Transfer of employment rights

What it means

A transfer of employment rights and obligations occurs when an employer’s business or part of it moves to another employer. Typical cases are a sale of a business or part of it, a merger, a demerger or the outsourcing of an activity together with its staff.

In such a case employees pass to the new employer automatically, by law, without dismissal and without new contracts. The new employer takes over their employment contracts on the same terms, together with their length of service, leave entitlement and the former employer’s obligations towards them.

The transferee is also bound by the transferor’s collective agreement, at least until it expires. The transfer itself is not a ground for dismissal; the law protects employees from losing their jobs merely because the owner has changed.

How it works in practice

In transactions we prepare a list of transferring employees with their pay, leave, benefits and entitlements not yet paid. These data are part of due diligence and affect the price, because the transferee also takes on liabilities that arose before the transfer.

The transferor and transferee must inform the employee representatives, or if there are none the employees themselves, within a statutory period in advance about the date, reasons and consequences of the transfer. We build this duty into the transaction timetable so that it does not hold the deal up.

In the transferee’s payroll system we set up the employees with continuity: the same start date, carried-over leave entitlement and average earnings. Deregistration and registration with the insurers are arranged so that there are no days without cover.

What to watch out for

Unpaid overtime, leave or bonuses from before the transfer pass to the transferee. If this is not reflected in the transfer agreement, the new owner pays them out of its own pocket. We therefore recommend warranties and a retention in the agreement.

An employee whose working conditions worsen substantially because of the transfer may end the employment and may be entitled to severance as if dismissed. We therefore plan any changes to terms after a transfer carefully and with enough time in between.