Germany

    1.1 In what circumstances does the employee transfer law apply?

    The employee transfer law applies to:

    • the transfer of an undertaking or part of one, which is an economic entity retaining its identity; and
    • mergers and splits.

    ‘Entity’ means an organised group of persons and assets facilitating an economic activity with a specific objective. Part of a business will be subject to the rules if it is autonomous, organised to be separable and only performs particular functions within the whole business.

    The entity must retain its identity despite transferring. There is a transfer if the means to manage the business effectively transfer and its activities can continue as before.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    1.2 Does the employee transfer law apply to (a) a sale of a business or (b) outsourcing?

    (a) Sale of a business

    The rules merely refer to the transfer of an economic entity by agreement. Therefore, sale contracts (i.e. asset deals) are within the rules. In addition, lease contracts and tenancy agreements are also within the rules. However, there is no requirement that a transfer must involve a contractual relationship directly between the transferor and the transferee.

    In principle, the employee transfer law does not apply to the transfer of shares. Nor does it apply to the mere succession of a function with no connection with a transfer of assets or staff.

    (b) Outsourcing

    The most usual type of outsourcing, namely the transfer of a task to a contractor, usually does not trigger employee transfer law if the contractor does not take over employees or working equipment and assets. However, in the labour-intensive sectors especially, a group of employees engaged in a joint activity on a permanent basis may constitute an economic entity. Thus, if a company outsources part of its business to a contractor that also employs a substantial portion of the employees of the transferor to perform the services, this might trigger employee transfer law.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    1.3 In outline, what are the implications of the employee transfer law?

    If the employee transfer law applies:

    • all employees engaged in the transferred undertaking at the date of the transfer are protected by law;
    • the transferee takes on all rights and obligations resulting from the employment relationships in existence at the time of the transfer;
    • collective bargaining agreements and works agreements transfer;
    • the transferee assumes all liabilities vis-à-vis transferred employees whilst the transferor remains (jointly and severally with the transferee) liable for all obligations under the employment relationship which arose prior to the transfer and fall due within one year of the transfer;
    • the dismissal of an employee either by the transferor before the transfer or by the transferee after the transfer is invalid if the transfer was the main reason for the dismissal;
    • the transferor and transferee must inform every individual employee about the transfer;
    • the employees are entitled to object to the transfer.
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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.1 Who transfers?

    All employees with employment contracts existing at the time of the transfer are included in the transfer, even short-term workers and employees with ‘de facto’ employment relationships and dormant ones (e.g. workers on maternity leave and paid parental leave). Employees who would have been employed in the undertaking if they had not been unfairly dismissed for a reason connected with the transfer are also included.

    Retired employees are not included. Also, managing directors of limited liability companies and members of the boards of directors of stock corporations are not covered.

    If only part of a business is transferred, employees will only fall within the rules if they worked within the economic entity transferred. This should be determined by considering:

    • the person’s contract;
    • the job description;
    • integration in the work organisation;
    • the actual time spent working in this part of the business; and
    • the allocation of costs.
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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.2 Can employees object to transferring?

    Employees are entitled to object to the transfer without giving a reason for this decision. If an employee objects, the employment relationship will continue with the transferor.

    After receipt of notification of the transfer, the employee must object within a one month period in writing, addressed either to the transferor or the transferee. This one month period applies irrespective of whether the information is given before or after the transaction has taken place. The one month period only starts to run if a valid notification has been delivered, i.e. one which follows the prescribed format and content.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.3 What happens to terms of employment contracts?

    If an undertaking is transferred, the transferee is bound by all rights and obligations resulting from the employment relationships in existence at the time of the transfer.

    Rights which depend on the duration of the employment relationship with the transferor are also an integral part of the relationship to the transferee. The employee is deemed to have been employed by the transferee since the beginning of the employment relationship to the transferor.

    However, the transferee need not treat the employees transferred and its existing employees on equal terms. The transferee is not obliged to harmonise working conditions.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.4 What about other employee benefits?

    The transferee must honour benefits granted by the transferor (e.g. bonuses, company cars, employee stock options and pension entitlements). If benefits are hard to transfer (e.g. profit share schemes) it must either grant them or, if it cannot, compensate the employees.

    The transferee need not offer products produced by the transferor to employees for less than market price unless it still produces them.

    The transferee counts each employee’s seniority at the transferor for notice periods, annual leave, dismissal protection and for redundancy and salary increases. However, it is not taken into account for annual increases only granted by the transferee.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.5 What happens to pension rights?

    The transferee is liable for pension commitments made by the transferor and the resulting forfeitable or non-forfeitable benefits. In other words, the transferee must take over all pension obligations of the transferor and fulfil the employees’ pension entitlements when they fall due, regardless the type of scheme involved (e.g. whether it is a defined contribution or defined benefit scheme).

    In the case of direct insurance, the vested pension rights remain unchanged and will be continued by the transferee. If the transferee cannot continue the former pension commitment (e.g. the transferee cannot enter into the contractual relationship with a pension fund because of bylaws), it must offer the transferred employees an alternative comparable pension.

    The transferee is not liable for the pension entitlement of employees who have already retired at the time of the business transfer, or for non-forfeitable benefits of employees whose employment terminated before the transfer.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.6 What liabilities transfer?

    The transferee assumes all liabilities vis-à-vis transferred employees, but the transferor remains jointly and severally liable for all obligations under the employment relationship that arose prior to the transfer and fall due within one year after the date of the transfer. Where obligations become due after the date of the transfer, the transferor is liable, but only for the proportion of the total assessment period that reflects the time elapsed before the date of the transfer.

    The transferor and the transferee are not entitled to limit their liability vis-à-vis employees by agreement. However, they are free to allocate the financial risks arising from their joint and several liability and to negotiate indemnities.

    Note, that as there is no possible criminal liability for businesses under German employment law, no transfer of any such liability can occur. Criminal liability for individuals does not transfer.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.7 Do collective agreements transfer?

    If the employment relationships are subject to a collective bargaining agreement or a works agreement, the transferee is bound by it. The provisions will often be transposed into individual employment agreements and cannot be modified to the employee’s detriment for one year from the date of the transfer. Thereafter, any changes to a works agreement whose provisions are transposed into individual employment contracts, must be agreed with every individual. If collective agreements remain unchanged, any later modifications should be made collectively.

    A collective bargaining agreement might remain unchanged for trade union members if the transferee is a member of the same employer’s organisation that signed the agreement or if the agreement is generally binding in the sector. A works agreement may remain effective if the business identity is maintained, unless its provisions are covered by another agreement or the old collective agreement has terminated vis-à-vis the transferor following the transfer.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    2.8 How does the transferee obtain information on transferring employees?

    Usually, the transferee will conduct a due diligence before or during the negotiations. It will examine, analyse, and evaluate the business processes and legal relationships in details. The transferor will normally agree, as part of this, to provide copies of the employment files to the transferee, including a list of transferring employees.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    3.1 Can employers make changes to employment contracts?

    Generally, without the consent of the employee, no changes can be made to the employee agreements. The transferee and the employee may amend the terms and conditions of individual employment contracts immediately following the transfer, e.g. the transferee can agree to pay the employee less salary in the future. However, if the employer did not inform the employee of the transfer before the agreement to change the terms of his or her employment contract is made, the employee may rescind the agreement for wilful deceit. If the employee does not agree, the employer can try to modify the working conditions via a so-called ‘termination for altered working conditions’. The conditions for such a termination are quite strict and, in terms of changes to salary, for example, can only be done if the company is close to insolvency.

    Rights resulting from a collective agreement must not be amended during the first year after the transfer with certain exceptions.

    If the transferee wishes to harmonise working conditions, this can be achieved by agreement with employees. If an employee does not consent to the change, a so-called ‘termination for altered working conditions’ may be used as a means of harmonisation. However, note that in general, the principle of equal treatment cannot be used to justify the harmonisation of working conditions.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    3.2 When can employers safely dismiss employees before or after a transfer?

    The dismissal of an employee either by the transferor before the transfer or by the transferee afterwards is invalid if the transfer was the main reason for the dismissal. Transfer does not in itself constitute grounds for dismissal.

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

    The same applies if an employment relationship is modified to the 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 offer by the transferee under less favourable terms and conditions.

    If the dismissal by the transferor was effective because of compelling business reasons (e.g. closure of the undertaking) and the opportunity for the transfer arose during the period of notice, the employee may still claim to be reinstated. It is still in dispute whether this right also exists if the notice period has expired before the transfer. In any event, the employee must claim to be reinstated within three weeks of gaining knowledge of the transfer.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    4.1 Who must employers consult?

    The transferor and transferee must inform every individual employee about the transfer – it is not sufficient to inform the employee representatives.

    There is no obligation to inform or consult the unions, but there are three types of representatives of employees that may be involved: the works council, the economic committee and the spokespersons’ committee, and, if so, these must be informed and consulted. 

    Note that companies with more than 100 regular employees must establish an economic committee. In businesses with more than ten managerial employees, those employees may elect their own representation, known as the spokespersons’ committee.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    4.2	What information must they provide?

    Either the transferor or the transferee must inform each employee affected by the transfer in writing of:

    • the date or proposed date of the transfer;
    • the reason for the transfer;
    • the legal, economic and social implications for employees;
    • the measures envisaged in relation to employees.

    In companies with more than 20 regular employees the employer must inform the works council and provide any information necessary for the works council assessing the change. The employee may also have to inform the spokespersons’ committee and the economic committee.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    4.3	What does consultation involve?

    The works council and the employer must try to agree a ‘reconciliation of interests’ and, if necessary, a social plan.

    In relation to the reconciliation of interests, they will stipulate, if, when and how the planned operational changes will be implemented. In relation to the social plan, they must agree on a mitigation of financial disadvantages suffered by the employees.

    If no agreement is reached on either aspect, the parties may request the Governing Board of the Federal Employment Agency to mediate. If no agreement about the social plan is reached, the conciliation board will make the final decision.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    4.4	How long does consultation last?

    Typically, the consultation lasts between two to six months, depending on the operational changes. The parties try to agree in the first three months, but if no agreement is reached, negotiations with the conciliation board take place in the following three months.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    4.5	What happens if an employer fails properly to inform or consult?

    Failure to negotiate a reconciliation of interests may result in claims by employees for compensation.

    If the transferor fails to inform and consult with the works council an administrative fine of up to EUR 10,000 in total could incur. Moreover, failure to inform and consult may prevent the implementation of the transfer, if the works council applies for a preliminary injunction.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    5.1	Identify up to three issues in this country of which employers should be aware?

    A transfer does not necessarily affect the representation of employees. If the undertaking is transferred as a whole, the works council continues as before. If the undertaking loses its identity, a transitional or remaining mandate for the works council may exist. If part of a business transfers, the transferor’s works council will continue provided the identity of the remaining business is maintained. As to the transferred part, the transferor’s works council may have a transitional mandate if the transferred business continues independently. If part of a business transfers and the transferor´s business loses its identity, the works council will have a transitional mandate.

    Note there are obligations to inform and consult the works council, the economic committee and the spokespersons’ committee of transfers, but none vis-à-vis trade unions.

    Where the transferor or transferee plans collective dismissals before or after transfer, it must notify the competent agency. Otherwise, any terminations will be invalid.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    5.2	Would the employee transfer law apply on a cross-border transfer into or out of this country?

    In the case of a transfer from abroad into Germany the law of the state where the undertaking was domiciled before the transfer applies.

    On a transfer from Germany to an EU member state the employee transfer law will apply if the undertaking was domiciled in Germany and German law applied to the employment contract. The employees cannot be employed in Germany because of the relocation abroad. They cannot be forced to work abroad unless their employment contracts contain a relocation clause. Therefore the foreign transferee will need to terminate the employment contracts and offer re-employment in order to change the conditions.

    After the transfer abroad, foreign collective bargaining agreements might replace the individual contracts. Foreign public law might also take priority, for example, social security law and protection in the case of pregnancy.

    If the undertaking is transferred into a state outside the EU, the employee transfer law does not apply.

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

    6.1	What are the main national laws protecting employees upon transfers of businesses?

    The German implementation of the Acquired Rights Directive is section 613a BGB (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’ committee according to section 32 SprAuG (Spokespersons’ Committee Act).

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    Author: KLIEMT. HR Lawyers

    Date: January 2017

     

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