If employees are transferred to a new employer within the scope of a transfer of business, the latter assumes all the rights and obligations of the employment relationships existing at the time of the transfer.

  • Transformation

Pursuant to Section 613 a Para. 1 Sentence 2 of the German Civil Code (Bürgerliches Gesetzbuch ; BGB), the provisions of the collective bargaining agreement (CBA) applying to the former business owner become part of the employment relationship between the employee and the new employer unless another CBA on the respective rights and obligations already applies. The provisions are "transformed"; i.e., they become part of the employment relationship with the acquirer (Section 613 a Para. 1 Sentence 2 BGB). This applies to CBAs between labor unions and employers' associations as well as to company CBAs.

In the case of a CBA between a labor union and an employers' association, the acquirer does not become a member of the employers' association but is merely "bound" to the CBA between the union and the association as it exists at the time of the transfer. Nevertheless, the binding effect of the CBA between the labor union and the employer's association applies even to company businesses that fall outside the professional area of the transfer. For example, the CBA of a metal-processing company will apply to any independent caterers to which the company's canteen is subsequently outsourced.

  • Dynamics

The provisions of a CBA will continue to apply, effectively "frozen" at the time of the transfer of business. Subsequent modifications to the CBA (e.g., standard wage increases, such changes collectively called the "dynamics") will have no further effect for transferred employees.

The opposite is true only if the dynamics of the CBA have a direct and mandatory effect, i.e., where the dynamics are an integral part of the CBA from the outset and do not depend on new negotiations between the employers' association and the union. In such a case, the dynamics are essentially transformable content pursuant to Section 613 a Para. 1 Sentence 2 BGB and remain in effect after the transfer, with the acquirer obligated to uphold them. A typical case is a graduated-wage agreement, in which certain regulations (e.g., a reduction of working hours or an increase in remuneration) are introduced gradually. Because these yetto- be-enacted modifications were unconditionally agreed upon and formed part of the continuing CBA at the time of the transfer, the new employer is obligated to apply them after the acquisition.

  • Taking Effect as a Prerequisite

One prerequisite for the continued application of CBAs is for the CBA to be in effect at the time of the transfer of business; the mere fact that the CBA has been concluded will not suffice if it is not applicable until some future date. In other words, if the CBA was signed but has not yet become effective, its provisions do not form part of the rights and obligations that the employee may "take along." This was decided by the German Federal Labor Court (Bundesarbeitsgericht ; BAG) in judgments dated May 16, 2012 (4 AZR 320/10, 4 AZR 321/10).

  • The Case

In 2004, a company and the trade union ver.di (Vereinigte Dienstleistungsgewerkschaft ) concluded two CBAs: the first on a restructuring, providing for the suspension of standard wage increases and the cancellation of annual special payments for the years 2005 through 2007, and the second on an additional payment, according to which the employees would receive an annual sum of nearly €1,500 beginning in 2008 as compensation for their restructuring contributions. The CBA on the additional payment had already been signed but was not intended to become effective before 2008.

Within the scope of a transfer of business, the company's employment relationships were transferred to the acquirer as the new employer. In 2008, the employees requested the additional special payment from the acquirer. They stated that the claim had become part of the employment contract pursuant to Section 613 a Para. 1 Sentence 2 BGB and that although the CBA had not come into effect until after the transfer of business had occurred, the claim was not negated, since the agreement had already been signed at the time of the transfer. The acquirer refused the payment.

  • The BAG's Decision

The BAG agreed with the acquirer and denied the employees' claim for the additional payment under the CBA. The claim for the additional payment under the CBA had not been part of the existing and/or stipulated rights and obligations under the employment relationship at the time of the transfer of business and therefore could not be transferred to the employment relationship with the acquirer. The fact that the CBA had already been executed and agreed upon at the time of the transfer does not change anything, because the only decisive factor in such a situation is the time when the CBA takes effect.

  • A Practical Note

In the event of a transfer of business, any collective rights at the time of the transfer that are directly and mandatorily applicable under collective bargaining law (i.e., apply more like statutory provisions than merely contractual ones) are frozen. In order to be transformed to a contractual right in the employment agreement, the CBA must have already taken effect; the mere conclusion of a CBA does not suffice. For this reason, while undertaking due diligence, the acquirer of a business must note the time CBAs take effect in order to identify the provisions applicable to the transferred employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.