In Germany, where there is a transfer of business, only the employees who belong to the relevant transferred entity automatically transfer to the new employer.
How would you decide the following case? A company offered call-answering services and back office activities. All employees of the company performed both services. The company decided to split the business into two parts: (i) the call-answering department and (ii) the back office department, and in doing so to relocate some of the employees to the call-answering department and the rest of the employees to the back office department. The business of the call-answering department was transferred to one new company and the business of the back office department to another. These transfers of parts of the business led to an automatic transfer of the employment contracts by law to the respective companies according to the German regulations on the transfer of business.
A little bit of legal background: Under German law, employees who are transferred to another company automatically by operation of law may object to their transfer. If they object, their employment relationships do not transfer to the “new” company but remain with the “old” company. Invariably, however, the old company is no longer able to employ the employees who have objected as in most cases the business concerned has been closed. If this is the case, the employment relationships can be terminated on grounds of redundancy.
Returning to our example: An employee who was relocated to the back office department objected to his transfer to the new company. The old company terminated the employment contract because it had closed down its back office activities. However, the employee claimed to be part of the call-answering department which was transferred to another company. He therefore claimed to be an employee of this other company.
Decision of the Federal Labour Court: The company which had taken over the call-answering department was not obliged to employ the objecting employee. The old company had been able to split up the business and to relocate employees to either of the departments, because the part of the business in which an employee worked was not fixed by his or her employment contract or any informal arrangements. In addition, the relocation was in accordance with the reasonable discretion (“billiges Ermessen”) exemption. What this means is that if relocation is not prohibited by the employment contract, the employer is – within the limits of reasonable discretion – free to decide which services shall be performed by which employee and in which department. Therefore the employee was not entitled to require a transfer to the call-answering company.
Conclusion: If prospective purchasers want to take over only a part of an existing business (e.g. by way of an asset purchase agreement) but do not want to take on all of the existing employees, the planning of the business transfer takes on even more significance and the possibility of relocating the employees should be taken into consideration well in advance of the transfer.