Selling a business? Checklist to determine which employees will transfer

When you sell a business or part of it, you automatically take on the employees as well. It is important for both the buyer and the seller to determine exactly who those employees are. Which employees will transfer and which will remain behind? This checklist will help you figure it out.

Working for multiple business units

If employees work for multiple units within the company, it is important to assign them to the business units. This allows you to determine which employees will be taken over by the buyer and which will not.

When answering the question of which division within the group of companies the employee belongs to, it is important to distinguish between two circumstances:

• the employee is employed by another company but works for the company being purchased (the “seconded employee”);
• the employee is employed by the company being sold but does not work for the transferred division of the company.

Seconded employee: remains with old company

For administrative and legal efficiency reasons, employers sometimes opt for a structure in which the staff are employed by a specific group company, such as the parent company or a personnel company. Even within small companies, it is common for employees to work for different parts of a group of companies. This means that employees work for different parts of the company without having an employment contract with them.

If the business unit for which the employees work but where they are not employed is sold, the principle is that the employees return to the business unit with which they have an employment contract. The employees do not transfer to the buyer.

Permanently seconded employee: transfer

If employees are permanently seconded to a business unit within the group, different rules apply than when someone is temporarily seconded. This permanent nature means that it must be assumed that the employee will follow the business unit where the work is carried out to the buyer. This cannot be affected by the fact that the employee formally had an employment contract with another business unit that was not sold.

Same employer, different division: in principle, remains with old company

The other circumstance is that the employee is employed by the company that is being sold, but also works for another division that is not being sold. This is a situation that occurs frequently in practice.

After all, it is not unusual to work for several departments within the same company. For example, a telephone operator, receptionist or administrative assistant who performs work for several companies within the group. The question is what happens if one department is sold?

The basic principle is that these employees do not transfer to the buyer. However, a distinction must be made here. The outcome of the assessment depends on the facts. If an administrative assistant works for three business units, two of which are being sold, he or she will still transfer to the buyer. After all, two-thirds of his or her work belongs to the sold units. If the opposite is true, the employee will not transfer to the buyer.

The facts determine the transfer

Determining whether an employee will transfer can be very case-specific. The facts and circumstances of the case must be examined. When selling or purchasing a company or part thereof, it is important to thoroughly investigate employee relations. A simple list of employees who have an employment contract with the company is no guarantee that these employees will actually transfer.

Fruytier Lawyers in Business is a commercial law firm in Amsterdam that specialises in advising on and assisting with mergers and acquisitions. As your partner, we can use our knowledge and experience to prevent or resolve employee-related issues in a merger or acquisition. We are highly experienced in conducting due diligence investigations.

If you would like to know more about the transfer of undertakings and/or the consequences thereof under employment law, please feel free to contact our specialists.