all obligations arising under the previous contract or employment relationship, until the transferee takes over.

2.7 What if employees are covered by a collective agreement? According to Presidential Decree 178/2002 (which implements EU Directive98/50/EC) the transferee must observe the terms and conditions of theemployment contract as supplemented by all applicable collective agreements,mediation decisions, bye laws and individual employment contracts, withoutdistinction.

At any time after the transfer the new employer may negotiate a new collective agreement. Any new terms will apply even if this is to the detrimentof the employee. This will not be regarded as a change to the terms and conditions of employment because collective agreements are not incorporatedinto individual contracts of employment and are considered to be merely ageneral norm to be applied. Presidential Decree 178/2002 has not, however,affected the general rules relating to the validity and scope of collective agreements. Even in cases where the new employer decides to renegotiate thecollective agreement, it will be bound by the terms of the old agreement for aperiod of six months after the termination.


3.1 Can employers make changes to employment contracts? The general rule is that the employment relationship, its terms and conditions,any obligations on the employer and any employee rights which exist at the


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2.1 Who is protected? The protection covers all the transferor’s employees with an employment contract in force at the date of transfer (even if they have been suspended).Thus for example, secondees, apprentices and employees on maternity leavewould be covered. Whether the contract is for a fixed or indefinite term is notan issue, as both are protected.

2.2 What if employees object to the transfer? A transfer may take place without the employees’ consent, as this is notrequired and not considered to be a prerequisite. Transferred employees mustoffer their services to the transferee but are entitled to terminate their employment contracts before or after the transfer if they do not agree with itor do not intend to work for the new employer. Thus if an employee refusesto transfer his or her employment relationship and consequently refuses tooffer his or her services to the new employer, he or she has the right to resign.

2.3 What happens to terms of employment contracts? All rights and obligations of the transferor in relation the employment contractor employment relationship are automatically transferred to the transfereeupon transfer. Even after the transfer, the transferor and transferee will bejointly and severally liable for all obligations arising from both the contract andthe employment relationship until such time as the transferee takes over(although it is unclear at the time of writing whether the liability of the transferee might in fact be limited to the value of the transferred items, byapplication of Article 479 of the Civil Code). The transferee will then take onall rights and obligations of the transferor toward every employee.

2.4 What about other employee benefits? After transfer the transferee must continue to observe the employment termsprovided, not only in the employment contracts, but also by collective agreements, decisions made in arbitration and company bye laws.

More specifically:

• the salary of employees must remain the same after the transfer with regard to its total amount and also to the way it is apportioned (basic salary, benefits, voluntary allowances etc)

• time spent employed by the transferor and transferee should be regardedas continuous employment for the purpose of calculating salary and benefits, annual leave, redundancy compensation, sick leave etc

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If the transferee disregards the prohibition and dismisses employees solely as aresult of the transfer, the dismissals will be unlawful and therefore invalid. Thedismissed employees will be entitled to claim that their employment contractsshould continue and that they should be paid wages which match the periodthey did not work because of the invalid dismissal.


4.1 Who must employers consult? Both the transferor and the transferee must inform the employee representatives of the transfer. The employee representatives will maintaintheir positions for as long as the enterprise retains its autonomy even after thetransfer. If the enterprise loses its autonomy through division or merger to theeffect that the number of employees and the structure of the works councilchanges, the tenure of the works council will expire and a new one should beelected. In such cases the employee representatives will remain protected foras long as they would have been protected had the transfer not occurred. Theexpiry of tenure of the works council has no impact on the protection of itsmembers.

4.2 What information must they provide? The employee representatives should be informed of:

• the date or the proposed date of transfer • the reasons for it • the legal, economic and social consequences that the transfer could entail

for employees and • the measures that will be put in place in relation to the employees.

The transferor should provide the above information to the employee representatives in good time, that is, before the transfer. The transferee has asimilar obligation and must meet it before any employees suffer any detrimentas a result of the transfer.

4.3 What does consultation involve? The transferor and transferee must consult with the employee representativesbefore the transfer about any measures which will change the conditions ofemployment of the employee, with a view to reaching a consensus. The resultsof the consultation, including the final opinions of the interested partiesshould be recorded in writing. The consultation right is helpful in cases wherethe interested parties act in good faith to try to reach an accommodation ofall interests.


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time of transfer must be transferred to the new employer without modification. This rule refers, inter alia, to:

• employees’ salary• any additional voluntary benefits and allowances provided to the

employees by the transferor• professional development issues (i.e. promotions), as these will have

formed part of the internal regulations applicable in the transferor’s company

• additional rights connected to the termination of the employment contractas these rights will have been arranged between the employee and the transferor

• financial rights arising from the duration of the employment in the transferor company (i.e. calculation of severance pay)

• institutional issues (such as annual leave, working time, recognition of previous employment etc).

The employees’ rights and their employment terms and conditions must notbe amended in a way which is detrimental to employees without their consent.Accordingly, it will not be sufficient to show that the new terms are equivalentin aggregate (unless the employees agree to the proposed alterations),because the Law provides that the ‘content’ of the employment contract mustremain unchanged. It will be a matter of fact whether the new terms areactually equivalent or not.

3.2 When can employers safely dismiss employees before or after a transfer?The transfer must not be the sole reason for an employee’s dismissal and thisprohibition applies to both the transferor and transferee. However, it does notprevent the employer from dismissing employees for economic, technical ororganisational reasons, provided the rules of the Greek Labour Law regulatingredundancies are complied with.

Where the employment contract is terminated by an employee because thetransfer has caused essential changes to the employment terms and conditionsto the detriment of the employee, it will be deemed that the employer causedthe dismissal to occur. By contrast, it is also possible for an employee to be dismissed by the employer on account of his or her ‘unconventional attitude’.

Generally there is no requirement under the Labour Law for an employer tojustify the termination of an employee under an indefinite term employmentcontract and the burden of proof is on the dismissed employee to prove thatthe dismissal occurred solely as a result of the transfer.

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value of its intangible assets at the time of the transfer, (whether or not essential staff members will be taken over by the new employer, whether ornot its customers will be transferred), the degree of similarity between theactivities carried on before and after the transfer, and the time period, if any,for which those activities are suspended. However, all those circumstances aremerely single factors in the overall assessment and should not be consideredin isolation.

Moreover, in cases in which the new employer takes over assets and employees from the former employer to enable it to carry on activities conducted by the transferor’s undertaking in a stable way, Council Directive77/187/EEC will apply.


The law applies to the transfer of an undertaking situated in Greece. Withregard to transfers out of Greece, the relevant European legislation and respective national law will need to be considered as well.



Greece has adopted provisions necessary to comply with Directive 98/50/EC bymeans of Presidential Decree 178/2002 (on measures relating to the protection of employee rights in the case of transfer of a business etc). ThisDecree replaced Presidential Decree 572/98, which was issued in order toimplement the provisions of former Directive 77/187/EEC and includes allchanges to the old Directive as provided in the new Directive 98/50/EC.


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4.4 What happens if an employer fails properly to inform or consult? The consultation obligation requires a consultation to be held for the purposeof achieving a consensus. However, the performance of the consultation procedure and the achievement of consensus are not preconditions for thevalidity of the transfer. The Law provides a fine as the sole sanction for breachof employees’ rights to participate in the process, but infringement can neitheraffect the validity of the transfer nor block it.

These provisions merely reduce the right of employers to change the workingconditions of the employees unilaterally.



Greek Law provides that if the undertaking preserves its autonomy the elected works council continues until its term of office expires, unless any reorganisation of the undertaking by the transferee changes the conditions fora reconstitution of the works council (e.g. a change in numbers). If the undertaking loses its autonomy, then the exiting works council will continueuntil a new one is elected. Rules on protection against dismissal assume thatthis protection will continue until one year after the end of the original termof office.

National law does not take advantage of the option granted under Article 6 ofDirective 98/50/EC to institute special measures ensuring the representation ofemployees in cases where the transferor is the subject of insolvency proceedings. This means that the general provisions regarding employee representation apply in such cases.

5.2 What are the main areas of legal uncertainty relating to transfers of undertakings in Greece?

Firstly, in order for Directive 77/187/EEC of 14 February 1977 to apply, thetransfer must apply to a stable economic entity, whose activity is not limited tothe performance of one specific work contract. The term `entity' means anorganised group of people and assets facilitating the exercise of an economicactivity with a specific objective.

Secondly, it is necessary to consider all the facts characterising the transactionin question, including the type of undertaking, (whether or not its tangibleassets, such as buildings and movable property, are being transferred), the

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Hungary

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? Section 85/A of Act No XXII of 1992 on the Labour Code regulates the transfer of undertakings. This provides that legal succession in the person ofthe employer occurs when (a) legal succession takes place by operation of law(‘universal succession’); or (b) when an independent unit (such as a strategicbusiness unit, plant, shop, division, workplace, or any section of these) or thetangible or intangible assets of the employer are transferred by agreement toan organisation or person (‘individual succession’ based on the agreement ofthe parties).

1.2 What specific factors trigger the transfer of an undertaking? Legal, or ‘universal’, succession takes place by law when it is regulated by ActNo. VI on Companies (the Companies Act) or by Act No. IV of 1959 on theCivil Code. Examples of legal succession are demergers and 100% changes ofownership.

Individual succession requires the agreement of the transferor and the transferee. According to the non-exhaustive list of examples set out in theLabour Code, the transfer of an undertaking occurs by sale, exchange, lease,leasehold or capital contribution to a company.

There is an ongoing court dispute about whether outsourcing qualifies as atransfer. In a very recent individual case the Metropolitan Court of secondinstance deems outsourcing to be a valid form of transfer, but the final outcome of the case is as yet uncertain.

In practice, and in order to mitigate any risk, parties may enter into individualemployee transfer agreements complementing the agreement of the transferorand the transferee. Individual transfer agreements may mitigate the risk of anypossible disputes between the employees and either the transferor or thetransferee. However, individual agreements are not regulated by the LabourCode.

1.3 Are there any forms of transaction to which the legislation does not apply? There are no general exemptions from the rules, but specific rules may applyto the public sector, as it is regulated by a statute other than the Labour Code.

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Past employment with the transferor counts as continuous employment withthe transferee.

2.5 What happens to pension rights? Mandatory pension entitlement rights will remain unaffected, meaning thattime spent in the employment of the transferor and transferee will qualify astime spent with the same employer.

2.6 What liabilities transfer? Generally, all rights and obligations arising from an employment relationship inforce at the time of the transfer of an undertaking, will be transferred to thetransferee. If the transferor ceases to exist, this is the case also for employmentrelationships that have ceased to exist at the time of the transfer.

The transferor and transferee are jointly and severally liable for claims arisingprior to the transfer, provided those claims are made within one year of thetransfer.

Further, if an employment contract is terminated by the transferee within oneyear of the date of the transfer (i) by ordinary dismissal for reasons of the employer's operations, (ii) or if the employee had a fixed term contract, the transferor will be liable for any payments due to the employee upon termination.

Please note that the above rule applies only if (i) the transferor; (ii) the company controlled by the transferor; (iii) the majority owner of the transferor; or (iv) the company in which the majority owner is the majorityowner of the transferor, holds more than 50% of the votes on the board ofthe transferee.

2.7 What if employees are covered by a collective agreement? The Labour Code excludes only the executive (i.e. legal representatives of the company). Therefore, collective bargaining agreements apply for keyemployees and middle level executives.

The working conditions (with the exception of the work schedule), prescribedin any collective agreement that applies to the transferor at the time of transfer must be maintained in force by the transferee until it is terminated bythe transferor or it expires, or another collective agreement is concluded withthe transferee. In the absence of any of these, it must be maintained for atleast one year following the transfer unless the working conditions set out inthe transferee’s collective agreement are more favourable to the employees.


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2.1 Who is protected? As a general rule, all employees whose employment relationship is in force atthe time of the transfer will be protected but in certain cases employees whoseemployment relationship is no longer in force at the time of the transfer alsobenefit from protection. The protection extends to all inactive employees, e.g.those on sick leave or on maternity leave.

It is questionable whether ‘self-employed’ persons are transferred or not.There is a high risk that the relationship could be considered to be ‘concealedemployment’, in which case the agreements under which they operate may bere-classified by the relevant authorities as an employment agreements.

2.2 What if employees object to the transfer? It is clear from judicial practice that the employees may not object to the transfer since it is a business decision of the employer. Objecting to work for anew employer may even qualify as a material breach of the employment contract.

However, in practice in most cases the employee’s consent should be obtainedfor the amendment of the employment agreement (e.g. if the place of work ischanging during the transfer).

2.3 What happens to terms of employment contracts? All rights and obligations of the transferor concerning employment relationsmust be transferred to the transferee at the date of the transfer. All existingemployment contracts will remain in force, with their terms and conditionsunchanged.

In some cases the parties will amend the employment agreements, in particular if the original agreement stipulated a particular workplace.Employees may refuse to sign the amendments and if they do the employer isnot at liberty to terminate the employment agreement as a result of theirrefusal to sign.

2.4 What about other employee benefits? Collective bargaining agreements and all employment benefits remain in forcefor at least one year. If the new employer is not able to provide the same benefits (e.g. for health insurance or pension funds) the employment agreements will need to be amended to reflect the change.

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the announcement specified in section 4.2 above must cover the principlesbehind the planned actions and ways and means of avoiding or mitigating anydetrimental consequences.

4.4 What happens if an employer fails properly to inform or consult? A claim may be filed with the competent court and/or the relevant regionalemployment authority which may impose fines on the employer. Fines are calculated based on the number of affected employees and the number ofbreaches found by the authority. Separate fines apply for each type of breach.



There are no such issues.


In the absence of clear precedent (most cases are not publicly available), thereis a degree of uncertainty about the interpretation of the Labour Code. Themain debate in the courts concerns whether outsourcing agreements may trigger the transfer an undertaking.


Current legislation applies to the transfer of an undertaking registered in Hungary. In the case of a cross-border transfer, the relevant European legislation and applicable national law must also be considered.



EU acquired rights legislation was implemented in Hungary by amendment ofthe Labour Code.


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3.1 Can employers make changes to employment contracts? As a general rule, employers cannot unilaterally amend employment agreements. By contrast, amendments can be made by mutual consent at anytime, but the employee may refuse to give consent. Refusal to give consentcannot be used as grounds for termination.

3.2 When can employers safely dismiss employees before or after a transfer? It is possible to dismiss an employee before or after a transfer. Pursuant to theLabour Code, the transfer of a business ‘in and of itself’ may not serve as areason for dismissal, that is to say, dismissals may not be made for economic,technical or organisational reasons relating to the operation of the employer,such as in the case of redundancies created by the transfer. However dismissalsrelating to effective work, or to skills of the employees, can safely be made.


4.1 Who must employers consult? Both the transferor and transferee must consult the employees (or their representatives, the local trade union branch or the works council) who areaffected by the transfer. There is no further consultation obligation.

4.2 What information must they provide? The transferor is obliged to make an announcement containing the followinginformation at a minimum:

• the time proposed time of the transfer • the reasons for the transfer• the legal, economic and social consequences which affect the employees

and must initiate negotiations aimed at reaching an agreement concerningother proposed measures which affect the employees

The announcement should contain at least the principles behind the plannedmeasures and any solutions aimed at avoiding or mitigating detrimental consequences.

4.3 What does consultation involve? Neither the Labour Code nor judicial practice gives any guidance as to the specific steps required to be taken by the employer during consultation, but

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Ireland

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? The European Communities (Protection of Employees on Transfer ofUndertakings) Regulations 2003 (the ‘Regulations’) apply to any transfer of an undertaking, business or part of an undertaking or business from oneemployer to another as a result of a legal transfer (including the assignment orforfeiture of a lease) or merger. The Regulations therefore apply on the transfer of an economic entity which retains its identity (e.g. the sale of a business). In certain cases the contracting out of activities, bringing them in-house or changing contractors may also trigger the application of theRegulations.

1.2 What specific factors trigger the transfer of an undertaking? A transfer of an undertaking occurs on the transfer of an economic entitywhich retains its identity.

An economic entity means ‘an organised grouping of resources which has the objective of pursuing an economic activity whether or not that activity isfor profit or whether it is central or ancillary to another economic or administrative entity’. A transfer of an economic entity will occur most clearlywhere there is the sale of a business.

There must be a transfer of significant tangible or intangible assets and thetransfer of a mere right to carry on a business will not constitute a transfer ofan undertaking. The central question therefore is to identify the principal ormost significant assets in the operation of the business and establish whetherthey have transferred. Which assets are significant will depend on the natureof the undertaking.

It is essential however not merely that an economic entity is transferred butthat the economic entity has retained its identity. In this regard the businessshould have been acquired in order to carry on the same economic activity. Indetermining whether an economic entity has retained its identity, small differences of approach or in the character of the business transacted shouldnot make any difference provided the core business remains the same.

In determining whether a transfer has occurred it is necessary to look at all ofthe factual circumstances characterising the transaction in question includingthe type of undertaking or business concerned, the value of the business' tangible assets at the time of the transfer, whether or not the majority of its

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working in the relevant department being transferred, where the employee'soffice or work address is, the value given to each part of the employee’s work,the employee’s job description and where the employer allocates the cost ofthe employee’s services. These are all relevant factors to be considered in determining whether the employee is assigned to the undertaking transferring.

2.2 What if employees object to the transfer? Employees have a right to object to a transfer.

Employees are not obliged to transfer even though the business they areemployed in transfers and therefore an employee is not prevented from objecting to the transfer of his contract of employment and thus not benefiting from the protection of the Regulations. The Regulations howeverdo not provide for the automatic termination of the employment relationshipwhere the employee exercises his right not to transfer. Many had understoodthis to mean that in such circumstances the employee would remain employedby the transferor and unless the transferor had alternative employment for theemployee, the employee would be redundant in his position with the transferorand would be entitled to a redundancy payment. However this issue wasaddressed in a recent High Court case of 28 May 2009 where it was held thatit did not automatically follow that redundancy would arise just because theRegulations did not make provision as to what would occur if an employeeobjected to a transfer. The Court held that in these circumstances the transferwould still go ahead unless a member state expressly provided for the contraryin its implementing legislation and the defendants in that case had no redundancy claim against the transferor. This decision, however, is subject toappeal. The case is not likely to be applicable where an employee objects to atransfer for cause, where there is a substantial change in his working conditions to his detriment. However these issues were not clarified in therecent decision of the High Court.

2.3 What happens to terms of employment contracts? Where there is a transfer of an undertaking the transferor's rights and obligations arising from a contract of employment existing on the date of atransfer are, by reason of the transfer, transferred to the transferee. Thereforethe employees’ terms and conditions of employment transfer to the transferee,subject to a general exclusion for pensions.

employees are taken over at the time of the transfer, whether or not its customers are transferred, the degree of similarity between activities carried onbefore and after the transfer and the duration of any gap in the performanceof the activities. All of these circumstances are merely single factors in the overall assessment which must be made and cannot be considered in isolation.

The Regulations will not apply to purely transient businesses and the transfermust relate to a stable economic entity whose activity is not limited to performing a specific works contract. In order for the Regulations not to applyit is necessary to show that the entire underlying business objective is temporary and not simply the contract to do the work.

1.3 Are there any forms of transaction to which the legislation does not apply? The Regulations do not apply to the transfer of shares.

On a service provision change (whether in relation to a contracting out ofactivities, bringing them in house or changing contractors) the incoming contractor may refuse to take on the staff of the transferor on the basis thatit already has adequate staff to conduct the work relating to the new servicesto be provided. In circumstances where the service being provided is a labourintensive service, as opposed to an asset intensive service, then the Regulationsmay not apply where the employees are not taken on by the transferee.However, in these circumstances all of the other factors would be relevant andshould be considered. Although in case law in this area reference has beenmade to the motive of the transferee in deciding not to take on the staff on achange of service provider, the Irish Courts have not considered in detail thefact that a service provider may deliberately decide not to take on the staff soas to avoid triggering a transfer of an undertaking and the application of theRegulations. Therefore there is still uncertainty in relation to the application ofthe Regulations on a service provision change.


2.1 Who is protected? The Regulations only apply to employees employed on the date of the transfer. The employee must also be employed in or assigned to the part of theundertaking that is transferred. It is not necessary for the employee to workexclusively for the department or unit that is transferred but the test is whetherthe employee could be said to be assigned to the part transferred. In thisregard it will be necessary to consider how much time the employee spends

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the employee a pension benefit not otherwise documented by an arrangement regulated under the Pensions Acts 1990-2008.

2.6 What liabilities transfer? As the obligations arising from a contract of employment transfer to the transferee, the transferee will be liable for any claims made by transferringemployees, whether made before or after the transfer. This would includeclaims in respect of acts or omissions of the transferor, accrued obligations incontract and prospective obligations in contract. Accrued service will alsotransfer and the transferee must recognise this in calculating any future redundancy payments to the relevant employees.

Prior to the enactment of the current Regulations the previous statutory instrument implementing the Directive in Ireland referred to the transfer of notonly the obligations arising from a contract of employment but also from anemployment relationship. The reference to the employment relationship hasbeen excluded from the current Regulations and therefore this may limit theextent of the obligations and liabilities transferred to the transferee.

The transferee would also assume liability for any contravention of theRegulations such as failure to inform and consult by the transferor in relationto the transfer of undertaking itself.

2.7 What if employees are covered by a collective agreement? The Regulations specifically provide that the transferee must continue toobserve the terms and conditions of any collective agreement on the sameterms applicable to the transferor under that agreement until the date of termination or expiry of the collective agreement or the entry into force orapplication of another collective agreement.


3.1 Can employers make changes to employment contracts? Changes unconnected with the transfer are permissible. However the basicrule is that an employer may not vary a contractual term where the change isas a result of the transfer or for a reason connected with the transfer, evenwhen the employee consents to the change. Case law has illustrated thatwhere an employee consents to a change that he will not be debarred frombringing an action at a later point on the basis that the consent was invalidand seeking to be compensated for any loss suffered as a result of or in


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2.4 What about other employee benefits? The employee’s accrued service with the transferor will also be regarded ascontinuous with the transferee. This service is important as it is a qualifyingcondition in order for an employee to enforce his or her rights under variouspieces of employment legislation in Ireland, e.g. unfair dismissals. The transferor must replicate all contractual benefits, other than certain pensionbenefits, but this can lead to problems in areas such as profit share schemesor share option arrangements where the transferee cannot replicate the relevant benefits. In those circumstances the Courts will generally require thetransferee to provide equivalent benefits.

An employee may be entitled to bring a constructive dismissal action in circumstances where there is a substantial change in his or her working conditions to the detriment of the employee concerned. This would seem toplace an obligation on the transferee to implement similar benefits as were inplace prior to the transfer whether the benefits are contractual or simply working conditions.

2.5 What happens to pension rights? Pension rights, other than certain early retirement rights, under pensionschemes which are regulated under the Pensions Acts 1990-2008, do nottransfer. The majority of pension benefits fall into this category of pensionsarrangement and therefore do not transfer. These are occupational pensionschemes which are tax exempt and are usually characterised as defined benefit or defined contribution. These may provide both or either death inservice and retirement benefits. Personal Retirement Savings Accounts are alsoregulated by the Pensions Acts 1990-2008.

Pension benefits which are regulated by the Pensions Acts 1990-2008 andwhich have accrued to the date of the transfer benefit from any of the protections of that legislation which apply, depending on the circumstances.

Pension benefits which transfer derive from two sources: the first are thosebenefits characterised by the European Court of Justice decisions of Martinand Beckmann as transferring. These are certain rights to take an early retirement pension in specific circumstances.

The second set of pension benefits which transfer and must be honoured bythe transferee are pension benefits which fall outside the Pensions Acts 1990-2008 and are unregulated. These are rare arrangements and are usuallycharacterised by a ‘side letter’ between the employer and employee promising

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4.1 Who must employers consult? The employee representatives of the transferor and the transferee must beinformed and/or consulted in accordance with the Regulations. Employee representatives will be either:

• a trade union, staff association or accepted body with whom it has been the practice of the employer to conduct collective bargaining and negotiations or

• in the absence of a trade union, staff association or accepted body, a person or persons chosen by the employees (under an arrangement put inplace by the employer) from amongst them to represent them in negotiations with the employer.

4.2 What information must they provide? The employee representatives must be advised at least 30 days before thetransfer is carried out and in any event in good time before the transfer is carried out of the following:

• the date or proposed date of the transfer• the reasons for the transfer and • the legal implications of the transfer for the employees and a summary of

any relevant economic or social implications of the transfer for the employees and

• any measure envisaged in relation to the employees.

The Regulations also impose an obligation on the transferor to notify the transferee of all the rights and obligations arising from the contract of employment existing on the date of transfer, which will be transferred to thetransferee, so far as those rights and obligations are, or ought to have been,known to the transferor at the time of transfer.

4.3 What does consultation involve? The duty to consult only arises if the employer envisages taking measures inrelation to affected employees. The term ‘measures envisaged’ is however notdefined. If no measures are envisaged the obligation is merely to inform theemployee representatives of the relevant information. Where measures areenvisaged in relation to the employees, the transferor must consult with theemployee representatives not later than 30 days before the transfer is carried

connection with the changes agreed. This is the case even where overall theemployee is not in a worse position.

The primary defence available to a transferee in relation to action taken aftera transfer of an undertaking is that the action was taken for economic, technical or organisational reasons entailing a change in the workforce.However as a change in terms and conditions will not entail a change in theworkplace this defence is not available.

It is also worth noting in this regard that an employee may be in a position tobring a claim for constructive dismissal in the event that there have been substantial changes in his or her working conditions to his or her detriment.This protection relates to changes in working conditions and not purely contractual terms and conditions. In summary therefore the Regulations prohibit transfer-related changes to the contract of employment and this cancause serious difficulties for employers in seeking to merge businesses anddeal with employees’ terms and conditions post transfer.

3.2 When can employers safely dismiss employees before or after a transfer? Transfer related dismissals are prohibited whether by the transferor or thetransferee unless the employer can rely upon the ETO defence. The ETO exception permits transfer-related dismissals where the dismissal is for an economic, technical or organisational reason entailing changes in the workforce. The ETO reason for dismissal must relate to the conduct of thebusiness and must entail a change in the workforce. A desire by an employerto obtain a higher price for the business or to cut wages to provide a serviceat a lower cost would not constitute an ETO defence. Genuine redundancy islikely to be an ETO reason if the transferee can operate the function with feweremployees. However, in order to avoid an unfair dismissal claim an employermust not only comply with the ETO defence but also must comply with thegeneral fair procedures required under Irish unfair dismissal legislation.

Any dismissal that is related to the transfer will be automatically unfair if it cannot be justified under the grounds of the ETO defence. An employee maybring a claim under the unfair dismissals legislation or under the Regulationsand may be entitled to compensation of up to two years’ gross remuneration,reinstatement or reengagement. It should be borne in mind that dismissalsthat are unconnected with the transfer are at all times permitted (subjectalways to the general rules in relation to fair dismissal in Ireland).

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a transferee would appear to be able to avoid the application of theRegulations on a service provision change involving a labour intensive businessby refusing to take on the relevant employees leads to uncertainty in relationto service provision changes and the application of the Regulations.

The provision allowing employees to treat themselves as dismissed where thereis a substantial change in their working conditions to their material detrimentmay leave employers vulnerable to claims long after a transfer has taken place.

The fact that the obligation on the transferor to provide information in relationto the employees to the transferee does not apply to bidders in a tenderingprocess creates difficulties for contractors in pricing their bids where they donot have this relevant information.

The fact that the primary obligation is on the transferor to inform and consultthe employees prior to the transfer date without any corresponding obligationon the transferee to inform the transferor of its intentions in relation to theemployees, places many transferors in a difficult situation in seeking to comply with their obligations to inform and consult. This arises, in particular,in circumstances where there is a change of service provider and therefore nocontractual link between the parties.

5.3 What other factors would employers need to consider in the case of a cross-border transfer into or out of Ireland?

There are no qualifications on where the undertaking must be situated prior toor after the transfer contained in the Irish Regulations. However, clearly thetransfer legislation of other relevant countries in any transaction would needto be considered in this regard also. Once the undertaking had transferred to Ireland its employees would become entitled to the protection of themandatory employment rights under Irish law. Historically when a businesswas transferred out of the country many employees objected to the transferand therefore remained in the employment of the transferor until such time asthe transferor made them redundant and, if applicable, paid them a redundancypayment. However the recent High Court case referred to at section 2.2 wouldneed to be considered in this regard.

It should also be borne in mind that employees may encounter difficulties inenforcing their rights to transfer where the transferee has located itself in acountry that does not recognise the application of the Regulations on a transfer into that country. In these circumstances the employee would possiblyhave to seek to enforce his rights against the foreign entity in the Irish Courts.

out and in any event in good time before the transfer is carried out, in relationto any such measures envisaged with a view to reaching an agreement withthem.

4.4 What happens if an employer fails properly to inform or consult? If an employer fails to inform and consult with the employee representativesin accordance with the Regulations, an employee or employee representativecan bring a complaint within six months from the date of the alleged contravention to the Rights Commissioner. He or she will require either theemployer to comply with the Regulations and take a specified course of action,or pay to the employee, compensation of the amount that he or she believesto be just and equitable in the circumstances, but not exceeding four weeks’remuneration. Liability in this regard transfers to the transferee on the transferdate. If the transferor fails to provide the information required under theRegulations to the transferee then the transferor may be held liable by theCourt for a proportion of any compensation payable by a transferee.


5.1 Are there any special issues employers should be aware ofwhen transferring an undertaking in Ireland?

In Ireland there is still a considerable degree of uncertainty as to when theRegulations apply in many service provision changes, whether relating to thecontracting out of activities, the bringing of activities in-house or changingcontractors.

In Ireland the position on making changes to employment contracts in thecontext of a transfer is highly restrictive and Irish employers are often unableto make legally binding changes to terms and conditions even if employeeswould agree to them.

The Regulations do not include provisions to deal with where an employeeobjects to the transfer of his contract of employment on the transfer of anundertaking. However a recent High Court case has provided some clarity inthis regard (see section 2.2 above).


One of the main areas of legal uncertainty is that mentioned above in relationto the application of the Regulations on a contracting out of activities, bringing them in-house or a change of contractors. In particular, the fact that

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The European Communities (Protection of Employees on Transfer ofUndertakings) Regulations 2003 (SI No. 131 of 2003) is the primary legislationimplementing the EU acquired rights legislation in Ireland. This legislation,however, has been amended by the Employees (Provision of Information andConsultation) Act 2006.

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Italy

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? Under Italian law a transfer is defined as any operation which, by means of ‘atransfer of contract or a merger’, transfers the ownership of an undertaking (or apart thereof) ‘regardless of the type of legal procedure or legal act by which thetransfer is made, including ‘usufruct’ or lease of the undertaking’. Paragraph 5 ofArticle 2112 of the Italian Civil Code defines an undertaking as ‘an organised economic activity, with or without the aim of profit, which pre-exists the transferand conserves its identity upon the transfer’.

According to the current wording of Article 2112 of the Italian Civil Code, ‘partof an undertaking’ is defined as ‘a functional, independent division of an organised economic activity, identified by the transferor and the transferee at themoment of the transfer’. Therefore, the functional autonomy of part of an undertaking could be assessed at the moment of the transfer, provided that thepart of the undertaking has economic and organisational independence.

1.2 What specific factors trigger the transfer of an undertaking? Italian courts have defined some criteria based on which it is possible to identify a transfer of undertaking and the consequent application of the above-mentioned law:

• when the undertaking (or part thereof) presents itself as an independent organised economic entity

• a functional link exists between the activities carried out and transferred, andthese are likely to produce an economic result

• the undertaking continues to retain its identity as an organised economic entity following the transaction

• tangible assets and/or employees are transferred.

Of course, the above criteria are only indications and the assessment must be conducted on a case-by-case basis taking into account what is provided by law.

1.3 Are there any forms of transaction to which the legislation does not apply? Article 2112 of the Italian Civil Code does not cover transfers of shares. If thetransfer involves an undertaking or a part of one, which has been declared bankrupt or which is in a state of financial crisis, Article 47 of Law no. 428 of 29December 1990 introduces a few exceptions to the application of Article 2112 ofthe Civil Code. Thus Article 2112 might not apply if the specific conditions set outunder Article 47 are met.

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2.5 What happens to pension rights? As regards the mandatory social security system, the position of the transferredemployees with the National Social Security Agency (INPS) remains the same.

As regards complementary occupational funds, the law does not set out any specific rules on this point. Generally speaking, there could be a problem ofincompatibility between the different occupational funds that the transferor andtransferee are enrolled with. Therefore, the transferred employees may not beable to maintain their enrolment in the fund they already belong to under theirprevious employer. Ultimately, it is necessary to look at the rules governing eachoccupational fund.

2.6 What liabilities transfer? With regard to existing debts at the time of the transfer, the employee may claimpayment either from the transferor or the transferee (given that the transferor isjointly liable for such debts).

However, the transferred employee may release the transferor from obligationsunder the employment contract by applying the settlement procedures set out inArticles 410 and 411 of the Civil Procedure Code.

2.7 What if employees are covered by a collective agreement? After the transfer the transferee must apply the economic and legal treatment setout under the national, territorial and company collective agreements applicableto the transferred employees in force at the time of the transfer until they expire,unless they are substituted by collective agreements applied by the transferee.

If the transferor and the transferee apply different collective agreements, theabove-mentioned provision permits a change from the collective agreement (ofthe same level) applied by the transferor to the one applied by the transferee.According to the case law that is normally cited, substitution takes automaticeffect at the time of the transfer. However, certain older case law states that thesubstitution becomes effective only after a collective agreement has been reachedduring the information and consultation procedure (the so-called ‘accordo diingresso’ or ‘di armonizzazione’).


3.1 Can employers make changes to employment contracts? The new employer may not unilaterally change the existing terms of the employment contract. Any changes to the employment contracts are possible


2.1 Who is protected? The protection covers all employees involved in the business (or part of it) transferred, including fixed-term employees, apprentices and executives. All subordinate employees are covered, whilst consultants and self-employed peopleare not included in this (Article 2112 of the Civil Code) and follow general principles.

2.2 What if employees object to the transfer? If all the elements that identify the transfer of an undertaking are present, therewill be an automatic transfer of the employees belonging to the undertaking, orpart of it, to the transferee. The employer does not need the consent of theemployee in order to transfer the employment contracts to the transferee.

In cases which are not governed by Article 2112 of the Italian Civil Code, thetransfer of employment contracts will be regulated by Article 1406, which doesrequire the consent of the affected employees.

The last part of Paragraph 4 of Article 2112 of the Italian Civil Code provides that‘an employee whose conditions of work undergo a substantial change in thethree months following the transfer of an undertaking, may resign in accordancewith Article 2119, Paragraph 1, of the Civil Code’. Accordingly, if an employee’sconditions of work change significantly and negatively because of the transferitself in the three months following the transfer, the employee may resign. Inthese circumstances the employee has the right to receive payment in lieu ofnotice (the length of the notice period and of the amount of the payment inlieu is generally contained in the collective agreement or is prescribed by law andtakes into account the length of service and qualifications of the employee).

2.3 What happens to terms of employment contracts? Employees who are employed at the time of the transfer automatically becomethe employees of the transferee beginning at the moment of the transfer andthey must maintain the same conditions of employment (such as salary, fringebenefits, etc) as they held with their former employer.

2.4 What about other employee benefits? Benefits provided under the employment contract (e.g. a company car) are maintained after transfer. If they cannot be replicated by the transferee, theemployees must be compensated according to general principles.

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4.3 What does consultation involve? During the consultation the transferor, the transferee, the work councils and thetrade unions will discuss the legal, economic and social consequences of thetransfer with regards to the affected employees. Parties have no obligation toenter into an agreement and no specific provisions rule how the parties must consult with each other. However, according to general principles, parties mustact in good faith.

4.4 What happens if an employer fails properly to inform or consult? Article 47 of Law no. 428, 1990 states that in the event that the transferor andtransferee do not comply with the procedure provided for by law for the transferof an undertaking, they could be subject to legal action under the Worker’sStatute for anti-trade union behaviour.

This article states that in the event of an employer taking action which preventsor limits trade union freedom or union activities or the right to strike, a judge willorder an injunction on the employer to cease these actions at once. This will occurafter the local unions have submitted a request and it has been ascertained thatbreaches have in fact taken place. The executive force of the judge’s order cannotbe revoked prior to the final decision of the Court. An appeal against the Courtorder may be presented to the Court within 15 days from notification of theinjunction to the parties.

Employers who fail to comply with the judge’s decision will be liable under Article650 of the Criminal Code which states that ‘anyone who fails to observe a provision made by a judicial authority for judicial, emergency, public order orhygiene reasons will be punished, unless the fact does not constitute a more serious crime, with imprisonment of up to three months or with a fine of up toEUR 20,658’. Furthermore, the judicial authorities will order the penal decision tobe published, as provided for in Article 36 of the Criminal Code.

According to decisions of the Supreme Court failure of the employer to complywith the procedure provided for by the law may be declared by the judge as anti-trade union behaviour but this will not affect the validity of the transfer itself.



The transferor and transferee should be aware of the need to give written noticeto the works council and trade unions of the information and consultation


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only with the consent of the employees or in specific cases set out in law (such aschange of the employee’s workplace under Article 2103 of the Civil Code). Ingeneral, subject to the settlement procedures as provided in law, waivers of rightsand settlements with respect to employment contracts will not be valid and maybe challenged.

3.2 When can employers safely dismiss employees before or after a transfer? The transfer of an undertaking does not constitute a reason to terminate anemployment contract. If the transfer is the only reason for the dismissal, the dismissal will be considered unfair. However, a dismissal which is carried out for economic reasons before or after the transfer, but done in accordance withItalian law and not based on the transfer, will not be considered unfair.


4.1 Who must employers consult?For companies with more than 15 employees (including executives) Article 47 ofLaw no. 428, 1990 states that the transferor and the transferee must give written notice to employee representatives at least 25 days before the signing ofthe act stipulating the transfer or before a binding agreement has been reachedby the parties, if this binding agreement comes first. More specifically, the communication must be sent to the work councils and the trade unions. If thereis no work council, the most representative trade unions, on a national basis, ofthe economic sectors involved, will take their place.

The obligation to provide information and to consult trade unions and/or workcouncils must be fulfilled, even if the decision relating to the transfer has beenassumed by another controlling enterprise or by the parent company. If the controlling enterprise or the parent company does not supply the employer withthe necessary information, this will not justify the non-fulfilment of the information and consultation obligations.

4.2 What information must they provide? The notification that both the transferor and transferee must provide in writing tothe unions must include the following information:

• the date, or the proposed date for the transfer • the reasons for the transfer • the legal, economic and social consequences with regards to the affected

employees • any measures that will be taken in relation to affected employees.

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procedure 25 days before they reach a binding agreement about the transfer. Thismay mean that they need to be informed about the procedure long before thedeal closes and the transfer takes place.


Looking at case law two main areas are subject to interpretation. First, how abranch of an undertaking (or a part thereof) is defined, and in consequence, howto apply the rules on transfers of undertakings, as set out in Italian law (see section 1.1 above). Second, the consequences of failure to comply with the procedure (see section 4.4).


In general there is no express provision of law on this point which excludes theapplication of the rules concerning transfers of undertakings. However, therecould be a conflict between the different applicable national laws and problemsin coordinating the trade unions of different countries, which could make it difficult to apply Italian law.



Under Italian law, the transfer of an undertaking (or part of one) is regulated byArticle 2112 of the Italian Civil Code and by Law no. 428 of 29 December 1990,which amended the above-mentioned article of the Civil Code, ensuring its conformity with European Directives. Legislative Decree no. 18 of 2 February2001, which implemented Directive 98/50/EC, modified both regulations.

To implement Law no. 30 of 14 February 2003 the Italian Government passedLegislative Decree no. 276 of 10 September 2003. Article 32 has changed Italianpractice on transfers of undertakings by modifying Article 2112 of the Italian CivilCode. Article 2112 of the Civil Code was then further modified by Article 9 ofLegislative Decree no. 251 of 6 October 2004, which introduced joint liabilitybetween the transferor and transferee, where the transferor enters into a serviceagreement with the transferee involving the transferred branch of the undertaking. This lasts for two years after the termination of the service agreement as regards the salary and social security contributions due to employees.

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Latvia

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?The Latvian Labour Law of 2002 defines ‘undertaking’ as ‘any organisationalunit in which the employer employs its employees’. A ‘transfer of undertaking’is: ‘the transfer of an undertaking or a part thereof to another person byagreement, as well as the merger or dissolution of companies.’

Unfortunately the wording employed is vague and to some extent even misleading. The wording in the EU Directive referring to the transfer of an economic entity has not been transposed. Instead, the definition of undertaking refers to an ‘organisational unit’, which is a term not definedunder Latvian law and which generally bears connotations rather differentfrom the term ‘economic entity’. In addition, the definition of the transfer ofan undertaking refers to ‘transfer by agreement’ which might be misleadingunless read in conjunction with European Court of Justice decisions statingthat no direct contractual link between the transferor and the transferee isnecessarily required for a transfer of undertaking to occur.

1.2 What specific factors trigger the transfer of an undertaking? Notwithstanding the deficiencies indicated above, labour law provisions mustbe interpreted in the light of the Directive and the criteria formulated in thedecisions of the European Court of Justice, as those criteria were introduced inorder to implement provisions of the Directive into Latvian law. As a result, thefollowing factors should be taken into account when considering whether atransfer of undertaking has taken place:

• the nature of the undertaking • whether there is a transfer of tangible or intangible assets • the value of the intangible assets at the time of the transfer • whether the new employer takes over most of the employees • whether clients are taken over • the nature of the activity before and after the transfer • the period of time for which operations were interrupted.

1.3 Are there any forms of transaction to which the legislation does not apply? The re-organisation of state administrative institutions or of local governmentadministration, as well as the transfer of administrative functions from oneinstitution to another will not be regarded as a transfer of undertaking. Thelegislation does not apply to sea vessels.

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2.5 What happens to pension rights? If the transferor has been contributing to pension schemes which are supplementary to the state pension schemes, the obligation to make thesecontributions passes over to the transferee in the same way as any other benefit.

2.6 What liabilities transfer? There are no limitations on the liabilities that pass over to the transferee.Liabilities transfer together with other provisions of the employment contracts.All rights and obligations arising from legal relations in force at the time of thetransfer are transferred to the transferee, including any obligations which originated before the transfer took place (remuneration for previous months,etc.). Usually these issues are covered in the agreement between the transferor and transferee.

2.7 What if employees are covered by a collective agreement? Following the transfer of an undertaking the transferee must continue to comply with the provisions of the collective agreement entered into previouslyand applicable at the moment of the transfer, up to the expiry of the collectiveagreement, or until a new collective agreement comes into effect or anothercollective agreement becomes applicable. The provisions of the collectiveagreement may not be amended to the detriment of employees for a periodof one year from the transfer.


3.1 Can employers make changes to employment contracts? The employer cannot unilaterally change employment contracts. The transferor has a duty to inform the transferee of all the rights and obligationstransferring to the transferee of which it knows (or should have known) at themoment of transfer. Therefore, the new employer should be aware of all termsand conditions of employment contracts prior to the transfer. If the amendments to the employment contract place the employee in a worse position than that provided by Latvian Labour Law, those amendments will bevoid. If pressure is put on an employee to consent to detrimental terms andconditions, the general provisions of Latvian Civil Law would apply and theterms and conditions may be declared void by a court if the employee provesthat he or she was pressurised into agreeing to them.


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2.1 Who is protected? Employees of the transferred undertaking or the transferred part of an undertaking are protected. This includes seconded or ‘posted’ employees, aslong as they have an employment contract with the initial company.

An employee is a natural person who performs specific work under the guidance of an employer for an agreed salary on the basis of an employmentcontract. Protection covers all employees irrespective of whether they are onmaternity leave or on vacation, etc. Self-employed persons are not consideredto be employees and therefore are not covered by Latvian Labour Law. If aBoard member has an employment contract, the same provisions apply as forany other employee.

There are no detailed legal provisions in relation to situations where only partof a business is transferred.

2.2 What if employees object to the transfer? Latvian labour law is silent on the right of employees to object to the transfer.

Presumably, based on European Court of Justice case law and the general aimof protecting employees, the law should not be interpreted so as to oblige theemployee to continue in an employment relationship with the transferee. If anemployee objects to the transfer, the employer can terminate his or heremployment on the basis of reduction of the number of employees. It will notnormally be difficult to show that the certain jobs have ceased to exist. In thecase of collective redundancy, special rules would apply.

2.3 What happens to terms of employment contracts? The rights and obligations of the transferor arising from employment relationships applicable at the moment of transfer will fully transfer to thetransferee.

2.4 What about other employee benefits? Rights and obligations relating to benefits fully transfer to the transferee. If thetransferee claims not to have the facilities to provide a benefit that the oldemployer used to provide, this will not absolve it from the obligation to provide the benefit. Amendments to the existing employment contracts inorder to provide equivalent benefits or compensate the loss of benefits can bemade only on an individual basis and only with the consent of the employee.

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The Labour Law does not provide any guidelines on the procedure for consultation. Normally, consultation would involve discussion with the employees of the organisational, technological and social measures to betaken in relation to them. Usually, minutes of the meeting would be kept. The aim of consultation is to reach agreement on the measures and on theimplementation process.

4.4 What happens if an employer fails properly to inform or consult? If employees are party to a collective agreement, there may be specific consequences in the case of a failure to properly observe information or consultation obligations. If an employer has failed to properly inform or consult employees, the collective agreement may provide employees with thegrounds to file claims with the court regarding their transfer.

Although there is no established court practice in such cases, employees wouldprobably be able to claim compensation from the transferor. In the case ofimplementation of organisational, technological or social measures withoutproper consultation, the measures might be declared void by the court.



Latvian Labour Law requires an employment contract to be executed in writing, but as follows from the literature on the subject, European Court ofJustice case law and precedents from other jurisdictions, no written agreementbetween the transferee and the employee is required at the time when a transfer of undertaking takes place.

Nevertheless, in the absence of any local court decisions on transfers of undertakings the prevailing practice is to procure novation of the employmentcontract, i.e., a formal three-party document is executed by which the previous employer (transferor) assigns all its rights and obligations under theemployment contract to the new employer (transferee) and the employeeaccepts the transferee as his or her new employer. The primary reason for suchan approach is the novelty of the concept of transfers of undertakings and therelated concerns of the parties involved to the effect that the transfer may create ambiguity as to the employment relationship and the parties to it. Untilthe public at large becomes familiar with the concept of transfers of undertakings and case law begins to appear, it will not be clear whether transfers made without novation agreements will cause practical problems for


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3.2 When can employers safely dismiss employees before or after a transfer? The transfer of an undertaking does not restrict the right of an employer togive notice of termination of an employment contract if such notice is basedon the performance of economic, technological, organisational, or similarmeasures in the undertaking. Notice may be given after an employee hasobjected to the transfer.


4.1 Who must employers consult? Both the transferor and transferee have a duty to inform/consult their employee representatives or, if there are none, their employees directly.

If an undertaking or part of it retains its independence after transfer, the status and functions of employee representatives affected by the transfer mustbe maintained in the same way as applied up to the moment of transfer. Thisdoes not apply if the pre-conditions for the re-election of employee representatives, or for the re-establishment of representation of employees,have been satisfied (at least five employees in an undertaking).

4.2 What information must they provide? Information must be provided regarding:

• the date of transfer or expected date of transfer • the reasons for the transfer • the legal, economic and social consequences of the transfer • measures which will be taken with respect to employees.

The transferor must provide the information at least one month before thetransfer. The transferee must provide the information at least one monthbefore the transfer begins to affect employment conditions directly.

The transferor or transferee, whichever intends to take organisational, technological or social measures with respect to employees, must begin consultation on these measures with employee representatives at least threeweeks before the transfer takes place in order to reach agreement on thosemeasures and their implementation.

4.3 What does consultation involve? The duty to consult arises only if the employer envisages taking measures inrelation to affected employees. If no measures are envisaged, the obligation ismerely to provide information.

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the parties involved (for example, how the tax authorities and the State LabourInspection would treat situations where there is no written document betweenthe transferee and employee to demonstrate an employment relationshipbetween them).


Unfortunately, as the introduction of the concept of a transfer of undertakingis quite recent, there is no established case law in Latvia on this subject.Accordingly, it is very hard to predict the outcome of court disputes even inseemingly straightforward cases.


The Latvian Labour Law does not contain any specific provisions regardingcases where undertakings are transferred into or out of Latvia. However, thereare no provisions that would restrict its applicability in the case of a cross-border transfer.

Presumably, in cases of transfer into Latvia the Labour Law would apply in relation to the transferee, and in cases of transfer out of Latvia, it would applyto the transferor. Of course this presents a number of practical problems, e.g.the need for Latvian employees to make any claims against a foreign company and vice versa.



The main national law, which sets forth provisions in relation to the transfer ofundertakings, is the Latvian Labour Law, effective as of 1 June 2002.

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Luxembourg

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? The law, which is contained in the Labour Code, applies to any transfer of acompany, establishment or parts of an establishment resulting from a legaltransfer, a succession, sale, merger, demerger or any other kind of transfer.

1.2 What specific factors trigger the transfer of an undertaking? The law only applies if the undertaking to be transferred is located in the territory of the Grand-Duchy of Luxembourg.

The law does not provide a specific definition of an undertaking (or a partthereof). According to Luxembourg case law, in order to fall within the scopeof the law, a transfer must involve an economic entity maintaining its identityand having sufficient consistency in staffing and technical means to form anestablishment, or at least a production unit or centre of activities, whichenables an essential or accessory economic activity to persist.

In other words, two criteria must be fulfilled: the existence of a set of organised means of production and the continuation of an identical or similaractivity. For example, a takeover by a company of the entire business assets ofanother company with continuation of the same activities on the same premises is considered to be a transfer. Similarly, the takeover of managementactivities relating to insurance portfolios of an insurance company by anotherinsurance company is considered to be a transfer.

The law also applied to a case in which a contracting authority which hadawarded the contract for the management of catering services in a hospital toone contractor, then terminated that contract and concluded a contract for thesupply of the same services with a second contractor. In that case, the secondcontractor used substantial parts of the tangible assets previously used by thefirst contractor and those assets were subsequently made available to it by thecontracting authority, even though the second contractor had expressed theintention not to take on the employees of the first contractor.

As stated above, generally speaking a ‘transfer’ is a transfer of an economicentity which retains its identity, and constitutes an organised grouping ofresources having the objective of pursuing an economic activity, whether thatactivity is central or ancillary. In particular, a legal transfer, merger, successionor sale will all constitute a transfer, but this list is not exhaustive.

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All types of contracts and employees are covered: part-time employment contracts, fixed term employment contracts, interim employment relationships, employees on secondment etc.

2.4 What about other employee benefits? All other employee benefits should also be transferred, but if the new employeris not in a position to provide a benefit that was provided by the transferor, thetransferee will need to amend the employment contract in accordance withthe rules set out in section 3 below.

2.5 What happens to pension rights? Any existing complementary pension scheme is automatically transferred tothe transferee along with the employment contracts.

2.6 What liabilities transfer? The law provides for joint liability of transferor and transferee for employmentobligations arising before the transfer pursuant to an employment contract oran employment relationship existing at the date of the transfer. This applieseven in the case of the transferor’s insolvency. Nevertheless, the transferormust pay compensation to the transferee if the latter has taken on employment obligations which arose before the transfer, unless the partieshave agreed otherwise.

2.7 What if employees are covered by a collective agreement? In law, the transferee is required to maintain all the conditions arising from acollective bargaining agreement concluded by the transferor until the expiry ofthe agreement or until a new agreement is concluded.


3.1 Can employers make changes to employment contracts? The transferee can make minor modifications to the existing employment contracts of the transferred employees without following any specific procedure.

In cases of substantial modifications, two situations must be distinguished:

• where the modifications arise from the transfer • where the modifications are made after the transfer.

1.3 Are there any forms of transaction to which the legislation does not apply? The simple acquisition of an interest in a company or a takeover by anothercompany (i.e. restructuring which affects only the internal organisation ofcompanies, stock re-purchases or changes to the corporate name) are not considered to be transfers.

The law applies to private sector companies as well as public companies carrying out an economic activity. However, internal administrative re-organisations of public authorities or internal transfers of administrativefunctions between public authorities are not considered to be transfers.


2.1 Who is protected? All workers are protected. An ‘employee’ is any person, except a civil servant,who works for an employer in a relationship of subordination and is remunerated for that work. This includes secondees, for example.

However, only employment contracts existing at the date of the transfer aretransferred to the transferee. Thus, for example, a person who is described asself employed, but in substance is in fact an employee would need to gobefore the labour court to have the relationship reclassified in an employmentcontract.

Where only part of an undertaking is being transferred, only those employeeswho are engaged in the part of the undertaking being transferred will transfer across.

2.2 What if employees object to the transfer? There is an automatic transfer of the employment contracts and the employment conditions from the transferor to the transferee. There is norequirement for the transfer to be approved by employees. If an employee isnot willing to accept the transfer of his or her employment contract (providedthat the contract or its conditions have not been substantially modified), he orshe must resign.

2.3 What happens to terms of employment contracts? There is an automatic transfer of the employment contracts and the employment conditions from the transferor to the transferee.

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If the employer does not respect the legal procedure for modifying the employment contract, the modifications will be void. If the employer has complied with the procedure for the substantial modification of employmentcontracts, any employee who does not accept the modifications must terminate his contract. If the employee refuses the modifications but remainsat work and does not terminate the employment contract, he is deemed tohave accepted the modification.

In order to claim damages after the termination of the contract, the employeemust commence a procedure before the labour court, similar to that used incases of unfair dismissal. If the labour court considers that the modification isunfair, the employer will be required to pay compensation for material loss andmoral injury, as the employer will be regarded as having been responsible forthe unfair termination of the contract.

It should be noted that the transfer does not in itself constitute a valid reasonfor dismissal by the transferor or the transferee. Consequently, the employer isnot permitted to relate the substantial modifications to the transfer itself.

3.2 When can employers safely dismiss employees before or after a transfer? The transfer of an undertaking is not in itself a valid reason for a dismissal. Thisprinciple applies to both the transferor and transferee.

Thus, both the transferor and the transferee retain their right to terminate theemployment contract at any time, provided that the dismissal procedures setout in law are complied with and that the transfer itself is not the reason forthe dismissal. It is therefore permissible to terminate an employment contractfor economic reasons not related to the transfer, even if this is very difficult todemonstrate in practice.

If an employee resigns because substantial conditions of the employment contract were amended to his or her detriment as a result of the transfer, (andthe modifications were not accepted by the employee) the termination will beconsidered by a judge to be unfair dismissal. In these circumstances, theemployer may be liable to pay compensation to the ‘dismissed’ employee.

Where the dismissal is carried out by the transferor the government has specifically stated in bill no. 4896 that ‘nothing hinders the employer in theoryfrom dismissing a part of its staff and subsequently transferring its company,even though the dismissals would deprive the employees of the right theywould have had to see their contract subsist if they had remained in the company. An employer would only be regarded as unfairly exercising the right


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Substantial modifications arising from the transfer The transferor's rights and obligations arising from a contract of employmentor from an employment relationship existing on the date of a transfer are, byreason of the transfer, transferred to the transferee.

An employer can always amend an employment contract for the benefit of anemployee. An employer is, however, not allowed to substantially amend oneor several of the employment conditions of an employee to the latter’s disadvantage without his or her formal agreement.

If the contract of employment or the employment relationship is terminatedbecause the transfer involves a substantial change in working conditions to thedetriment of the employee, the employer shall be regarded as having beenresponsible for the termination of the contract of employment or of theemployment relationship.

However, if the employee refuses the substantial modifications made to his orher detriment, this refusal does not automatically mean that the contract willterminate, but in order to benefit from the law governing unfair dismissals, theemployee cannot merely refuse the modifications, he or she must actively terminate the contract. Only if this is done can the termination of the contractbe considered as a dismissal. If the employee refuses the modifications butremains at the employer’s disposal and does not terminate the employmentcontract, he or she is deemed to have accepted the modification.

After termination of the contract, the employee must commence a procedurebefore the labour court, similar to the one used for unfair dismissal, in orderto claim damages. If the labour court considers that the transfer involves a substantial modification to the detriment of the employee, the termination willbe deemed unfair and the employer will be required to pay compensation formaterial loss and moral injury.

Substantial modifications made after the transfer The transferee may substantially modify an employment contract after thetransfer, but not on the grounds of the transfer, and only if it obtains theexpress consent of the employee or complies with the legal notification procedure, which is similar to the one applicable in case of a dismissal: thetransferee may substantially modify the contracts of transferred employees ongrounds such as gross misconduct, real or serious issues related to the employee’s aptitude or behaviour or the operating needs of the business, provided that these are not related to the transfer. The employer must state itsreasons for the modifications in detail and must support them with demonstrable facts.

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The following bodies must be informed and consulted about the transfer ofthe undertaking (or part) prior to the transfer and in due time:

• joint works council (‘comité mixte d’entreprise’), if any (In Luxembourg, a joint works council must exist in any company employing at least 150 employees. The joint works council is composed ofan equal number of management and employee representatives (if any). The joint works council must be informed and consulted of any economicor financial decision which might have a determining influence on the structure of the company or the level of employment. This would include ‘projects to terminate or transfer a company or parts of a company, projects to restrict or extend the activity of the company, and projects to merge or modify the organisation of the company’.)

• staff delegation (‘délégation du personnel’), if any (The staff delegation must be informed and consulted on decisions likely to lead to substantial changes in work organisation or in contractual relations.)

• employees, if there are no employee representatives (In this case, the employees must be informed in writing.)

• European works council (if any and if necessary).

4.2 What information must they provide? The transferor must, prior to the transfer and in due time, notify the transferee of any rights and obligations that will be transferred, where theserights and obligations are known or should be known by the transferor. A copyof this notification must be disclosed to the Work and Mines Inspectorate(‘Inspection du Travail et des Mines’). If the transferor fails to notify the transferee, this will not impact on the subsequent transfer of rights and obligations or on the employees’ rights towards the transferor and/or thetransferee.

Prior to the transfer, the transferor and the transferee must disclose the following information to the bodies referred to in the previous paragraph:

• the date or proposed date for the transfer • the reasons of the transfer • the legal, economical and social consequences of the transfer for the

employees • the measures envisaged with regard to the employees.


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to dismiss if the sole reason for the dismissals was the wish of the employer tofrustrate the employees from enjoying the rights they are entitled to under thelaw. Moreover, an employer who, after having dismissed all of its staff, transfers the company as soon as the advance notice periods of the dismissedemployees have passed, would be liable for damages, since this circumstanceproves that the real reason for the dismissals was his deliberate intention to free himself from the staff and to transfer the company free of any engagement’.

Where the dismissal is carried out by the transferee the government has stated that it is ‘out of the question to deprive the (new) employer of his rightto organise or reorganise the company by terminating jobs which seem useless’.

Accordingly, the transferor or transferee may dismiss transferred employees ongrounds such as gross misconduct, real or serious issues related to the employee’s aptitude or behaviour or for reasons arising from the operatingneeds of the business, provided that these are not related to the transfer. Thetransferee and the transferor are, nevertheless, bound by the usual employment law provisions on dismissals. According to Luxembourg law, theemployer must state its reasons for dismissal in detail and must support themwith demonstrable facts.

Any dismissal not based on permitted grounds would be considered unfair.Further, if the employee challenges the reasons indicated, the burden of prooflies with the employer.

Finally, it is worthwhile noting that some collective labour agreements (e.g. inthe banking sector) include provisions pursuant to which the transferee is notentitled to dismiss or to modify any employment contract of the transferredemployees on the grounds of rationalisation or restructuring for a certain period of time (e.g. two years). These provisions will only apply to employeesfalling under the scope of the collective labour agreements in question.


4.1 Who must employers consult? If the transferor and/or the transferee contemplate taking specific measureswith regard to the employees which are directly related to the transfer, theymust consult with employee representatives prior to the implementation of themeasures with a view to reaching an agreement.

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None in particular.


Luxembourg law applies if the undertaking to be transferred is situated in theterritory of Luxembourg, irrespective of the new location of the undertakingtransferred. If an undertaking to be transferred into Luxembourg is situatedwithin the territory of the European Economic Area (EEA), Luxembourg lawapplies to the transferee. If the undertaking to be transferred is situated outside EEA territory, Luxembourg law does not, in principle, apply.



Article L.125-1 (1) and Articles L.127-1 to L.127-6 of the Labour Code.


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4.3 What does consultation involve?The law does not provide for any practical arrangements regarding how theemployer must consult. Consultation with employee representatives may takeplace through meetings.

4.4 What happens if an employer fails properly to inform or consult? The law does not expressly provide for any sanction when the above procedureis not respected.

Nonetheless, the legal provisions regarding employee representatives and thejoint works council provide indirectly for civil and penal sanctions in cases ofbreach of information procedures in general.



Transfer of rights of employee representatives The position and function of an existing staff delegation (‘délégation du personnel’) and joint works council (‘comité mixte d’entreprise’) remain as longas the undertaking retains its autonomy.

If the undertaking does not maintain its autonomy, the members of both thestaff delegation and the joint works council of the transferor will be automatically considered to be part of the staff delegation and/or the jointworks council of the transferee. If the transferee has no employee representatives or joint work council, the transferred members of the staff delegation and those of the joint works council will be considered to be thetransferee’s new employee representative bodies.

Transfer of insolvent businesses Even in the case of the insolvency of the transferor, there is joint liability ofboth transferor and transferee for employment obligations arising before thetransfer on the basis of an employment contract or an employment relationship existing at the date of the transfer.

If there is a transfer within three months following the insolvency, the employment contracts which were terminated because of it will automaticallybe renewed.

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Netherlands

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?The legislation on the transfer of undertakings applies when there is a transfer of an undertaking as a result of an agreement, merger or division ofan economic entity and the undertaking concerned qualifies as an economicentity, i.e. it is an organised grouping of resources which has the objective ofpursuing an economic activity.

1.2 What specific factors trigger the transfer of an undertaking?

Sections 7: 662-665 of the Civil Code are further defined by case law of theEuropean Court of Justice (ECJ) and of the Dutch Courts. In theSpijkers/Bendik/Abattoir case in 1986, the ECJ held that in defining a transferof undertaking, the identity of the undertaking must be preserved.

Dutch case law determines that at least the main activities of the undertakingshould be transferred and the nature of the business should be preserved. The following criteria are used to determine whether the identity of an undertaking has been preserved:

• the nature of the undertaking• the value of the tangible and intangible assets upon transfer• whether (nearly) all the employees will continue to be employed by the

transferee• whether customers are to be transferred• the extent to which the activities of the company correspond before and

after the transfer • whether the activities of the company were interrupted, and if so, for how

long • whether the transferee takes over a number of experienced employees

who form a substantive group within the undertaking • whether the identity has been preserved if the seller has explicitly hired the

aforementioned group for the performance of specific activities of the undertaking.

The above factors should be considered as a whole and which aspects are crucial in any given case will depend on the area of business in which theundertaking is involved.

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The definition of economic entity contains the following elements:

• the enterprise must be a durably organised whole consisting of persons and elements (business assets) which have the objective of pursuing an economic activity;

• entrepreneurs who are engaged in a joint activity may be regarded as an economic entity/enterprise even if the enterprise has no significant assets (e.g. a not-for-profit organisation);

• the relevant provisions of the Civil Code do not apply if a single activity ofthe undertaking is continued without any of the employees and/or assetsbeing transferred;

• if all the employees of an enterprise who independently perform a specific activity, for example, cleaning or kitchen staff, are transferred thiscan, under certain circumstances, constitute a transfer of an undertaking;

• if a substantial proportion, in size and expertise, of the staff was hired bythe transferor for a specific activity and this group carried out this shared activity over a period of time, the transfer of this activity may constitute thetransfer of an undertaking, even without a transfer of assets.

1.3 Are there any forms of transaction to which the legislation does not apply? A mere transfer of stock, which does not change the identity of the employer,does not qualify as a transfer of undertaking in the meaning of Dutch andEuropean Court of Justice legislation. In addition, the transfer of an insolventundertaking is excluded from Articles 7:662-666 of the Civil Code.


2.1 Who is protected? The transfer of an undertaking (or part thereof) implies that all rights and obligations, based on the employment agreements between the transferorand the employees, transfer by operation of law to the transferee. These rightsand obligations are transferred automatically at the moment of transfer of theundertaking, even if the transferee is not aware of the employment agreements.

Under Dutch law, every employee is eligible for protection in the case of thetransfer of an undertaking. The fact that an employee is sick, for example,does not detract from the protection afforded.

The relevant provisions do not apply to temporary workers, as this category ofemployees has an agreement with the temporary employment agency and

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does not have an employment relationship with the transferor. Moreover, civilservants and former employees are not considered employees and are therefore excluded from the relevant provisions.

If a company consists of more than one department and only one departmenttransfers to the transferee, before determining which employees will transfer,it must first be determined which employees work in which department. Caselaw shows that only employees who ‘belong to’ the relevant department, willtransfer. As some employees work in more than one department, where onlyone of the departments transfers, whether they transfer may not be obvious.The actual status (rather that the formal status) is decisive in these cases: someone who, for example, has been suspended without the chance to returnor who has been withdrawn from a project will – although formally part of thedepartment – not transfer as part of the department. Sickness on the otherhand, as mentioned above, does not detract from the protection afforded.

2.2 What if employees object to the transfer? If employees explicitly object to the transfer, they will not transfer to the newemployer. However, the old employment contract will end by operation of lawthe moment the transfer takes place. The employee will then neither have anemployment contract with the transferor, nor with the transferee.

2.3 What happens to terms of employment contracts? The rights and obligations (both written and oral) to which employees are entitled by virtue of the employment agreement with the transferor, will transfer by operation of law to the transferee. It is not necessary for employees to claim these rights and obligations: it is sufficient merely to identify their existence.

2.4 What about other employee benefits? In cases of transfers of undertaking, the Civil Code does not distinguishbetween essential and less relevant conditions or terms of employment. Allrights and obligations must be transferred to the transferee. Furthermore, non-competition clauses do not have to be specifically adapted to the transferee’s enterprise as they are also transferred automatically.

An exception to this could be specific ‘enterprise bound’ employment conditions. In very rare cases, the transferee cannot be reasonably obliged togive effect to certain conditions of employment after the transfer. For example, a transferor might be obliged to second an employee to a foreignsubsidiary but the transferee does not have a foreign subsidiary. If the

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2.7 What if employees are covered by a collective agreement? According to Article 14a of the Collective Labour Agreements Act (Wet op decollective arbeidsovereenkomst), all rights and obligations pursuant to employment agreements based on applicable collective labour agreements(CLAs), transfer by operation of law. Therefore, the transferred employees willremain subject to the relevant CLA until it expires. However, if prior to theexpiry date of the transferor’s CLA, the transferee enters into a new CLA, or ifits existing CLA is declared ‘generally binding’ by the Minister of Social Affairs,the CLA of the transferee will apply to the transferred employees.

Please note that certain provisions in the CLA (e.g. salary) become part of theindividual employment agreement and can therefore only be amended withthe explicit consent of the employee. This often means that upon the expiry ofthe CLA, certain employment conditions are ‘frozen’ and cannot be amendedto the detriment of the employee on the basis of a new CLA.


3.1 Can employers make changes to employment contracts? As a result of the requirement to transfer all rights and obligations, the transferee can be confronted with groups of employees to whom differentemployment conditions apply. Under Dutch law, a transferred employmentagreement can be modified or amended, but only with the explicit consent ofthe employee involved. The old employment conditions serve as the startingpoint for the negotiations. These negotiations often take place in the form ofcollective bargaining with the trade unions. If an employee has started a trialor probationary period with the transferor, the transferee and employee maynot lawfully agree to start a new trial or probationary period from the momentof the transfer.

3.2 When can employers safely dismiss employees before or after a transfer? The employment agreement between the transferor and the employee cannotbe terminated solely by reason of the transfer: such a dismissal is void.Consequently, irrespective of whether the transferor initiates termination onthese grounds prior to the transfer, ‘dismissed’ employees will still need to betransferred to the transferee by operation of law.

The Directive creates exemptions to the prohibition of dismissal. Dismissals ongrounds of transfer of the undertaking can lawfully take place for economic,technical or organisational (ETO) reasons. The transferee is permitted to dismiss employees after the transfer for ETO reasons. However, the transferee


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transferee is not able to give effect to a certain benefit, the transferee isobliged to offer compensation where that can reasonably be expected. Whatcan reasonably be expected depends on the circumstances.

2.5 What happens to pension rights? Under Section 7: 664 of the Civil Code, existing pension schemes remain inforce upon a transfer of undertaking. The following situations can occur:

• the transferor’s enterprise does not have a pension scheme in place and thetransferee’s does. In that case, the pension scheme of the transferee automatically applies to the transferred employees

• the transferor’s enterprise has a pension scheme in place and the transferee’s does not. In that case, the transferee is obliged to continue thepension scheme of the transferor, but only for the employees who are transferred

• the transferor’s and the transferee’s enterprises both have a pension scheme in place. If the transferee offers the transferred employees the same pension scheme as it has offered to its own employees before the transfer, then the transferee’s pension scheme applies to all employees, regardless of the possibility that the former pension scheme of the transferred employees was more beneficial.

Nevertheless, if the transferee is obliged to participate in a mandatorycompany pension scheme, the transferred employees must discontinue theiroriginal pension scheme and must participate in the transferee’s mandatorycompany pension scheme. If the transferred employees participated in amandatory company pension scheme prior to the transfer and these employees remain within its scope, the transferee may not offer participationin its own pension scheme, in which case the employees must continue to participate in the original mandatory company pension scheme.

Irrespective of the above, a collective labour agreement may contain arrangements to the contrary.

2.6 What liabilities transfer? The transferor remains jointly liable with the transferee for a period of one yearfor the rights of employees resulting from the period before the transfer. Thetransferor is relieved of this liability after this one year period.

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must respect the principle of reflection (the ‘last-in-first-out’ principle appliedper job categories and divided into age categories).


4.1 Who must employers consult?Employers must consult the works council about the intention to transfer (partof) the business activities. The works council has a right to advise on the proposed transfer of the business. For companies employing more than 50people, it is compulsory to establish a works council.

In cases where no works council is established, the transferor might have astaff association (‘personeelsvertegenwoordiging’). A staff association mightbe established where the company employs 10-50 employees. If there is no staff association, the employer must consult the staff assemblee (“personeelsvergadering”). In addition, the staff association and the staffassemblee have, according to the Works Councils Act, the right to be advisedof important changes in employment where this concerns at least 25% of theemployees.

Further, if the company employs over 50 people in the Netherlands, the rulesof conduct contained in the Merger Code will apply, namely that partiesshould consult the relevant trade unions. The Merger Code is a voluntary codeof conduct drawn up by the Social and Economic Council, which does nothave the force of law, but is generally adhered to.

4.2 What information must they provide?

Works council The works council will be requested to render advice on the basis of the information provided and such other information as it may request. Therequest to the works council to render its advice should include (i) the groundsfor the intended decision, (ii) the anticipated consequences for the employeesand (iii) any intended measures in connection with it. The advice must berequested in writing prior to the conclusion of a definitive agreement and itmust be requested in time to enable the works council’s advice to have animpact on the transaction.

No specific time schedule is provided, and the consulting period essentiallydepends on the urgency of the matter. Where parallel consultations with tradeunions are being held (as referred to below) or external advice is sought by theworks council, extra time is normally needed.

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If the enterprise does not have a works council or any other sort of employeerepresentative body, the transferor and the transferee must inform theiremployees as soon as possible of:

• the proposed decision to transfer the undertaking • the date of transfer • the reasons for the transfer • the legal, financial and social consequences of the transfer for the

employees • any measures to be taken with regard to the employees.

Dutch Merger Code In addition to the advisory procedure pursuant to the Works Councils Act, theDutch Merger Code (the Code) provides rules of conduct for the companywith regard to mergers and acquisitions. The Code is a quasi-legislative codeof conduct promulgated by the Dutch Social and Economic Council (SER).Pursuant to the Code, a Merger Committee must be installed and it will havethe power to make a public announcement of infringement of the MergerCode. In some cases infringements have led to extensive negative publicity forcompanies.

The Code defines a merger as ‘the acquisition of direct or indirect control overthe activities of an enterprise or part of an enterprise’. Chapter 2 of the Codemust be observed in any merger involving one or more enterprises that:

• are established in the Netherlands and, as a rule, employ 50 employees ormore or

• belong to a group of enterprises with one or more enterprises establishedin the Netherlands, which employ a total of 50 employees or more.

The trade unions are entitled to information about the reasons for the merger, the intentions of the company, the social, economical and legal consequences that can be expected from the merger and all intended measures.

4.3 What does consultation involve?Under Article 25 of the Works Councils Act, an employer is obliged to give theworks council the opportunity to advise on each proposed decision concerning, for example, a significant change in the organisation, a change inthe allocation of internal powers, or a transfer of control of part of the enterprise or a part of it.

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Under Dutch law the emphasis lies on the relationship between the employerand its economic entity (the undertaking or enterprise), whereas under theEuropean Directive, the existence of an employment agreement is sufficient toqualify for the relevant provisions. Nevertheless, employees might successfullyargue that the provisions of Dutch law must be interpreted in line with thescope of the Directive, that is, more broadly. This could lead to the conclusionthat, upon transfer of the undertaking, employees enter into an employmentagreement with the transferee by operation of law.


If the company is established in the Netherlands and, as a rule, employs 50employees (or more or belongs to a group of enterprises with one or moreenterprises established in the Netherlands that in the aggregate, employ 50employees or more) the Dutch Merger Code applies. If the proposed transaction concerns a merger, subject to Chapter 2 of this Code, the tradeunions must be notified and consulted. (See section 4.2.)



The provisions under Dutch law that protect employees upon the transfer ofan undertaking are contained in Sections 7:662-666 of the Dutch Civil Code,Article 14a of the Collective Agreements Act and Article 2a of the Act onorders declaring a collective agreement binding (‘Wet AVV’; see 2.7: a CLA canbe declared ‘generally binding’ by the Minister of Social Affairs). These provisions are based on European Directive 77/187/EEC of 14 February 1977.This provision was amended on 29 June 1998 and national law was adjustedon 1 July 2002.


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If the proposed transfer involves a merger, subject to Chapter 2 of the Code,the trade unions must be notified and consulted prior to the preparations forthe transfer. After they have been informed of the details (see section 4.2), thetrade unions are entitled to express their opinion on the proposed transfer.There is no requirement for their approval.

4.4 What happens if an employer fails properly to inform or consult? If the employer does not follow the advice of the works council, it must suspend implementation of its proposed decision for one month after the dateon which the works council was notified of the decision. The obligation to waitone month lapses when the works council so indicates (Article 25, Subsection6 of the Works Council Act).

If the employer fails to inform the works council in a timely or adequate manner of a proposed decision, the works council has the right to lodge anappeal with the Enterprise Chamber of the Amsterdam Court of Appeal. Theonly valid ground for such an appeal is that the employer could not in all reasonableness have arrived at the decision in question (i.e. a marginal test).This will practically always be the case if procedural errors are found to havebeen made.

An appeal will delay the moment of transfer, as implementation of any proposed decision can be suspended until the appeal has been assessed. TheEnterprise Chamber has the authority to order the employer to withdraw itsdecision as well as to undo any part of the consequences of a decision that ithas taken.



All important issues have been mentioned above.

The most important issue to take into account when transferring an undertaking in the Netherlands is the right of the works council to advise onthe transfer. If the employer does not follow the proper procedure as describedin the Works Council Act, the works council has the right to lodge an appealwith the Enterprise Chamber. This will delay the transfer of the undertaking oreven prevent it from going ahead.

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Norway

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?Under Norwegian law, the Working Environment, Working Hours andEmployment Protection etc. Act of June 17, 2005, Chapter 16 (the ‘WorkingEnvironment Act’) applies to transfers of undertakings or parts of an undertaking to another owner. The rules apply to all transfers of undertakings,regardless of whether the undertakings are private or public.

The main objective of Chapter 16 is to safeguard the employees’ employmentwith the new owner and ensure that it is on terms equal to those that theyenjoyed with their former employer. Change of ownership must not be usedas a way of terminating employment or worsening the terms and conditionsto which employees are subject.


Definition of ‘an undertaking or part of an undertaking’ There are no definitions of the terms ‘undertaking’ or ‘part of an undertaking’in the Working Environment Act, and therefore their interpretation dependson the practice of the European Court of Justice (‘ECJ’) and Norwegian caselaw.

In order for the rules to apply, the unit being transferred must represent anindependent economic unit. This implies that the transferred entity must havea minimum of organisational independence, and must be comprised of anorganised group of people and assets, enabling the unit to be involved in economic activities.

The unit must also retain its identity after transfer, based on an overall evaluation of the situation before and after the event.

Definition of a ‘transfer’‘Transfer’ means the transfer of a separate unit that retains its identity after thetransfer. There is no further definition of the term. The assessment is based onan overall evaluation of the situation before and after the transfer and factorsidentified in ECJ decisions are relevant, including:

• whether tangible assets have been transferred • the type of business or undertaking concerned • the value of intangible assets at the time of the transfer • whether the majority of employees are retained

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2.2 What if employees object to the transfer? Under the Working Environment Act, employees may object to the transfer oftheir employment relationship to the new transferee. This is called a ‘right ofreservation’. An employee who objects to transfer must notify the transferorof this in writing within the time limit specified by the transferor. The time limitmust not be shorter than 14 days after the transferor has informed theemployees about the planned transfer. By using the right of reservation theemployment will not be transferred to the transferee.

Further, the use of the right of reservation normally implies a notice of termination from the employee. However, Norwegian case law provides that,exceptionally, if the transfer would result in substantial detrimental changes tothe employee’s situation under his or her employment, the employee canchoose to continue the employment with the transferor. What is seen as a‘substantial detrimental’ change may vary from case to case and will need tobe assessed on a number of factors. For example, uncertainty about possible redundancy in the future may give grounds for a right to continuewith the transferor. Note that if an employee demands to continue with thetransferor he or she must notify the transferor before the time of the transfer.An employee who has been employed by the undertaking for a total of at least12 months during the two years prior to the date of transfer, and who assertshis or her right of reservation, has a preferential right to a new appointmentwith the transferor for one year from the date of transfer, unless the employee is not qualified for the job. The preferential right will lapse if theemployee fails to accept an offer of employment in a suitable post no laterthan 14 days after receiving the offer.

2.3 What happens to terms of employment contracts? All existing rights and obligations under the employment contract are subjectto transfer from the old employer to the new. The rights and obligations transfer automatically and require no action to implement them.

2.4 What about other employee benefits? The employees have the right to employment on the same terms as with thetransferor and all benefits arising from the employment relationship are protected by this. The transferee must replicate all other benefits, which canbe difficult in relation to bonuses, commission etc. The transferee may ofcourse offer better benefits, but cannot do this in certain areas simply to compensate for worse benefits in others.


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• whether customers are transferred • the similarity between the activities • the duration of any interruption in the performance of the activities.

According to Norwegian law, it involves a transfer from one legal entity toanother. This covers most forms of transfer, including mergers and acquisitions, renting and leasing agreements and outsourcing, where thetransfer is the direct or indirect result of a contract.

An important point is that the transfer must result in a change of employer forthe relevant employees.

1.3 Are there any forms of transaction to which the legislation does not apply? The rules concerning the transfer of rights and obligations, and the rules ofemployment protection do not apply to transfers from an insolvent estate. Nordo they apply to transactions where there is no technical change of employer,or to share purchase agreements.


2.1 Who is protected? The Working Environment Act applies to all employees. An employee isdefined as anyone who works in the service of another person or enterprise,including, temporary employees, people on maternity leave etc. There must bean employment relationship and so consultants and subcontractors fall outsidethe scope of the Act. An assessment of whether or not an employment relationship exists involves looking at the factual content of the relationshipindependently of how it is described. Commonly, an employee would owe apersonal obligation to work and would be in a subordinate position, in thesense that it would be for the employer to instruct how the work should becarried out. The employer also bears the risks of the results of the work.Therefore, under an employment contract, the employer has a right to manage the employee. Normally it is the employer who owns the means ofproduction. By contrast, self-employed people run their business at their ownrisk and have greater responsibility for the results.

Where only part of the business is being transferred, there may be a questionabout which of the employees should transfer. In practice in may be difficultto define which employees belong to the transferring business and shouldcross over. The general rule is that those employees who are necessary to keepthe transferring business operational will transfer. Generally, employees whoonly perform work intermittently for the transferring business will not transfer.

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and detrimental changes to his or her conditions of employment, it will bedeemed that it was the employer that terminated the employment.

Employers might of course have justifiable grounds for dismissal, as they areentitled to dismiss for economic, technical or organisational reasons. In anydispute in connection with this or any of the other Norwegian employmentprotection rules, the general rules and procedures for dismissal will apply.

These rules allow an employee, for example, to invoke his or her right toremain or to be reinstated in his or her position until the dispute is settled. Anemployee may also seek compensation.

Following a dismissal because the undertaking is downsizing, the employeewill have priority for later job vacancies in the undertaking.


4.1 Who must employers consult? Both the transferor and transferee have a duty to inform and discuss the transfer of the undertaking and its implications with the employee representatives as soon as possible. They also have a duty to inform the affected employees. Any elected representatives are normally informed first asthere is a duty on employers to consult representatives regarding any plannedmeasures in connection with the employees.

The rules concerning employee representative rights are to be found inParagraph 16-7 of the Working Environment Act. Similar rights are also contained in the National Collective Agreement (‘Hovedavtalen’).

If the transferred undertaking retains its independence, the employee representatives maintain their legal status and continue to function after thetransfer.

If the transferred undertaking does not retain its independence, the employees must be represented by ‘suitable means’ until a new election isheld.

Should the legal basis for the representation of the employees cease to existas a result of the transfer, the representatives maintain their rights for the period of time specified in the agreements in force at the time of transfer.


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2.5 What happens to pension rights? Pension rights arising from an individual agreement and rights of employees inrelation to a collective pension scheme are transferred to the transferee. Thetransferee may, however, choose to apply existing collective pension schemesto the transferred workers as well. Where the pension rights of the transferredemployees are impossible to transfer, the new employer must ensure that theemployees acquire rights in another collective pension scheme.

2.6 What liabilities transfer? An employee may make any claims arising from the conditions of employmentprior to the transfer against the new employer as well as the old. The transferee will be liable for claims made at the time of the transfer, includingaccrued holiday rights and unpaid bonus.

2.7 What if employees are covered by a collective agreement? Unless the transferee declares to the trade union(s) concerned that it will notuphold the agreement(s), the collective agreements in effect at the time of thetransfer automatically bind the transferee. Any such declaration must be inwriting, and must be given within three weeks of the transfer. The transferredemployees nevertheless have the right to retain individual working conditionsarising from a collective pay agreement that was binding upon the transferor.This individual right applies until the current collective pay agreement expiresor until a new collective pay agreement which is binding upon the new transferee has been concluded.


3.1 Can employers make changes to employment contracts?The transfer itself is not justification for material changes in working conditions. Termination owing to significant changes in working conditions isconsidered to be a dismissal.

Changes in terms and conditions of employment not directly connected to thecontract of employment, such as company health benefits, policies etc, do notcontravene the rules. The new employer may introduce the kind of changesthat are commonly made by the management of an employer to the sameextent as the old employer could.

3.2 When can employers safely dismiss employees before or after a transfer? The transfer of an undertaking in itself is not justification for dismissal. If theemployee terminates his or her employment agreement because of significant

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The main issues are the right to continue the employment with the formeremployer and at what point employment ceases to exist when an employeeexercises the right to reject the transfer.


Norwegian law applies, in general, to all work performed in Norway. If a transfer of an undertaking is made into Norway, the employees would be entitled to protection under Norwegian law as soon as the undertaking hasrelocated to Norway.

If the transfer of undertaking is made out of Norway, Norwegian rules willapply on transfer.

Norwegian law may in certain cases also apply to work performed abroad (e.g.employees posted abroad for a period of time). The decisive factor in decidingwhether Norwegian law applies is whether the employment relationship fallswithin the scope of the law. The issue of where the enterprise (or part of it) islocated is irrelevant. This may give employees working in a Norwegian registered branch abroad different rights on transfer depending on whetherthey are employed in the country where the branch is located or posted fromNorway. Whether Norwegian law applies will depend on the ordinary choiceof law rules.



Under Norwegian law, the Working Environment, Working Hours andEmployment Protection etc. Act of 17 June 2005, Chapter 16 applies in theevent of the transfer of an undertaking or part of one to a new owner. Chapter16 implements the EC Acquired Rights Directive 77/187/EEC as amended byDirective 98/50/EC, both of which are replaced by Directive 2001/23/EC, concerning employees’ rights in the event of transfers of undertakings.

An English translation of the Act can be found at www.arbeidstilsynet.no


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4.2 What information must they provide? In particular, the employers must provide information regarding:

• the date or the suggested date for the transfer • the reason for the transfer • the legal, economic and social implications for the employees • possible changes in connection with collective agreements • measures planned with respect to employees • the right to object to being transferred, priority rights in relation to

later job vacancies, and the time limits that apply when using these rights.

4.3 What does consultation involve? Employers have a duty to consult the representatives if any measures areplanned in relation to their employees, with a view to reaching an agreement.The information given must be sufficient to enable the representatives toaffect the employers’ decision.

4.4 What happens if an employer fails properly to inform or consult? The employer could be fined for breaches of the Working Environment Act.

If an employee takes legal proceedings by claiming e.g. that the terminationof his or her employment is unlawful, it would have a detrimental effect on theemployer’s case if the court were to find that the information and consultationprocedure had not been followed. Failure to follow the information and consultation procedures often leads to unnecessary conflict between employers and their trade union(s).



The collective agreement is transferred, unless the new employer declares thathe will not uphold the collective agreement. Collective pension rights are to some extent transferred. The employee’s right to reject the transfer, and insome circumstances to maintain his or her employment with the old employer is based on national case law, and not simply the Directive. Theextent of this right is unclear (see section 2.2).

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Poland

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?The legislation on the transfer of undertakings applies when, as a result of sale,lease or other transactions, an undertaking or a part of an undertaking, istaken over by another entity, which continues the activity of the transferredundertaking.

In the case of the transfer of part of the undertaking, the provisions coverthose employees whose workplaces are located within/related to the transferred part. The Polish Supreme Court has defined two auxiliary criteriawhich should be used when it is not clear whether a given employee’s workplace is located within the transferred part of the business and transfer ofthat employee is uncertain. The first of them is the ‘existence of links’ betweenthe transferred part of the business and the relevant employee. The SupremeCourt did not further define this criterion. It is believed that the link should beof a functional nature, i.e. it exists when the employee’s functions and dutiesare related to the transferred part of the business. The other criterion is the‘need for work’. The employee will be considered to have been transferred ifafter transfer his work is no longer needed by the transferor and is needed bythe transferee.

Where there is doubt as to whether a given employee is subject to transfer, theemployee may bring an action before the Labour Court in order to determinethe existence of an employment relationship with one of the two employers.The employee may also directly bring an action for remuneration as of the dateof the transfer against the undertaking that the employee believes to be his orher employer, if that undertaking denies that to be the case.

1.2 What specific factors trigger the transfer of an undertaking? There is no legal definition of a ‘transfer’ in the Polish Labour law. However, ithas been developed by case law that the transfer of an undertaking or partthereof occurs when, as a result of certain legal actions, tasks and/or assets,are taken over by another entity. Polish Labour law does not define the term‘undertaking’ or ‘part of an undertaking’. However, the above terms havebeen defined in case law to the effect that every entity with componentswhich constitute a place of work for its employees will be an ‘undertaking’(within the meaning of Article 231 of the Polish Labour Code).

Consequently, ‘part of an undertaking’ is deemed to mean a group of components of the undertaking (as defined above), which could be regardedas a place of work for transferred employees.

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2.4 What about other employee benefits? The transferee is obliged to comply not only with provisions contained in theemployment contracts of the transferred employees but also with variousinternal regulations (such as collective bargaining agreements, remunerationregulations and bonus systems) that are in force within the transferor’s undertaking. Therefore, the transferee will need to apply these internal regulations (including all benefits set out in them). Case law has not yetresolved the issue as to what the transferee should do if it does not have thefacilities to provide benefits made available by the former employer, butarguably, it should provide something equivalent.

2.5 What happens to pension rights? Although it is not entirely clear (there is no established case law and jurisprudence in this respect), we are of the opinion that in the case of thetransfer of the whole undertaking, the transferee will be obliged to enter intothe transferor’s pension obligations. If part of the undertaking is transferred,the employees subject to the transfer may demand to be covered by the pension plan in force at the transferee. However, if the transferee did not haveits own pension plan before transfer, the employees may claim damages ordemand that a plan be introduced by the transferee. Note that private pensionplans are very rare in Poland.

2.6 What liabilities transfer? The liability of the transferor and transferee differ according to the type oftransfer. If it is a transfer of the entire undertaking, the transferee becomesliable to employees for all employment-related obligations, whether they arosebefore or after the transfer. The transferor is no longer liable towards theemployees for any such claims.

If the transfer concerns only part of the undertaking, the transferee becomesliable to employees only for employment-related obligations arising after transfer and the transferor will have no liability for any such claims. However,on partial transfer, both the transferee and transferor will be jointly and severally liable for the obligations arising prior to the transfer.

2.7 What if employees are covered by a collective agreement? Following the date of transfer the transferee must observe the provisions ofthe relevant collective agreements with respect to the transferred employees.However, there are certain limitations to this, as follows:

• the transferee is only obliged to observe the terms of a collective bargaining agreement with regard to the transferred employees for one year following the transfer


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The assessment of whether a given entity falls within the meaning of ‘undertaking’ therefore needs to be determined on a case-by-case basis.

1.3 Are there any forms of transaction to which the legislation does not apply? When as a result of a transaction only the capital control over an entity ischanged (e.g. in the case of a sale of its shares), the law relating to the transfer of undertakings will not apply, as there is no change of employer.Parties engaged in a business transaction may not exclude the law (e.g. bycontract) if it applies.


2.1 Who is protected?The protection awarded by the transfer legislation applies to all ‘employees’,i.e., those employed by the relevant employer on the basis of employmentagreements, regardless of the type of the agreement. Hence, the protectionwill apply also to ‘inactive’ employees, including those on maternity leave etc.Protection does not, however, extend to people who are in fact working forthe employer but are formally employed by a different entity, e.g., temporaryworkers (leased staff), secondees etc.

2.2 What if employees object to the transfer? Within two months of the transfer, a transferred employee may terminate hisor her employment without notice, upon giving seven days’ ‘advance warning’. This is deemed to be a refusal to transfer. For the employee, termination of employment by the seven days’ advance warning has the same consequences as termination of employment upon notice by the employerunder labour law. Specifically, depending on the detailed circumstances ofeach case, the employee may claim the severance pay that would normally bedue in the case of redundancy.

2.3 What happens to terms of employment contracts? As a result of the transfer, the transferee becomes, by operation of law, a partyto the employment contracts made by the transferor with the transferredemployees. The transferred employees will continue employment with the newemployer on the same terms and conditions as applied with the previousemployer. Past employment with the transferor will count as continuousemployment with the transferee.

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4.1 Who must employers consult? If there are trade unions operating at the transferor and/or the transferee, theymust be informed by the transferor and/or the transferee of the intendedtransfer and provided with transfer-related information. The information mustbe delivered to the trade unions in writing 30 days prior to the anticipated dateof the transfer. Should the employer intend to take ‘measures related toemployment’ in the context of the transfer, it must carry out consultations withthe trade unions. (See section 4.2 below.)

If there are no trade unions operating at the transferor and/or the transferee,transfer-related information should be provided in writing to each individualemployee. The same 30 day deadline applies. Note that relevant informationshould also be delivered to employees not affected by the transfer.

In addition to the requirement to provide notification of the transfer to tradeunions or employees, prior consultation must take place with the works council, if one exists.

The transfer of an undertaking may be subject to information and consultationprocedures on a European Community level based on Directive 94/45/EC of 22September 1994 (thus, the Polish Act on European Works Councils whichimplements this Directive may be applicable).

4.2 What information must they provide? Where the transfer of an undertaking or part of one is to be made, tradeunions or (where there are no trade unions operating within the undertaking)the employees themselves, should be informed of:

• the intended date of the transfer• the reasons for the transfer • the legal, economic and social consequences of the transfer for the

employees• any proposed measures concerning conditions of employment

(in particular conditions of work, remuneration and re-training of employees).

The unions may ask additional questions and request additional information.In such cases the transferor/transferee should respond to the questions andprovide additional information ‘to the extent necessary for the union to pursue its activity.’


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• the provisions of a collective agreement apply as at the date of the transfer an undertaking (or part of one), i.e. amendments to the transferor’s collective bargaining agreement made after the transfer do notconcern the transferee

• after one year of mandatory application of the collective agreement, the transferee is not automatically released from applying it, but in order to stop applying it, it must follow a procedure (the so-called ‘notice of alteration of terms of employment’) with respect to each transferred employee or conclude individual agreements with them by amending theirterms of employment.


3.1 Can employers make changes to employment contracts? If an employer (the transferor prior to the transfer and the transferee following the transfer) intends to change the terms and conditions of employment contracts, it would either have to agree amendments to theterms of employment with individual employees, or follow a unilateral procedure of ‘notice of alteration of terms of employment’. However, it mustbe remembered that the transfer cannot be used to justify amendments – theemployer must be able to show a specific and different reason for changingthe terms.

If a collective bargaining agreement of the transferor applies, the new termscannot be worse for the employee than those guaranteed by that agreement.Nor can they be worse than those guaranteed the by the transferee’s owninternal regulations. If the employee is coerced into signing a ‘mutual’ agreement, the employee may withdraw from the agreement within one yearfrom when he or she ceased to fear the consequences of refusing to sign.

3.2 When can employers safely dismiss employees before or after a transfer? Under Polish law the transfer of an undertaking of itself may not constitute thereason for the dismissal of an employee and this applies to both the transferorand the transferee. As this rule was introduced recently there is no establishedcase law or jurisprudence in this area. However, in every case the employershould analyse whether the transfer is the real reason for the contemplateddismissal. Generally, it is more likely to argue that the transfer does not constitute the reason for the dismissal if the dismissals are effected after thetransfer.

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One of the major issues which should be taken into account when transferringan undertaking in Poland is the fact that there is still no established case lawand jurisprudence on the scope of the prohibition on terminating employmentrelations as a result of the transfer or the question of whether the terms andconditions of employment may be validly altered in the context of a transfer.

The transfer of an undertaking may, depending on the circumstances, involvethe sharing of the Social Fund of the transferor with the transferee. In addition, the rules on the sharing of liability for potentially unpaid social security of transferred employees are unclear, as are those relating to unpaidpersonal income tax. Given that the law in these respects is extremely unclear,there is an element of legal risk involved.


Please see section 5.1 above.


Firstly, whether the relevant transfer legislation applies to any given cross-border transfer should be considered.

Secondly, in the case of transfer out of Poland, i.e. when a foreign companytakes over Polish employees, the fact the that employment of Polish citizens bya foreign company creates practical complications in the discharge of the relevant tax and social security obligations under Polish law must be considered. This either requires the foreign employer to register in Poland aspayer of social security dues which are normally payable in Poland by theemployer, or forces local employees to agree to take over the responsibility forcalculating and remitting the contributions themselves.

In the case of transfers into Poland, when a Polish company takes over foreignemployees, the Polish company will apply Polish law with respect to, for example, notifications and consultations. However, issues are also likely toarise under the law of the country in which the undertaking is located.


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There are no specific rules on what information must be provided to the workscouncil. It must however, be sufficient for the works council to be able to issuean opinion.

4.3 What does consultation involve? The duty to initiate a consultation procedure with the trade union arises onlywhen a union operates at the company and the transferor or the transfereeintends to take ‘measures related to employment’ in the context of the transfer. In such a case the parties (i.e. the employer and the trade unions)should commence negotiations ‘with a view to reaching an agreement’. If anagreement is not reached within 30 days following notification to the tradeunions, the employer is entitled to undertake the intended actions taking intoconsideration the arrangements made during the negotiations. Where thereare no trade unions operating within an undertaking, no consultation procedure is required.

Regardless of the above, the transferor/transferee must conduct consultationswith the works council. This process involves: the delivery of information to theworks council; the issue of an opinion by the works council; a meeting toanswer its questions; the conclusion of an agreement; or if this is not possible,a response by the employer on the issues raised by the works council. This procedure is relatively complicated and there are no regulatory time limits forit.

4.4 What happens if an employer fails to properly inform or consult? Failure to comply with the information and consultation procedure with thetrade union or work council may be the subject of criminal sanctions. However,as far as information obligations towards individual employees are concerned,there are no specific sanctions for breach. An employee may only sue theemployer for damages on a general basis and will be obliged to prove that heor she has suffered harm as a consequence of the employer’s failure to comply with the information procedure.

Crucially, breach of any information or consultation obligations does not invalidate the transfer.

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Under Polish law, the transfer of an undertaking (or part thereof) is regulatedby Article 231 and Article 2418 of the Polish Labour Code and Article 26 ofthe Law on Trade Unions, which implement the provisions of Directive2001/23/EC.

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Portugal

1. TRANSFERS 219


does not apply? 219














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?A transfer includes any change of ownership of a company, undertaking orpart of an undertaking which constitutes an economic unit. An assignment oreven a re-assignment back to the transferor of the company’s activities (or ofthe undertaking’s or the economic unit’s activities) is also considered to be a‘transfer’.

The provisions on transfers of undertakings apply to the following situations:

• the transfer of a company (e.g. mergers and acquisitions – i.e. a change of control)

• the transfer of an economic entity which retains its identity (e.g. the sale of a business)

• changes to service provision.

1.2 What specific factors trigger the transfer of an undertaking? An ‘undertaking’ includes any trade or business regardless of its area of activity. The Labour Code defines ‘economic unit’ as ‘an organised grouping ofresources which have the objective of pursuing an economic activity, either asits main or merely as an ancillary activity’.

The law does not provide a definition of ‘transfer’. In practice one must identify the undertaking and then consider whether it has transferred andretained its identity. Retention of identity after transfer depends on the variousfactors identified in a number of European Court of Justice decisions, such asthe cases of Spijkers and Süzen.

1.3 Are there any forms of transaction to which the legislation does not apply? We cannot foresee any case of a transaction to which the legal provisions donot apply. The provisions cover ‘any transfer’ and this must be interpretedbroadly to include all situations in which the head of the undertaking changes,whatever the legal form by which the change is effected. This includes sale,merger, splitting-up, nationalisation, privatisation, etc. The law applies to allpublic and private undertakings engaged in economic activities whether or notthey are operating for gain.

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out in collective bargaining or in law. If the transferee is unable to provide abenefit that the transferor used to provide, the transferee must either providean equivalent benefit or compensate employees. If the transferor fails to do soit will be in breach of contract.

Note also that past employment with the transferor counts as continuousemployment with the transferee.

2.5 What happens to pension rights? All conditions pertaining to the employment contract must be preserved upontransfer. Therefore, the transferee is bound to comply will all obligationsagreed with employees, including the maintenance of pension rights.

2.6 What liabilities transfer? The responsibility for the payment of fines for breach of labour laws is transferred to the transferee, as well as any obligations that have become dueup to the date of the transfer. This liability includes any obligations to employees who have already been dismissed or have terminated their employment relationship.

2.7 What if employees are covered by a collective agreement? Rights and obligations under any applicable collective agreement transfer inthe same way as described in section 2.6. The transferor’s collective agreementapplies until it expires (if a set term is provided in the agreement) or for a minimum period of 12 months of the transfer, unless a new collective agreement becomes applicable to the transferee during this time. The transferee cannot unilaterally alter the terms of an agreement: it must benegotiated with the trade unions.


3.1 Can employers make changes to employment contracts? No. The transferee does, however, have the same right to reorganise its workforce as any employer does. This means that agreements with employeesto make certain arrangements are considered valid, provided that mandatoryrules set out in the Labour Code (e.g. on the maximum length of workinghours, safety, etc) or in the applicable collective bargaining agreement (e.g.minimum wages to be paid for the performance of a certain type of work) arenot breached.


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2.1 Who is protected? The legal provisions related to transfers of undertakings protect employees.However, they do not apply to employees who have already been moved orare to be moved prior to the transfer date to another undertaking or part ofthe undertaking that is considered to be a separate economic unit. Theseemployees will continue to be deemed employees of the transferor.

The law does not provide any definition of employee, although it defines anemployment contract as a contract by virtue of which an individual is boundto work for other(s) for payment in the context of their organisation and subject to their power of authority and direction. Secondees are not generallycovered since they are not employees. Whether other categories of professionals(such as self-employed people) are covered depends on whether in fact anemployment relationship exists and this will need to be determined on a case-by-case basis.

2.2 What if employees object to the transfer? Employees cannot object to the transfer itself but can object to the consequences of the transfer. This means that, for example, if a collective dismissal or the transfer of the employees to other premises is proposed, thenemployees can oppose this.

However, an outright refusal to work may be considered as a breach of theemployment contract and the employee may be subject to disciplinary action,including dismissal (which will be deemed fair in these circumstances). Refusalto work will be understood as resignation except if the employee is absentfrom work from a certain period or if he or she expressly resigns. If so, theemployee will not be entitled to any severance pay (with the exception of theamounts due by virtue of termination of employment – notably holidays andChristmas allowances pro-rata).

2.3 What happens to terms of employment contracts? Upon transfer, the transferee becomes the employer and all rights and obligations under the employment contract transfer to the new employer. Theresponsibility for the payment of fines for breach of employment laws is alsotransferred to the new employer.

2.4 What about other employee benefits? Because the employer’s position is transferred, the transferee continues to bebound to pay all benefits which have been agreed with employees or are set

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If, on the other hand, the transferred unit (company, undertaking or part of anundertaking) is incorporated into the acquirer’s company, and this companydoes not have a works council, the works council (or workers’ sub-committee)of the former unit will continue to exist for a period of two months from thedate of the transfer, or until a newly elected works council becomes effective,or for an additional period of two months if elections are annulled.

4.2 What information must they provide? Both the transferor and the transferee are bound to inform employee representatives (or the employees themselves when there are no representatives) of:

• the date of the transfer • the reasons for it• the legal, economic and social consequences of the transfer for affected

employees • any intended measures.

The information described above must be given in writing, prior to the transfer and with reasonable notice, i.e. a minimum of 10 days before the startof the consultation process.

4.3 What does consultation involve? The Labour Code stipulates that both the transferor and the transferee mustconsult employee representatives prior to the transfer to obtain agreement onthe measures to be taken in relation to the employees affected by the transfer. There are no rules as to how this must be done, but it is good practice to ensure that consultations are recorded in writing and written repliesare made to any reasonable queries.

4.4 What happens if an employer fails to properly inform or consult? Failure to comply with the information and/or consultation procedure does not jeopardise the transfer itself, but may trigger the application of fines by the Labour Inspection Authority (Autoridade para as Condições do Trabalho – ‘ACT’) for breach of employment law.

The ACT may intervene on its own initiative or if anyone (either an employeeor a trade union) informs it that employment laws are not being compliedwith.


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3.2 When can employers safely dismiss employees before or after a transfer? The act of transferring an undertaking or part of it is not a valid reason for dismissal.

In cases of transfers of undertakings (or other situations involving change ofcontrol), many employers will try to reach agreement with employees aboutthe termination of their employment. If an agreement cannot be reached, thencollective dismissal and dismissal for redundancy (dismissal for objective reasons) are the only ways to obtain the intended termination of employment,and, even in these cases, only if the legal requirements are met. A change ofcontrol itself is not valid grounds for dismissal for objective reasons.

Dismissal for objective reasons includes termination of employment for economic, technical or organisational reasons. Organisational reasons relate toa lack of economic/financial balance in the company, restructuring of the company or replacement of dominant products. Technological reasons areconnected to a modification of the techniques or procedures of productionand other reasons linked to a change of technology.

The reference to ‘objective reasons’ means that, in such cases, dismissal is not a result of the employee’s behaviour: on the contrary, it is for causes whichare external to the company, but which have a decisive influence on theemployer’s decision to dismiss. In our view, change of control is not a causeexternal to the company.

If termination occurs, the employee is entitled to receive one month’s basicsalary and ‘diuturnidades’ (seniority allowances) for each full year of service,with a minimum of 3 months’ pay. In the case of fractions of years of service,compensation is paid pro rata, subject to the above minimum.


4.1 Who must employers consult? For the purposes of information and consultation on a transfer of undertaking,the employee representatives are taken to be the works council, the tradeunions, trade union committees and union delegates. If none of the above representatives exist in the company or undertaking to be transferred, employees must be consulted directly.

The Labour Code expressly states that if the company, undertaking or part ofthe undertaking maintains its autonomy after the transfer, then the status andduties of the representatives of the affected employees remain unchanged.

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We are unaware of any particular issues.


We are unaware of any particular issues.


Where a transfer has an impact in Portugal, particularly in terms of the employment contracts of employees working in Portugal, the employer mustcomply with Portuguese law on the transfer of undertakings.



The national provisions on transfers of undertakings are contained in thePortuguese Labour Code.

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Russia

1. TRANSFERS 229


does not apply? 229














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? Under Russian law a transfer implies change of ownership of the company’sassets. It occurs mainly in the following cases:

• privatisation (transfer of assets from state ownership to private ownership) • transfer of assets from private ownership to the state • transfer of a state enterprise to the ownership of a municipality,

and vice versa • transfer of assets owned by the state to a constituent territory of the

Russian Federation and vice versa.

The first situation is the most common one. In a state-owned enterprise the state is the sole owner of all of the assets of the enterprise, while the enterprise itself has limited rights to manage and very limited rights (if any) todispose of the assets. Privatisation means that title to the assets is transferredfrom the state to the private (non-state) owner.

1.2 What specific factors trigger the transfer of an undertaking? The sale of a state-owned enterprise, the reorganisation of a state-ownedenterprise into a joint stock company, etc. See section 1.1 above.

1.3 Are there any forms of transaction to which the legislation does not apply? Changes of shareholders/participants in a legal entity do not constitute transfers of assets, as the assets remain in the ownership of the legal entity.


2.1 Who is protected? The Russian Labour Code gives protection in cases of transfers to all employees apart from the chief executive of an undertaking, his or her deputyand the chief accountant. The transferee has the right to terminate the contracts of these executives within three months of the transfer and they areentitled to not less than three months’ salary in compensation.

However the transfer is not a reason to terminate the contracts of otheremployees of the company. An employee is any person engaged by the company under an employment contract, even if this person is currently training or is on leave (e.g. maternity leave).

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2.7 What if employees are covered by a collective agreement? The collective agreement of the transferor must be applied for three monthsafter the transfer. Thereafter either the employees or the employer can suggestconcluding a new agreement or prolonging the previous one.


3.1 Can employers make changes to employment contracts? The general rule is that the terms of the employment contracts should remainunchanged, unless amendments are agreed with each employee individually inwriting.

3.2 When can employers safely dismiss employees before or after a transfer? Generally, there is no statutory term (apart from the notice period) withinwhich the old or the new owner cannot carry out dismissals. Thus, the newowner could carry out dismissals once the transfer is completed.

In some cases, as mentioned above, the terms of sale of a state-owned enterprise oblige the new owner to keep (and, possibly, also to retrain) a certain percentage of the existing employees for a certain term after the transfer.


4.1 Who must employers consult? The law does not provide an express obligation for employers to inform and/orconsult with regard to the transfer, although an obligation of this kind may beprovided for by the collective agreement or other internal rules of the company.

As mentioned above, the new owner can dismiss the head of the company, hisdeputy(s) and chief accountant. These dismissals can be effected withoutnotice but severance pay is due in the amount of at least three months’ salary.

Other employees may only be dismissed if the correct legal procedures are followed. The procedure for staff reduction requires the employer to notify theemployees and the relevant state body at least two months before the dismissal date (at least three months notice to the relevant state body isrequired in the case of a collective redundancy) and make a severance paymentof one average month’s earnings plus average earnings for the period of job

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2.2 What if employees object to the transfer? In cases of transfer the employee has the right to resign. Russian law does notentitle employees who resign in this way to any compensation (severance pay)but compensation may be provided under company policies, collective bargaining agreements, employment contracts, etc.

2.3 What happens to terms of employment contracts? The transfer does not constitute grounds to change the terms of the employment contract. Employment terms can only be changed in accordancewith the procedures set out in law, which in almost every case require themutual agreement of the parties.

2.4 What about other employee benefits? The statutory minimum benefits are guaranteed to the employees by the newowner. As for additional benefits the following rules apply:

Where benefits are set out in the employment contract, they can be changedonly with the mutual agreement of the parties.

Where they are provided for by a collective agreement, they will remain inforce for three months after the transfer (as the agreement itself must remainin force for that time).

Where benefits are provided for in the company’s policy, the new owner hasthe right to change the terms. The opinion of the trade union or other representative body of the employees must be requested, but it is not bindingon the company.

2.5 What happens to pension rights? All statutory pension rights remain in force, and the new owner must makestatutory payments to the state pension fund for each employee. Any additional pension rights that were provided by the former owner are treatedin the same way as benefits (see section 2.4 above).

2.6 What liabilities transfer? All liabilities transfer together with other provisions of the employment contracts. Where the transfer is the sale of a state-owned enterprise the statemay make it a condition of sale that certain jobs are preserved, that retrainingis provided, and other benefits are given to the employees over a certain period of time.

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search for a maximum of two months (the severance pay counts as part of thelatter payment).

4.2 What information must they provide? As there is no statutory obligation to consult, there are no statutory requirements on the information to be provided.

4.3 What does consultation involve? Please see section 4.2 above.

4.4 What happens if an employer fails properly to inform or consult? As mentioned above, there is no statutory requirement to consult. Where suchrequirement is provided for by collective agreement, company policy, employment contracts, etc, and this is breached, the dismissal may be claimedto be unfair and the employee may be reinstated in the job by the court andcompensated for time off work.



As mentioned above, where a state enterprise is being sold (and privatisationis the most common case of transfers of undertakings in Russia) it may be necessary to avoid dismissals for a certain period of time. If the purchaser failsto meet this requirement, the transaction may be annulled.


As mentioned above, the change of shareholders in the legal entity, or changeof legal form of the entity (e.g. from a limited liability company to a joint stockcompany) do not constitute a transfer.


There are no issues peculiar to the Russian regulations other than those mentioned above. However, if the shares in, e.g. a state-owned company, arepurchased by a foreign investor, the employees will remain within the samelegal entity – the Russian company. This will not be regarded as a transfer outside of Russia merely because of the change of ownership. If the transferoccurs for specific business reasons (e.g. for training) it should be done in compliance with Russian law. Conversely, if employees of a foreign legal

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entity are relocated into Russia, this should be done in compliance with the lawwhich regulates the employment contract under which the relocation is carriedout.



Not applicable.

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Slovak Republic

1. TRANSFERS 237


does not apply? 238














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?Slovak transfer legislation applies when there is a transfer of:

• an economic unit (i.e. an employer or part of an employer), or • an employer’s task or activity (or a part thereof)

provided that there is a legal successor to the economic unit, which continuesto perform the transferred task or activity.

Under the legislation the most important feature establishing a transfer ofrights and obligations with respect to employment is the transfer of an economic unit or the transfer of the transferor’s task or activity.

1.2 What specific factors trigger the transfer of an undertaking? According to the Slovak Labour Code, transfer takes place if there is a transfer of (i) an economic unit or (ii) the employer's tasks or activities (or evena portion of the tasks or activities).

The term ‘economic unit’ was introduced by the Labour Code on 1 September2007. An economic unit is defined as a unit that retains its identity as anorganised configuration of resources (tangible, intangible and humanresources) and that performs economic activities, regardless of whether theactivities are significant or ancillary. An economic unit is considered to be eitheran employer or part of an employer. The main characteristic of an economicunit is its ability to continue to perform the activity after it has been transferredto another employer. The term reflects settled case law of the European Courtof Justice.

As regards the transfer of an employer's tasks or activities (or a part of them),there is no definition of this in the Labour Code.

In both cases, a transfer causes the transfer of rights and obligations relatingto employment.

Note that the Labour Code does not use the term 'transfer of undertaking' but‘transfer of employer or a part thereof’, i.e. the transfer of an economic unit,or a task or activity (or a portion of one), plus the transfer of rights and obligations in relation to employees.

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We are unaware of any employer being sanctioned for breaching employmentlaw for making organisational changes in a company, including outsourcing,without the transfer of employees.

Moreover, the legislation on transfers does not apply to the provision of services – an activity which is of a purely commercial character. This mightoccur when an employer orders a service from another employer (its commercial partner) and concludes a commercial relationship with thatemployer. After termination of the commercial relationship the employees arenot transferred, despite the fact that these employees might be replaced byanother employer (i.e. another commercial partner).


2.1 Who is protected?Slovak law provides protection to all employees employed by the transferor inthe case of transfer. If only a part of the employer, activity or task is transferred,the transfer applies only to those employees affected by the transfer, i.e. thosewho work within the transferred part of the employer, activity or task. Onlypersons employed by the transferor are protected, i.e. the protection does notapply to employees temporarily seconded to the transferor.

According to the Slovak Labour Code, if there is a transfer of rights and obligations from the transferor to the transferee, the position and function ofthe employee representatives remains unaffected until the end of their term ofoffice, unless agreed otherwise.

2.2 What if employees object to the transfer? Since transfer is automatic, the employees cannot object to their transfer to anew employer. However, they have the right to give notice of terminationaccording to the general provisions of the Labour Code before or after thetransfer. They do not need to give any reason for termination, and the noticeperiod should be two or three months depending on length of service.

Nevertheless, they can object to the transfer if the conditions for transfer werenot met, or conversely, if they were not transferred when they should havebeen. If the employee disagrees with the employer about a transfer, theemployee may bring a claim against the transferor or transferee. The court willdecide whether the rules on transfer were breached, and thus whether or notthe employee should have been subject to transfer.

In addition, the Labour Code defines a transferor as an entity or individual whoceases to be an employer and a transferee as an entity or individual who takesover the role of employer.

Note that Slovak law does not explicitly stipulate the form a transfer must take.Transfer has to do with business continuation, which may occur in many ways,such as:

• merger, where the transferee acquires all of the rights and obligations of the transferor

• division, where the original employer is divided into at least two new employers. The body which has decided upon the division must determinewhich transferee enters into the rights and obligations arising from the employment

• split, where the transferor still exists, but a transferee is detached from it • lease of the business or a part thereof, where rights and obligations

towards employees arising from their employment are transferred to the lessee. Upon termination of the lease the employees are automatically transferred back to the lessor, unless they were hired by the lessee duringthe term of the lease agreement.

Transfer always implies the transfer of an existing business and its continuation. When considering whether a transfer has occurred, all circumstances indicating business continuation are taken into account: thetransfer of assets, customers and contracts, the activity performed (or part ofany of the above, if they are capable of independent activity) and so on.

If an employer is an individual, the rights and obligations arising from employment pass to his or her heirs.

1.3 Are there any forms of transaction to which the legislation does not apply? As a general rule, all employees performing tasks within the transferred assets(or tasks and activities) are automatically transferred. Since the transfer ofemployees is automatic, any agreement that modifies the transfer of employees in a way not stipulated in the Labour Code would be void. The rulesgoverning a transfer of employer can never be contracted out, even with theconsent of the relevant employees.

The rules on a transfer of employees are not applicable to share sales. In general, outsourcing is not considered to be a transfer in the Slovak Republic(although theoretically some of the criteria for a transfer might be fulfilled).

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2.3 What happens to terms of employment contracts? As the new employer, the transferee assumes all existing rights and obligationsarising from the employment relationship. All rights and obligations arisingfrom individual as well as collective agreements are also transferred to thetransferee. The Labour Code protects employees against changes in theirworking environment. If the transfer causes a change to the working conditions of employees as agreed in their employment contracts and theemployees do not agree to the change, the employment must be terminatedby notice given by the employer for organisational reasons or by means of atermination agreement. In such cases, the employee is entitled to severancepay (of two or three months’ salary depending on the length of service).Where notice is given by the employer, the employee is further entitled towork during the notice period or to be compensated if he or she does notwork during this period.

2.4 What about other employee benefits? Since employees' rights arising from a transfer are interpreted broadly (especially by the European Court of Justice), the transferee is obliged to provide the benefits offered to transferred employees by the transferor, as theirprevious employer. This also applies to all benefits set out in the Labour Code,e.g. length of service with the transferor (which affects the length of the noticeperiod) would be taken into account even after the transfer.

If any benefits are provided on the basis of internal regulations issued by thetransferor, the transferee may modify or even cancel the regulations after thetransfer, unless the regulations or other agreement with employees stipulateotherwise.

If the transferee cannot provide a benefit which was provided by the transferor(e.g. because the transferee lacks the equipment or facilities, etc.) we recommend that commensurate compensation should be provided to thetransferred employees (based on the principle that transferred employeesshould remain unaffected by the transfer).

2.5 What happens to pension rights? The rights of employees arising from the public pension scheme are guaranteed by law and are not affected by transfer. Where voluntary contributions of the transferor to supplementary pension schemes are concerned, the law does not explicitly regulate employees’ rights to these contributions when a transfer occurs. However, based on the latest standpointof the Ministry of Labour, Social Affairs and Family, employee entitlements arising from supplementary pension schemes will be transferred together withother rights and obligations arising from the employment relationship.

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2.6 What liabilities transfer? The transferee assumes all rights and obligations of the transferor in the fieldof employment liabilities, with the exception of the transferor’s rights and obligations towards employees whose employment relations ceased before theeffective day of transfer. In such cases, the transferor will continue to be liable.

Pursuant to a recent decision of the Slovak Constitutional Court on the transfer of rights and obligations in respect of the transfer of employers, thetransferee assumes all rights and obligations (commercial, as well as non-commercial), except for obligations arising from public law (such as taxobligations).

There has also been a decision relating to liability for an industrial (work-related)injury. The court applied a rule on the general succession of rights and obligations arising from employment relationships, which provides that thetransferee must assume all of the liabilities of the transferor, including liabilityfor industrial injuries incurred before transfer. This means that an employeewho has worked for the transferor may bring a claim against the transferee.The transferee cannot waive this obligation with the argument that the transferor should be liable for the obligations.

2.7 What if employees are covered by a collective agreement? The Labour Code provides that the transferee enters not only into the rightsand obligations under individual employment agreements, but also into therights and obligations arising from collective agreements. The transferee mustobserve the provisions of any collective agreement concluded by the transferor.Such a collective agreement is binding for the transferee for its full duration.

Collective agreements may not be unilaterally changed by the transferee: bothcontracting parties must agree to any change.


3.1 Can employers make changes to employment contracts? The terms and conditions of employment may not be unilaterally changed bythe transferor or the transferee as a result of the transfer. Employment contracts are also subject to the transfer of rights and obligations arising fromthe transfer. The terms and conditions contained in an employment contractmay be changed only with the prior consent of the employee. A transfer ofemployer is not an acceptable reason for unilaterally changing or terminatingan employment contract and consequently entering into a new employmentcontract.

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However, the transfer may mean that the transferee cannot fulfil the obligations arising from the employment contract. If this situation occurs,there are grounds on the employer's side for termination of employment (seesection 2.3 above).

3.2 When can employers safely dismiss employees before or after a transfer? In general, the mandatory principle of the continuation of employment contracts applies. Therefore employees may not be dismissed by reason of thetransfer. This principle does not prevent the transferor or transferee from dismissing an employee for other reasons set out in the Labour Code (e.g. organisational reasons, health reasons, and disciplinary reasons). If atransferee wishes to make any kind of organisational changes other than thosebased on the transfer itself (where the dismissal of employees is a consequence) it may do so, but all statutory requirements set out in the LabourCode must be met (including the observance of a notice period, provision ofseverance pay, etc). The transfer of employees is not in itself grounds for dismissal, but the realisation of these organisational changes can be.Unfortunately, we are not aware of any Slovak case law which would describethis matter in more detail. Therefore, there are risks for employers in dismissing employees shortly before or after the transfer.

Furthermore, the protection does not apply when the employees do not wishto continue their employment relationship with the transferee and resign.


4.1 Who must employers consult?The employers (i.e. both the transferor and transferee) have two general obligations They must (i) inform and (ii) consult, with the employee representatives.

First, the employers have an obligation to provide written information to theemployee representative(s) (namely, the competent trade union body, theworks councils and the employees' trustee). The employee representativesmust be provided with written information at least one month prior to theeffective date of the transfer. If there are no employee representatives at theemployer, the information must be provided directly to all employees (not onlyto the transferred employees).

Second, the employers have an obligation to hold consultations with employee representatives with a view to reaching a consensus concerning the

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implementation of measures affecting employees. Consultation with employee representatives must begin at least one month prior to implementingmeasures affecting employees. This obligation does not apply if there are noemployee representatives at the employer – the employer is not obliged toconsult its employees directly.

4.2 What information must they provide? The employers (both the transferor and transferee) must provide the employeerepresentatives (or the employees directly if there are no employee representatives) with the following information in writing:

• the date or proposed date of transfer • the reasons for the transfer • the legal, economic and social implications of the transfer with respect to

employees • measures which would affect employees.

4.3 What does consultation involve? The Labour Code does not provide specifics about the information on whichthe employee representatives must be consulted. It merely stipulates thatemployers have an obligation to consult on the implementation of measuresaffecting employees, with the intention of reaching a consensus. This usuallyincludes consultation on the information provided to employee representatives(see section 4.2 above).

If a consensus is not reached, this does not invalidate the transfer. Moreover aconsensus will be void if it restricts the rules on the transfer of rights and obligations arising from employment contracts. Reaching an agreement to dismiss a certain number of employees based on organisational reasons connected with the transfer (even if they receive severance pay) would be void.However, if the organisational reason were not connected with the transfer(e.g. a certain workplace is closed down) the dismissal would not be void. Inthis case, the provisions regarding individual dismissals would apply.

4.4 What happens if an employer fails properly to inform or consult? There is no sanction expressly stipulated in the Labour Code if an employerignores its obligation to inform and consult on the measures affecting itsemployees. Neither does it result in the invalidity of the transfer. However, if any rights and obligations arising from the Labour Code are breached, the Work Inspectorate (which is a public authority) can impose a fine of up toEUR 33,193.92.

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The Labour Code (Act No 311/2001 Coll.) implements the EU law on transfersof undertakings (Council Directive 77/187/EEC as amended).


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Slovak protection in respect of a transfer of employees is broader than in mostEU countries. In addition to the transfer of an undertaking (or part of one)Slovak law includes in its definition of a transfer the transfer of an activity ortask (or even part of one).

Moreover, since case law on the transfer of undertakings is underdeveloped inthe Slovak Republic, European Court of Justice case law is highly relevant.Therefore we recommend taking into consideration the reasoning of theEuropean Court of Justice in borderline cases.


Since the transfer of employees is automatic and concerns all employees performing the transferred activity, uncertainty might arise in the case of a partial transfer. There may be practical problems in specifying which employees are to be transferred, especially those whose duties are not performed exclusively with the aid of assets belonging to the transferred partof the employer. In this case we recommend taking into account the reasoning of the European Court of Justice.


The Slovak rules on transfers of undertakings are used when the transfer takesplace within the Slovak Republic. With regard to the principle of territoriality,employers' obligations towards Slovak employees will be governed by Slovaklaw. Therefore, with regard to the transfer of an employer into the SlovakRepublic, the transfer will be governed primarily by foreign law (affectingmostly foreign employees).

However, we cannot exclude the use of Slovak law, such as the rules oninforming and consulting employee representatives as mentioned above, if thetransferor or transferee employs people in the Slovak Republic.

With regard to the transfer of undertakings out of the Slovak Republic, theSlovak rules on transfers are used, since the transfer takes place in the SlovakRepublic and affects the rights and obligations of employees performing workin the Slovak Republic. The law of the country to which the employer is transferred might also give rise to obligations in connection with the transfer.

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Spain

1. TRANSFERS 249


does not apply? 249














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?Spanish legislation only applies to transfers of undertakings when the transferaffects an economic entity that retains its own identity and autonomy. Theeconomic entity must consist of an organised group of elements (tangible,intangible and personnel) and must have autonomy in terms of conducting itsown activities.

1.2 What specific factors trigger the transfer of an undertaking? According to Spanish law, in order to trigger the rules relating to the transferof undertakings, there must be two essential factors:

• objective factor: the tangible delivery of all the elements which are essential to enable the undertaking to continue to operate

• subjective factor: the substitution of the old employer for the new one. It is not necessary for there to be a contractual relationship between them,as transfer can take place via a third party.

1.3 Are there any forms of transaction to which the legislation does not apply? Spanish legislation does not apply to the following transactions:

• the mere transfer of labour contracts. In such cases the express consent ofemployees is required, as consent of employee representatives is not sufficient

• outsourcing is also outside the framework of transfers of undertakings except in those cases in which the new employer acquires the basic infrastructure.


2.1 Who is protected? The law mainly protects the employees of the transferred undertaking. Thenew employer takes on all the existing rights and obligations of the workers atthe moment of the transfer. This includes all the rights already consolidatedand acquired by the employees before the transfer, but not the future legalobligations that arise after the transfer.

There is no specific definition of ‘employee’, but any person, including a secondee or a woman on maternity leave, for example, will be protected in thesame way.

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3.1 Can employers make changes to employment contracts? The aim of Spanish labour law is to guarantee all the rights of employeesaffected by transfer and to retain the same working conditions as they hadwith the transferor. However, some modifications to employment contractsmay be admissible in the context of a transfer of an undertaking, providedthese changes are not made by reason of the transfer. Other than by thatexception, employment contracts cannot be amended.

3.2 When can employers safely dismiss employees before or after a transfer? Spain follows European case law in relation to the protection of employeesagainst dismissal during the transfer of an undertaking. According to Spanishlegislation, the transfer is not of itself grounds for termination of the contractby means of dismissal, and it is not possible to establish any exception thatcould harm employees. It is very difficult for an employer to dismiss safely aftera transfer because the transfer of rights and obligations has as its main purpose to guarantee protection against any kind of dismissal. If employeesare dismissed just prior to the transfer, they can claim the dismissal was unlawful and continue to be employed by the transferor even after transfer.


4.1 Who must employers consult?The employers must consult with the employee representatives on all the legalmeasures envisaged. It is essential to inform the employee representatives ofthe grounds on which the measures are based and all their future consequences. This information should be given in sufficient time before themeasures are adopted, and all the parties must negotiate in good faith.

If there are no employee representatives the employers must consult directlywith the employees affected by the transfer.

4.2 What information must they provide? The transferor and the transferee are obliged to inform the employee representatives of the following points:

• the date or proposed date of the transfer • the reason for it • the economic, social, and legal consequences for the employees • measures envisaged which will affect the employees.

2.2 What if employees object to the transfer? If the employees disagree with the transfer, the transferor has two optionsunder Spanish labour law. First, it can continue to give them work under itsown supervision or, second, it can terminate their employment contracts, butpay the compensation foreseen in law for dismissals (45 days’ pay for everyyear of service). The protection of employees will only be guaranteed if theyretain their employment contracts with the transferor.

2.3 What happens to terms of employment contracts? When there is a transfer of undertakings in Spain, the principle of continuityof the labour relationship applies. The transferee takes on all the labour andsocial security rights and obligations of the previous employer, including all theexisting pension entitlements at the moment of transfer.

2.4 What about other employee benefits? The new employer must offer the same benefits as the old employer, withoutexception and in general terms, the new employer must also take on all obligations acquired by the transferor in relation to complementary social protection. The protection is highly regulated and no changes to it are possible until the negotiation of the next collective agreement or companyagreement signed with trade unions.

In addition, the transfer has not only substantive but procedural effectsbecause it places the transferee in the same procedural position as the transferor.

2.5 What happens to pension rights? Pension entitlements go across on transfer in the same way as any other benefit and so the new employer must take on all agreements relating to pensions before the transfer takes place.

2.6 What liabilities transfer? The new employer is liable for any debts incurred by the transferor before thedate of the transfer. This includes any kind of debt related to employment,such as wages, dismissal compensation or additional voluntary contributionsto social security.

2.7 What if employees are covered by a collective agreement? If there is a collective agreement, the workers affected by the transfer retainthe collective agreement that was effective at the moment of the transfer. Thisagreement continues to apply until it expires or until a new collective agreement, which can be applied to the transferred economic entity, becomeseffective.

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The main area of legal uncertainty in Spanish law is the concept of a self-governing entity. This concept must be interpreted according to Europeanlegislation, which demands the existence of an economic entity that works inan autonomous way. This is the minimum criterion required in order to fulfil allthe requirements of the transfer, and it must therefore be clearly establishedwhen making the transfer.


The two most important factors that an undertaking must take into accountin relation to a transfer of undertakings are:

• the contractual position of the employees of the transferor. In Spain all temporary contracts must be made with genuine cause and if there is no real cause they will be deemed to be fraudulent and the employee will beentitled to claim a permanent contract. It is therefore important for the transferee to check that all temporary contracts are genuine

• the social security obligations of the transferor, given that the transferor and the transferee will have joint liability for those.



The Spanish ‘Workers Statute’ (Article 44) and Law 12/2001 for the improvement of the quality of work, set up the main conditions for transfersof undertakings in Spain. These are the two main national laws that implementEuropean Directive 2001/23/EC on the rights of workers upon transfers of undertakings.


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4.3 What does consultation involve? On the one hand consultation involves initiating a period of consultation withthe employee representatives about the labour measures that are to be implemented. On the other hand, the transferee must also check if all of theemployment contracts of the affected employees fulfil the necessary requirements. The consultation process involves a duty to negotiate with theemployee representatives about any labour measure adopted as a consequence of the transfer, such as substantial changes to working conditions, geographical mobility or unusual working hours.

4.4 What happens if an employer fails properly to inform or consult? If the transferor does not fulfil its information and consultation obligationswith regard to the employee representatives or the transferee, the transfer isnot effective under Spanish labour law. However, the consultation requirementwill only be fulfilled if the information provided is indispensable and sufficientto inform the relevant parties about the circumstances of the affected employees.



The main issue in Spanish law is the liability of the transferee, jointly with thetransferor, in relation to all debts incurred before the transfer. Article 44 of theWorkers Statute extends this responsibility to three years for labour obligationsand to 5 years for social security obligations.

Moreover, the transferee is responsible for infringements made after the transfer and also for infringements made before the transfer which persistonce the transfer has successfully taken place.

The transferee and transferor are jointly responsible for labour obligations andsocial security obligations incurred after the transfer if the transfer wasdeclared unlawful. In cases of underpayments of contributions or failures toregister the assigned employees, the transferee may be liable for any socialsecurity benefits arising, either because the employee has not accrued theright to the benefit or because the amount of the benefit is less than theamount to which he should have been entitled. This liability does not lapseafter any given period of time. However, there are inconsistent judicial rulingson this question, given the absence of enabling provisions under the Act.

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Sweden

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does not apply? 259














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply?In Sweden the legislation on transfers of undertakings has been implementedvia provisions in the Employment Protection Act and the Co-Determination inthe Workplace Act.

The rules apply:

• on the transfer of an economic entity or part of an economic entity whichretains its identity (e.g. the sale of a business)

• on a ‘service provision change’ (contracting activities out, bringing them in-house, or a change of contractors).

The legislation also applies within the public sector and on seagoing vessels.

1.2 What specific factors trigger the transfer of an undertaking? The most obvious situation in which a transfer of an undertaking takes placeis the sale of a business. Where the assets of a business, such as premises,equipment, customers, staff and goodwill are sold and the business is continued, a transfer has normally taken place.

The concept of a ‘transfer of undertaking’ or ‘transfer of an economic entity’is, however, wider than the sale of a business. An ‘economic entity’ means ‘anorganised grouping of resources which have the objective of pursuing an economic activity’. The activity may be central (e.g. manufacturing products)or merely ancillary (e.g. cleaning a manufacturing plant). To apply the legislation one must identify the economic entity and then consider whether ithas transferred and retained its identity.

Retention of identity after transfer depends on factors identified in EuropeanCourt of Justice decisions. According to the Swedish Labour Court:

• the type of business or undertaking concerned • the similarity between the activities (retention of identity) • whether customers are transferred • the duration of any interruption in the performance of the activities

(whether the activities are ongoing)

are necessary criteria, and:

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1.3 Are there any forms of transaction to which the legislation does not apply? It is difficult to avoid a transfer of undertaking and not normally a useful exercise. A business and a contractor cannot decide between themselves thatthey will not apply the legislation. Courts and tribunals will look behind obvious avoidance attempts. Whatever arrangements are made at the point ofpotential transfer will be looked at in retrospect if challenged, so if the practical effect is a transfer that is likely to be apparent.

On the other hand, there are many circumstances in which legislation appliesin theory but it does not suit anyone to apply it. For example, in a SwedishLabour Court case concerning a florist, the owner transferred the right of tenancy as well as a few tangible assets of minor value. The transferee continued the business without any interruption in activities. The Labour Courtfound that some customers as well as some goodwill were retained. Hence theLabour Court found that there had in fact been a transfer of undertaking. Theemployees were thus considered to have been transferred to the transfereeeven though the transferor had agreed to assume liability for them.


2.1 Who is protected? A transfer of undertaking only protects employees who are employed withinthe undertaking transferred. Should the transfer only concern a part of thetransferor’s business, the legislation will only apply to employees ‘assigned’ tothe relevant organised grouping of resources or employees transferred.Whether an employee is so assigned depends on:

• the proportion of time spent within the entity transferring as compared toother parts of the business, i.e. which entity the employee has mainly beenassociated with

• the employee’s job description and • where it is most natural for the employee to continue his or her

employment.

An overall assessment should be made.

2.2 What if employees object to the transfer? Employees have a right to object to being transferred. It is thus not possiblefor the transferor and transferee to agree upon whether or not the employeeswill transfer. An employee who, within reasonable time, objects to being transferred, will remain in the employment of the transferor. An objection can


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• whether tangible assets have been transferred • whether intangible assets have been transferred (e.g. goodwill) • whether the majority of employees are retained

are sufficient criteria.

For the transfer of an undertaking to have taken place all of the necessary criteria must be fulfilled and at least one of the sufficient criteria must be met.There must be some organisational coherence to the business or activity concerned. If workers are supplied by an agency to work alongside directlyemployed staff but sprinkled around a business, it is unlikely there would besufficient organisational coherence.

‘Retention of identity’ does not mean that things have to continue exactly asthey did before. If the activities and customers are the same and staff are stillrequired, that is often enough. On the other hand, if a business or operationis split up into parts so that some of the operation goes to one part and someto another, this may mean there is no retention of identity, particularly if it isnot clear to which part an individual would transfer.

Although the European Court of Justice has held that the Directive does notapply to a local government re-organisation, this will normally constitute atransfer falling within the scope of a transfer of undertaking in Sweden. Thelegislation also applies to a transfer from one subsidiary to another within thesame corporate group. Share sales are not covered by the legislation but if, asoften happens, an intra-group transfer follows a share sale, that might triggerthe application of the rules.

Service provision change The requirements for a service provision change are more straightforward.Service provision change occurs when activities are:

• contracted out by a business to a contractor for the first time • moved from one contractor to another or • brought ‘in house’ by the business.

The legislation applies when, before the change, there is an organised grouping of employees with the principal purpose of carrying on the activities.A single employee can be an organised grouping. There are some exceptionsto the concept of service provision change. Activities not normally coveredinclude ‘one-off’ buying-in of services, a contract for short-term services, andactivities mainly related to the supply of goods to the business.

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fact, the transferor could give notice of termination of the collective agreement on behalf of the transferee.

If, however, the transferee is already bound by another collective agreement,that agreement will be applied to the transferred employees, subject to a one-year prohibition period, during which the transferee must apply the conditions of employment contained in the collective agreement that appliedto the transferor. This acts as a form of protection for employees against detrimental changes during the first year from the transfer. There is, however,one exception to the one-year protection period: the protection does not applywhere the term of the collective agreement has expired or where a new collective agreement has come into force for employees subject to the transfer.


3.1 Can employers make changes to employment contracts? The basic rule is that no detrimental variation of any contractual term by reason of a transfer or for a connected reason is permitted within a time period of one year following the transfer, even with the consent of theemployee in question. After the time period of one year following the transfer, the transferee and the transferred employees can agree upon newterms of employment. Should the employees object to the new conditions ofemployment, the transferee may give the transferred employees notice inaccordance with the general rules for terminating an employment agreementfor redundancy, and thereafter offer continuing employment on new terms.

3.2 When can employers safely dismiss employees before or after a transfer? The transferor and transferee may not dismiss employees for reasons solelyconnected with the transfer.

However, an employer is not prevented from giving notice of termination ofemployment for economic, technical or organisational reasons that includechanges to the workforce (ETO reasons). The duly notified employees will thentransfer to the transferee where they will have priority for re-employment inaccordance with the general rules on priority.

be implicit. Should the employee remain in the transferor’s employment, thetransferor can give notice to the employee in accordance with the generalrules of terminating an employment agreement for redundancy.

2.3 What happens to terms of employment contracts? The transferee ‘steps into the shoes’ of the transferor for most purposes, as ifit has always been the employer of the individual concerned. All rights andobligations under the employment contract transfer to the transferee exceptthose relating to retirement, invalidity, or survivor benefits.

2.4 What about other employee benefits? Past employment with the transferor will count as continuous employmentwith the transferee. The transferee is theoretically obliged to replicate all additional benefits, which can be difficult in relation to bonuses, commission,profit share schemes or share options.

2.5 What happens to pension rights? Pension rights that follow from the employment contract do not transfer.However, pension rights that follow from collective agreements do transfer ifthe collective agreement itself transfers.

2.6 What liabilities transfer? The transferee will be liable for all obligations that have arisen before thetransfer.

The transferor and the transferee will be jointly as well as individually liable foreconomic obligations as well as damages relating to the time prior to thetransfer.

2.7 What if employees are covered by a collective agreement? If the transferor is bound by a collective agreement but the transferee is not,the collective agreement of the transferor will apply, where relevant, to thenew employer. The collective agreement will apply to the whole legal entitythat forms the transferee. This can give rise to issues if the transferee is notaware of the fact that the transferred business is already bound by a collectiveagreement. Even if the transferee is, for example, a much larger company thanthe transferred business, the collective agreement will apply to the whole company, including the transferee’s employees. However, in this situation it ispossible for the transferor to give notice to terminate the collective agreementprior to the transfer, so that the transferor will no longer be bound by it. In

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• the reason for the planned termination • the number of employees who will be affected by the termination and

their employment categories (white and/or blue collar workers) • the number of employees who are normally employed and their

employment categories (white and/or blue collar workers) • the time period during which it is planned to carry out the termination and • the method of calculating any compensation to be paid in conjunction

with termination in addition to that which is required by law or applicablecollective agreements.

The employer also must provide the employee organisations with a copy of anynotice which has been filed with the Public Employment Service. Notificationshould be made within certain time limits if the plan is to reduce the workforceby more than five employees.

4.3 What does consultation involve? There is no legislation stating explicitly what consultation should involve.However, consultation should include, for example, detailed information aboutthe transfer and any consequences it may lead to for the affected employees.

Thus, there are rules about what the consultations should involve where atransfer would result in redundancies by either the transferor or the transferee.The consultations must include two issues, which should be kept separate:

• first, the employer must consult regarding any decision to restructure the company. Items to be discussed must include the economic, financial andtechnical reasons for the intended restructuring, alternative measures, consequences etc

• second, the employer must consult regarding whose employment to terminate and the so-called seniority list.

The employer must put forward a reasoned proposal for resolution of the matter to which the consultations relate.

The right of consultation does not give the employee organisation a right todeclare void any decision made by the employer regarding, e.g. a transfer ofundertaking, restructuring or cut-backs in production. Nor can employeeorganisations prevent such a decision in any other way.

The main purpose of the obligation to consult is to ensure the employer makesan honest effort to share important information with employee organisationsand takes the organisation’s arguments into consideration. During


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4.1 Who must employers inform and consult? In Sweden, employers have many obligations to inform and consult in relationto various matters in connection with the employer-employee relationship. Theemployer’s obligation to inform and consult with employees is fulfilled via theemployee organisations. These are the custodians of the rights of all employees to be informed and consulted.

Both the transferor and the transferee are obliged to inform and consult withthe employee organisations before a decision to carry out a transfer of undertaking is taken.

Where a collective agreement applies at the workplace, the duty to inform andconsult is directed towards the trade unions representatives who are bound bythe collective agreement.

If the transferor or transferee are not bound by any collective agreements, theduty to inform and consult should instead be directed towards every tradeunion that has members that will be affected by the transfer.

If there is no applicable collective agreement and all affected employees arenon-unionised, consultation is not necessary.

Generally, the consultation process is, at least initially, more extensive for thetransferor than for the transferee.

4.2 What information must they provide? As a general rule, employers must regularly provide the employee organisations with information about the development of the business inrespect of production, finance and personnel policy guidelines.

There is no legislation stating explicitly what information employers shouldprovide upon the transfer of an undertaking. However, the information shouldinclude, for example, detailed information about the transfer and any, proposed/intended restructuring of the company.

Consultations should also take place if a transfer would result in dismissals forredundancy by either the transferor or the transferee The employer must, indue time before consultation, notify the employee organisations in writing ofthe following:

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An employee affected by a cross-border transfer of undertaking into or out ofSweden should be offered continued employment in the new workplace. Ifthis does not occur the employee can turn to a Swedish court with claimsagainst the transferee. The most likely claim in such a case would be for damages on the basis that in practice they have been unlawfully dismissed.



Provisions concerning the protection of employment in connection with transfers of undertakings are contained in Sections 6b, 7 and 25 of theEmployment Protection Act and in Section 28 of the Co-Determination in theWorkplace Act.

Provisions concerning the obligation to inform and consult are contained inSections 10 – 22 and 28 of the Co-Determination in the Workplace Act.

There may be supplementary provisions in collective agreements that must alsobe observed.


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negotiations (which can sometimes last for some weeks), the decision of theemployer must be postponed, except under special circumstances.

4.4 What happens if an employer fails properly to inform or consult? Failure to inform and consult may render the employer liable to damages orfines. By way of example, according to case law of the Swedish Labour Court,the failure of an employer to consult with employee organisations before making a decision about restructuring may make the employer liable to paydamages to each organisation affected to a maximum of approximately EUR 30, 000.



The employees have the right to object to being transferred. In other words,the transferor and transferee cannot themselves agree that employees willtransfer or not. If the transferor or transferee do not comply with these provisions, employees may claim continued employment with the transfereeor, under certain circumstances, raise claims for unfair dismissal against thetransferee or the transferor.

The transferor and the transferee have an onerous duty to inform and consultwith employee organisations as described in section 4.1.

Transfers of undertakings within the public sector (i.e. the transfer of a governmental undertaking from one public authority to another, privatisationswithin the municipal sector as well as within the governmental sector) constitute transfers falling within the legislation in Sweden.

5.2 What are the main areas of legal uncertainty relating to transfers of undertakings in Sweden?

The scope of the Directive has been vastly extended within Swedish law. Someuncertainty is of course related to the fact that the employees are allowed toobject to being transferred. Another factor that creates uncertainty is the issueof applying the legislation to the public sector, where some of the criteria thattrigger a transfer of undertaking would not normally apply. In addition, thereis the issue of how to interpret the exemptions to the prohibition on redundancies, i.e. when terminations for economic, technical or organisationalreasons may be permitted.

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Switzerland

1. TRANSFERS 269


does not apply? 270














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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? According to the Swiss Code of Obligations (‘CO’) the rules apply if theemployer transfers a business or a part thereof to a third party.

The Merger Law of 2004 further provides that the legislation applies in thecase of a merger, a de-merger or the transformation of a company.


Definition of ‘business/undertaking or part thereof’ The law does not provide a definition of the term ‘business’, but as Swiss legislation has been adapted to European law, the interpretation of the termis closely related to European rules.

An economic entity is considered to be a business or undertaking if the entityconstitutes an organised grouping of persons or assets which has the objectiveof pursuing an economic activity, whether or not that activity is central or ancillary. The term ‘part of a business’ includes branches as well as separateunits of a business which can carry on their activities in the same way after atransfer.

Definition of ‘transfer of business/undertaking’ In accordance with the practice of the European Court of Justice, the transferof a business means the transfer of an economic entity which retains its identity after the transfer. Pursuant to case law of the Swiss Federal SupremeCourt the identity of a business is retained if the purpose and character of thebusiness remain the same, in particular if staff, after completion of the transfer, continue offering the same services to clients.

Hence, the criteria to be considered are that the business unit:

• retains its economic identity• retains its internal organisation • continues to employ the same staff • continues to produce using the same means of production • maintains its business relations with customers.

A court would base its assessment on an overall evaluation of the situationbefore and after the transfer considering the above criteria.

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1.3 Are there any forms of transaction to which the legislation does not apply? The mere transfer of shares in a company (change of ownership) does not constitute a transfer of business under Swiss law.

Further, the legislation does not apply in cases where the employment relationships are governed by public law, i.e. if the transfer involves government entities.


2.1 Who is protected? The rules apply to all employees of the transferred undertaking at the date ofthe transfer, including secondees, apprentices, employees on maternity or sickleave, employees under notice of termination, those on sabbatical etc.

2.2 What if employees object to the transfer? Each individual employee is entitled to object to the transfer of his employment. If he objects, his employment contract will terminate upon theexpiry of the statutory notice period, the contractual notice period being irrelevant in this case. No extra compensation will become due unless agreedin a social plan or in a collective bargaining agreement.

Irrespective of the transfer to the acquiring party, both the employee objectingto the transfer and the transferee must perform their contractual duties untilthe end of the notice period.

2.3 What happens to terms of employment contracts? The employment relationship is automatically transferred to the transfereeincluding all rights and obligations as of the date of transfer, including seniority and years of service accrued.

2.4 What about other employee benefits? Other benefits are transferred too and the transferee must in principle continue the employment contracts as they were agreed between the transferor and the employee. The new employer must compensate theemployee for any benefits that he is not able to offer in kind.

2.5 What happens to pension rights? Any employer in Switzerland must either establish a pension fund for hisemployees as a separate legal entity independent of the sponsoring employer,or enter into an affiliation agreement with a collective pension fund. The assets

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and accounts of a pension fund are entirely separate from the employer's business. As pension funds are not part of the employer’s business, the provisions governing a business transfer have no direct impact on the pensionfund as a separate entity. On the other hand the business transfer may wellhave important consequences for the pension fund, because it can lead to significant changes to the number of persons insured in the pension fund.

With respect to the pension rights of the transferred employee, however,where the employee becomes a member of the pension fund of the transferee,the employee’s funds vested in the pension fund of the former employer follow the employee (termination benefit).

Additionally where a pension fund has to be partially or totally liquidatedbecause a group of transferred employees leave the pension fund of the former employer, the employees have an individual or collective claim to a portion of any non-committed funds (i.e. free reserves) which exist in additionto the (ordinary) claim with respect to the termination benefit. A pension fundmust be partially liquidated if there is a substantial reduction of the workforceor a business restructuring. Should any free reserves be available, the administration committee of the pension fund must establish a distributionplan and determine a ‘fair’ means of distribution.

2.6 What liabilities transfer? The former employer and the transferee are jointly and severally liable for anyclaims by employees which were due prior to the transfer or which willbecome due, up until the date upon which the employment relationship couldhave been validly terminated, or is terminated because the employee objectsto the transfer. Thereafter, the transferee will take on full liability for the transferred employees.

2.7 What if employees are covered by a collective agreement? If a collective employment agreement applies to the employment relationshiptransferred, the transferee must comply with it for one year unless it expiresearlier or is terminated by notice.


3.1 Can employers make changes to employment contracts? Individual employment contracts may be modified prior to or after the transfer. In practice, modifications are frequent if the transferee alreadyemploys other employees. For reasons of uniform treatment of all employees

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No specific time constraints are laid down in the relevant legislation. Accordingto recent court decisions, a consultation period of two to four weeks shouldbe sufficient. The provisions on collective redundancies may apply.

4.4 What happens if an employer fails properly to inform or consult? The Swiss Code of Obligations does not provide sanctions for breaches ofthese obligations by the employer.

However, the new Merger Law provides for extended information and consultation procedures in cases of mergers, de-mergers and the transformation of companies. A company involved in such a transaction mustconsult the employees prior to its becoming effective. In cases of failure tocomply with the consultation procedure, employees may obtain an order by ajudge blocking entry of the merger in the commercial register.



None in particular in addition to the above.


There is controversy as to whether there needs to be a contractual relationshipbetween the transferor and transferee in order to constitute a transfer of abusiness or whether the legislation even applies if there was no legal relationship between the transferor and transferee.

Further, it is a matter of debate to what extent the legislation applies to bankruptcy or composition proceedings.


The question whether the legislation applies in the international context is controversial, but usually the legislation applies if the business or part thereofis located in Switzerland. However, under the Merger Law, the Swiss rules mayalso apply to merger partners abroad.

it is advisable to harmonise the terms of the transferred employees’ contractswith the terms of the contracts of the existing employees.

The offer to modify the employment contracts may be combined with a noticeof termination. Employment contracts of employees willing to be transferredbut not agreeing to modifications will be terminated subject to the contractualnotice period.

3.2 When can employers safely dismiss employees before or after a transfer? As a principle of Swiss Labour Law, either party to the employment contract isfree to give notice subject to contractual or statutory notice periods. Hence, norestriction on dismissals in connection with a transfer of an undertaking is provided for in the Swiss Code of Obligations. Nevertheless, a Swiss districtcourt has recently declared a termination for reason of transfer void by applying European law, pursuant to which a transfer must not constitute thesole reason for a dismissal.


4.1 Who must employers consult?Generally, the procedure to be followed by the employer corresponds to standard European provisions.

Firstly, ‘information’ and ‘consultation’ should be distinguished – the employerneed only consult if measures affecting the employees are planned as a resultof the transfer. Where no such measures are planned, the obligation is toinform. In either case the employer is required to inform/consult the employeerepresentatives, or if none, the employees themselves.

4.2 What information must they provide? The employees must be informed of the reasons for the transfer as well as itslegal, economic and social implications for the employees in due time prior tothe transfer.

4.3 What does consultation involve? The employees or the employee representatives must be consulted in due timeprior to the decision on measures affecting employees such as dismissals,salary cuts, or major modifications of employment conditions (e.g. relocation).This means that consultation must begin prior to the final decision on theexact extent of the envisaged measures.


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Under Swiss law, Articles 333 and 333a of the Swiss Code of Obligations applyto a transfer of an undertaking. The EU Directive has not been implemented inSwitzerland.

The Merger Law also contains certain provisions regarding the information andconsultation procedure in the case of a merger, de-merger or transformationof a company.

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1. TRANSFERS

1.1 When, in broad terms, does the legislation apply? The transfer of an undertaking is regulated by Article 6 of Turkish Labour LawNo. 4857, which has been in force since 2003. The legislation applies whenthere is a ‘transfer’ of an employee’s employment from one workplace toanother. In other words, when there is a transfer in whole or in part, of anyundertaking or business to another employer as a result of a legal transfer ormerger. One can determine that such a ‘transfer’ has taken place when theemployer’s social security number (‘SSK’) changes, whether this is due to physical relocation to a different subsidiary within the same parent companyor by having a completely different employer.

1.2 What specific factors trigger the transfer of an undertaking? According to Article 6 of the Labour Law, a transfer of undertaking can bebased on economic or technological reasons or where a restructuring of theworkplace has taken place.

1.3 Are there any forms of transaction to which the legislation does not apply? Article 6 of the Labour Law does not apply where the transfer of a workplaceor a part of it is to another legal person that is subject to liquidation as a resultof insolvency.


2.1 Who is protected? All workers defined as ‘employees’ under the Labour Law, who are subject toa ‘transfer’ of their employment as defined above, are protected. According toArticle 2 of the Labour Law, an employee is an individual who works based onan employment agreement. Note that it is not mandatory for an employmentagreement to be in writing unless the employment is for over a year. By Article6 all employment agreements of each department or office to be transferred,existing on the date of the transfer, will be transferred.

2.2 What if employees object to the transfer? An employer does not require consent from an employee in order to carry outa transfer in accordance with Article 6 of the Labour Law. Moreover, for example if an employee objects to a transfer and does not attend work for twoconsecutive days or for two days (excluding holidays) within one month inprotest to the transfer without having obtained the permission of the transferee,this will be considered justified grounds for dismissal, under Article 25/II of theLabour Law.

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3.1 Can employers make changes to employment contracts? According to Article 22 of the Law, any changes to employment conditionsmust be favourable to the employee and the employer must obtain writtenconsent from the employee for any material changes, such as to working conditions.

3.2 When can employers safely dismiss employees before or after a transfer? Once the fact of a transfer is known, the dismissal of an employee before thetransfer is carried out may be problematic. In Turkey, in such a situation,whether the reasons for termination were ‘justified’ or ‘valid’ will be moreclosely scrutinised.

The reasoning behind termination of an employment contract after transferhas taken place remain the same: the new employer must establish a ‘valid’ or‘justified’ reason for termination as defined in law. Again, if a transfer hasrecently occurred, the reason for termination will be more closely scrutinised.


4.1 Who must employers consult?As a general rule, there is no need to obtain consent from any authorisedbody. In addition, according to Article 6 it is not mandatory to inform theemployees of the transfer. However, it is of course good practice to do so.

4.2 What information must they provide? There is no requirement to provide information of any kind (see section 4.1above).

4.3 What does consultation involve? There is no requirement to consult (see section 4.1. above).

4.4 What happens if an employer fails properly to inform or consult? There is no requirement to consult (see section 4.1. above).

If the rights and benefits of the employee have not been retained followingtransfer and the employee has not consented to the changes in his or heremployment agreement, he or she may terminate the employment agreementand will be entitled to severance pay and possibly other compensation relatingto salary.

2.3 What happens to terms of employment contracts? The terms of the employment contracts will be unaffected and will be bindingon both the employee and the transferee on completion of the transfer.

2.4 What about other employee benefits? All benefits arising from the Labour Law, the Social Security Law and theemployment contract will continue to remain in force with the transferee andthe transferee must satify the requirement to provide all the rights and benefits that were granted to employees by the transferor. If however thetransferor provided a benefit that the transferee is unable or unwilling to continue, the transferee may try to obtain the written consent of the employees to stop providing this benefit.

2.5 What happens to pension rights? Any private or public pension rights of employees as provided by the transferor will remain intact and the transferee will be required to fulfil thoseobligations.

2.6 What liabilities transfer? According to Article 6 of the Law, the transferor and transferee are jointlyliable for the liabilities to transferred employees which are due as of the dateof transfer. The transferor will remain liable to the employee for up to twoyears following the date of transfer for those benefits acquired up to that date.The transferee employer is liable as of the date of transfer to continue to provide the same benefits that the employee enjoyed up until the date oftransfer.

2.7 What if employees are covered by a collective agreement? The collective agreement will be transferred to the transferee employer. Thetransferee will be bound to the transferred collective agreement until it expires.After expiry the agreement may be renewed and if so the transferee will thenbecome a party to the collective agreement.

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As stated above, Article 6 of Law No. 4857 provides rules which are in line withEU acquired rights, albeit that such notions of preserving employees’ rights inthe event of transfer were recognised under previous legislation.


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Transferred employees have a right to be informed that the employer’s liabilities and obligations arising from their employment agreement, theTurkish Labour Law and Social Security Law will continue to remain in force.Their seniority, social rights and benefits will be calculated from the beginningof their employment with the transferor.


Article 6 of the Law relating to transfer of undertakings has been effectivesince 2003. Prior to 2003, the issues surrounding transfers of liabilitiesbetween the transferor and transferee were unclear. However, since the enactment of Article 6, issues regarding the transfer of liabilities of employershave been clarified.

Although much has been made clearer by the legislation, there still remainsome areas of uncertainty, but Supreme Court decisions often provide guidance on these areas.


The Law will apply to foreign employees transferred to Turkey. However, forthose employees subject to the Law who are sent abroad, the respective country’s labour laws will apply. The only exception to this rule is for temporary assignments (secondments).

The existence of a social security agreement between the Turkish Governmentand the government of the respective country must be taken into consideration. If such an agreement exists, there are two possible outcomes:

• if a Turkish employee goes abroad, the social security premiums paid in therespective country must be maintained in Turkey or visa versa

• if a foreign employee comes to work in Turkey, then the social security premiums paid in his or her own country must be maintained in Turkey orvisa versa.

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1.1 When, in broad terms, does the legislation apply? The Transfer of Undertakings (Protection of Employment) Regulations 2006(‘TUPE’) applies:

• on the transfer of an economic entity which retains its identity (e.g. the sale of a business); and

• on a ‘service provision change’ (contracting activities out, bringing them in-house, or changing contractors).

In general terms, the UK has a more extended view of what amounts to a qualifying transfer than in most if not all other EU member states.


Transfer of economic entity A transfer of an economic entity occurs most clearly where there is a sale of abusiness. A business typically comprises assets such as premises, equipment,customers, staff and goodwill. If those are sold and the business is continued,transfer of an economic entity has taken place.

‘Transfer of an economic entity’ is, however, wider than the sale of a business.An economic entity means ‘an organised grouping of resources which have the objective of pursuing an economic activity’. The activity may be central (e.g. manufacturing products) or merely ancillary (e.g. cleaning a manufacturing plant). To apply the rules on the transfer of an economic entity, one must identify the undertaking and then consider whether it hastransferred and retained its identity. Retention of identity after a transferdepends on factors identified in European Court of Justice decisions, including:

• whether tangible assets have been transferred • the type of business or undertaking concerned • the value of intangible assets at the time of the transfer • whether the majority of employees are retained • whether customers are transferred • the similarity between the activities • the duration of any gap in the performance of the activities.

None of these factors is decisive and the absence of any one factor is not fatal.An overall assessment should be made. For there to be a transfer of an economic entity, there must be some organisational coherence to the businessor activity concerned.

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Share sales are not covered by TUPE but if, as often happens, a share sale isfollowed by an intra-group transfer, then that will trigger the application ofTUPE.


2.1 Who is protected? TUPE applies only to employees. Further, TUPE does not normally coveremployees seconded to the transferor from a different company (e.g. a holding company), though tribunals in the UK increasingly view such arrangements with suspicion and are likely to find a device to transfer secondees assigned to the undertaking which is transferring.

TUPE applies to employees ‘assigned’ to the relevant organised grouping ofresources or employees. Whether an employee is so assigned depends on:

• the proportion of time spent within the entity transferring as compared toother parts of the business

• the value given to each part by the employee• the employee’s job description and • how the employer allocates the costs of the employee’s services.

There are uncertainties concerning the effect of TUPE on employees workingonly temporarily within the part of the undertaking transferred and employeeswhose duties are only partly in the undertaking to be transferred.

2.2 What if employees object to the transfer? Employees have a right to object to being transferred, but this brings theemployment to an end without a dismissal. In effect, the employee leavesemployment without any remedies for the ending of the employment contract.

Termination as a result of the employee’s objection will be treated as a dismissal only where:

• the transfer involves a ‘substantial change in working conditions to the material detriment’ of the employee (which gives rise to limited claims) or

• the transfer involves a major detrimental change in terms and conditions amounting to a serious breach of contract (‘constructive dismissal’).

The employees’ rights may, depending on the circumstances, be exercisableagainst the transferor as well as the transferee.


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‘Retention of identity’ does not mean that things have to continue exactly asthey did before. If many of the activities and customers are the same and staffare still required, that is often enough. On the other hand, if a business oroperation is split up into parts so that some of the operation goes to one partand some to another, this may mean there is no retention of identity, particularly if it is not clear to which part an individual would transfer.

Although the European Court of Justice has held that the Directive does notapply to a local government re-organisation, this will normally constitute atransfer falling within TUPE. TUPE also applies to a transfer from one subsidiaryto another within the same corporate group.

Service provision change The requirements for a service provision change are more straightforward.Service provision change occurs when activities are:

• contracted out by a business to a contractor for the first time • moved from one contractor to another or • brought ‘in house’ by the business.

The rules apply when, before the change, there is an organised grouping ofemployees with the principal purpose of carrying on the activities. A singleemployee can be an organised grouping. There are some exceptions to theconcept of service provision change. Activities not normally covered include‘one-off’ buying-in of services, a contract for short-term services, and activitiesmainly related to the supply of goods for the client’s use.

1.3 Are there any forms of transaction to which the legislation does not apply? It is difficult to take steps to avoid the application of TUPE, and not normally auseful exercise. A business and a contractor cannot decide between themselves that they will not apply TUPE. Courts and tribunals will look behindobvious avoidance attempts.

On the other hand, there are many circumstances in which TUPE applies in theory but it does not suit anyone to apply it. For example, where an advertising agency loses an account to another agency, TUPE is likely to applyif there are employees dedicated to the account. But the agency losing theaccount will probably not want to lose its staff, the agency winning theaccount will not want to take on staff, and the staff themselves will probablywant to stay with their existing employer. Also, the client company has probably changed agencies for a reason and is unlikely to want the same staffworking for it at the new agency. In these circumstances, TUPE will sometimesbe ignored for practical purposes.

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respect of unlawful discrimination by the transferor, accrued holiday rights orunpaid bonus. The transferee also assumes responsibility for outstanding personal injury claims and for claims for failure to inform and consult aboutthe TUPE transfer itself. There are a few exceptions to this rule. Criminal liabilities and obligations to withhold income tax from pay do not transfer. Thetransferor is jointly and severally liable with the transferee for any failure toinform and consult about the transfer, but only to the extent that the transferorhas breached its own duties under TUPE in this respect.

2.7 What if employees are covered by a collective agreement? TUPE provides that collective agreements with a recognised trade union willpass to the transferee. The transfer of a collective agreement may be of importance where it confers individual rights. UK cases had held that rights tocentrally negotiated pay rises would survive transfer to an employer not partyto the relevant agreements, but this has been contradicted by a EuropeanCourt of Justice ruling that employees’ rights to collectively agreed terms are‘static’ rather than ‘dynamic’. Employees only get the benefit of whatever hasbeen negotiated at the date of the transfer. Where a transferred undertakingmaintains a distinct identity, a trade union previously recognised in respect oftransferred employees is deemed to be recognised by the transferee.


3.1 Can employers make changes to employment contracts? The basic rule is that no detrimental variation of any contractual term by reason of a transfer or for a connected reason is permitted, even when anemployee consents. Because consent is effectively invalid, employees can subsequently claim pay or benefits which they expressly agreed to waive, backto the date of transfer.

It is, however, permissible for employees to contract out of the protectionafforded by TUPE provided the variation is:

• for a reason connected with the transfer and • for an economic, technical, or organisational reason entailing changes in

the workforce (‘ETO reason’).

These hurdles are difficult to clear. Most employers want to change terms andconditions after a transfer to ‘harmonise’ the transferring employees with theterms of their existing workforce. This is likely to be regarded as ‘by reason of the transfer’ not ‘for a reason connected with the transfer’, and so void. For the exception to apply, the employer is likely to have to show further


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2.3 What happens to terms of employment contracts? The new employer ‘steps into the shoes’ of the old employer for most purposes, as if it has always been the employer of the individual concerned.All rights and obligations under the employment contract transfer to the newemployer except for certain pension rights.

2.4 What about other employee benefits? Past employment with the transferor will count as ‘continuous employment’with the transferee. (Qualification for certain statutory employment rights inthe UK, for example unfair dismissal, is dependent on the employee having aspecified period of continuous service.) The new employer is theoreticallyobliged to replicate all other benefits. But this can be difficult in relation tobonuses, commission, profit share schemes or share options.

In such cases, the courts generally require new employers to provide schemesof broad equivalence.

2.5 What happens to pension rights? Many pension entitlements go across under TUPE in the same way as any otherbenefit. This applies to defined contribution schemes such as personal pensionschemes, group personal pension schemes and ‘stakeholder’ schemes. So ifthe transferor paid 10% of the employee’s salary into a personal pensionscheme, that obligation is binding on the transferee.

Occupational pension schemes are different. If an employer has set up a pension scheme itself with trustees, the transferee is not obliged to replicateit. The transferee can either admit transferred employees to its own occupational pension scheme or make a contribution to a stakeholder scheme.In either case, broadly, the transferee must be prepared to pay up to 6% of theemployee’s salary to such a scheme and can only require the employee tomatch contributions up to a maximum of 6% of salary. Employees generallylose out in this scenario, particularly if their former occupational scheme wasa defined benefit one. Some rights under occupational pension schemes dostill transfer under TUPE. This includes schemes conferring enhanced pensionbenefits upon early retirement due to redundancy. As almost all occupationalpension schemes include early retirement benefits, a transferee may find itsafer (though expensive) to replace occupational pension entitlements with anequivalent scheme.

2.6 What liabilities transfer? The transferee will be liable for all claims made by transferring employees,whether made before or after the transfer, and including claims in respect ofany acts or omissions of the transferor. So for example, claims may be in

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reasons – for example, the need to re-qualify staff to use different machinery.The second requirement is also difficult to show because UK case law interprets ‘ETO reason’ very narrowly. Changes in job functions may be an ETOreason, but that is about the only permissible variation. In summary, the TUPEprovisions on changing terms are highly restrictive and far less flexible than inother EU countries.

There is another route for a transferee to change terms and conditions. Thetransferee can dismiss employees and offer continuing employment on newterms. But the dismissed employees might then claim unfair dismissal, and a transfer-related dismissal in these circumstances would probably beautomatically unfair. In some cases, though, employees may be willing towaive such claims under a binding compromise agreement.

It may also be possible to ‘red circle’ the terms and conditions of the employees who transfer under TUPE until the link between the variation interms and the transfer is broken. This may take some time: in one case the linkwas not broken after a period of two years.

Finally, if a transfer involves ‘substantial change in working conditions to thematerial detriment’ of an employee, he or she may treat the employment asterminated and this is considered to be a dismissal. Employees are also entitledto treat themselves as dismissed in response to a serious breach of contract bytheir employer (‘constructive dismissal’).

3.2 When can employers safely dismiss employees before or after a transfer? The transferor or transferee may dismiss employees for reasons connectedwith the transfer. Such dismissals will be effective but employees with over oneyear’s service may be entitled to compensation for unfair dismissal. (The maximum award is in the region of EUR 90,000.)

There are three categories of dismissal under TUPE, those:

• mainly by reason of the transfer, or a reason connected with the transfer that is not an ETO reason – these are automatically unfair

• for an ETO reason connected with the transfer – these are potentially fairif the employer acts ‘reasonably’ under unfair dismissal rules (following proper procedure, consulting etc) and

• unconnected with the transfer – fair or unfair according to normal unfair dismissal rules.

An ETO reason must relate to the conduct of the business and entail changesin the workforce (i.e. it must relate to the overall number or functions of the

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employees). A desire to obtain a higher price for the business or to cut wagesto provide a service at a lower cost would not constitute an ETO reason.Genuine redundancy is likely to be an ETO reason if the transferee can oper-ate the function with fewer employees. An ETO reason may also be establishedif a change in business operations creates a need for skills which the dismissedemployee did not have.


4.1 Who must employers consult? Employers must inform and in some cases consult ‘appropriate representatives’of employees affected by a business transfer. These are either:

• representatives of a trade union recognised in respect of affected employees or

• in any other case, employee representatives appointed/elected by affectedemployees.

Employee representatives can be either:

• previously appointed or elected by the affected employees with authority to be informed/consulted in the context of TUPE or

• (more often) specifically elected to consult and receive information for TUPE purposes. Detailed requirements govern elections for these representatives.

4.2 What information must they provide? They must provide information about:

• the fact of the transfer, when it will occur and the reasons for it• any legal, economic and social implications for affected employees and • any ‘measures’ envisaged in connection with the transfer in relation to

affected employees.

‘Affected employees’ may include those who do not transfer. Informationmust be provided ‘long enough before the transfer to enable the employer toconsult’ the representatives.

Employee liability information TUPE 2006 requires the transferor to give the transferee, at least two weeksbefore the transfer, ‘employee liability information’ on:

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If a transferor fails to comply with the rules on providing ‘employee liabilityinformation’, an employment tribunal may order it to pay compensation to thetransferee.



There are three main issues worth highlighting (each of which has been discussed above).

First, UK law takes a significantly more liberal view of when TUPE applies thando most other EU member states and the European Court of Justice on thescope of the Directive. This culminated with the reform of TUPE in 2006 toensure its application to almost all service provision changes, the idea being topromote certainty, create a ‘level playing field’ for contractors and reducetransaction costs.

Second, there is the UK’s highly restrictive regime on making changes toemployment contracts in the context of a transfer. UK employers are oftenunable to make legally binding changes to terms and conditions even ifemployees would agree to them.

Third, note the significant potential liabilities of transferees for the occupationalpension scheme rights of transferring employees. In addition, public sectorprocurement requirements generally require employers inheriting staff frompublic sector bodies to provide pensions equivalent to those in the public sector.


These concern the following aspects of the revised TUPE Regulations introduced in April 2006:

The scope of exemptions for (1) ‘one-off’ buying in of services from a contractor of ‘short-term duration’; and (2) contracts for the supply of goodsrather than services, is not entirely clear and is likely to be tested in the courts. The provision allowing employees to treat themselves as dismissed where thereis a ‘substantial change in working conditions’ to their ‘material detriment’may leave employers vulnerable to claims long after a transfer has taken place.


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• the identity and age of the employees within the scope of the transfer• the ‘statement of employment particulars’ or a contract containing the

relevant information• any relevant collective agreements• any disciplinary action or grievances within the preceding two years• any legal proceedings brought by the relevant employees against the

transferee in the preceding two years and • any legal claims which the transferor has reasonable grounds to believe an

employee may bring.

4.3 What does consultation involve? The duty to consult arises only if the employer envisages taking measures inrelation to affected employees. If no measures are envisaged, the obligation ismerely to provide information.

Where measures are envisaged, the employer must consult the appropriaterepresentatives ‘with a view to seeking their agreement to the measures’. The employer must actively engage with the representatives, consider representations made and reply to them. If the employer rejects representations, it must give its reasons.

4.4 What happens if an employer fails properly to inform or consult? A complaint may be made to an employment tribunal within three months ofthe transfer:

• about the election of employee representatives, by any of the affected employees

• about any other failure regarding employee representatives, by any of therelevant employee representatives

• in the case of a failure regarding trade union representatives, by the tradeunion or

• in any other case, by any affected employee.

Liability is likely to transfer to the transferee. If an employment tribunalupholds a complaint of failure to inform/consult, it makes a declaration to thateffect and may order the employer to pay ‘appropriate’ compensation to theaffected employees. This can be up to 13 weeks’ pay, and is known as a ‘protective award’. Transferor and transferee are now jointly as well as individually liable to pay any penalty incurred, to the extent that it arises froma breach of the transferor’s duties.

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Finally, it remains to be seen how the provisions on ‘employee liability information’ will operate. Only the transferee is entitled to receive the information and there is no obligation to provide it to bidders in a tenderingprocess. Contractors will have difficulty pricing their bids if the client companydoes not have the employee liability information and the incumbent contractor refuses to volunteer it.


TUPE applies to the transfer of an undertaking (or part) ‘situated immediatelybefore the transfer in the United Kingdom’, so TUPE would not apply to atransfer into the UK (though transfer legislation of the country from which theundertaking was transferred might apply). As soon as the undertaking relocated to the UK its employees would become entitled to the full panoplyof UK statutory employment rights.

With regard to the transfer of an undertaking out of the UK, there is nothingin principle to prevent TUPE applying when the transferee is located abroad(inside or outside the EU). That said, there might be a possible argument thatthe geographical relocation of an undertaking prevents it from 'retaining itsidentity' under the test for identifying a TUPE transfer – unlikely to succeed. In practice, the workers would probably not wish to transfer abroad and wouldprobably not envisage making claims against the transferee. Indeed, they have a particular incentive to argue that TUPE does not apply in this case – something a UK-based transferor should watch out for.

Given the uncertain legal position, it would be advisable for the parties to across-border transfer into or out of the UK to negotiate suitable indemnities.



The Transfer of Undertakings (Protection of Employment) Regulations 2006(‘TUPE’) replaced the Transfer of Undertakings (Protection of Employment)Regulations 1981, and marked a significant reform. In particular, TUPE 2006applies to almost all outsourcing transactions and changes of service provider.

Provisions relating to occupational pension rights are contained in the Transferof Employment (Pension Protection) Regulations 2005.

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NOTES

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