A transfer of undertaking is the transfer of an economic entity that retains its identity, as a result of an agreement, a merger or a demerger. The employees assigned to it transfer by operation of law, keeping their terms and conditions.
Legal basis
Articles 7:662 to 7:666 of the Dutch Civil Code implement Directive 2001/23/EC. Article 7:662(2) defines the entity as an organised grouping of resources for the pursuit of an economic activity. Article 7:663 provides that the rights and obligations under the employment contract pass automatically and that the transferor remains jointly liable for one year. Article 7:665 gives the employee a right to compensation where the transfer leads to a substantial change in terms to their detriment. Article 7:670(8) prohibits dismissal because of the transfer. In bankruptcy the regime in principle does not apply under Article 7:666, although the Court of Justice limited that exception in the Smallsteps and Heiploeg cases.
How it works in practice
The central question is whether the entity retains its identity. For capital-intensive activities the transfer of assets weighs heavily; for labour-intensive activities it is the taking over of a substantial part of the workforce. In tendering and contract changes in cleaning, security and catering that regularly produces a transfer, even without any direct agreement between the old and the new provider. Parties cannot contract out of it; they can and should address the consequences and indemnities in the sale agreement.
Where it goes wrong
Buyers assume they can choose which employees come across. A second error is overlooking pension entitlements and collective agreement terms, which under conditions also transfer. Third, the works council’s right to advise is invoked too late.
Related terms
The transfer connects to the asset deal, the works council and the collective labour agreement.
Facing an acquisition involving staff? Our employment lawyers map the consequences.
