Transfer of business

When a company is bought by another company, it is usually not clear to employees what happens to their employment relationships. If there is a transfer of business, § 613a of the German Civil Code (BGB) regulates the legal consequences.

When does a transfer of business exist?

A transfer of a business exists when a business or part of a business is transferred to another owner by legal transaction. The decisive factor here is whether the economic entity retains its identity when it is transferred to the new owner. In practice, this cannot always be clearly determined. However, important indications in favour of a transfer of an undertaking are the takeover of substantial intangible or tangible assets. E.g. know-how, goodwill, machinery, inventory, premises. Or the takeover of a substantial part of the workforce. Especially in sectors where human labour is essential, such as the service industry.

As a result, the employment contracts existing at the time of the transfer of the business are transferred by law to the new owner. This means that the new owner enters into the rights and obligations of the already existing employment relationship. Something different applies only to employees who have objected to the transfer of employment relationships to the new owner. Their employment relationships continue with the old owner. The employees may object in writing within one month of receipt of the notification of the transfer of the business. Whether they object to the old or new owner is irrelevant.

Deviating agreements are invalid

Deviating agreements to the detriment of the employee are invalid. If the new employer presents the employees with an employment contract with improved conditions, for example increased wages. The employee is free to sign this employment contract. A contract amendment is also effective if the employment relationship with the new employer already exists and the parties then agree on a contract amendment at the expense of the employee. However, this must not be a circumvention of § 613a German Civil Code . Circumvention occurs, for example, if the contractual amendment is still in a very close temporal connection with the transfer of the business.

Termination due to the transfer of business

The law has a clear regulation:

“The termination of the employment relationship of an employee by the previous employer or by the new owner due to transfer of a business or a part of a business is ineffective.”

If the employer wants to terminate the employment contract due to the transfer of a business, this is not possible. Employees should consider taking legal protection against unfair dismissal and seek advice on this.

Many formalities and the legal consequences must be observed on the part of the old and new employer. On the employee’s side, it must be carefully examined whether an objection is worthwhile or not. In any case, legal assistance is recommended.