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Published on: 22 July 2016

Transfer of company

What employment conditions do you offer after a transfer?
If your company takes over another company, personnel will often transfer automatically. But under what employment conditions will these employees be employed by you? Are you required to offer all of the former employment conditions? Generally the answer is yes. But what freedom do you as the acquiring party have to amend the employment conditions?

Retention of employment conditions with take-over

The basic principle of the law is that the employee is entitled to the same employment conditions after the transfer as existed with his former employer. The law explicitly provides for the transfer of all rights and obligations of the employee.
This means that you, in principle, are required to offer the employees who transferred the same salary and employment conditions as they had with their former employer. This is also the case if you have different salary scales or a different amount of vacation days for your existing employee.

Company specific employment conditions also transfer to the new owner

But what about company specific employment conditions? Think of an employee discount on products and services (for instance mortgages or airplane tickets) or stock options. Company specific employment conditions are characterized by the fact that they were offered by the seller but are not offered by the purchaser.
The question that arises with the transfer of company specific employment conditions is if the purchaser is obligated to offer the exact same employment conditions. Is the purchaser also required to do this if this will lead to significant costs? Or can the company specific employment conditions be compensated by the purchaser? For instance, by giving discounts on products manufactured by the purchaser or via financial compensation for the loss of certain privileges? Principally, this is not possible, as was decided by the European Court of Justice.

Takeover partner bound by all employment conditions

The European Court of Justice repeated the basic principle that an employee cannot waive the rights he derives from the law in the event of the transfer of the company. This is the case, even if the employee has given his explicit consent for this. The fact that the employee had different employment conditions that did not set him back overall was not considered to be important.
So an exchange of employment conditions by the purchaser is not allowed. The thought behind this is that the employee needs to be protected against pressure and abuse of power by the purchaser.

It is possible to change the employment conditions after the transfer

Although an employee cannot waive his rights with the transfer to a new employer, parties are allowed to agree different employment conditions after the transfer. The normal rules of employment law apply for this. So this offers a solution: discuss with the employees after the transfer how the employment conditions can be changed and how this can be compensated. By the way, an employee cannot be obligated to cooperate just like that.
If the strict application of the rule that employment conditions have to be taken over really leads to practical and financial objections, the employee has to accept fair compensation. This exception only applies when the retention of the employment conditions would lead to disproportionate objections of the purchaser and would violate what could reasonably be expected from the purchaser. If an employee refuses the compensation offered in such a situation, he takes the risk of violating the standards of being a good employee.
Fruytier Lawyers in Business is specialized as corporate law office in Amsterdam in advising and assisting with mergers and acquisitions. With our knowledge and experience we can prevent or solve employee related issues in a merger or acquisition.
If you would like more information about the transfer of a company and/or employment related consequences, please contact us and call +31(0)20 521 01 30.

Articles by Myrddin van Westendorp

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