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Transfer of Employment and Certain Rights and Obligations by Operation of Law

In General.

  • EU Directive.  Employees assigned to the business transfer automatically by operation of law to the transferee at the same time as the business is transferred, and on their existing terms and conditions of employment.1 The transferee becomes the new employer.  As a result, all rights and obligations arising from the employment contracts of those transferred employees, or from the employment relationships more broadly, are also transferred to the transferee, and (except as provided in “The Pension Exception” and “Joint and Several Liability” below and otherwise by the relevant EU Member State) the transferor is released from those obligations by operation of law. 
  • Belgium.  Employees assigned2 to the business transfer automatically by operation of law to the transferee at the same time as the business is transferred, and on their existing terms and conditions of employment. Employees belonging to shared services which are not transferred as a separate unit are not in scope of the transfer unless their duties are performed exclusively for the benefit of the part of undertaking transferred.  The transferee becomes the new employer.  As a result, all rights and obligations arising from the employment contracts of those transferred employees are also transferred to the transferee, and (except as provided in “The Pension Exception” and “Joint and Several Liability” below), the transferor is released from those obligations by operation of law.
  • France.  Employees assigned to the business transfer automatically by operation of law to the transferee at the same time as the business is transferred, and on their existing terms and conditions of employment.  After having retained that employees partially assigned to the business were transferred for the portion of their employment agreement dedicated to this business, French case-law seems now to consider that only employees who are fully dedicated or those who dedicate most of their activity to the transferred business transfer along with the business.  The transferee becomes the new employer.  As a result, all rights and obligations arising from the employment contracts of those transferred employees, or from the employment relationships more broadly, are also transferred to the transferee.
  • Germany.  Employees assigned to the business transfer automatically by operation of law to the transferee at the same time as the business is transferred, unless the employees in question object to such transfer (see “Right to Object to the Transfer”).   The transferee becomes the new employer.  As a result, all rights and obligations arising from the employment contracts of those transferred employees, or from the employment relationships more broadly, are also transferred to the transferee, and (except as provided in “The Pension Exception” and “Joint and Several Liability” below) the transferor is released from those obligations by operation of law.
  • Italy.  In case of a transfer of a going concern, the employment relationships of the transferred employees automatically continue with the transferee and the transferred employees retain all the rights arising from such relationships (including salary and benefits).
  • UK.  Employees assigned to the business (or, in relation to an SPC, to the organized grouping of employees) transfer automatically by operation of law to the transferee at the same time as the business or service provision arrangement is transferred, and on their existing terms and conditions of employment.3 Employees who are assigned to the business or organized grouping of employees on a purely temporary basis, or whose employment with the putative transferor would not be terminated as a result of the transfer, are excluded under TUPE. The transferee becomes the new employer. As a result, all rights and obligations arising from the employment contracts of those transferred employees, or from the employment relationships more broadly, are also transferred to the transferee, and (subject to certain exceptions, covered below) the transferor is released from those obligations by operation of law.

The Pension Exception

  • EU Directive.  Unless EU Member States provide otherwise, an employee’s rights to old-age, invalidity or survivor’s benefits under supplementary company or intercompany pension schemes outside statutory social security schemes do not transfer automatically by operation of law to the transferee, and so remain with the transferor.
  • Belgium.  Employees’ rights to old-age, invalidity or survivor’s benefits under supplementary company or intercompany pension schemes outside statutory social security schemes do not transfer automatically by operation of law to the transferee, and so remain with the transferor unless the occupational pension schemes are foreseen in a collective bargaining agreement (see “Collective Agreements” below).  When the transfer of undertaking is the result of the sale or contribution of a “branch of activity”  or of a “business as a whole” as defined by the Belgian Company code, the occupational pension rights will also be transferred by operation of specific provisions of that code.
  • France.  France has not implemented the pension exception, on the account that most of pension benefits stem from statutory social security schemes. The transfer of company pension schemes, which are not widespread except in large companies, are subject to the rules applicable to the legal documentation which established them (see “Collective Agreements” below).
  • Germany.  The pension exception does not apply in Germany.  Under Section 613a of the German Civil Code, rights of current employees to old-age, invalidity or survivor’s benefits under company or group pension schemes outside statutory social security schemes transfer automatically by operation of law to the transferee (also with respect to pension liabilities accrued in the time period prior to the transfer) rendering the transferee fully liable for pension commitments that were initially made by the transferor.  Rights of former employees of the transferor remain with the transferor.
  • Italy.  The pension exception does not apply in Italy.  The pension plan funding obligations relating to the transferred employees under the Italian mandatory social security system are not affected by the business transfer.  With respect to any complementary pension schemes possibly implemented by transferor and to which the transferred employees participate, following a transfer of going concern, the transferred employees are generally entitled to convert the position accrued by them under the transferor’s complementary pension scheme into quotas of the transferee’s one but different rules and funding obligations may apply depending on the actual terms and conditions of such complementary pension schemes.
  • UK.  Employees’ rights under occupational pension schemes which relate to old age (i.e. retirement), invalidity or survivors benefits do not transfer automatically by operation of law to the transferee, and so remain with the transferor. Notably, liability to provide enhanced redundancy benefits will transfer. Under separate UK pensions legislation, transferees may be required to provide a minimum pension benefit to transferring employees who, prior to the transfer, were members of an occupational pension scheme.

Joint and Several Liability

  • EU Directive.  EU Member States may provide that, after the transfer, the transferor remains jointly and severally liable with the transferee for obligations that arose in respect of the transferred employees before the transfer.
  • Belgium.  After the transfer, the transferor remains jointly and severally liable with the transferee for obligations that arose in respect of the transferred employees before the transfer.
  • France.  French rules on transfer of undertakings provide that, after the transfer, the transferor remains jointly and severally liable with the transferee vis-a-vis the employee for obligations that arose in respect of the transferred employees before the transfer. The transferee can nonetheless get reimbursement from the transferor for the liabilities relating to the period prior to transfer. Notwithstanding the foregoing, in case of transfer of an economic entity without any agreement between the transferor and the transferee (e.g., in case of change of service provider), the transferee is not jointly and severally liable with the transferor.
  • Germany.  Both the transferor and the transferee are jointly and severally liable without limitation for all obligations arising from the transferred employment relationship that arose and fell due prior to the date of transfer.  Joint and several liability of the transferor with the transferee is limited to obligations arising prior to the transfer but falling due prior to the expiry of one year after the date of transfer.  The transferor’s liability for such obligations is prorated for the time prior to the transfer.  Transferor and transferee may not deviate from this mandatory liability vis-a-vis the transferring employees, but may arrange for a different allocation among themselves.
  • Italy.  Both the transferor and the transferee are jointly and severally liable, without limitations, for all liabilities relating to the transferred employees that have accrued as of the transfer date, irrespective of any agreement that the parties to the deal might reach on how to allocate such liability between them.  By following certain statutory procedures (i.e., settlement at court or labor office), the employee may release the transferor from obligations deriving from the employment relationship.
  • UK.  As set out above, the transferee will “step into the shoes” of the transferor and take on all liabilities associated with the employees’ pre-transfer employment. Liabilities incurred in connection with the transfer and with failures to inform and consult (see below) are dealt with separately: where the liability arises as a result of the transferee’s failure to inform and consult, the transferee will be solely liable. However, where the liability arises as a result of the transferor’s failing, the transferor and transferee will be jointly and severally liable.

Collective Agreements

  • EU Directive.  The transferee is required to continue to observe the terms and conditions agreed in any collective agreement applicable to the transferred employees on the same terms as the transferor, until the termination or expiry of the collective agreement or the entry into force or application of another collective agreement.  EU Member States may limit the period for observing collective agreements, provided it is not less than one year.
  • Belgium.  The transferee is required to continue to observe the terms and conditions agreed in any collective agreement applicable to the transferred employees on the same terms as the transferor, until the termination or expiry of the collective agreement or the entry into force or application of another collective agreement.  There are arguments, however, to consider that the transferee will no longer be bound anymore by CBAs concluded in another branch of industry when both transferor and transferee do not belong to the same branch.  There is not yet any decisive case law in this regard.
  • France.  The transferee is required to continue to observe the terms and conditions agreed in any collective agreement applicable to the transferred employees on the same terms as the transferor, until the termination or expiry of the collective agreement or the entry into force of a new negotiated collective agreement or a maximum period of time of generally 15 months comprised of (i) the termination notice provided in such collective agreement (generally 3 months) and (ii) the continuation period provided in such collective agreement (generally 12 months). In the absence of collective agreement concluded during that period of time, the obligation to observe the terms of the collective agreements applicable to the transferred employees will terminate but the transferee will be required to maintain to the transferred employees a level of compensation at least equal to the compensation that stemmed from these collective agreements and enjoyed by the transferred employees during the 12-month period prior to the transfer.

    The transferor, the transferee and the recognized trade unions can sign prior to the transfer a collective bargaining agreement in order to determine the collective bargaining agreements that will remain applicable after the transfer.

    Unilateral commitments of the transferor as well as customs or usages applicable to the transferred employees are binding on the transferee by operation of law. The transferee must continue them subject to the general rules on the termination of unilateral commitments, customs and usages
  • Germany.  The transferee is required to continue to observe the terms and conditions agreed in any collective agreement (i.e., collective bargaining agreements with unions (Tarifverträge) and shop agreements with works councils (Betriebsvereinbarungen)) applicable to the transferred employees on the same terms as the transferor, until the termination or expiry of the collective agreement or the entry into force or application of another collective agreement, provided that the transferee may not amend the terms and conditions for a period of one year after the date of transfer.  However, this does not apply if a certain subject matter is governed by terms and conditions of a collective agreement already existing at the transferee, in which case such collective agreement applicable at the transferee supersedes the terms and conditions of the collective agreement applicable at the transferor, even if it contains terms and conditions that are detrimental to the transferring employees.
  • Italy.  The transferee must apply substantially the same terms and conditions provided for by any national, regional and plant-level collective bargaining agreements applied by the transferor at the date of the transfer until the date of their expiry, unless the transferee applies different collective bargaining agreements, in which case they will replace the agreements in place before the transfer.
  • UK.  The transferee is required to continue to observe the terms and conditions agreed in any collective agreement applicable to the transferred employees on the same terms as the transferor, subject to the following caveats:
    • The transferee will not be bound to observe terms and conditions introduced to a collective agreement subsequently to the transfer where the transferee has not been involved in the (re-)negotiation of those terms; and
    • As an exception to the general prohibition on making changes to employees’ terms and conditions by reason of the transfer (see below), a transferee will be permitted under TUPE to make a change to terms that are derived from a collective bargaining agreement so long as (i) changes are not made within one year of the transfer, and (ii) the changes, viewed as a whole, are not unfavourable to the employees in question.

Employee Representative Recognition

  • EU Directive.  If the transferred business (or part) preserves its autonomy and is maintained as a separate operating unit after the transfer, the status and function of employee representatives (i.e., recognised trade unions) must also be preserved by the transferor.  However, this does not apply if, pursuant to applicable law, conditions for the new appointment of employee representatives are satisfied.
  • Belgium.  Various scenarios are possible: the works council and/or the committee for prevention and protection at work (“CPPT”)  can either (i) be split, (ii) merge, or (iii) cover both transferor and transferee after the transfer.  This depends mainly on the following circumstances: (i) transfer of a full undertaking or of a part of it, and (ii) whether the transferred business (or part) preserves its autonomy and is maintained as a separate technical operating unit after the transfer or not.
  • France.  If the transferred business (or part) preserves its autonomy and is maintained as a separate operating unit after the transfer, the status and function of employee representatives (i.e., social and economic committee, recognised trade unions) must also be preserved by the transferee. 
  • Germany.  If the transferred business preserves its autonomy and is maintained as a separate operating unit after the transfer, the status and function of employee representatives (i.e., works council) must also be preserved by the transferee.  If only a part of a business is transferred, the transferors works council will retain a transitional mandate (Übergangsmandat) for six months or a remaining mandate (Restmandat) in order to preserve employee rights until the next works council elections.
  • Italy.  There is no provision regarding employee representatives and it is a matter for negotiation. However, standard practice is that employee representatives within the transferred business continue their appointment until it expires.
  • UK.  If the transferred business (or part) preserves its autonomy and is maintained as a separate operating unit after the transfer, then the recognition of any trade union will also be preserved following the transfer. TUPE does not, however, place restrictions on a trade union being derecognized in accordance with applicable contractual or statutory procedures following the transfer.

[1] There is no statutory definition of “assigned”, and the determination of whether an employee is assigned to the business (or part) will be based on the relevant facts and circumstances and the applicable case law of the European Court of Justice.

[2] In the absence of statutory definition of “assigned”, the determination of whether an employee is assigned to the business (or part) will be based on the relevant facts and circumstances and the applicable case law of the ECJ.

[3] There is no statutory definition of “assigned”, and the determination of whether an employee is assigned to the business (or part), or the relevant organized grouping of employees, will be based on the relevant facts and circumstances and the applicable case law of the European Court of Justice and the English courts.