Transfer of undertaking in the Netherlands: employee rights

When a business or an identifiable part of it changes hands and keeps its identity, the employees move to the new owner automatically, with all their existing terms of employment and their years of service. The main exception is a sale out of bankruptcy: if the business belongs to the bankrupt estate, these protections do not apply.

Under Dutch law this situation is called a transfer of undertaking (overgang van onderneming). The rules are in Articles 7:662 to 7:666 of the Dutch Civil Code (BW), which implement European Directive 2001/23/EC. No new contract is needed and the employee does not have to agree. Below we explain when a transaction counts as a transfer, what passes to the new employer, how you are protected against dismissal and what the seller and the buyer must do to get the process right.

What counts as a transfer of undertaking?

A transfer of undertaking is the transfer of an economic entity that keeps its identity, as a result of an agreement, a legal merger or a legal division. What matters is what actually happens to the business, not what the parties call the deal.

Article 7:662 BW defines the key terms. An economic entity is an organised group of resources with the aim of carrying out an economic activity, whether that activity is central or ancillary. That can be a whole company, but also a single department, a branch, a canteen, a cleaning team or an IT unit. The entity does not have to make a profit; a foundation or a non-profit activity can also be transferred.

The legal basis for the transfer is broad. A sale and purchase of a business is the classic example, but a lease, a licence, a legal merger (juridische fusie) or a legal division (splitsing) can also lead to a transfer. There does not even have to be a direct contract between the old and the new employer. When a client ends a contract with one cleaning company and awards it to another, the work can pass from the first to the second contractor through the client. Whether that is a transfer depends on the facts described below.

The seller is called the transferor (vervreemder) and the buyer the transferee or acquirer (verkrijger). The transferor stops being the employer, and the acquirer steps into its shoes. For you as an employee this means your employer changes, but your job and your terms of employment stay the same.

Dutch law applies these rules to businesses in both the private and the public sector, as long as they carry out an economic activity. The Directive excludes an administrative reorganisation of public authorities, or a transfer of administrative functions between public authorities. In such cases, other rules usually apply, often laid down in a social plan or in the applicable civil service rules.

How do courts decide whether the business keeps its identity?

Courts look at all the facts together and ask one question: can the new owner carry on the same or a similar activity with what it has taken over? No single factor decides the case on its own.

The test comes from the judgment of the Court of Justice of the European Union in Spijkers (C-24/85, 18 March 1986). Dutch courts, including the Supreme Court (Hoge Raad), apply the same factors. The court weighs:

• the type of business or undertaking concerned;
• whether tangible assets such as buildings, machinery and stock were transferred;
• the value of any intangible assets transferred, such as a brand, customer lists, permits or know-how;
• whether the majority of the employees, in number and in skills, were taken over by the new employer;
• whether customers were transferred;
• how similar the activities are before and after the transfer;
• how long any interruption of those activities lasted.

The weight of each factor depends on the type of business. In an activity that relies mainly on people, such as cleaning, security or catering, the workforce is the business. The Court of Justice held in Süzen (C-13/95, 11 March 1997) that in such a sector a transfer can take place when the new contractor takes over a major part of the staff, in number and in skills. Conversely, if the new contractor takes over no staff and no assets, merely winning the same contract is not enough.

In an asset-intensive business, such as a factory, a bus company or a hotel, the transfer of the essential equipment usually weighs heavily. The Court of Justice ruled in Liikenne (C-172/99, 25 January 2001) that in public bus transport, where the buses themselves were not taken over, there was no transfer even though many drivers moved to the new operator. So an acquirer cannot avoid the rules simply by refusing to take over staff in a business that depends on equipment, and it cannot trigger them simply by hiring staff where the equipment is decisive.

A short interruption does not by itself prevent a transfer. If a shop closes for a few weeks for renovation and then reopens with the same staff and customers under a new owner, it keeps its identity. A long break in which customers and staff drift away points the other way. The court will also look at whether the activity keeps its own organisation after the transfer. The Court of Justice ruled in Klarenberg (C-466/07, 12 February 2009) that the entity does not have to keep its organisational autonomy, as long as the functional link between the transferred resources is preserved.

The table below gives an overview of the main points of a transfer of undertaking under Dutch law.

Which transactions fall outside the rules?

A pure sale of assets, a sale of shares and a sale out of bankruptcy do not trigger the automatic transfer of employees. In each of these cases, the employees either stay with their existing employer or lose the protection.

A simple sale of assets

If a company sells a few delivery vans, office furniture or a single machine, only property changes hands. There is no operating business with its own activity and staff that continues with the buyer. The employees remain employed by the seller. If their work disappears as a result, the seller may have to consider redundancy on economic grounds, with a permit from the Employee Insurance Agency (UWV) and the usual rules on selection and the transition payment (transitievergoeding).

The line between an asset sale and a transfer is not always sharp. When the buyer acquires the machines, the customer base and the order book and carries on the same activity at the same location, a court may well find that the business itself has been transferred, even if the contract speaks only of assets.

A sale of shares

In a share sale, the buyer acquires the shares in the company that employs the staff. The company itself, usually a private limited company (B.V.) or a public limited company (N.V.), remains the employer. Because the employer does not change, there is no transfer of undertaking in the legal sense. The employment contracts simply continue with the same company under new shareholders.

That does not mean nothing changes. The works council may still have a right to advise on the change in control, and the rules on mergers from the Social and Economic Council (SER) may apply. Those duties are discussed further below.

A sale out of bankruptcy

Under Article 7:666 BW, the rules on transfers do not apply if the employer has been declared bankrupt and the business belongs to the bankrupt estate. The trustee in bankruptcy (curator) can terminate the employment contracts with a shortened notice period, and a buyer of the business, often in a so-called restart (doorstart), may choose which employees it offers a new contract, on new terms.

The exception has limits. In Smallsteps (C-126/16, 22 June 2017) the Court of Justice ruled that the exception does not cover a pre-pack that was prepared before the bankruptcy with the aim of continuing the business as a going concern, rather than liquidating it. In Heiploeg (C-237/20, 28 April 2022) the Court added that a pre-pack can fall within the exception if the procedure is supervised by a court-appointed trustee and aims to realise the best return for all creditors. Where a bankruptcy is used purely to get rid of staff, a Dutch court can conclude that the employees transferred after all.

Losing a contract without transfer of staff or assets

If a company loses a service contract to a competitor that takes over neither staff nor essential assets, there is usually no transfer. The employees stay with their original employer. Whether that employer can offer them other work, or must start a redundancy procedure, is a separate question.

What happens to your employment contract?

Your employment contract passes to the new employer automatically on the date of the transfer, with all rights and obligations it contains. You do not have to sign anything, and the new employer cannot make the transfer conditional on new terms.

Article 7:663 BW provides that the rights and obligations arising from the employment contracts between the transferor and the employees pass to the acquirer by operation of law. In practice this covers everything that follows from your contract and from the way it has been applied over the years:

• your salary and any agreed allowances, bonuses and benefits in kind, such as a company car;
• your job and position;
• your years of service, which count for your notice period and for a future transition payment;
• your accrued holiday entitlement and holiday allowance;
• other agreed arrangements, such as working hours, a home-working arrangement or a study cost agreement.

Clauses in your contract also transfer, including a non-compete clause or a confidentiality clause. A fixed-term contract continues with the acquirer until its agreed end date, and a contract that was already for an indefinite period stays that way. Periods worked under previous fixed-term contracts with the transferor count when applying the rules on successive contracts.

From your point of view, the day after the transfer should look the same as the day before when it comes to your contractual rights. What changes is the name of your employer on your payslip.

Dynamic reference to a collective agreement

Many employment contracts contain a clause stating that the collective labour agreement (cao) applies “as amended from time to time”. This is called a dynamic incorporation clause (dynamisch incorporatiebeding). The Supreme Court ruled on 12 July 2024 that such a clause transfers to the acquirer as well (ECLI:NL:HR:2024:1068). The acquirer is therefore bound by future versions of that collective agreement.

The acquirer cannot change that clause at the time of the transfer or because of the transfer. According to the Supreme Court, the acquirer can later rely on the normal Dutch instruments to adjust terms, such as a unilateral variation clause under Article 7:613 BW or the standard of good employer and good employee (Article 7:611 BW). The change must then be independent of the transfer itself, and the time that has passed since the transfer plays an important role in that assessment.

What happens to the collective labour agreement?

If a collective labour agreement applied to you at the transferor, the acquirer must in principle keep applying it to you until that agreement ends. After that, other rules may take over.

Under Article 14a of the Collective Labour Agreements Act (Wet op de collectieve arbeidsovereenkomst), the obligations of the transferor under a collective agreement pass to the acquirer. The acquirer is bound by those obligations towards the transferred employees until the collective agreement expires. This protects you against an acquirer that would immediately apply a less favourable scheme.

Several situations can change this picture. If the acquirer is itself bound by a collective agreement that is declared generally binding (algemeen verbindend verklaard) for its sector, that agreement will apply to the acquirer’s employees, including you. If the transferred activity falls under a different sectoral agreement at the acquirer, the question which agreement applies after the old one expires must be answered on the basis of the facts and the scope clauses of both agreements. And as explained above, a dynamic reference in your individual contract can keep the old collective agreement relevant for longer.

In practice, acquirers often want to align the terms of transferred staff with those of their existing staff. That process, known as harmonisation, requires care. Changes cannot be made because of the transfer, and changes for the worse generally need your consent or a valid ground under Article 7:613 BW.

What happens to your pension?

Pension is the main exception to the automatic transfer of terms. Under Article 7:664 BW, the acquirer does not always have to continue the pension scheme of the transferor.

The pension agreement does not transfer in three situations. The first is where the acquirer already has a pension scheme for its own employees and makes the transferred employees the same offer. The second is where the acquirer is required to take part in a mandatory industry-wide pension fund (verplichtgesteld bedrijfstakpensioenfonds) and the transferred employees join that fund. The third is where a collective labour agreement provides otherwise. In those cases you join the acquirer’s scheme from the date of the transfer. Under Article 7:664(2) BW, these exceptions cannot be used if the transferor and the acquirer fall under the same industry-wide fund and you simply continue to participate in it.

What you have already built up stays with the pension provider of the transferor. You keep those accrued rights, but future accrual takes place in the new scheme. That new scheme can be more or less generous than the old one. The law does not require the acquirer’s scheme to be equivalent, although the difference can play a role in negotiations and in any assessment of whether your conditions have deteriorated.

If the acquirer has no pension scheme of its own and is not bound by a mandatory fund, the old pension agreement transfers with the other terms. The acquirer must then continue it or agree an alternative with you.

Pension rules are technical and the consequences depend on the type of scheme and provider. We advise employees and employers to have the pension position reviewed before the transfer date, together with a pension adviser where needed.

Can you be dismissed because of the transfer?

No. Under Article 7:670(8) BW, the employer cannot terminate the employment contract because of the transfer of undertaking. Neither the transferor nor the acquirer can use the transfer itself as a dismissal ground.

This prohibition does not mean your job is guaranteed forever. Dismissal for economic, technical or organisational reasons remains possible, both before and after the transfer, if those reasons exist independently of the transfer. The normal Dutch dismissal rules then apply. For redundancy on economic grounds, the employer needs a permit from UWV and must follow the rules on selecting employees, usually the reflection principle (afspiegelingsbeginsel). You are then entitled to a transition payment based on all your years of service, including those with the transferor.

Courts look closely at dismissals shortly before or after a transfer. If an acquirer wants to reduce the workforce straight after the takeover, it must be able to show that the reorganisation has its own economic justification and is not merely a way to shed employees it did not want. A dismissal that in reality is based on the transfer is contrary to the prohibition and can be challenged.

Read more about the general rules in our article on how to handle employee dismissal legally.

What if your conditions get worse because of the transfer?

Article 7:665 BW gives extra protection. If the employment contract ends because the transfer leads to a substantial change in your working conditions to your detriment, the termination is deemed to be caused by the employer. This matters for your rights. Think of an acquirer that moves the work to a location much further away, or that makes your role substantially different. If you resign for that reason, you are treated as if the employer ended the contract, which can affect your claim to a transition payment and to unemployment benefits.

Can the new employer change your terms after the transfer?

Not because of the transfer. Later changes are possible under the normal Dutch rules, if they are independent of the transfer.

Under Dutch law, an employer can change terms of employment in three ways: with your consent, under a unilateral variation clause if it has a substantial interest (Article 7:613 BW), or, in exceptional cases, because a reasonable proposal from the employer should be accepted under the standard of good employee conduct (Article 7:611 BW). The acquirer has the same options as any other employer, but it cannot use the transfer as the reason for the change. A proposal to “bring you in line” with existing staff on the day of the transfer is therefore vulnerable.

If you are asked to sign new terms around the time of the transfer, you do not have to do so. It is sensible to have the proposal reviewed first and compare it carefully with your existing terms.

What happens if you refuse to transfer?

You can object to the transfer, but the consequences are serious. In Dutch practice, refusing to move to the acquirer is generally treated as ending the employment yourself.

The European Directive does not force an employee to work for an employer he or she did not choose, but it leaves the consequences of an objection to the member states. Dutch law has no specific statutory rule on this. The general view in Dutch case law is that the employee who refuses does not stay employed by the transferor. The contract ends, and because you took the initiative, you normally lose the right to a transition payment. You also risk being refused unemployment benefits (WW) by UWV, because you are considered to have become unemployed through your own choice.

The picture is different if the transfer leads to a substantial deterioration in your working conditions. In that case Article 7:665 BW applies, and the end of the contract is treated as caused by the employer. Before you object, have your position assessed. In many cases it is wiser to transfer and raise any concerns about your terms with the new employer.

Which employees transfer?

All employees who work in the transferred part of the business at the time of the transfer move with it. Employees who work elsewhere in the company stay with the transferor.

This sounds simple, but borderline cases are common. Consider staff who work partly for the transferred unit and partly for other departments, or central staff such as finance and HR. The test is whether the employee was assigned to the transferred entity. Courts look at where the employee actually worked, how much of his or her time was spent on that entity and what the contract and the organisation chart say.

A few specific groups deserve attention:

• Employees on a fixed-term contract with the transferor transfer as well. Their contract continues until the agreed end date.
• Employees on sick leave transfer, together with the obligation to continue paying wages during sickness and the reintegration obligations.
• Agency workers are employed by the agency, not by the client company. If the client company is sold, they do not transfer, because their employer does not change. If the agency itself is transferred, its own staff, including the agency workers, are protected.
• Within a group of companies, staff are sometimes employed by one company and permanently seconded to another. The Court of Justice ruled in Albron Catering (C-242/09, 21 October 2010) that when the operating company is transferred, those staff can transfer as well, even though their formal employer is a different group company.

Where a business is split between several acquirers, the Court of Justice held in ISS Facility Services (C-344/18, 26 March 2020) that the employment contract can in principle be divided between the acquirers, in proportion to the tasks the employee performs for each part, as long as this is possible and does not worsen the employee’s conditions. If it is not possible, and the contract ends as a result, the termination is attributed to the employer.

What must the employers do?

Both the seller and the buyer have legal duties to inform and consult before the transfer. How formal that process is depends mainly on whether there is a works council.

The works council

A company with 50 or more employees must have a works council (ondernemingsraad, OR). Under Article 25 of the Works Councils Act (Wet op de ondernemingsraden, WOR), the works council has a right to advise on an intended decision to transfer control over the business or part of it. The employer must request advice at a time when the advice can still have a real influence on the decision. In practice, both the transferor and the acquirer usually have to ask their own works council for advice, each for their own decision.

The request must set out the reasons for the decision and the expected consequences for the employees, as well as the measures the employer intends to take. The works council is not bound to agree. If the employer then takes a decision that departs from the advice, or if new facts come to light, it must suspend the implementation for one month. During that month the works council can appeal to the Enterprise Chamber of the Amsterdam Court of Appeal (Ondernemingskamer) under Article 26 WOR. The Enterprise Chamber can order the employer to withdraw the decision if it could not reasonably have taken it.

Informing employees directly

Where there is no works council and no staff representation body (personeelsvertegenwoordiging), Article 7:665a BW requires the transferor and the acquirer to inform the employees themselves. This must happen in good time before the transfer. The information must cover the planned date of the transfer, the reason for it, the legal, economic and social consequences for the employees, and the measures envisaged for them. A short e-mail on the day of the transfer does not meet this standard.

Trade unions and the SER Merger Code

For mergers and takeovers involving companies with 50 or more employees, the SER Merger Code (SER-Fusiegedragsregels 2015) may apply. These rules require the parties to notify the trade unions involved and the SER secretariat before an agreement is reached, so that the unions can give their views on the social aspects. The code applies to many share deals as well, not only to transfers of undertaking. In addition, a collective labour agreement can contain its own duties to inform or consult the unions.

Joint and several liability for one year

Under Article 7:663 BW, the transferor remains jointly and severally liable with the acquirer for one year after the transfer for obligations under the employment contract that arose before the transfer. If the transferor failed to pay a bonus, overtime compensation that had been agreed or holiday allowance that was due before the transfer, you can claim it from either employer within that year. This encourages the acquirer to carry out proper due diligence and the transferor to settle outstanding obligations before the deal is completed.

The table below compares the main duties of the two employers.

How do you run a compliant transfer process?

Start the employment law work at the same time as the commercial negotiations, not after them. A structured process in four phases helps both the seller and the buyer avoid delays and disputes.

Phase 1: assess and plan

First establish whether the transaction is a transfer of undertaking at all, using the factors discussed above. Then identify which employees belong to the transferred part, with their contracts, terms, years of service, sickness status and pension arrangements. The acquirer should ask for this information in the due diligence and have warranties about it included in the purchase agreement. Map out which collective agreements apply, at both parties, and whether contracts contain a dynamic reference.

Phase 2: consult the works council

Draft the request for advice (adviesaanvraag) as soon as the intended decision has taken shape, but before it is final. Describe the reasons, the expected consequences for staff and the measures you plan. Give the works council the documents it needs and time to ask questions and meet. If the works council advises against the decision and the employer proceeds, observe the one-month suspension. Keep a careful record of the process, as the Enterprise Chamber will examine it if the works council appeals.

Phase 3: inform employees and trade unions

Inform the employees clearly about what the transfer means for them: who their new employer will be, from which date, and which terms apply. If there is no works council, the information duty under Article 7:665a BW applies directly. Check whether the SER Merger Code or the collective agreement requires the unions to be notified. Honest and timely information prevents rumours and reduces the risk that key staff leave before the transfer.

Phase 4: complete and integrate

Finalise the transaction documents, including provisions on employees, pension and the allocation of pre-transfer liabilities between the parties. From the transfer date, the acquirer is the employer. It must pay wages, apply the transferred terms and take over obligations such as reintegration of sick employees. Plan any later harmonisation of terms carefully and separately from the transfer, and keep communicating with the transferred staff about practical matters such as payroll, systems and contact persons.

Does the structure of the deal have tax consequences?

Yes. Whether you choose an asset deal or a share deal affects corporate income tax, VAT and possibly real estate transfer tax for both parties. Law & More does not advise on tax structuring, so involve a tax adviser at an early stage.

From an employment law perspective, the choice matters as well. In an asset deal in which a business with its staff is taken over, the rules on transfer of undertaking usually apply and the employees move to the buyer. In a share deal, the employer stays the same and the employees remain employed by the company whose shares are sold. Whichever structure is chosen, the employment consequences should be coordinated with the tax advice, so that the purchase agreement, the consultation of the works council and the communication to staff are consistent.

Which mistakes should you avoid?

Most problems in a transfer do not arise from the strategy, but from details. These are the mistakes we see most often.

Assuming there is no transfer

Parties sometimes structure a deal as an “asset purchase” and assume the employees stay behind. If the business then continues with the buyer in a recognisable way, a court may find that the employees transferred after all. The seller then still has staff on its payroll who, legally, work for the buyer, and the buyer faces claims it did not expect. Assess the question at the start and document why the transaction does or does not qualify.

Consulting the works council too late

A request for advice that arrives when the purchase agreement has already been signed unconditionally comes too late. The works council can then appeal to the Enterprise Chamber, which may order the employer to reverse the consequences of its decision. Build the advice procedure into the timetable of the transaction, for example by making completion conditional on it.

Changing terms at the moment of transfer

Acquirers often want to put transferred staff on their own standard contract straight away. A change made because of the transfer is not valid, even if the employee signed. Employees can later claim the old terms. Harmonisation should be planned as a separate step, with a proper basis under Dutch law.

Overlooking pensions, holiday and sickness

Pension arrangements, untaken holiday, holiday allowance built up during the year and employees on sick leave are easy to miss in due diligence. Yet they all transfer, with the exceptions for pensions described above. For an employee who has been sick for some time, the acquirer takes over the obligation to continue paying wages and the reintegration process, including the file that UWV will later review.

Dismissing staff around the transfer

Terminations shortly before or after the transfer are examined critically. A dismissal that is in fact based on the transfer is not permitted under Article 7:670(8) BW. If reorganisation is needed, prepare a separate economic justification and follow the normal redundancy procedure at UWV.

Cross-border elements

If the business is moved to or from another country, the Dutch rules may apply alongside foreign rules. Whether a transfer of undertaking exists is then assessed under the Directive and the applicable national law, while questions such as which law governs the employment contract after the transfer need separate analysis. Involve advisers in each country concerned at an early stage.

What does this look like in practice?

A few anonymised examples show how the rules work.

A company that runs a staff restaurant for an office building loses the catering contract. The new caterer takes over the kitchen equipment provided by the client and most of the kitchen staff. Because the activity continues with the same equipment and a large part of the team, a court is likely to find a transfer of undertaking. The staff who did not receive an offer can argue that they transferred as well.

A software company buys only the source code and customer contracts of a small competitor, which then ceases trading. None of the developers moves across. Whether this is a transfer depends on the weight of the intangible assets. If the customers continue to be served with the same product, the court may find that the identity of the business has passed to the buyer, even without staff.

An employee is told by the acquirer that he must sign a new contract with a lower salary “because of the takeover”. He does not have to sign. His existing contract transferred with all its terms, and a reduction made because of the transfer is not valid.

For a broader overview of the Dutch rules on contracts, sickness and dismissal, see our article on Netherlands employment law, and for more background on the subject of this article, our page on transfer of undertaking.

The European rules are set out in Directive 2001/23/EC on EUR-Lex.

In summary

• A transfer of undertaking exists when an economic entity changes employer and keeps its identity; courts weigh all the facts (Article 7:662 BW and the Spijkers factors).
• Employees transfer automatically with all their terms and years of service, and the transferor stays jointly liable for one year for obligations that arose before the transfer (Article 7:663 BW).
• Pension is the main exception: the acquirer’s own scheme or a mandatory industry-wide fund can apply instead (Article 7:664 BW).
• Dismissal because of the transfer is not allowed (Article 7:670(8) BW), and a substantial deterioration of conditions is attributed to the employer (Article 7:665 BW).
• The rules do not apply to share deals or to a business sold out of bankruptcy (Article 7:666 BW), but the works council and information duties must always be checked.

Frequently asked questions

What happens to my pension rights in a business transfer?

Your accrued pension stays with the old provider. For the future, you may join the acquirer’s scheme or a mandatory industry-wide fund, which can be more or less generous. Have your position reviewed before the transfer date.

Can I refuse to transfer to the new employer?

Yes, but refusing is generally treated as ending the employment yourself. You then normally lose your transition payment and risk being refused unemployment benefits, unless the transfer substantially worsens your conditions.

Do the rules protect temporary and agency workers?

Employees on a fixed-term contract transfer until the end date of their contract. Agency workers stay with the agency if the client company is sold, because their employer does not change.

What is the role of the works council?

The works council has a right to advise on the decision to transfer control of the business (Article 25 WOR). If the employer departs from its advice, it must wait one month, during which the works council can appeal to the Enterprise Chamber.

Do my years of service transfer?

Yes. Your years with the transferor count at the acquirer, including for your notice period and for the calculation of a future transition payment.

Law & More advises employees, works councils and employers in the Netherlands on transfers of undertaking, from the first assessment to the consultation process and disputes afterwards.

Unsure where you stand? Tell us about your situation. We will let you know your options within one working day.

How Law & More can help you with this is explained on our employment lawyer page.