The employment law aspects of restructuring measures as part of business practice are coming under scrutiny. Company structures frequently undergo change, especially before sales of businesses, or parts thereof. Employers use relocation based on their managerial authority, transfers, termination agreements and dismissals with the option of altered conditions of employment or compulsory redundancies against employees to achieve their business aims. Where, though, do the boundaries of these restructuring activities lie in terms of transfer of undertaking law? When should such activities be judged by transfer of undertaking provisions?

I. Approach to the problem

It is unanimously agreed that the employee can only routinely claim rights under transfer of undertaking if he is employed by the part of the business being transferred. What happens, though, if the employee’s field of employment changes just before a transfer of undertaking as a result of a relocation order or transfer by the employer and as a result he is in fact employed in a different business or part of the business that is no longer being transferred to the purchaser? Do the rules pertaining to the transfer of undertaking also apply to this employee? In an extreme case, a reply in the affirmative may safeguard the job or, in the event of a negative reply, this may mean a job loss. If transfers and managerial authority-based relocations prior to the transfer of undertaking prove to be ineffective, employment contracts may pass to the purchaser, with no provision having been made for this in the acquisition agreement.

II. Current position

The BAG (Bundesarbeitsgericht – German Federal Labour Court) has most recently stated that the employer’s managerial authority-based relocation decisions regarding individual employees’ membership of a business at a point in time very close to a transfer of undertaking are to be measured against the employer’s restrictions on giving notice due to transfer of undertaking, section 613a (IV) subsection 1 German Civil Code (BGB). According to this, managerial authority-based relocations/transfers to a new business (part) are ineffective if they occur because of the transfer of undertaking. The employee bears the burden of presentation and proof in the case. In contrast, a managerial authority-based relocation/transfer is routinely effective from the point of view of undertaking transfer law if it occurs at a time at which the transfer of undertaking has not yet assumed tangible shape and the facts that justify it have not yet been ascertained.

III. Admissibility of managerial authority-based relocations or transfers prior to a transfer of undertaking

The employee’s managerial authority-based relocation/transfer by the employer is routinely admissible if the employer can prove that there was no question of a transfer of undertaking at the time of the decision. Employers would therefore be well advised to always document in writing the underlying motives for relocations/transfers of employees to new businesses or parts of businesses. The same applies to the time at which sale is first considered and contractual negotiations regarding the company or business.

A relocation/transfer by the vendor “based on a purchaser plan” must also be admissible as part of a restructuring scenario. This in any case applies if a purchaser’s binding concept or a restructuring plan exist, the execution of which had already assumed a tangible form at the time of receipt of the relocation decision or transfer. If a transfer were not effective in such a case, the employee would otherwise be affected by a legal consequence that is even more far-reaching, in the form of termination. In that case, relocation/transfer does not occur because of the transfer of undertaking, but in connection with general operational arrangements, more specifically as part of the purchaser’s restructuring plan.

IV. Inadmissibility of managerial authority-based relocations or transfers prior to a transfer of undertaking

In contrast, the relocation/transfer is routinely inadmissible if the employee is relocated to another (part of the) undertaking that is not being transferred because of and shortly before a transfer of undertaking. The proximity in time justifies a certain presumption regarding the motive for the action in terms of undertaking transfer law. If, in the process, the employer expressly relies on the transfer of undertaking in his relocation decision, the relocation is ineffective. The same applies if individual employees (e.g. the former proprietor’s secretary) are relocated to a new business because, although there is no reason, the purchaser of an undertaking that does not require restructuring is definitely not prepared to continue employing them. This applies even in the event of the prospective purchaser making the purchase contingent upon relocation elsewhere of these employees (known as compulsory relocation/transfer).

By: Susanne Hermsen