Business transfer: employees' rights

The business changes owner, and the employees ask themselves: what does this mean for me? Do I keep my job? Does my contract still apply? Can I be dismissed?

The Business Transfer Act gives Danish employees strong rights in these situations. Here is what you, as an employee and as a new owner, need to know.

Note: A business transfer is a complex area of law. This guide gives a general overview. Contact an employment lawyer for specific questions of doubt.

What is a business transfer?

The Business Transfer Act applies when a business, part of a business or an operational unit is transferred to a new holder (the transferee). The decisive point is whether a functional unit that retains its identity is transferred.

The act applies, among other things, to:

• The sale of a business (asset deal)
• The sale of a department or unit
• The outsourcing of a function (for example cleaning or IT operations)
• The taking back of an outsourced function
• A merger or demerger in certain cases

The act as a rule does not apply to a pure transfer of shares in a company, because there the ownership changes but the business as a legal entity is unchanged.

Automatic transfer of the employment relationship

The core of the Business Transfer Act is that employees who work in the unit being transferred come along to the new owner. This happens automatically, and the employees do not have to sign new contracts.

The new owner takes over the obligations and rights that follow from the existing employment contracts, including:

• Pay and supplements
• Holiday and holiday pay
• Seniority (accrued with the previous owner counts)
• Notice period (calculated on the total employment)
• Collective-agreement coverage (see below)

What happens to collective agreements?

The transferee as a rule automatically enters into the collective agreement that the previous owner was bound by at the time of the transfer. The transferee can, however, within a short deadline after the takeover, notify the negotiating organisation that the transferee does not wish to be covered by the agreement. If the transferee renounces the agreement, the agreement's terms still apply to the transferred employees individually until the agreement would have expired.

It is at the same time important to be aware that:

• Individual agreements that are better than the agreement's minimum come along
• The new owner cannot unilaterally worsen the existing terms
• A sector-wide collective agreement can apply if the transferee is already organised in the relevant employers' association

What happens to pension schemes?

Pension schemes as a rule come along, because pension contributions are part of the pay terms and cannot be worsened unilaterally. If the new owner uses a different pension provider, there can be a need to transfer saved funds, which can require the employees' consent.

The duty to inform: what must the employees be told?

The law requires that the employees or their representatives are informed of the transfer before it takes place. Both the transferring and the acquiring business have duties to inform.

The information must cover:

• The time of the transfer
• The reason for the transfer
• The legal, economic and social consequences for the employees
• Any planned measures concerning the employees (for example staff reductions)

The information must be given in reasonable time before the transfer. The law does not set a precise deadline, but in practice it should happen in good time. If there are shop stewards or employee representatives, they must be consulted and given the opportunity to discuss the consequences before the decisions are finally made.

Can employees object to the transfer?

An employee can choose not to come along to the new owner. As a rule, this is then regarded as a voluntary resignation, and the employee typically has no claim to a severance payment, since it is the employee who declines the transfer. It can be different if the new terms are significantly worse, see below.

Can the new owner dismiss employees because of the transfer?

No, not with the transfer as the sole reason. It is a breach of the Business Transfer Act to dismiss employees on the grounds that the business changes owner.

The new owner can dismiss employees, but the dismissal must have an objective reason, for example:

• Rationalisation and operational changes for economic, technical or organisational reasons
• Summary dismissal for serious breach
• Genuine financial difficulties

A dismissal made in immediate connection with a transfer will be examined closely by the courts to see whether the transfer is in reality the reason.

What if the terms are worsened?

If the new owner significantly worsens the employment terms, for example with lower pay, changed working hours or reduced benefits, and the employee does not accept the change, the employee can, depending on the circumstances, regard it as a dismissal by the employer.

This can mean that the employee has a claim to:

• Pay during the notice period
• Any severance payment for long seniority
• Any compensation for unfair dismissal

How large a worsening justifies leaving depends on a specific assessment.

Liability for rights accrued before the transfer

Obligations accrued before the transfer, for example accrued but untaken holiday or a bonus claim, are as a rule taken over by the transferee at the transfer. The parties can agree an internal allocation of liability in the transfer agreement, but such an internal agreement is not binding on the employees, who can bring their claims in accordance with the rules of the law.

Checklist for buyer and seller

Seller:

• Inform shop stewards and employees in good time
• Provide a complete employee overview with contracts and appendices
• Document accrued holiday days, bonus and supplements
• State clearly how liability for pre-transfer obligations is allocated

Buyer:

• Carry out due diligence on all employment relationships (working environment, complaints, cases)
• Set aside time to meet the employees
• Decide early whether changes will happen, and communicate clearly
• Avoid dismissing employees immediately after the transfer without an objective reason

Conclusion

The Business Transfer Act ensures that the employees as a rule continue unchanged with the new owner, and that a transfer cannot in itself be used as grounds for dismissals. For both buyer and seller, the key is to comply with the duty to inform, document the accrued rights and avoid changes that can be seen as a worsening. Seek employment-law advice if in doubt.

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The content of this article is for guidance only and does not constitute legal advice. Consult a lawyer for advice on your specific situation.