The proprietor of a distressed metal-construction enterprise
concluded in March 2007 a sole distribution and cooperation
contract with the sued company. Following further measures, such as
the transfer and lease-back of fixed assets and immaterial values
to a real estate company, essentially all that was left at the
original company were the liabilities and employment
As of March 2007 the former business proprietor ceased paying
any wages and salaries to its employees. On 29 May it filed a
petition for the opening of insolvency proceedings; two days later,
at the company's instigation all 29 employees of the business
declared the immediate termination of their employment
relationships. The Federal Employment Agency [Bundesagentur
für Arbeit] paid the employees affected insolvency pay
retroactively for the months March to May. In June 2007 the
Defendant gradually recommenced production at its business. By mid
June it had successively reinstated 18 employees who had
already worked at the business beforehand.
The Federal Employment Agency asserted the wage claims of the
employees for March to May that had transferred to it vis-a-vis the
Defendant as the supposed acquirer of the business.
The Federal Labour Court [Bundesarbeitsgericht, BAG],
like the Regional Labour Court [Landesarbeitsgericht,
LAG]Hamm before it in the previous instance, rejected the
existence of a transfer of business and affirmed the validity of
the terminations declared by the employees (BAG dated
27 September 2012 - 8 AZR 826/11). Although in such
configurations terminations by employees are deemed null and void
amongst other things if an employment relationship at the business
acquirer has simultaneously been agreed or promised with binding
effect, and these means have been used to circumvent mandatory
statutory provisions on the transfer of a business, the court could
not establish anything to indicate that this was the case.
For this reason the BAG only examined whether a transfer of
business to the Defendant had already taken place prior to
31 May 2007 and the terminations declared by the employees had
thus been without substance. In the opinion of the judges, however,
the sole distribution and cooperation contract had not triggered a
transfer of business. Although it established the economic
dependence of the former business proprietor vis-a -vis the
Defendant, it did not establish a change in business proprietor. In
case of a resource-intensive business, such a change in business
proprietor only takes place with the transfer of the possibility to
use the resources - that is to say when the party assuming the
resources actually continues to use these resources or uses them
again, and when the former business proprietor discontinues the use
thereof at its business or business unit.
The legal consequences of a transfer of business, including the
entry into all rights and obligations under the employment
relationships, are not always desired, especially in transactions
involving distressed companies. Models such as the one under
decision here should reduce the risks of a transfer of business.
The Federal Labour Court has already dealt with the permissibility
of such structures on many occasions in the past. The judges made a
distinction thereby on the basis of whether the employees had
already been promised an employment relationship at the business
acquirer, respectively had been given the prospects of such
employment relationship with binding effect. Contractual structures
whose objectives are aimed at removing the continuity of the
employment relationship whilst simultaneously retaining the job
were deemed null and void.
The Federal Labour Court has now anchored this principle.
Transaction structures which are aimed at avoiding the legal
consequences of a transfer of business should therefore always bear
in mind that the business acquirer should announce the prospects of
an employment relationship to the employees in question at best
once the employment relationship with the former business
proprietor has already been validly ended.
The judges have simultaneously somewhat extended the leeway for
entrepreneurs: For resource-intensive enterprises a cooperation
contract no longer necessarily raises the assumption of a transfer
of business. For personnel-intensive enterprises, e.g. in the
services sector, however, this will not apply.
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.
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