Transfer of Business Ownership in Germany

Transfer of Business Ownership in Germany

If the original entrepreneur does not want to or can no longer continue their business, or if this does not appear to make sense from a financial or corporate strategy point of view, the company can be transferred to another legal entity. In the context of a transfer of an undertaking within the meaning of section 613a BGB, at least essential parts of the business must be transferred as an economic unit and are continued while preserving the existing corporate identity.

In the business world, business transfers are a regular occurrence. And yet, those affected are not always aware of the practical consequences associated with such a process and the concrete consequences that can arise for employees and employers.

Schlun & Elseven Rechtsanwälte offers comprehensive legal assistance in labour law to both employees and workers. We provide support that is both competent and committed to bringing employment law disputes to a quick and effective conclusion, whether through mediation or litigation. Please, do not hesitate to contact us to benefit from our expertise.

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Transfer of Business Ownership: Differentiation from other Processes

The central set of rules is the General Data Protection Regulation (GDPR), which applies equally in all EU countries. In addition, the Federal Data Protection Act (BDSG) still applies in Germany. The GDPR, which has been in force since May 2018, partially replaces and supplements the regulations of the Federal Act.

However, the distinction between similar processes must always be kept in mind. A mere transfer of functions, i.e. the mere continuation of activities without transferring relevant operating resources and their actual use, does not trigger the legal consequences of § 613a BGB.

Inaccurately, undertaking transfers are sometimes referred to as (partial) closures. But beware, there are significant differences behind these similar terms. A plant closure constitutes an urgent operational requirement and thus justifies the dismissal of all employees for operational reasons (§ 1 (2) sentence 1 KSchG).

In making this distinction, the Federal Labour Court is guided by the case law of the ECJ and draws on the following points:

  • Does the transfer extend to essential tangible operating resources, such as production sites and means of production?
  • Which essential intangible assets such as expertise, customer relations, and trademarks/copyrights are actually to be used by the new owner?
  • Which parts of the workforce will be taken over with the aim of continued employment?
  • Will the previous purpose of the enterprise be retained, and should it be pursued without a more prolonged interruption using – at least a similar – approach?

If the answers to these questions, taken as a whole, show that not only the “shell” of a company but its essence has been transferred, there is a transfer of business which triggers the legal consequences of § 613a BGB.

The central content of this provision is the protection of existing employment relationships. To thoroughly weigh up the risks and opportunities, the potential new employer would be well advised to be decisively aware of the requirements placed on them when taking over the business. Equally, of course, employees are also confronted with this new situation. Due to the ratio of § 613a BGB, the company’s transfer must not be to their direct disadvantage.

Transfer of the Employment Relationship § 613a(1) Sentence 1, BGB

The rights and obligations of the employee and the employer under the existing employment contract are continued directly by the operation of law concerning the new employer. If the employee is asked to sign a new employment contract, they may refuse to do so without any consequences.

Who is Protected by § 613a (1) sentence 1 BGB?

First of all, only persons who are in an employment relationship with the previous employer are covered. Fixed-term or suspended employment relationships (e.g. persons on parental leave), part-time employees, trainees or persons in managerial positions are excluded.

Sometimes, however, the distinction can be problematic, primarily if the activity performed by a person cannot be explicitly assigned to the part of the enterprise being transferred. In such cases, the employee must be involved in deciding on the location.

The Prohibition of Dismissal under § 613a (4) BGB

The transfer of the undertaking itself does not justify dismissal by the new employer. However, other terminations for operational, personal or behavioural reasons are possible, as in any employment relationship. However, extreme care is required, especially concerning terminations for operational reasons. The validity of the dismissal must be clearly demarcated as being objectively business-related and in no way business-transfer-related.

Collective Agreements and Works agreements § 613a (1) p. 2 – 4 BGB

Collective agreements and work agreements are often an essential part of employment relationships. Accordingly, they must also be considered concerning a transfer of an undertaking. A distinction must first be made to make a concrete assessment:

  • What is the nature of the previous inclusion of the collective agreement?
  • Static (reference point remains the version that applied at the time of the conclusion of the agreement) and small dynamic (reference point is the said collective agreement in the current version) references in the employment contract to a collective agreement also apply directly to the new employer. However, if the reference is a significant dynamic reference, the collective agreements in force in the enterprise in their current version are the reference point. The “establishment” is then also understood to mean the establishment of the acquirer, even if other or even less favourable collective agreements apply here. Note: This only applies to employees who are members of a trade union/employee association. If this is not the case, they are referred to as “outsiders”. The employment contract provisions then do not apply under the collective agreement but directly from the employment relationship and, therefore, according to § 613a (1) BGB.
  • If the same collective agreement binds the transferor, transferee, and employee, it continues to apply after the transfer.
  • Suppose the new employer is subject to a separate collective agreement from the former employer. In that case, the acquirer’s collective agreement only applies if the employee is a member of the trade union/employee association concluding the agreement.

§ 613a (1) sentence 2 BGB contains the “transformation provision”. Suppose the acquirer does not have a collective agreement that has been declared generally binding or has not been concluded by the employee’s trade union. In that case, the provisions based on a mutual collective agreement between the former employer and the employee are transformed into the existing employment contract. These contents may not be changed to the employee’s disadvantage for one year.

Works Agreements and their Continued Existence

Work agreements are transferred to the employment relationship if no corresponding contracts with the new employer exist. Here, too, the one-year ban on changes regarding disadvantageous changes initially applies.

Employee Opposition to the Transfer of the Business in Germany

According to § 613a (5) BGB, the transferor or acquirer must inform the employee about the impending transfer of the business. This duty to notify is intended to ensure that the employee can deal with the company’s transfer on an individual basis. Of course, this can also give rise to a reluctance to accept the bosses’ planned plan.

On the one hand, this resentment can be vented in the context of inadequate information. Jurisprudence places exceptionally high demands on the duty to inform, especially concerning a sufficient written description of the following

  • the planned timing of the transfer of the undertaking,
  • accompanying measures affecting the employee, e.g. restructuring, training actions,
  • legal, social and economic consequences for the employee.

If the duty to inform is not met, the employee may be entitled to claim damages under § 280 German Civil Code (BGB). Its inadequacy or defectiveness also prevents the one-month period for objection under § 613a (6) BGB from commencing.

Many inconveniences accompany the transfer of an undertaking for the employee. In particular, the transferor and the transferee have many hurdles to overcome.

The right of objection is intended to protect the employee from being sold the same as an object of sale. However, a complaint can also lead to serious consequences for the objector.

Often the seller of the business can no longer employ the employee, even though the employment relationship continues to exist due to the objection. The employee then runs the risk of being effectively dismissed for operational reasons.

Moreover, a conflict may arise between an employee who remains with the original workforce due to the objection and the employee who was not affected by the transfer of business in the first place. The former has the supposedly worse cards in the social selection.

If there is a lack of substantiated factual reasons, the objecting employee is exposed to the risk of being dismissed based on too few social points.

Given this, the employee concerned should act prudently. All risks must be weighed, and a strategic approach must be taken to retain the original job.

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Practice Group: German Employment Law

Practice Group:
German Employment Law

Dr. Thomas Bichat

Certified Specialist Lawyer in Employment Law

Jens Schmidt

Certified Specialist Lawyer in Employment Law

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