A transfer of undertaking is “a transfer resulting from an agreement, merger or split of an economic entity, which entity maintains its identity.” It is explicitly stipulated that a part of a company may also be regarded as an economic entity. It is necessary to assess the facts in order to conclude whether or not the identity of the entity will transfer. If the criteria are met, upon the transfer of a business, the rights and obligations of the employer and that business under the existing employment contracts with the employees will be automatically (by operation of law) transferred to the acquirer of the business. A prohibition of termination is applicable in case the reason of such termination is the transfer of undertaking.
2. Employee representation
The employer has to consult the works council (or other employee representative body) about a proposed decision regarding the transfer of activities. The employer has to provide the works council or employee representative body with information on the grounds of the intended decision, the consequences for the employees, and the intended measures to be taken. The employer also has to inform the individual employees about the transfer of an undertaking and the consequences thereof for the employee.
3. Liability of former employer
For one year after the transfer of the business, the seller and the acquirer are jointly and severally liable for the fulfillment of the obligations under the employment contracts insofar as these obligations are accrued before the transfer.
4. Pension rights
In principle, the buyer has to continue to apply the pension scheme of the seller. There are three exceptions: 1) if the buyer has its own pension scheme which he offers to the transferring employees; 2) if the buyer has to apply a mandatory sectoral pension scheme; 3) if a Collective Labour Agreement deviates from the pension scheme.
5. Objection of employee
If an employee explicitly objects to the transfer, the employee will not enter into the employment of the transferee. The employment contract of the employee will thus end by operation of law at the time of the transfer.