Luxembourg

    1.1 In what circumstances does the employee transfer law apply?

    For the transfer of undertakings law to apply, there must be a transfer of an economic entity which retains its identity, and which constitutes an organised grouping of resources having the objective of pursuing an economic activity, whether or not that activity is central or ancillary.

    A transfer would take place if the following criteria are met:

    • change of employer;
    • existence of an economic entity;
    • maintenance after transfer of the identity of the entity, (i.e. the existence of a set of organised means of production) and the identity of the activity (i.e. continuation of an identical or similar activity).
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    Author: Castegnaro

    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

    Transfer of undertakings law applies to the sale of a business whether the relationship between the transferor and transferee is direct or indirect. This means the law applies upon a change of service provider, management leasing arrangement (‘location-gérance’) and hire-purchase arrangement (‘location-vente’), provided certain general criteria are met.

    For asset-based businesses, there is a transfer only where ‘significant tangible or intangible assets’ move across.

    For non-asset based businesses, there is a transfer only where the transferee takes over most of the transferor’s staff, in terms of numbers and skills.

    (b) Outsourcing

    The transfer of undertakings law could apply in an outsourcing context, provided certain general criteria are met.

    In one case, a contracting authority terminated a contract for the management of hospital catering services and awarded that contract to a second contractor. The second contractor used a large proportion of the tangible assets previously used by the first contractor, which were subsequently made available to it by the contracting authority. The second contractor had intended not to take on employees from the first contractor, but a transfer under the employee transfer rules was found to apply.

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    Author: Castegnaro

    Date: January 2017

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

    The implications of the transfer of undertakings law are as follows:

    • employment contracts and conditions automatically transfer to the transferee;
    • employees cannot be dismissed if the reason is the transfer itself;
    • after the date of the transfer, the transferor and transferee become jointly liable for obligations arising before the transfer under employment contracts or pursuant to the employment relationship existing at the date of the transfer; and
    • the transferor and the transferee cannot make substantial detrimental amendments to the affected employees’ terms of employment on the grounds of the transfer without their formal consent.
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    Author: Castegnaro

    Date: January 2017

    2.1 Who transfers?

    All affected employees transfer. An ‘employee’ is any person (except a civil servant or public employee) who works for an employer in a relationship of subordination and is paid for that work. This includes part-time employees, fixed term employees, interim employees and secondees. However, only employment contracts existing at the date of the transfer are transferred to the transferee. Thus, for example, someone described as self-employed, who is in fact an employee, would need to ask the labour court for the relationship to be reclassified as employment.

    Where only part of an undertaking is transferred, only those employees engaged in the part of the undertaking being transferred will transfer across. In assessing partial cases, the proportion of time spent by employees within the entity transferring as compared to other parts of the business will be considered. This could lead to a situation where the transfer results in two separate part-time employment contracts.

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    Author: Castegnaro

    Date: January 2017

    2.2 Can employees object to transferring?

    The transfer date marks the automatic transfer of affected employment contracts and conditions to the transferee, and there is no requirement for the transfer to be approved by employees.

    If an employee is not willing to accept the transfer of his or her employment contract, he or she may resign. Employees are not prevented in their contracts from expressing their objection to the transfer in this way. 

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    Author: Castegnaro

    Date: January 2017

    2.3 What happens to terms of employment contracts?

    The transferor's rights and obligations arising from the contract of employment or from the employment relationship existing at the time of the transfer are, by reason of the transfer, transferred to the transferee.

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    Author: Castegnaro

    Date: January 2017

    2.4 What about other employee benefits?

    All other employee benefits also transfer, unless the transferee cannot provide them. Some benefits, such as company cars, can be hard to transfer. If so, the transferee may offer something equivalent or try to harmonise the benefits offered within the organisation, but it must follow the rules on modifying employments terms. These are that the employer may make minor amendments unilaterally, but must obtain consent for major changes. If it goes ahead without consent, it may under certain conditions be regarded as unfairly terminating the contract.

    Employment with the transferor counts as continuous employment with the transferee.

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    Author: Castegnaro

    Date: January 2017

    2.5 What happens to pension rights?

    Transfers of undertakings do not impact on the employee pension rights deriving from the legal social security regime.

    In terms of supplementary pension schemes set up by the employer, there are two situations to be distinguished:

    • If the transferor ceases to exist: acquired rights and rights in progress of active affiliates transfer to the transferee, generally by maintaining the existing plan.
    • If the transferor continues to exist after the transfer: only acquired rights and rights in progress of the active affiliates taken over by the transferee transfer to the transferee. The acquired rights of former affiliates remain with the transferor.

    If the transferee already has a supplementary pension scheme, it must recognize the ‘equivalent rights’ of the transferred employees and must join in them to it (provided they fulfill the affiliation conditions). Transferred employees are not entitled to request maintenance of the pension scheme existing at the transferor.

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    Author: Castegnaro

    Date: January 2017

    2.6 What liabilities transfer?

    The law provides for joint liability of transferor and transferee for obligations arising before a transfer of undertaking pursuant to an employment contract or an employment relationship existing at the date of the transfer, such as arrears of salary. This applies even in the case of the transferor’s insolvency if the activity starts again after the transfer within three months of the cessation of the business. Nevertheless, the transferor must pay compensation to the transferee for obligations which arose before the transfer, unless the parties have agreed otherwise.

    Note that the law is unclear on what would happen in relation to criminal liability, as there has been no case law on this issue to date.

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    Author: Castegnaro

    Date: January 2017

    2.7 Do collective agreements transfer?

    A collective agreement in itself does not transfer to the transferee.

    Nevertheless, the transferee is legally required to comply with all conditions arising from any collective bargaining agreement concluded by the transferor until the termination date or the expiry date of this agreement or the entry into force or application of a new agreement.

    The contracting parties to a collective bargaining agreement are the employer (or group of employers) and the trade unions. In order to conclude a new agreement, the employer and trade unions will enter into negotiations to discuss the various mandatory topics, including working time and conditions for hiring and dismissals.

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    Author: Castegnaro

    Date: January 2017

    2.8 How does the transferee obtain information on transferring employees?

    Prior to a transfer of undertaking and in due time, the transferor must notify the transferee of any transferring rights and obligations of which he is aware, or should be aware.

    If the transferor fails to notify the transferee, this will not affect the subsequent transfer of that right or obligations and the employees’ rights and obligations towards the transferor and/or the transferee.

    Additionally, a copy of this notification must be disclosed to the Work and Mines Inspectorate (‘Inspection du Travail et des Mines’).

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    Author: Castegnaro

    Date: January 2017

    3.1 Can employers make changes to employment contracts?

    An employer can always amend an employment contract for the benefit of an employee.

    Minor modifications to employment contracts of employees to their detriment can be made without following any specific procedure. In the case of substantial modifications to their detriment, the employer must either obtain their express consent, or comply with the legal notification procedure, i.e. the employee must be notified of the change and the employer must explain the reasons for it, if so requested.

    In the case of a transfer, substantial modifications by reason of the transfer are not expressly forbidden. However, if the employment contract is terminated because the transfer involves a substantial change in working conditions to the detriment of the employee, such as a decrease in pay, the employer is regarded as responsible for terminating the employment. The employment contract will be considered terminated if an employee objects to the substantial modification to his or her detriment and resigns.

    After termination of the contract, the employee may claim damages before the labour court. If the court considers the transfer to involve a substantial modification to the detriment of the employee, the termination will be deemed unfair and the employer will be required to pay compensation for material loss and moral injury.

    As the transfer itself cannot provide justification for a dismissal, any substantial modification to the detriment of the employee cannot be based on the transfer.

    Employment terms can be harmonised by the transferee in compliance with the rules described above.

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    Author: Castegnaro

    Date: January 2017

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

    The transfer of an undertaking in itself is not a valid reason for dismissal; either for the transferor or transferee. However, they retain their right to terminate the employment contract for reasons other than the transfer, provided they comply with statutory dismissal procedures. It is therefore permissible to terminate for economic reasons not related to the transfer, even if this is very difficult to demonstrate in practice.

    The transferor is free to dismiss staff who would otherwise have transferred to the transferee. This would only be considered unfair if the sole reason for the dismissals was the wish of the employer to deny the employees their legal rights. Where the circumstances indicate that the real purpose of the dismissals was to transfer the company free of any obligations, the transferor will be liable for material and moral damages.

    The transferee can reorganise the company by making redundancies or dismiss for any other reasons not related to the transfer, such as misconduct, capability or the operating needs of the business, such the need to restructure activities.

    Any dismissal not based on permitted grounds would be considered unfair. If the employee challenges the employer’s reasons, the burden of proof lies with the employer.

    Finally, it is worthwhile noting that some collective labour agreements (e.g. in the banking sector) include provisions prohibiting the transferee from dismissing employees or modifying contractual terms of transferred employees as part of a restructuring or for business needs for a certain period of time (e.g. two years).

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    Author: Castegnaro

    Date: January 2017

    4.1 Who must employers consult?

    The following must be informed and consulted prior to a transfer of undertaking and in due time:

    • Joint works council (‘comité mixte d’entreprise’) -  All companies of 150 or more employees were required to have one (but note that this body will no longer exist from the next social elections);
    • Staff delegation (‘délégation du personnel’) -  All companies with at least 15 employees must have one;
    • Employees, if there are no employee representatives (to be informed in writing); and
    • European works council (if any and if necessary).

    The staff delegation are elected directly by employees every five years. Employee representatives of the joint works council are appointed by the staff delegation.

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    Author: Castegnaro

    Date: January 2017

    4.2	What information must they provide?

    Prior to a transfer of undertaking, the transferor and the transferee must disclose the following information:

    • the date or proposed date for the transfer;
    • the reasons for the transfer;
    • the legal, economic and social consequences of the transfer for employees; and
    • any planned measures with regard to the employees.
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    Author: Castegnaro

    Date: January 2017

    4.3	What does consultation involve?

    Consultation means the exchange of views and establishment of dialogue between staff representatives and employer with a view to reaching an agreement on the employer’s proposals.

    The law does not prescribe the manner of consultation. Consultation with employee representatives may take place through meetings.

    If the transferor and/or the transferee are contemplating measures with regard to employees which are directly related to the transfer, they must consult with employee representatives with a view to reaching an agreement prior implementing the measures.

    The sole obligation of the employer is to consult with employee representatives. The employer is not bound by their views.

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    Author: Castegnaro

    Date: January 2017

    4.4	How long does consultation last?

    There is no mandatory duration for consultation set out in law. How long it lasts will depend on the complexity of the issues to be communicated and discussed and the quality of dialogue within the organisation.

    Generally, however, information and consultation may require three or two weeks.

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    Author: Castegnaro

    Date: January 2017

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

    The law does not expressly provide for any specific sanction when the above procedure is not respected.

    Nonetheless, according to the legislation regarding the staff delegation and the joint works council, any employer (individual) who deliberately hinders their functioning or the performance of their remit is liable to pay a fine of between EUR 251 and 10,000 (for joint works councils) or EUR 15,000 (for staff delegations). For legal entities, the fine may vary from EUR 500 to 20,000 (for joint works councils) or EUR 30,000 (for staff delegations).

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    Author: Castegnaro

    Date: January 2017

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

    The position and function of an existing staff delegation and joint works council persist as long as the undertaking retains its autonomy. If the undertaking does not maintain its autonomy, the members of both the staff delegation and the joint works council of the transferor will be automatically considered to be part of those of the transferee. If the transferee has no employee representatives or joint work council, the transferred members of the staff delegation and of the joint works council will be considered to be the transferee’s new employee representative bodies.

    Even in the case of the insolvency of the transferor, the transferor and transferee will remain jointly liable for employment obligations arising before the transfer. If there is a transfer within three months following insolvency, any employment contracts which were terminated because of it will automatically be reinstated.

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    Author: Castegnaro

    Date: January 2017

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

    Luxembourg law applies if the undertaking to be transferred is situated in the territory of Luxembourg, irrespective of the transferee’s location.

    If an undertaking is to be transferred into Luxembourg from  the territory of the European Economic Area (EEA), Luxembourg law applies to the transferee. If the undertaking to be transferred is situated outside EEA territory, Luxembourg law does not, in principle, apply.

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    Author: Castegnaro

    Date: January 2017

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

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

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    Author: Castegnaro

    Date: January 2017

     

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