Employees who are terminated in connection with a bankruptcy procedure do not have a claim to reinstatement of their job if the facility where they were employed is subsequently bought out of bankruptcy. This was already decided by a Cologne court way back in 2002 and was affirmed by Germany’s Federal Labor Court earlier this summer.

Transfers of a facility’s assets are subject to Section 613a of Germany’s Civil Code (or to refer to the comparable British provision: Transfer of Undertaking (Protection of Employment) Regulation 1981) which states that if a "works" (otherwise referred to as a "facility" or an "undertaking") or "part of a works" is transferred, the contracts of employment of those individuals employed in that particular facility are automatically transferred to the buyer. This is in direct contrast to the general common law rule which holds that the transfer of a business causes the respective employment relationships to be terminated since employment relationships may not be assigned.

If the facility in issue has not filed for bankruptcy and, prior to the expiration of the termination notice periods, it turns out that the employer’s grounds for terminating the employees is subsequently without basis, then the employees will have a claim to reinstatement against the seller. Such claims are based on various legal arguments including (i) the employer’s statutory requirement to act in good faith, (ii) an employee’s constitutional right to occupational liberty, and (iii) the fact that the termination was "socially unjustifiable" — and thus, invalid — since there was a possibility of reinstatement. If the facility is transferred only after the termination notice period expires, then, according to the Federal Labor Court, the terminated employees may have a claim to reinstatement against the buyer, as long as such claim is made immediately after learning of the transfer.

However, the facility which was the subject of the case before the above-mentioned Federal Labor Court case had filed for bankruptcy. This fact caused the court to diverge from the general rule. In that case, each of the employees had been terminated as a result of the closing of the bankrupt facility. Management had decided to cease operations and there were no other positions available. To the initial relief of the employees, the bankruptcy administrator was able to find a buyer for the bankrupt facility and to conclude a purchase agreement before the employees’ termination notice period had expired. Several days after the employment relationships with the former employees had been validly ended, the buyer continued the operations of the facility. This caused the employees to then file for reinstatement.

The court denied these claims. If a termination and transfer of a facility are part of a bankruptcy procedure, the employees do not have a claim to reinstatement against the buyer regardless of whether the employees would have had such a claim had the facility not been part of a bankruptcy procedure. The Federal Labor Court held that potential disputes in bankruptcy procedures must be resolved efficiently and with finality. This applies regardless of whether the bankrupt facility is the subject of a liquidation or reorganization.

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