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09. Transfer of Undertakings

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09. Transfer of Undertakings

Employees’ Rights in Case of a Transfer of Undertaking

In General

The Directive on employee rights and obligations in connection with a transfer of undertaking is implemented in Articles 7:662 – 666 of the Dutch Civil Code. According to these articles, a transfer of undertaking is “a transfer resulting from an agreement, merger or split of an economic entity, which entity maintains its identity.” It is explicitly stipulated that a part of a company may also be regarded as an economic entity. In other words, the applicability of Articles 7:662 – 666 of the Dutch Civil Code depends on whether or not the identity of the transferred entity remains the same. A direct contractual relationship between the transferor and the transferee is not required for the Directive to be applicable: the transfer may take place through the mediation of a third party, such as the owner or the person putting up the capital.

It is necessary to assess the facts in order to conclude whether or not the identity of the entity will transfer. According to case law, the identity of (part of) a company can be determined by various factors, including (but not limited to): (a) the type of business; (b) whether or not its tangible assets, e.g. buildings and movable property, are transferred; (c) the value of its tangible assets at the time of the transfer; (d) whether or not the majority of its employees are taken over by the new employer; (e) whether or not its customers are transferred; (f) the degree of similarity between the activities carried on before and after the transfer; and (g) the period, if any, for which those activities were suspended.

The European Court of Justice has – for example – ruled that in a labour-intensive company, the group of employees who do the work constitute the economic entity. If an essential part (in terms of quantity or expertise) of these employees is employed directly by the acquirer, in principle, preservation of the identity of the enterprise can be assumed as a result of which the regulations pertaining to a transfer of undertaking are applicable. In another case, the European Court of Justice ruled that the identity of the company was not based on its employees, but on its tangible fixed assets (in that case, buses).

If the criteria of the articles 7:662 – 666 of the Dutch Civil Code are met, upon the transfer of a business, the rights and obligations of the employer and that business under the existing employment contracts with the employees will be automatically (by operation of law) transferred to the acquirer of the business. A prohibition of termination is applicable in case the reason of such termination is the transfer of undertaking.

Employee representation

The employer has to consult the works council (or other employee representative body) about a proposed decision regarding the transfer of activities. The employer has to provide the works council or employee representative body with information on the grounds of the intended decision, the consequences for the employees, and the intended measures to be taken. The employer also has to inform the individual employees about the transfer of an undertaking and the consequences thereof for the employee.

Liability of Former Employer and Successor

For one year after the transfer of the business, the seller and the acquirer are jointly and severally liable for the fulfilment of the obligations under the employment contracts as far as these obligations are accrued before the transfer.

Pension rights

In principle, the buyer has to continue to apply the pension scheme of the seller. There are three exceptions: 1) if the buyer has its own pension scheme which he offers to the transferring employees; 2) if the buyer has to apply a mandatory sectoral pension scheme; 3) if a Collective Labour Agreement deviates from the pension scheme.

Employee’s objection

If an employee explicitly objects to the transfer, the employee will not enter into the employment of the transferee. The employment contract of the employee will thus end by operation of law at the time of the transfer.

Requirements for Predecessor and Successor Parties

For one year after the transfer of the business, the seller and the acquirer are jointly and severally liable for the fulfilment of the obligations under the employment contracts insofar as these obligations are accrued before the transfer.

In principle, the buyer has to continue to apply the pension scheme of the seller. There are three exceptions: 1) if the buyer has its own pension scheme which he offers to the transferring employees; 2) if the buyer has to apply a mandatory sectoral pension scheme; 3) if a Collective Labour Agreement deviates from the pension scheme.

If an employee explicitly objects to the transfer, the employee will not enter into the employment of the transferee. The employment contract of the employee will thus end by operation of law at the time of the transfer.

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