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Transfer of Business Ownership in Germany

Transfers of business ownership are regular occurrences in the business world. But when exactly does such a transfer occur, what are the practical consequences and what are the concrete consequences for employees and employers?

If the original company entrepreneur no longer wants or is unable to continue their business or makes sense from a financial or strategic point of view, there is the possibility of transferring business ownership to another legal entity. In the context of a business transfer within the meaning of § 613a BGB, at least essential parts of the business must be transferred as an economic unit while the existing corporate identity continues.

There are many reasons why the transfer of business ownership occurs, but we will examine the consequences of such a change of ownership. Employment rights play a part for the employees who find themselves in the company at the transfer time. Such a transfer can impact collective bargaining arrangements as well as employee relationships within the company.

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The Legal Basis: Transfer of Business Ownership

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

However, it is important to always keep in mind the distinction between similar processes. Thus, a mere transfer of functions, i.e. the mere continuation of activities without transfer of relevant operating resources and their actual use, does not trigger the legal consequences of § 613a BGB.

Transfer of operations is sometimes also incorrectly referred to as (partial) closure of operations. But beware, there are great differences behind these similar terms, and they should not be seen as interchangeable. A plant closure is an urgent operational requirement and thus justifies the dismissal of all employees for operational reasons (§ 1 (2)  KSchG).

In making this distinction, the German Federal Labour Court is guided by the case-law of the European Court of Justice and takes the following points into account:

  • Does the transition extend to essential material resources, such as production facilities and means of production?
  • Which essential intangible assets such as expertise, customer relations, trademarks/copyrights will be used by the new entity?
  • Which parts of the workforce will be taken over to continue employment?
  • Is the previous corporate purpose to be maintained, and should it be pursued without interruption utilizing an – at least similar – approach?

If the answers to these questions in the overall view show that not only the “shell” of a company but its essence has been transferred, a transfer of an undertaking is present, which triggers the legal consequences of § 613a BGB.

The central content of this provision is the protection of existing employment relationships. To fully weigh up the risks and opportunities, the potential new employer is well advised to make sure that he/she is fully aware of the requirements which will be placed on him/her when taking over the business. In the same way, the employees are naturally also confronted with this new situation. Due to the rationale of § 613a BGB, the business transfer must not be to their immediate disadvantage.


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

The employee and employer’s rights and obligations under the existing employment contract are continued directly by law in the relationship with the new employer. This applies following the transfer of business ownership. However, if the employee is asked to sign a new employment contract, he or she may refuse to do so without consequences. There is no requirement to sign up for such a contract, and it is always advised to read the contracts in detail before signing them. Make sure you know what you are signing.

If you require further advice on employment contracts in Germany, please visit our page on the topic. Also, contact us today if you are in the midst of a legal dispute on this matter.

Who is Protected by § 613a (1) BGB during a Transfer of Business Ownership?

Initially, only persons who are in an employment relationship with their previous employer are covered. Excluded are fixed term or dormant employment relationships (e.g. persons on parental leave), part-time employees, trainees, or managerial positions. Check your employment contract if you are unsure of your standing within the company.

Sometimes, however, distinguishing the difference can be difficult, especially if the activity performed by a person cannot be explicitly assigned to the part of the company being transferred. In such cases, a decision must be taken on the allocation of the person with the employee’s involvement; in these cases where the difference can be difficult to distinguish, make sure to consult with an employment law specialist. Bring your contract, and any other important employment documentation to our lawyers and they will be able to analyse your situation. As the nature of employment changes, it can be difficult to place certain employees in particular categories; therefore, working with an employment lawyer may be your best chance at success.

The Prohibition of Dismissal under § 613a (4) BGB during the Transfer of Business Ownership

The transfer of business ownership itself does not justify termination by the new employer. However, other terminations for operational, personal and behavioural reasons are possible as in any employment relationship. However, extreme care is required, especially concerning terminations for operational reasons. The effectiveness of the termination must be clearly definable and objectively related to the business and, in no case, to the transfer of business. Unfair dismissal is a big legal topic in Germany and can lead to major court actions. Should you be in a situation where you need legal advice on what is considered “fair dismissal”, please contact our employment law specialists directly. Once the details of the situation have been provided to our lawyers, they will provide the guidance needed.

Similarly, if you have been dismissed following the transfer of business ownership and believe that you have a case for unfair dismissal, our lawyers can represent you. Again, make sure to keep any emails and other documentation relating to the dismissal, and from there, our lawyers can examine your case. Once they have the necessary facts, they will advise you whether taking a case for unfair dismissal is suitable for your situation.

Collective Agreements & Other Agreements during the Transfer of Business Ownership: § 613a (1) Sentences 2 – 4 BGB

Collective agreements and works agreements are often an essential part of employment relationships. Accordingly, these must also be observed concerning a transfer of business ownership. However, to make a concrete assessment, a distinction must first be made:

What is the nature of the previous collective agreement?

  • Static (the reference point remains the version that was valid at the time of the conclusion of the agreement) and small dynamic (the reference point is the mentioned collective agreement in its current form) references in employment contracts to a collective agreement are carried over. In other words, these references are directly valid following the transfer of business ownership.
  • However, if it is a large dynamic reference, the reference point is the company’s collective agreement in the company in its current version. The term “business” is also understood as the acquirer’s business, 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, one speaks of so-called “outsiders”; the employment contract provisions do not apply under the collective bargaining effect but directly from the employment relationship and thus according to § 613a (1) BGB.
  • If the same collective bargaining agreement binds both the seller and the acquirer and the employee, it continues to apply after the transfer.
  • If the new employer is subject to a different collective agreement than the former employer, the collective agreement of the acquirer shall only apply if the employee is a member of the union/employee association agreeing.

§ 613a (1) BGB also contains the so-called transformation regulation. If the acquirer does not have a collective bargaining agreement that has been declared generally binding on the part of the acquirer, or that has not been concluded by the employee’s union/employee association, the provisions based on a mutual collective bargaining agreement between the former employer and the employee are transformed into the existing permanent employment agreement. These contents may not be changed to the detriment of the employee for one year.

Company Agreements and their Continued Existence

Company agreements are transferred to the employment relationship if no corresponding agreements exist with the new employer. Here, too, the one-year change block applies initially concerning disadvantageous changes.


What happens if Employees are Against the Transfer of Business Ownership?

The seller or the purchaser must inform the employees about the impending transfer of business ownership per § 613a para. 5 BGB. This duty to inform is intended to ensure that the employees can deal with a business transfer individually. Of course, this can also lead to a reluctance against the planned project by the workforce. On the one hand, this displeasure can be resolved by issuing information concerning the purchase, while a lack of information can lead to growing concern. Such concern can manifest itself in dissatisfied and demotivated staff.

The case law places extremely high demands on the duty to inform, especially concerning the written statement:

  • the planned course of events in terms of time
  • measures which will affect the employee, such as restructuring, training
  • planned or accepted legal, social and economic consequences for the employee.

If the duty to inform is not complied with, the employee may be entitled to claim damages under § 280 BGB. Their inadequacy or faultiness also prevents the beginning of the one-month period for objection under § 613a para. 6 BGB. Within the framework of this procedural stage of a transfer of business ownership, the employee is faced with many approaching inconveniences. Both the seller and purchaser should avail of legal advice if they are unsure of how to proceed at this time.

The right of objection is intended to protect the employee from being sold like an object of sale. However, an objection can also lead to serious consequences for the employee. Often, the business seller can no longer employ the employee, even though the employment relationship continues despite the objection. The employee then runs the risk of being effectively dismissed for “operational reasons” following business ownership transfer. Putting your head above the parapet can carry risks, but consulting with a legal professional can be a solution in time of doubt. Once again, we would point to our page on “Unfair Dismissal in Germany should this be a present concern in your current situation.

Moreover, there may be a conflict between employees who launch objections and are impacted by that decision and employees who were not affected by the transfer of business ownership from the outset. The former may have a more difficult situation when it comes to social standing within the company. If there is a lack of substantiated factual reasons, the employee who filed the objection may be at risk of being chosen for dismissal due to their lack of social standing within the company. Should this be a possibility, make sure you have an employment law expert in your corner!

Overall, an affected employee must act prudently. All risks must be weighed up, and a strategic approach to maintaining their job must be taken. Sometimes this may mean outside, expert help, and other times it may reading about and informing yourself of your rights. If you fear that dismissal is likely following business ownership transfer, please keep any documentation/emails you receive in a safe place. Should you go down the route of legal assistance, they may be of great assistance to the legal professional working on your case.

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