Rules in transactions/business transfers
Provided that the same business activity is maintained, the new employer takes the position of the former employer in the employment contracts and takes their position in respect of the rights and obligations arising from the employment relationships. This is the case even if the employment contract is terminated before the transfer. The new employer takes their position as the employer of such former employees in respect of due and non-paid credits. All credits, rights and obligations of the employer arising from the execution and implementation of the employment contract, its violation or termination are subject to a statute of limitations of 1 year starting on the day following the day of termination of the contract. Employees keep the same seniority and acquired rights which they had in the service of their former employer.
The new employer undertakes the obligations of the former employer limited to those incurred during the 12 months prior to the modification, provided that, up to 22 business days prior to the modification, the new employer gives notice to the employees that they must claim their credits up to the 2nd business day prior to the date scheduled for such modification. Within 22 business days following the modification of employer, the employees have the right to terminate the employment contract with prior notice, but this does not confer any right to compensation.
Where there is an asset transfer that qualifies as a business transfer, all obligations arising from the employment contracts that the transferor has executed with its employees are taken on by the transferee after the transfer. Employment contracts continue with the transferee and the employees retain their seniority with the transferor and the rights arising from their contracts. Therefore, in the event that the whole business is transferred, on the execution of the transfer, all employees are automatically transferred to the transferee, without the need to secure employees’ written consent. Where there is only an assignment of staff without any business or asset transfer, the transferred employees’ written consent must be acquired. Without such consent, the employee may terminate the employment, with the right to compensation.
Although, in practice, both internal consultations and collective consultation with trade unions are required before a business transfer takes place, the transferor and the transferee are not required by law to inform or consult employees on a business transfer.
The transferor and the transferee are jointly and severally liable for any dismissals that arise due to the transfer.
At common law, employees cannot be transferred from one employer to another without their consent.
Under the Fair Work Act, there are rules which apply if there has been a "transfer of business." The transfer of business rules apply when there is a connection between 2 employers – including the sale and purchase of all or part of a business, certain outsourcing and in-sourcing arrangements and where the 2 employers are associated entities – and the new employer agrees to employ some or all employees of the old employer within 90 days and there has been no significant change to the work performed by those employees. The main effect of the transfer of business rules is that a transferrable instrument (ie, a collective labor agreement, such as an enterprise bargaining agreement) that covered the employee before the transfer will continue to apply after the transfer and all service is regarded as continuous and accrual of leave benefits transfer with the employee, with some limited exceptions. The Fair Work Commission can make certain orders altering the effect of the transfer of business rules if it deems it appropriate.
Automatic transfer under the Austrian rules implementing the EU Acquired Rights Directive in a business sale or service provision change. Significant restrictions on changing terms and conditions following a transfer. Duty to inform and consult with employees and/or the works council, if any. Any dismissal connected to the transfer is void unless for a good reason.
No automatic transfer principles and no laws covering business transfers. Employees transfer through termination and rehire in an asset deal.
Automatic transfer under the EU Acquired Rights Directive/Collective Bargaining Agreement no. 32, in a business sale or service provision change. Significant restrictions on changing terms and conditions following a transfer. Duty to inform and consult with employee representative bodies, or, in absence of employee representative bodies, provide this information directly to employees. Any dismissal connected to the transfer is unfair unless for an economic, technical or organizational reason.
There is no obligation to notify the government before asset or share deals. There are significant restrictions on changing terms and conditions of employment.
In most jurisdictions, legislation exists which will either:
- Require the transfer of employees as a result of a sale of a business or
- Provide that employees who accept an offer of employment with, or simply continue to be employed by, the purchaser will have their employment deemed continuous and their past service honored.
Unless a contract or collective agreement provides a right or option to claim termination amounts, employees accepting a purchaser's offer of employment, either expressly or by continuing in employment, will not be entitled to claim termination amounts from the seller.
There is no obligation in Chile to inform unions or labor authorities of any transaction or business transfer.
Chilean law permits the transfer of all or part of a business, in which case, in principle, the new company that continues the operations will be considered the employer of the employees who work for that business. Under this scenario, the employees maintain seniority as well as all their rights and obligations under the employment agreements and practices in place with the former company, which must be honored by the new employer.
If the new company must change the employment conditions of the employees who will be transferred with the business, termination of the employment agreement by the transferring company and a new employment agreement with the new company generally are the most suitable solutions.
No automatic transfer of employment in an associated company transfer or change of business ownership. Therefore, the previous employer must terminate the employee's employment contract, and the new employer must offer – and the employee must accept – employment. If the new employer recognizes the service years with the previous employer, then the previous employer may be able to avoid liability for a severance payment.
Employment transfers may be implemented via employer substitution or the assignment of employment agreements, or by termination and rehire. Employees transferred by substitution or assignment are entitled to receive at least the same benefits and to perform their work subject to the same terms and conditions as before the transfer. The employer who has been substituted is jointly responsible with the new employer as to the labor obligations arising prior to the employer substitution.
An employer substitution occurs, regardless of the will of the parties, when the following 3 criteria are met:
- Change of employer (for any reason)
- Continuity of establishment (understood as the core business of seller) and
- Continuity of employment agreement.
Automatic transfer under the Transfer of Undertakings Directive 2001/23/EC and the Czech Labor Code where there is a transfer of an employer’s activities or tasks, or part thereof. Duty to inform and consult with employees and employee representatives. Protection of employees against significant deterioration of working conditions (ie, significant restrictions on changing terms of employment following transfer and rights to claim severance pay in case of deterioration). Employees cannot be dismissed by virtue of a transfer.
Under the Danish Act on Employees' Rights, in the event of Transfers of Undertakings, employees' contracts of employment transfer automatically in the event of a business transfer or service provision change.
There are certain requirements for employers to inform and consult with their employees prior to a transfer.
Dismissals due to the transfer of an undertaking, or part thereof, will not be considered reasonably justified unless the dismissal is due to economic, technical or organizational reasons entailing changes in the workforce.
The Employment Contracts Act stipulates that, on the transfer of an undertaking, existing employees transfer on their existing employment terms. The Act on Co-operation within Undertakings stipulates information obligations as regards to the personnel. Employees cannot be dismissed merely because of a business transfer, and dismissals or change of employment terms are possible only on normal grounds after the transfer. Employees or unions cannot object or prevent the transfer, but an employee who is affected by the business transfer is entitled to resign with a shorter notice period. A share sale is not considered a transfer of undertaking.
Automatic transfer of the employment contract under the EU Acquired Rights Directive/Article L. 1224-1 of the French Labor Code in case of a modification of the employer's legal situation (eg, a sale or merger) and provided the criteria set by case law are met, meaning that it is a transfer of a standalone business that maintains its identity within the transferee.
In case of a partial transfer of undertaking, the transfer of protected employees will require the labor inspector's prior approval.
In share or asset deals, it is required for the impacted companies to consult with their Social and Economic Committee (Comité Social et Economique or CSE). Between 15 days and 2 months (3 months in rare situations) of consultation may be required depending on the circumstances.
Under certain circumstances, employees of SMEs must be informed of a proposed sale of the business or of shares to give them the opportunity to make an offer, although there is no obligation on the employer's part to accept any such offer.
Automatic transfer of employment under the EU Acquired Rights Directive/Germany's transfer of business (Section 613a of the Civil Code) rules in case of an asset deal or service provision change. Employees shall receive detailed written information prior to the transfer and may object to the transfer within 1 month after receipt thereof.
There is a duty to inform and consult with the works council. Significant restrictions on changing terms and conditions following a transfer exist. Any dismissal connected to the transfer would be unfair; dismissals for other reasons are possible.
Hong Kong, SAR
No automatic transfer of employment. This includes an associated company transfer or change of business ownership, or a merger situation where the employment entity is changed. Therefore, the previous employer must terminate the employee's employment contract, and the new employer must offer – and the employee must accept – employment. If the employee accepts employment with the new employer or unreasonably refuses employment with the new employer in circumstances where the offer of new employment is on the same terms or terms and conditions no less favorable than those with the previous employer, then the previous employer may be able to avoid liability for a severance payment, subject to satisfaction of other conditions. There is no duty to consult, either individually or collectively, with employees or employee representatives.
Where there is the transfer of a business, there will be an automatic transfer of employment relationships existing at the time of the transfer. The entire employment relationship, with all rights and obligations, will transfer.
Duties to inform the authorities and to inform and consult with the works council exist. Any dismissal based purely on the fact of the transfer is unfair and unlawful.
These rules do not apply to share deals or to a business transfer when the transferor is subject to a liquidation (ie, insolvency) procedure.
Indian employment law does not provide for the automatic transfer of employees. ID Act provides that, upon transfer of the ownership or management of an undertaking, every ''workman'' who has been in continuous service in any industry for at least 1 year (ie, 240 days) will be deemed to have been retrenched (ie, terminated) and will be entitled to retrenchment compensation (equivalent to 15 days' average pay for every completed year of continuous service or any part thereof in excess of 6 months) and to receive 1 month's notice or wages in lieu thereof, unless the following applies:
- The employee consents to their employment being transferred to the transferee
- The transferee agrees to provide the employee with continuity of service on terms no less favorable than those which applied prior to the transfer
On and from the date of transfer, the transferee steps into the shoes of the transferor and becomes responsible for liabilities and obligations relating to such workmen including central and state taxes, provident fund contribution, gratuity, accident compensation and employee state insurance contribution.
With respect to liabilities prior to the date of transfer, the transferor and transferee both shall, in accordance with ESI Act and EPF Act, be jointly and severally liable to make provident fund and insurance contributions in respect of the period up to the date of the transfer, provided the liability of the transferee is restricted to an amount equivalent to the value of the assets obtained by way of the transfer.
Employees other than workmen usually resign from their service and are reappointed by the transferee unless they do not wish to transfer. In the event the transferee agrees to provide continuity of service, that continuity will then be reflected in the employment contract.
Employees are not automatically transferred on a business transfer, which includes a merger. Indonesia does not have TUPE or TUPE-style regulations. Employees should be consulted, and the following 3 options are possible in relation to permanent employees:
- The employee is not willing to continue their employment with the new employer.
- The new employer is not willing to accept the employee.
- The new employer and the employee are willing to continue the employment as if no business transfer has occurred, with the employment relationship continuing on the basis of the same terms and conditions (or better) as before the transfer, and usually carrying forward accrued seniority. Employees cannot be given less beneficial terms unless they are terminated by the former employer or made redundant and rehired by the new employer. In that case, the new employer may rehire on its own terms.
Regardless of the reason for termination, in the event of a business transfer as explained above, the employee must be paid a certain amount in severance pay plus a term of service recognition payment, if applicable, and compensation, if applicable.
A non-permanent worker who chooses not to accept a transfer of employment offer, or who is not offered a transfer, is generally entitled to receive the wages for the remaining period of their fixed-term contract.
No protection against dismissal for employees in a business transfer. However, as with nearly all terminations of employment, unless the employer and employee reach agreement, the termination must follow the industrial relations dispute settlement procedure before the employee's employment may be terminated, and severance entitlements must be paid.
The European Communities (Protection of Employees on Transfer of Undertakings) Regulations transpose the Acquired Rights Directive and provide for automatic transfer of employees with undertakings – or parts of undertakings – which retain their identity post-transfer.
On a business transfer, there is also a duty to inform and consult with employee representatives and a prohibition on transfer-related dismissals, unless dismissal is justified on economic, technical or organizational grounds.
Acquisitions that entail change of ownership will generally not result in changes in employment relations. Transfer of employees to a new employer as part of an asset transfer requires the employees consent. This can be achieved through assumption of employment arrangements by buyer (including seniority-based rights) or through a "fire-rehire" approach (there may still be transfer of residual liabilities deriving from the period of employment preceding the transfer).
Automatic transfer of those employees who belong to the transferred business or branch of business, without any interruption of the employment, to the transferee, regardless of the employees' consent. The transferred employees maintain all the rights to which they were entitled with the transferor. The transferor and transferee are jointly liable for entitlements that the transferred employees had at the time of the transfer. Duty to inform and consult with employee representatives.
In an acquisition by business transfer, employees of the selling company will continue as employees of the selling company. If employees are to be transferred to the buyer, it is typical for the employee to resign from the selling employer and then be newly hired by the buyer under a new employment contract executed by the employee.
In a merger, the merged entity will cease to exist, and the surviving entity shall succeed to the contractual obligations of the merged entity, including employment agreements. Consequently, employees of the merged entity will automatically become employees of the surviving entity, keeping terms and conditions of employment including those under the merged entity's work rules.
In a statutory company split, the split of the employees should be handled in accordance with the Labor Contract Succession Act, and some employees may automatically transfer with the business that is being transferred. The splitting company must provide notice, in writing, as to the split-plan or agreement to the employees who will be transferred at least 2 weeks before the approval of the company split. An employee:
- Who is mainly assigned to the target business but is not included in the transfer to the purchaser or
- Who is not mainly assigned to the target business but is included in the transfer to the purchaser has the right to object within 2 weeks of receipt of the notice.
Kenya does not have a specific law governing employment on the transfer of a business. Normally, this is treated as a redundancy irrespective of whether alternative employment is offered by the transferee at no less favorable terms with recognition of past years of service with the transferor. Employees are terminated by the vendor, and new employment contracts with the purchaser are to be entered into simultaneously.
Employees transfer through termination and rehire in an asset deal.
In case of business transfers falling under the scope of the EU Acquired Rights Directive, as implemented in Luxembourg, all employment contracts existing at the date of the transfer must be maintained with the new employer. All employees' rights are maintained and transferred to the transferee.
Duty to inform and consult the employees' representatives and notify the transfer to the ITM.
Any dismissal connected to the transfer would be unfair unless for an economic, technical or organizational reason.
No provision for automatic transfer of employment. Employees will remain employed by the seller in a sale of business transaction. The "transfer" of employees in a sale of business transaction is effected by a termination (by the seller) and rehire (by the buyer), and in this scenario the seller will be exempted from paying any statutory severance payment if the new offer from the buyer is under terms and conditions of employment not less favorable than those under which the employee was employed by the seller. An employee will not be entitled to statutory severance payment if the employee unreasonably refuses the new offer.
Employment transfers may be implemented via an employer substitution letter. Employment transfer through substitution of employer is only effective if the assets related to the business are also transferred. Transferred employees are entitled to receive at least the same benefits and perform their work subject to the same terms and conditions as before the transfer. The employer who has been substituted will be jointly responsible with the new employer for a period of 6 months.
Automatic transfer pursuant to article 19 of the Labor Code in a business transfer.
Information must be sent to the employee's representatives, if any exist in the company, but no authorization or consent is required.
In the event of a transfer of a business, the employees are automatically transferred to the new employer unless the employees decide to terminate the employment contract. The rights and obligations under existing employment contracts and collective labor regulation instruments, including those arising from an employee's length of service, pass to the new employer.
Communications must be made to the Ministry of Labor and to the trade union, if any, informing them of the transfer, date, reasons, consequences thereof and intention to respect the rights acquired by the employees in the previous labor relationship. The law does not set a minimum time period, but, in practice, it is appropriate for communications to be made 30 days in advance.
There are no specific rules governing employment implications of transactions/business transfers, other than as below.
An employer must pay a statutorily prescribed severance payment to the affected employees in accordance with relevant laws in the case of the employer's breach of contract, liquidation, sale of the business, winding-up the business or reducing the number of workers.
The severance payment is based on the length of time the employee has continuously served the employer, and on the basis of the employee's last salary (without overtime premium). See ''severance" below.
Automatic transfer under the EU Acquired Rights Directive/Dutch civil code in a business sale or service provision change. Significant restrictions on changing terms and conditions following a transfer. Duty to inform and consult with employee representatives. Any dismissal connected to the transfer would be unfair unless for an economic, technical or organizational reason. Works council has the right to advise.
New Zealand law does not contain any automatic transfer provisions except for a few limited classes of employees.
If a business is sold, transfer of employees depends on the nature of the sale.
Where a business, or part of the business, is acquired by way of an asset and goodwill purchase, the employees do not automatically transfer to the new owner but must agree to do so. Where a business, or part of the business, is acquired by way of a share purchase, the employment of employees remains unchanged.
Special provisions apply for businesses that employ ''vulnerable employees.'' This is a special category covering, for example, cleaning and catering staff.
There are also requirements under the Employment Relations Act 2000 for there to be a process for consultation with staff in business transfer situations. These are called ''Employment Protection Provisions'' and are process requirements only, meaning there is no substantive right to transfer.
No legislation on transaction/business transfers except if provided in the employment contract. Where the contract of employment does not provide for a transfer of undertaking, consent of the employees is required for the transfer of the employment. Termination and rehire is an alternative.
The Labor Act prescribes that where an employer seeks to transfer any employee to another employer further to a transfer of business, the transfer shall be subject to the consent of the employee and the endorsement of the transfer upon the contract by an authorized Ministry of Labor officer. The Labour Act is silent on when employee consent must be secured. However, it is best practice to secure consent before or at the time the transaction agreement is signed in order to avoid potential issues. This process is only applicable to the class of workers that are covered by the Labor Act, i.e., manual labour or clerical workers.
For other categories of employees not covered by the Act, employers are not required to notify or inform employees prior to entering into transactions for the transfer of a business. The transfer of employees, and any consequential notifications, will therefore depend on the terms of the employment contract.
Automatic transfer under business transfer regulations. Rights and obligations under the employment contracts are transferred to the new employer. Restrictions on changes to terms and conditions following a transfer. Duty to inform and consult with employee representatives. The transfer is not in itself grounds for dismissal.
Omani employees automatically transfer to the purchaser; however, expatriate employees do not.
Any corporate reorganization, business purchase, downsizing or any similar matter:
- Is not a valid cause for individual termination and
- Should not affect the salary and conditions of the employees involved, unless there is prior written agreement with the employees.
In case of a merger, the change of employer occurs automatically due to the method of transfer, so employee consent is not needed. The employment continues with the surviving company on existing terms. If the surviving company wants to change the existing terms, it must obtain consent in writing from each employee with respect to these new terms.
In a share deal, employment continues.
In an asset deal, the parties may agree to assume the employment agreements, which requires employee consent. Alternatively, employees may be terminated and rehired, which would result in the seller being liable for separation pay of 1 month per year of service or at least 1 month's pay, whichever is higher.
Automatic transfer of employees under the EU TUPE Directive and the Polish Labor Code. The transferor and the transferee are jointly and severally liable for the obligations resulting from the employment relationships that arose before the transfer of a part of an undertaking. They have certain information and consultation obligations towards the employees and the employees' representatives (ie, trade unions and works council). A transferred employee has the right to terminate their employment relationship within 2 months of the transfer date, without notice, providing 7 days' prior notice. Termination according to this procedure has the same legal effect as if the employment relationship were terminated with notice by an employer. Dismissal solely due to transfer is unlawful. The transferee is obliged to apply any CBA adopted by the transferor and applicable to the transferred employees for a period of 1 year after the transfer date, unless the transferee applies more favorable conditions than those resulting from the CBA.
Automatic transfer under the EU Acquired Rights Directive and the Portuguese Labor Code in case of change of employer (eg, sale of an independent standalone business unit, merger or spinoff). Right of the employees to maintain the same terms and conditions. The transfer is not by itself a cause for fair dismissal. Duty to inform, and, in case labor measures are planned (eg, change of work center or change of employment conditions), duty to consult with employee representatives. Under certain circumstances, the employee may oppose the transfer or may resign after the transfer, with entitlement to legal compensation (ie, constructive dismissal).
No automatic transfer principles and no laws covering business transfers. Employees transfer through termination and rehire in an asset deal.
Automatic transfer under the EU Acquired Rights Directive and Romanian Transfer of Undertaking Law No. 67/2006 (TUPE) in asset deals typically involving a business or undertaking sale. This entails transfer of the rights and obligations arising from the transferred employees' individual employment agreements and the applicable collective bargaining agreement – for its duration – in force on the transfer date. There are restrictions on changing terms and conditions of employment following a transfer. There is a duty to inform and, in certain cases, to consult with the employee representative bodies for both the transferor and the transferee. Any dismissal connected to the transfer is prohibited.
Employees must consent to a transfer of employment and generally cannot be dismissed because of the transfer. It is possible to terminate the agreements with the general director, their deputy and chief accountant within 3 months of a change of owner in certain instances.
If the ownership of a company is transferred to a new owner, or a change takes place in its legal form through merger, partition or otherwise, the employment contracts shall remain in force, and service shall be deemed continuous. As for the employees' rights accrued for the period prior to the change, such as wages or unrealized EOSG on the date of transfer of ownership, the predecessor and the successor shall be jointly liable.
However, in the case of an asset sale, employees generally transfer through termination and rehire, but the predecessor and the successor may agree to transfer all the previous rights of the employee to the new owner with the written consent of the employee. If the employee disapproves, they may request the termination of their contract and collect their dues from the predecessor.
Under the EA, EA Employees are automatically transferred if an undertaking or part thereof is transferred from one person to another as a going concern. There are notification and consultation requirements required under the EA relating to the automatic transfer of EA Employees. Non-EA Employees do not transfer automatically and instead must have their employment contractually terminated by the transferor on a business transfer, after which they may then be rehired by the transferee or have their contracts novated.
Automatic transfer of employment under the EU Acquired Rights Directive/Slovak Labor Code's rules applies in case of a transfer of an economic unit (eg via sale of enterprise, or in certain cases via an asset deal).
Employees must receive detailed written information no later than 1 month prior to the anticipated transfer, and may object to the transfer. Duty to inform and consult with employee representatives applies. Significant restrictions on changing employment terms and conditions following a transfer apply. Any dismissal connected to the transfer will be deemed invalid; dismissals for other reasons are possible under the strict rules set forth by the Labor Code.
Employees automatically transfer to the new employer by operation of law in the event of a transfer of a business or service as a going concern. No general consultation requirement, and employees transfer on terms and conditions that are, on the whole, not less favorable. Disclosure of information to employees required as well as the conclusion of a written agreement setting out a valuation of the accrued employee-related liabilities, with failure to do so resulting in limited joint and several liability for the 2 employers for a period of 12 months if an employee is dismissed for operational requirements. A dismissal that is related to a transfer is automatically unfair, but dismissals due to genuine operational requirements may still be effected if the reason for dismissal is unrelated to the transfer.
The transferee automatically assumes the transferor's responsibilities with regard to the employees, including their working terms and conditions as well as liabilities, unless the employees otherwise agree. Unless there is just cause, employees are protected against dismissal before or after the transfer.
Automatic transfer under the EU Acquired Rights Directive and Section 44 of the Workers' Statute in case of change of employer (eg, sale of an independent stand-alone business unit, merger or spinoff). Right of the employees to maintain the same terms and conditions of employment. The transfer is not by itself a cause for fair dismissal. Duty to inform, and in case labor measures are planned (eg, change of work center, change of employment conditions, collective dismissal), duty to consult with employee representatives.
The Swedish Employment Protection Act (EPA) enacts the European Union's Acquired Rights Directive regarding business transfers. The EPA provides that, in the event of the transfer of an undertaking or business, or a part thereof, from one employer to another, the rights and liabilities of the employer are also transferred. The transferor and transferee have a duty to inform and consult with trade unions if the respective company is bound by a collective agreement, or if any trade union whose members employed by the company will be affected by the transfer. Any dismissal connected to the transfer would be in breach of the EPA, unless for an economic, technical or organizational reason.
Automatic transfer of all employment agreements in case of transfer of business undertakings – mostly asset deals. Duty to inform and consult with employee representatives, if any – or, if none, with the employees.
Taiwan, Republic of China
There is no automatic transfer of employees in an asset sale. The new employer must inform the employees of the new terms and regulations and obtain the employees' formal consent to the offer of new employment. If an employee refuses to accept the new terms and conditions, the previous employer must make severance payments to the employee. There is also a duty to inform and consult with employee representatives (ie, unions).
In a merger and acquisition situation, 30 days' advance notice of the acquisition and the terms and conditions of employment with the new employer must be provided to the employees. Employees then have 10 days to accept or decline the offer with the new employer. The employee's failure to respond presumes consent. Past seniority must be recognized.
There is no automatic transfer of the employment relationship from one entity to another under the LPA. Employees are normally transferred in 2 ways:
- The transfer of employment from the transferor to the transferee with the employee's clear written consent or with a tripartite agreement entered into between the transferor, transferee and the employee, stipulating that all rights and benefits enjoyed by the employee during their employment with the transferor will continue and the employee's length of service with the transferor will be recognized by the transferee, or
- Full termination of the employee's employment with the transferor and signing of a new employment agreement with the transferee.
In the latter case, the transferor is liable for providing the employee with statutory severance pay and other compensation as provided under the LPA and the employee's employment contract. With the employee's employment fully terminated by the transferor, the transferee may offer the employee new employment with different terms and conditions, which may be less favorable than those offered by the transferor, and the employee's service with the transferor will not be recognized.
Change of ownership of business through shares acquisition
A mere transfer of shares in the employing entity is not considered a transfer of business or employer as the employing entity remains the same.
The Labor Code states that the labor contract remains in place between the worker and the employer if the legal status of the employer changes. In other cases, the transfer of an employee from one company to another would require an agreement between all three parties.
There are several provisions under separate laws governing transfer of employees from 1 employer to another:
- Turkish Code of Obligations No. 6098 (TCO)
- Labor Law
- Turkish Commercial Code No. 6102 (TCC)
The provisions under the TCO govern transfer of employment contracts from a company to another in a broader sense, while the Labor Law specifically governs transfer of workplace and the TCC specifically governs transfer of employment contracts in corporate transactions.
The application of the above laws may differ depending on the nature of the transaction: whether the employees will be transferred through a spinoff or by way of a business transfer.
In the event of a spin-off transaction
If the employees are to be transferred to another entity within the context of a spinoff transaction to take place in Turkey, the provisions under the TCC will be applicable. According to Article 178 of the TCC, the employees will be transferred to the transferee with all rights and obligations unless the employees object to such transfer. In this regard, the TCC provides "a right of objection" to the employees.
Turkish law does not stipulate any specific requirement as to when and how a notification must be made to the employees. However, it is naturally advisable for the transferor to notify the employees in writing regarding the contemplated transfer before the spinoff is affected. Upon such notification, if the employees do not object to the transfer of their employment contracts, the transferee becomes their new employer once the spinoff transaction is effective.
If the employees are going to be transferred with exactly the same terms and conditions – that is, no special benefit will be provided to employees of different seniority or position – a template letter addressed to each employee will suffice.
If an employee objects to the transfer, their employment contract will be deemed terminated following completion of their notice period. In this event, the employee will be paid their outstanding salary and other labor entitlements (eg, annual leave entitlements, premiums or bonuses). The TCC remains silent on whether or not the employees become entitled to receive severance pay in the event of such termination. However, certain scholars opine that, in the event of such termination, the employees become entitled to receive severance pay. Importantly, as per the 3rd paragraph of Article 178, both the transferor and the transferee are jointly liable for payment of the employees' such entitlements, including severance pay.
In the event of a business transfer transaction
If the employees are to be transferred to the transferee within the context of a business transfer transaction to take place in Turkey, the provisions under the Labor Law and the TCO will be applicable.
According to the TCO, if the employment contracts will be transferred from 1 employer to another, the employees' prior written consent must be obtained. However, the TCO remains silent on what would happen if the employee were to not consent to the transfer. As modern Turkish labor law's main concern is protecting employees' benefits, it suggests permanence in employment relations. In line with this concern, contrary to what the TCC provides, Article 6 of the Labor Law states that the transfer itself does not constitute a just cause or valid reason for termination of the employment contracts on its own, and, if the employer intends to terminate the employee's contract, it must base the termination on economic or technological reasons or an organizational restructuring.
Contrary to what the TCC provides, Article 6 of the Labor Law should be taken into consideration.
Automatic transfer under the Employment Act and additional regulations on a transfer of business. Significant restrictions on changing terms and conditions following a transfer. Period of continuous service is preserved. Where only employees are being transferred or the employer is being changed, there is a duty to obtain the consent of employees and consult with employee representatives, if any.
If an employee transfers from one employer to another without necessarily transferring the business, in the absence of a written agreement between the new employer and the employee, terminal benefits must be paid within 2 months of the transfer. These include accrued but untaken leave and/or overtime, certificate of service and any other contractual benefits under the employee's old terms of employment.
Any dismissal connected to the transfer would be unfair unless for an economic, technical or organizational reason.
In the event of a change of a company's ownership or a company's reorganization (eg, merger or spinoff), employment continues with the company or its successor without change in terms and conditions. In case of an asset deal, however, employment must be terminated and rehired.
United Arab Emirates
No automatic transfer principles and no laws covering business transfers. Employees transfer through termination and rehire in an asset deal. Contracts of employment, residence visas and work permits must be addressed.
Automatic transfer under the UK's Transfer of Undertakings (Protection of Employment) Regulations (TUPE) in a business sale or service provision change. Significant restrictions on changing terms and conditions following a transfer. Duty to inform and consult with employee representatives. Any dismissal connected to the transfer would be unfair unless for an economic, technical or organizational reason.
None, except if it results in a plant closing or mass layoff, in which case employees are generally entitled to at least 60 days' notice, if feasible (see “Mass layoff rules” below). In an asset sale, employees may be transferred through termination and rehire.
When a business is acquired because of a share or stock purchase, there is no change to the identity of the employer under Venezuelan labor law. The buyer steps into the shoes of the seller and assumes all contractual and statutory rights and liabilities owed by or to its employees.
In contrast, where an asset purchase amounts to the transfer of a business (or part of a business), there is a change of employer, and the following rules apply:
- All rights and duties of the transferor stemming from the employment contract as it exists at the date of the transfer must be transferred to the transferee.
- The change of employer must be notified to the employee, the employees’ union and the Labor Inspector.
The old and new employer are jointly and severally liable for all employees’ vested rights at the time of the transfer, for up to 5 years from the effective transfer date.
Employees who do not consent to the change of employer may resign with cause within 3 months from the date of the transfer and are entitled to severance payments equal to the amount they would have received in the event of dismissal without cause.
Upon a transfer of assets, change of ownership, division or separation, consolidation or merger, sale, lease out or conversion of the company’s form impacting the job of several employees, the previous employer must prepare a so-called labor usage plan. The previous employer and the successor employer must implement the labor usage plan. When employees’ employment contracts are terminated as a result of the transaction or conversion, the employer must pay a specific severance allowance, called a job-loss allowance, to the affected employees who have regularly worked for the employer for 12 or more months.