Michael Wiehl

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Fax: +49 (9 11) 91 93 - 13 99

When acquiring a business, the transferee is almost always confronted with the question whether to take over the company's staff or only a part thereof. In terms of labour law, the transaction is fraught with serious pitfalls. Careful planning of the transfer of business may be decisive for the success of the transaction.
Especially in the case of insolvency or rescue of the business, the transferee most frequently wants to take over only a part of employees and select them in a targeted manner. This, of course, collides with the protection of employee interests. The owners taking part in the transfer are, as a rule, aware of the fact that in the case of dismissal for business reasons employees must be selected for dismissal based on social criteria.
However, this kind of protection is not sufficient for the legislator. Pursuant to applicable provisions of Article 613a BGB [German Civil Code], the future employer automatically succeeds to the rights and duties under the existing employment relationship if a business or part of a business is transferred to them. If the sole reason for dismissal is the transfer of business itself, then such dismissal is deemed invalid. The law says only this, but no less than this. Therefore, it is up to the courts to decide how to handle the many and varied cases occurring in practice. This leads to a number of case laws in Germany, which are also influenced by the European Court of Justice.

The risk lies in the asset deal

From the perspective of labour law, a share deal is the simplest case, because the owner of the company does not change as a result of transfer of one or more shares. The employer remains the same so that Article 613a BGB does not apply. A planned staff reduction is determined solely by the Employment Protection Act since the company continues to exist even if it has other shareholders.
In the case of an asset deal, the situation is more complicated: here, the subject of transfer are selected portions of company's assets. The transferee has the right of selection and does not want to succeed to all the obligations and contracts. The individual assets, such as production plants, patents, licenses, names, and also land plots and buildings are being transferred separately. Thus, can a transferee avoid the obligation to take over staff if they acquire only the customer base? If the provisions of Article 613a did not exist, then the decision would rest solely with the transferee. However, in the current situation it is necessary to examine whether a transfer of business actually takes place and whether the employment relationships that are linked to the given business or part of business are transferred to the new employer by law.

Case law is geared to the individual case

The case law on the subject of transfer of business is being constantly modified and amended, and the European Court of Justice (ECJ) does have a say in this matter. According to the opinion of chief justices, the key issue is whether an economic entity continues as a going concern retaining its identity. Thus, if only assets are acquired, we cannot speak of transfer of business. In the opinion of the ECJ, the same or similar activities must be carried out as in the business run by the transferor. No transfer of business takes place, though, if only the function is continued.
When assessing a given case, the following factors must be considered: branch of industry, type of the given business, transfer of its tangible and/or intangible assets and – last but not least – the question of whether the majority of employees is to be taken over. Depending on the branch of industry in which the company operates (manufacturing or service sector), the said factors are weighed differently. Therefore, in the case of service sector it is irrelevant whether hardware is being transferred; here, the staff and the customer base are of much greater importance. As regards manufacturing companies, the focus will be placed rather on the machine park than employees that – in most cases – are replaceable.
Even more complicated is the case in which only parts of business are subject to transfer and the remaining parts are being shut down. Because an obvious thing is that a business shut down and a transfer of business are mutually exclusive.

Consequence: higher liability risk

The transfer of business leads to liability consequences for the transferee. Its liability is limited to claims for payments and pension expectancies only in the case of insolvency. Therefore, it is recommended to analyse labour law-related risks to be able to make optimum use of the structuring opportunities available in this area.  And so, in the case of insolvency it is by all means possible to give notices of termination based on the "transferee concept". This allows applying a shortened period of notice (maximum three months) during insolvency proceedings.
Further risks are inherent to the transfer of business if it is connected with the change in the business and the business has an advisory council. Also this case provides for reliefs on grounds of insolvency: The employer may enter with the advisory council into an agreement on the reconciliation of interests and attach to it a list of names of the employees to be dismissed. It is presumed under the law that the dismissal of the affected employees constitutes a dismissal for business reasons. Thus, the employer is granted a substantial easing of the burden of proof in the process. In practice, it is usually the new employer that is involved in the case. Additionally, it is possible not only to maintain a balanced personnel structure but also to create one. However, this option is only rarely used.
Also outside insolvency proceedings it is necessary to identify risks and limit the liability. If a transfer of business cannot be avoided or is even desired (for example in the case of highly-qualified professionals), employees must be fully and adequately instructed in writing about the consequences and the planned measures that will affect them personally. If the information submitted to such employees is incomplete or inadequate, the time limit of four weeks for lodging an objection against the transfer of the employment relationship will not start to run.  The requirements set by the Federal Labour Court are very high in this respect. Therefore, the transferee should appropriately secure itself when drafting the acquisition contract if he/she is not able to obtain complete documents or information.


A vague legal definition of the transfer of business entails risks. However, it also leaves room for interpretation. This, however, takes a lot of time. The faster decisions must be made, the more important is a thorough analysis of the facts and a clear-cut concept of the planned measures. The interplay of tax, business and also labour law-related aspects is an exciting and always challenging task.