A business transfer is a change of ownership of a company, or a part of it, through a legal transaction. During the years 1977 (77/187 EC) and 2001 (2001/23), European legislation has pursued legal unification in the matter. However, there are still some differences between countries.
Business transfers in Germany
In Germany, Art. 613 of the German Civil Code govern business transfers. According to Art. 613 I S.1 of the German CC, the most important legal consequence is that the employment relationship in force is transmitted with all the rights and obligations to the buyer. A new employment contract is not necessary. In addition, the employee is protected by the prohibition of employment termination due to a business transfer. The employment relationship can certainly be modified by a mutual agreement or through an individual contract. The freezing on development contained in Art. 613 I S.2 of the CC is not inconsistent with this as it in fact refers to collective relationships contained in an agreement or a collective agreement.
Under Art. 613 II S.3 of the CC, the buyer is subrogated as the new employer in all workers’ claims. According to Art. 613. II S.1 of the CC, the transferor is subrogated to all obligations contracted prior to the business transfer and that expires before the end of the first year following the transfer, and will be jointly and severally liable with the buyer in respect to those obligations.
Art. 613 V of the CC requires that the employer explain to the workers the time, the causes, and the consequences of the business transfer. After the release of such information to the employees, they may object in writing to the modification to the employment relationship. Social courts have set demanding disclosure obligations, which generate great risks for the employer who transfers his business.
Business transfers in Spain
In Spanish labor law, Art. 44 of the Workers’ Statute regulates business transfers or business successions.
In Spain, as in German law, it is necessary to inform employees about the date of the transfer, the reasons for it, the legal, economic and social consequences, as well as planned performance measures.
The employer may provide information to the workers’ representatives, or directly to the workers themselves. The business transfer does not justify termination of the employment relationships, so the new employer shall be subrogated to the rights and obligations of the transferor.
Unlike the German model, the transferor and transferee will be jointly liable for three years for the social obligations arising prior to the transfer.
New contracts between the buyer and the employees are frequently negotiated in order to adapt the company to the changes resulting from the transfer. If new social measures are necessary for the business, the buyer will have to set up a period of consultation with the workers’ representatives on proposed measures. During consultations, the parties shall negotiate in good faith in reaching an agreement.
In cases where substantial changes to employment occurs due to the company’s business, philosophy or business management, the directors of the company may rescind the contract within three months of such changes, and the employees will be entitled to compensation up to the amount equal to seven days’ pay per year of service, with a maximum of six months, depending on what is agreed to in the contract.
This article is not considered as legal advice