Netherlands: Supreme Court Clarifies In Which Circumstances Dismissal Following a Transfer of Undertaking is Permitted
In a recent ruling, the Supreme Court has clarified the relationship between Section 7:670(8) of the Dutch Civil Code and Article 4(1) of Directive 2001/23/EC. The central issue is the extent to which employees are protected against dismissal in the event of a transfer of undertaking, and under what circumstances dismissal is, nevertheless, permitted.
The Directive is primarily intended to protect the position of employees when a business is transferred to another employer. In case of a transfer of undertaking, employees automatically transfer to the acquiring party with their existing terms and conditions of employment.
An important principle of the Directive is that the transfer of an undertaking does not in itself constitute valid grounds for dismissal. Neither the seller nor the buyer may dismiss employees solely on the basis of the transfer. This prevents a transfer of undertaking from being used as a pretext to terminate employment contracts that would otherwise have continued. This principle has been implemented in Dutch law in Article 7:670(8) of the Civil Code. According to this provision an employer is prohibited to dismiss employees because of the transfer of undertaking.
This prohibition is however not absolute. The Directive allows for dismissal in case of economic, technical or organisational reasons that entail changes in employment. These so-called ETO reasons may constitute ground for dismissal, provided they are not intrinsically linked to the transfer of undertaking itself.
In this decision the Supreme Court has clarified that the absence of an intrinsic link to the transfer does not mean that there may be no connection whatsoever between the transfer and the ETO reason for dismissal. This follows already from the fact that the dismissal is made in the context of a transfer of undertaking. Additional circumstances can make that the dismissal meets the requirement of ETO reasons and is not intrinsically linked to the transfer of undertaking.
The Supreme Court emphasises that the Directive is not only intended to protect employees, but also aims to ensure a balance between the interests of employees and those of the acquiring party. This means that the acquiring party must be allowed to implement necessary adjustments and reorganisations relating to and required for the continuation of the business. The Court does confirm that when a reorganisation follows relatively soon after a transfer, that the employer is required to better explain why the dismissal is not intrinsically linked to the transfer.
Key Points for HR
This decision gives guidance for employers that plan to reorganise following the acquisition of a business that will lead to redundancies. Dismissal following a transfer of undertaking is possible, provided legitimate ETO reasons apply, and these are not intrinsically linked to the transfer. Employers need to properly substantiate the business reasons for a reorganisation that results in redundancies, in particular when the reorganisation follows relatively shortly after the transfer of undertaking, to demonstrate it is not linked to the transfer itself.
