The employment implications of the transfer of a business are regulated by sec. 613a German Civil Code (Bürgerliches Gesetzbuch – BGB). A transfer of a business takes place where an economic entity is transferred by a legal transaction and the economic entity is continued by the new owner of the business.

In order to determine whether such continuation occurs the courts have set various criteria,depending on the nature of the business being transferred. For example, where the business creates most of its value from the operation of machinery (e.g. an automobile plant), the transfer of those machines is normally the decisive factor in determining whether a transfer of a business takes place. With regard to a service-dominated company (e.g. cleaning contractors), the transfer of a predominant number of the staff will most likely be the decisive criterion.

A transfer of a business leads to a legally binding transfer of all of the contracts of employment of the transferred entity from the former employer to the new owner of the business. According to sec. 613a (1) BGB, the new owner enters into the rights and obligations arising from the employment relationships in existence at the time of the transfer. Generally, this means that the employment relationship continues with the same rights and obligations as before the transfer of the business. Even the rights and obligations in collective bargaining agreements and works agreements principally cannot be altered by the new owner to the detriment of the employees until one year has elapsed following the transfer of the business (sec. 613a (1) sentence 2 BGB). However, such collective bargaining agreements and works agreements can be replaced by existing or newly concluded agreements with the same regulatory scope. In addition a notice to terminate one of the transferred employment agreements given by the new owner by reason of the transfer of the business is void (sec. 613a (4) BGB).

After the transfer of the business has been concluded, the former owner remains liable for the obligations in relation to the transferred employees if the claim arose before the transfer of the business (sec. 613a (2) BGB).

According to sec. 613a (5) BGB, the affected employees have to be informed in writing by the former employer or the new owner about the transfer of their employment. Such information has to include the date or the envisaged date of the transfer, the reason for the transfer, the legal, economic and social ramifications of the transfer for the employees and the proposed measures to be taken in relation to the employees.

If the information presented to the employees is both complete and accurate, the employees have one month to decide whether they want their employment to transfer to the new owner or not. Where an employee decides not to transfer, he has the right to remain with his former employer. However, in such a case the former employer may be allowed to give notice to the employee if he is not able to continue employing his former employee (for example, because his whole business has been transferred). If the former employer has ceased to exist the employee who decides not to work for the new owner is granted a right to extraordinary termination.

If the information presented to the employees in the information letter is insufficient or false, the German courts have granted the employees an indefinite right to object to the transfer of employment if the transferor company still exists or a right to extraordinary termination if the transferor company has ceased to exist. The indefinite right to object to the transfer of a business can lead to a return of former employees to the transferor company even years after the business has transferred.

If the new owner is reluctant to continue employing the employees who have been transferred even though he is legally obliged to do so, the affected employees can claim the continuation of their employment with the new owner in the labour court.

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