Derived from EU Directive 2001/23/EG, the German law on Transfer of Business (“TUPE”) protects employees in a business transfer situation. As a starting point, TUPE transfers the employment of affected employees from one employer to another on their existing terms and conditions. However, a potential impact of recent decisions by the German Federal Labor Court on TUPE is that, even many years after restructurings and – supposedly – concluded transfers of business transactions, employees may claim ongoing employment with their original employer (”transferor”) if it is held that no transfer of business actually occurred.
The case law in this area has continued to develop based on rulings by the Federal Labor Court/ (“BAG”). Recently the BAG rendered two decisions (BAGE 8 AZR 265/15 and BAGE 8 AZR 309/16) with far reaching consequences for companies doing business in Germany.
How long after a “transfer” will the Courts intervene?
In the most recent decision (BAGE 8 AZR 309/16), an employee filed suit with the local labor courts against his original employer four years after his employment was (allegedly) transferred from his old employer to a newly established sister company (“transferee”). The original employer transferor and the new sister company had informed the employee about his transfer of employment and the employee had never contested it. To the contrary the new sister company kept the employee on its pay role, paid his salary and contributed to German social security over all the four years. When insolvency was filed at the level of the transferee sister company, the employee filed for ongoing employment with his original employer.
The employee argued that no transfer had occurred originally, due to a management agreement filed between the original employer transferor and the new sister company transferee, according to which the sister company transferee only acted on behalf and in the name of the original company transferor vis-à-vis its customers and suppliers. The BAG held that no change of actual ownership occurred. At no point in time did the sister company transferee take over the actual leadership and responsibility for the original company’s business in its own name. Therefore, there was no relevant transfer.
Do the judgments offer any guidance for businesses?
The decision does not actually come as a surprise. In another recent BAG decision (BAGE 8 AZR 265/15), it was held that it was not too late to file a claim against the original employer even after seven years of the transfer. The judgments show that there is no clear guidance on the period sufficient to achieve legal certainty in such a situation of a transfer of business.
This means that employers must be aware of this risk when negotiating restructurings or dealing with business transfers in Germany. For example, this temporal uncertainty must be taken into account for the contractual risk allocation when negotiating the respective provisions in an asset purchase agreement. If a transferor does not obtain sufficient protection, there are potentially expensive consequences even many years later, should an employee choose to challenge the validity of the transfer.