The Dutch and European legislation on the transfer of an undertaking is intended to ensure that employees retain their rights upon the occurrence of such a transfer. Under this legislation, all employees who work in the relevant undertaking become, by operation of law, employees of the transferee, under the same employment conditions. The Dutch Supreme Court recently confirmed that employers must inform their employees fully of their rights in such a situation.

Introduction

The Dutch rules on the transfer of an undertaking (or part thereof) are based on a European directive. The European Court of Justice has, over the years, rendered many judgments interpreting this directive. These judgments make clear that the directive must be construed broadly because its purpose is to protect employees.

As used in the directive and rules, "transfer" means the transfer, whether arising from a contract, merger or division, of an economic entity which retains its identify. An economic entity is defined as "an organised grouping of resources which has the objective of pursuing an economic activity." It is clear from the case law of the European Court of Justice that the threshold for meeting these tests is very low. For example, it has held that the outsourcing of the services performed by an IT department and the privatisation of a public service both constitute the transfer of an economic entity.

If an undertaking is transferred, all employees who work in that undertaking become, by operation of law, employees of the transferee, under the same employment conditions. The only exception to this applies to pension rights if, among other things, the transferee has its own pension scheme.

The Dutch Supreme Court has recently rendered a judgment demonstrating how important it is for an employer transferring all or part of its undertaking to inform the employees working in that undertaking fully about the consequences for them of the transfer.

Bos/Pax judgment of Dutch Supreme Court

The Dutch rules on the transfer of an undertaking are mandatory in nature. This means that, with a limited exception, an employee cannot waive the rights these rules confer. Accordingly, an employee who by operation of law becomes an employee of the transferee cannot be bound by a statement agreeing in advance to less favourable employment conditions with his new employer. An employee can, however, decide not to accept the employment relationship with the transferee. In that limited situation, he can be said to waive the protection granted by the directive and rules based thereon. This was confirmed by the Dutch Supreme Court in a case decided in June of this year.

The facts of the case were as follows. Douwe Egberts agreed to outsource certain activities to a third party, Pax. Just before doing so, Douwe Egberts requested all employees who were involved in performing these activities to consent to becoming the employees of a Douwe Egberts subsidiary, Detrex. This meant that the employees would not, as a result of the outsourcing, automatically become employees of Pax because at the time of the outsourcing they were not employed by Douwe Egberts but by Detrex. The employees granted their consent. However, Douwe Egberts failed to inform them of the consequences of their consent and the fact that, if they did not consent, they would become employees of Pax (under the same employment conditions as they had at Douwe Egberts).

Several years later, Detrex informed the employees that their employment contracts would be taken over by Pax, whose employment conditions were inferior to those of Detrex. One of the employees, Bos, argued that he had already become an employee of Pax – on the same employment conditions as he had enjoyed at Douwe Egberts – by operation of law as a result of the outsourcing. He therefore commenced legal proceedings against Pax, demanding that Pax continue to pay him his (higher) salary.

The lower courts ruled against Bos, on the grounds that he had not become an employee of Pax when the activities were outsourced because he had waived any statutory protection by expressly consenting to becoming an employee of Detrex.

The Supreme Court held that restraint must be exercised when determining whether an employee has waived the statutory protection to which he/she is entitled upon the transfer of an undertaking. The duties of a good employer require that it provide its employees with complete and clear information regarding the choices they must make, including information about their legal position. The purpose of this is to ensure that if they waive their statutory rights, their decision to do so is a well-informed one. According to the Supreme Court, the intermediate appellate court should have ascertained whether when Bos agreed to be employed by Detrex he knew that that he thereby waived his statutory protection. Since the appellate court had not done so, the Supreme Court set aside the judgment and remanded the case to the relevant appellate court, which to our knowledge has not yet rendered a new decision.

Conclusion

If an employer persuades an employee to agree to work for the employer’s subsidiary in order to prevent him/her becoming, by operation of law, an employee of an entity to which an undertaking is being transferred, the employer must inform the employee fully and clearly regarding his/her legal position and choice. The failure to do so can have far-reaching consequences for the transferee, which (possibly years later) may be confronted with a person who in retrospect has been its employee for a substantial period. The transferee therefore has an interest in ensuring that the transferor informs the employees sufficiently about their legal position and choices. The transferor also has an interest in this, because it may otherwise later face an action for damages by the transferee.