October 19, 2016

Business transfer – are employees part of the deal?

When a new owner takes over a business or part of a business while maintaining its existing identity we talk about Betriebsübergang, a business transfer in terms of Section 613a German Civil Code (BGB). Existing employment contracts automatically transfer to the new employer, even in case the new owner is of foreign origin.

This aspect of the German labor law goes back to the European directive 2001/23/EC. Therefore, everywhere in the European Union you will find similar rules.

What are the prerequisites for this kind of business transfer?

The affected business or part of business must be an economic entity and – despite the transfer – preserve its identity. Therefore, the essential criteria are a) the assignments need to stay the same and b) the manufacturing equipment needed in order to fulfill the operational purpose must not change in the course of the transfer.

What does the employer need to consider for a smooth transition?

Obligation to inform: prior to the transfer, either the previous employer or the new owner must notify the affected employees in written form about

  • the date or planned date of transfer,
  • the reason for the transfer,
  • the legal, economic and social consequences of the transfer for the employees, and
  • measures that are being considered with regard to employees.

The notification has to be comprehensive to an extend that enables the employee to decide whether he would like to make use of his right of objection or not. In this context, the employer has to observe existing laws and regulations very carefully.

Within one month after receiving a proper notification, the employee may object in writing to the transfer of his employment contract. If the notification is incomplete, the period of one month shall not apply.

Possible outcomes

If the employee objects to the transfer within one month, his employment relationship to the previous owner continues to exist.

If the affected employee does not object, the new owner automatically “inherits” the existing employment contract with all his rights and obligations. In this case, there is no need for a new contract.

German Civil Code - Sec. 613a
Directive 2011-23-EC


Florian Popella

Arbeitsrecht, Wirtschaftsrecht

Florian Popella