When it comes to the private sector, M&A transactions are usually structured as share deals or asset deals qualifying as transfer of a business as a going concern. In case of asset deals involving employees, the legislation on the transfer of undertaking may be applicable. A share deal cannot be impacted by the above legislation as the employer remains the same.
The issue of safeguarding employees' rights if an undertaking is transferred from one entity to another has been regulated in the European Union by means of the Council Directive 2001/23/EC of (Directive). This has been transposed into Romanian law by means of Law no. 67/2006 on protection of employees' rights in case of transfer of enterprises, units or parts of them (Law 67/2006); additional provisions are also available in the Romanian Labor Code.
As per the Romanian law, the rights and obligations of the transferor arising from the individual employment agreements and the applicable collective bargaining agreement existing on the transfer date, shall be fully transferred to the transferee. The transferee has the obligation to comply with the provisions of the collective bargaining agreement applicable to the transferred employees on the transfer date, until its termination or expiry. Based on the agreement between the transferee and the employees' representatives, the provisions of the collective bargaining agreement applicable on the transfer date may be renegotiated but no earlier that within 1-year as of the transfer date.
Therefore, if an asset deal qualifies as a transfer of undertaking, the buyer will acquire all the rights and obligations deriving from the individual and collective bargaining agreement(s). Nevertheless, in practice, specific limitations on the transfer of liabilities are contractually agreed between the parties, especially in deals which trigger the transfer of a high number of employees.
Although the provisions of Law 67/2006 are restrictive compared with the Directive, reducing the definition of transfer only to “the passing from the ownership of the transferor into the ownership of the transferee” of an enterprise, unit or parts of them, when construing and applying domestic legislation which transposes the Directive, national courts are bound by the general principles set forth by the European regulations, as well as by the interpretation of such principles given by the European Court of Justice (ECJ). Thus, in practice, Law 67/2006 will also apply in case there is a transfer of employees without a transfer of ownership.
To be more specific, we considered a hypothetical situation of a company that wins a tender having as object the provision of maintenance services for a specific equipment. These services were previously ensured by another services provider, so there is no contractual relation between the two services providers. The owner of the equipment who makes the object of the maintenance services is a third party.
Both ECJ and Romanian courts significantly widened the definition of a transfer to include services provision change, to the extent that the change of services provider is more likely to be identified as a transfer of undertaking. Thus, in the case at hand, the transfer of the maintenance activity from the former services provider to the current one should be qualified as a transfer of undertaking for the following reasons:
- As per the ECJ constant case-law, the decisive criterion for establishing whether there is a transfer for the purposes of the Directive is whether the business in question retains its identity. The retention of that identity is indicated, inter alia, by the actual continuation by the new employer of the same or similar activities. In the case at hand, the current services provider performs the same or similar maintenance activities with those performed by the former one.
- Both ECJ and Romanian case-law mention that there is no need to be a contractual relationship between the transferor (e.g. the former services provider) and the transferee (i.e. the current services provider) in order for the transfer legislation to be applicable.
- The maintenance activity is currently performed on the same equipment, being an activity mainly based on assets and not on manpower.
The legislation provides an essential interdiction, namely that the transfer of undertaking cannot represent reason for collective or individual dismissal of the employees by the transferor or by the transferee. In other words, the parties cannot dismiss the employees to facilitate the transfer of undertaking. If an employee is dismissed on the above-mentioned grounds, he may claim in court, inter alia, the reinstatement within the transferee. Nevertheless, the dismissal for reasons not related to employees can be implemented, either before or after the transfer, but only for grounds not relating to the transfer itself.
From employment perspective, certain formalities regarding the transfer of employees must be achieved by both transferor and transferee, including:
- corporate decisions approving, inter alia, the transfer of the employees
- conclusion of a business transfer agreement, if the case
- issuance of the notifications expressly provided by the Law 67/2006
- consultations with the employees' representatives, if the case
- individual transfer decisions, not mandatory under the law but advisable to be issued as a best practice
- registration of the employees' transfer with the General register for employees' evidence (Revisal)
- conclusion of HR handover protocols on the transferred documents
The parties should assess on the specific situations, such us the transfer of the employees whose employment agreements are suspended, employees who refuse to transfer, transferee's possibility to implement the same or similar benefits as those granted by transferor, the situation of the seconded employees, etc.
From data protection perspective, certain actions must also be performed to ensure compliance in case of an employees' transfer, given that such transfer intrinsically implies processing of personal data of the transferred employees.
Therefore, in general, the relationship between the transferor and the transferee must be regulated from a data protection perspective through adequate contractual documentation, depending on the qualification of such entities. Also, targeted employees must be informed on the changes relating to the processing of their data, including the transmission of certain data from the transferor to the transferee, through dedicated information notices provided to them prior to any exchange of personal data. Moreover, the processing operations performed on transferred employees' data must be subject to adequate technical and organisational measures to protect such data from unauthorised use or disclosure, which measures must be implemented both by the transferor and the transferee.
To determine the specific actions that should be performed from a data protection perspective in case of a certain transfer of employees, a dedicated assessment must be performed for every case at hand by considering the particularities of such case.
Besides the above, M&A transactions usually cover a wide range of other legal aspects which must be carefully considered by the parties, such as fiscal, real estate, corporate and/or competition matters.
Summarising the above, the applicability of the legislation on the transfer of undertaking in case of an asset deal needs to be carefully analysed considering both the ECJ and local case law, because not any asset deal involving employees triggers their automatic transfer as per the law. For example, in certain cases, where the transferred activity is essentially based on manpower, the transferee might defeat the applicability of the Directive by refusing to take over the staff. The same situation may be also in case of the employees whose duties are not performed exclusively with the aid of assets assigned to the transferred part of undertaking or in case of the employees which being employed in the administrative department (e.g. general management services, personnel matters, etc.) which has not itself been transferred, carried out certain administrative duties for the benefit of the part transferred.
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.