Based on Luxembourg labour law rules, qualifies as a transfer of undertaking a "transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary".
The special rules on transfer of undertaking apply when the undertaking to transfer is based on the territory of the Grand-Duchy of Luxembourg and when the transfer occurs by contract, merger, succession, scission, conversion of capital resources or conversion into company form. Case law has further extended the scope of situations to which such rules apply.
Given the consequences that may arise from the qualification of a transaction as a legal transfer and the specific steps required to ensure compliance, it is recommended to seek prior legal advice.
What are the main consequences of a legal transfer of undertakings?
- Automatic transfer of employment contracts which will be carried over to the new employer by law.
- Working conditions are maintained by the new employer who shall continue to apply all employment terms, conditions and benefits to the transferred employees.
- Joined liability between the transferor and the transferee, after the date of the transfer, for obligations that fall due before the date of transfer as a result of an employment relationship existing on the date of transfer.
- The transfer may not constitute in itself grounds for termination and, in the event of a substantial change in the working conditions due to the transfer, the termination of the employment relationship resulting thereof shall be deemed to have been initiated by the employer.
- Other Key Points: special rules also apply for instance in case of (i) collective bargaining agreements, (ii) transfer of staff representatives, (iii) supplementary pension schemes, etc.
What procedure and timeline apply in case of a transfer of undertaking?
Although the transfer is automatic by law, there are specific steps to follow, such as:
- Prior to any decision to transfer an undertaking, as well as in due time prior to the date of the transfer, information and, where applicable, consultation of the employee representatives of both the transferor and the transferee applies. In the absence of employee representatives, special notification is to be addressed to the employees concerned by the transfer.
- In due time prior to the date of the transfer, a special notification by the transferor to the transferee regarding all rights and obligations to be transferred is required. A copy of such notification has also to be addressed to the Labour Authority (Inspection du Travail et des Mines - ITM).
The steps to be taken and their timing will vary depending on the specific circumstances and the nature of the restructuring. Conducting a preliminary legal assessment of the transaction will hence ensure a smooth and compliant implementation of the project.
What are the sanctions for non-compliance with the rules on transfer of undertaking?
Administrative sanctions may apply in case of a failure to comply with rules on transfer of undertaking. Criminal sanctions may also not be excluded, notably when the information and consultation rights of the employee representatives have not been respected. Damages may also be allocated to employees, mainly for abusive termination.
The above rules on transfer of undertaking may also apply in the context of cross-border restructurings, along with additional rules. Luxembourg has recently implemented into its national laws the EU Directive 2019/2121 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions.
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.
