Business transfer

Various aspects of employment law play a role in the purchase or sale of a company. Both the buyer and the seller must be well prepared for the consequences for the staff. Below is an overview of the most important points to consider.

Transfer of undertaking

When a company – including its staff – is taken over, this may constitute a transfer of undertaking within the meaning of the law (Section 7:662 et seq. of the Dutch Civil Code). If the legal criteria are met, all rights and obligations arising from the employment contracts are transferred to the buyer by operation of law.

In that case, employees retain their existing employment contract, including all terms and conditions of employment. The purchaser is not authorised to unilaterally amend or terminate these employment contracts due to the transfer. In some cases, this principle also applies to temporary workers, such as payroll or agency workers, depending on the extent to which they are actually embedded in the organisation. Contracts with self-employed persons (freelancers) may also be part of the transaction: under certain circumstances, these may be transferred or terminated as a result of the transfer.

Due diligence on personnel

As a buyer, it is essential to carefully investigate all obligations with regard to the personnel being transferred before the transaction. This includes not only wage costs, but also obligations under collective labour agreements, outstanding bonuses, pension and share schemes, lease car agreements and other fringe benefits.

In addition, account must be taken of ongoing labour disputes, long-term sick leave and possible obligations to pay transition payments. Competition or relationship clauses also deserve special attention; these may prove unworkable or no longer legally enforceable after the takeover.

Please note: not all terms of employment are explicitly laid down in the employment contracts. You should therefore also enquire about customary practical agreements, tacitly accepted arrangements and rights that employees have acquired over the years. Such implicit conditions can be just as legally binding as written agreements and regularly lead to disputes in practice.

Employee participation

If there is a works council within the company, the Works Councils Act (WOR) requires that it be informed in good time and asked for advice on the proposed takeover. In some situations, this obligation may also apply to a staff representative body or other form of employee participation.

Reorganisation after acquisition

An acquisition may give rise to a reorganisation. When two organisations merge, it is not uncommon for there to be duplication of functions or a mismatch in roles. Cultural differences between organisations also regularly lead to friction and staff turnover.

Because acquired employees retain their existing terms and conditions of employment, this leads to inequality between employees who are now working for the same employer but under different conditions. It is understandable that the buyer wants to harmonise the terms and conditions of employment in order to achieve uniformity and equality within the organisation. Please note: simply changing terms and conditions of employment or terminating employment contracts is not permitted on the sole basis of the acquisition. Such measures are only permitted if there is an independent business necessity that is unrelated to the transfer itself.

Authors: Employment law solicitors Judy Sliepen and Myrddin van Westendorp