If a buyer acquires substantial assets of a facility and the buyer continues operating that facility, then the employees of that facility will automatically be deemed to have been assigned to the buyer. However, it may be a bit of a surprise to employers that there are other types of situations which may also constitute a transfer of a facility, and thus, lead to the automatic transfer of employment relationships.
The transfer of a facility occurs only if a "works" or "part of a works" is acquired and the acquiror continues to operate that "works" or "part of a works". The critical issue is whether the acquiror truly continues operating the works (or part of a works) like the seller did, or whether the buyer changes the "identity" of this works. This question can be resolved only by examining the totality of the circumstances, including to what extent the buyer has the same employees and management, to what extent the buyer applies the same organization and methods of operation and to what extent it uses the tangible and intangible assets of the target facility in the same fashion as did the seller. In the manufacturing sector, a facility’s identity is transferred primarily through the transfer of the machinery and equipment used in that facility while a service company’s identity is maintained primarily through the assumption of a significant part of the employees.
The Federal Labor Court was asked to review to what extent the discontinuance of an outsourcing relationship would cause an employment relationship to be transferred. In that case, a third-party provider was responsible for running a warehouse for a supplier to the automobile industry. The supplier subsequently terminated the service arrangement and decided to operate the warehouse itself. Specifically, the parties’ arrangement called for the supplier to lease the warehouse from its former service provider. They had not agreed that the automobile supply company would assume any of the employees working at the warehouse. However, a delivery person who had been employed at the warehouse filed an action asking the court to rule that the arrangement between the supplier and the warehouse operator caused his employment relationship to be automatically transferred to the supplier pursuant to Section 613a of the Civil Code (please see the previous article in this Newsletter for a brief description of Section 613a of the Civil Code).
The court concluded that the "identity" of the warehouse operations, i.e., storing, distributing and shipping product, could remain intact even though none of the employees involved was to be transferred. Since the automobile supply company continued to operate the warehouse in the same fashion as had the third-party provider, the court also concluded that the supplier continued to make use of the third party’s essential assets to operate the business. Even though the delivery person was not one of these so-called "essential assets", the court held the automobile supply company also automatically (and unintentionally) assumed the employment contract of this employee.
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.