What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?

Employment & Labour Law (2nd Edition)

South Korea Small Flag South Korea

A business sale may broadly fall into two deal structures: (1) business transfer and (2) asset purchase/transfer. The employment law implications differ depending on the deal structure of the business sale.

  1. Business Transfer. In a business transfer, employees of the relevant business will – in principle – transfer automatically to the Buyer; provided that, the transferring employees will have the right to opt-out of the transfer and remaining with their current employer (i.e., the Seller). If an employee chooses to remain with his/her current employer, the employer must satisfy the termination standards as described in Questions 1 or 2 to terminate the employee. A business transfer or sale does not – in and of itself – constitute just-cause for employee termination.
  2. Asset Transfer. In an asset transfer, employees of the relevant business do not transfer automatically. The employees of a particular business unit that was sold will remain as the company’s employees, and the company must satisfy the termination standards as described in Questions 1 or 2 to terminate the employee. A redundancy due to an asset transfer or sale does not – in and of itself – constitute just-cause for employee termination.

Turkey Small Flag Turkey

Under Turkish law, in case of a business sale, all employment contracts with all rights and obligations arising thereof shall automatically transfer to the acquirer. Neither the acquirer nor the transferor employer shall terminate the employment relationship due to such sale or transfer of business. Also, such reason may not be asserted as a justified ground for termination by the employee. However, both employers’ right to terminate on a valid ground due to the necessities of the business organisation is reserved.

The Netherlands Small Flag The Netherlands

In the context of a business sale employees transfers to the new company, their new employer, with preservation of all their rights and duties. Pursuant to the Dutch Civil Code and the Council Directive the transfer of business shall not in itself constitute grounds for termination. Termination before the transfer of business with a view to the transfer in question is legally invalid.

Following from the Council Directive dismissals may take place for economic, technical or organisational reasons entailing changes in the workforce, provided that the reason shall not be the transfer in itself.

Thailand Small Flag Thailand

There are no specific additional legal requirements regarding termination arising from a business sale. However, in order to mitigate the risk of a claim for unfair termination, the employer must implement and use fair criteria to select employees whose employment is to be terminated.

United Kingdom Small Flag United Kingdom

The Transfer of Undertakings (Protection of Employment) Regulations 2006, which implement the European Acquired Rights Directive in the UK, protect the rights of employees on a business sale.

The dismissal of an employee by the transferor before the transfer or by the transferee after the transfer of their employment, where the transfer is the reason for the dismissal, will give rise to a claim for unfair dismissal, provided the employee has been employed for at least two years. Where an ‘economic, technical or organisational reason entailing changes in the workforce’ applies to the dismissal then it will not be automatically unfair.

An employee dismissed in the context of a business transfer may also bring a claim if his employer has failed to inform and consult with him through employee representatives about the transfer. The obligation to inform and consult representatives of affected employees applies to both transferors and transferees.

Employers are required to provide a prescribed list of information, including what measures the employer envisages taking in relation to the employees in connection with the transfer. The transferor must also provide employees with information about measures that the transferee proposes to take in relation to the employees. If measures are proposed the employer must consult with the representatives of the affected employees about these, with a view to seeking their agreement.

The employer can be liable to pay a protected award of up to 13 weeks’ actual pay for each employee in respect of a failure to inform and consult affected employees.

Canada Small Flag Canada

Overview
If an employee is terminated in the context of a business sale, the applicable considerations depend on whether the sale is occurring as a share transaction or asset transaction.

Share Transaction
In a share transaction, there is no change in the identity of the employer for employment law purposes and thus the status of all employees, whether union or non-union, remains the same. If the seller terminates employees prior to the sale of a business, the regular rules relating to termination would apply and the seller would be responsible for the costs. Likewise, if the buyer terminates employees following the sale of a business, it would be responsible for the termination costs.

Asset Transaction
In an asset transaction, there is a change in the identity of the employer. Therefore, for non-unionised employees, an offer of employment is required in most jurisdictions in order for employment to be continued. If such offers are accepted and the employees commence working for the buyer post-closing, then their employment is deemed continuous under applicable employment standards legislation. If employees refuse offers of employment with the buyer and are then terminated by the seller, the seller is responsible for statutory termination costs. The employees’ common law entitlement to reasonable notice, however, may be effectively lost because of their failure to mitigate their losses by accepting employment with the buyer, provided that the buyer offers employment on substantially similar terms as the employee enjoyed with the seller. Hence, the form and content of the buyer’s offer of employment is often described in the agreement of purchase and sale between the buyer and seller. Special considerations apply to employees who have contractual termination entitlements, because Canadian common law courts have held that contractual termination provisions are generally not subject to mitigation, subject of course to the wording of the contract.

Québec
In Québec, the Civil Code of Québec deems employment contracts to be binding on the purchaser of a business, regardless of whether the transaction is structured as an asset or share sale.

Philippines Small Flag Philippines

There are two types of business sales, namely: sale of one entity of all or substantially all its assets to another distinct entity, and stock sales which take place at the shareholder level within the same entity.

In asset sales, provided that the sale is in good faith, the transferee has no legal duty to absorb the employees of the transferor. However, the transferee may, give preference to the qualified separated employees in filling vacancies.

In stock sales, because the corporation possesses a personality separate and distinct from that of its shareholders, changing the shareholders will not affect the corporation’s continuity. Thus, the corporation, despite change in shareholders, cannot dismiss its employees absent a just or authorized cause.

Israel Small Flag Israel

Termination of employment within the framework of collective dismissals is subject to the same rules of termination of individuals, i.e. the termination process should be carried out in good faith and subject to the employer performing a hearing procedure and providing prior written notice for termination. In addition, where there is an existing trade union or employee representative body, they must be informed and consulted with. In the event some employees are terminated while the employment of others who carry out similar positions is retained, the employer should have valid reasons/explanations with respect to the selection process. Additionally, an employer who terminates the employment of 10 employees or more is required to send a notification in this regard to the Israeli Employment Service.

Sweden Small Flag Sweden

Sweden has implemented the Transfer of Undertakings Directive. Thus, a transfer of a business does not constitute, per se, objective grounds for terminating an employment. The EPA sets forth a general prohibition of terminations due to transfer of a business. A violation of this prohibition may give cause for a court to declare the termination invalid upon request from the employee.

Ireland Small Flag Ireland

A termination of employment as a result of a business sale that involves the sale of shares is treated similarly to the termination of employment in the ordinary course. The same requirements arise in terms of ensuring that there is a fair reason for the termination and that a fair and proper procedure is applied. Employees are afforded the same level of protection by statute when it comes to termination in the context of a business sale.

Additional protections do apply to employees who are the subject of an asset sale. The European Acquired Rights Directive was implemented in Ireland by the EC (Protection of Employees on Transfer of Undertakings) Regulations, 2003 (the “TUPE Regulations”).

The TUPE Regulations apply in circumstances of the legal transfer of an economic entity (e.g. an asset sale) ensuring that affected employees are entitled to transfer their employment to the purchaser entity on the same terms and conditions and with their continuity of employment unbroken. While the termination of employment of affected employees by reason of the transfer is prohibited, the TUPE Regulations do permit the termination of affected employees' employment for economic, social or technological reasons, most typically redundancy. The TUPE Regulations also impose certain mandatory information and consultation obligations which are expected to commence at least 30 days prior to the date of transfer, unless this timing is not reasonably practicable.

Germany Small Flag Germany

In case of a transfer of business the employment relationships automatically transfer from the seller to the acquirer. This is based on the EU directive 2001/23/EC. In general, dismissals made because of the transfer of business are invalid. The new employer can, however, dismiss employees afterwards for operational reasons if that is necessary for the implementation of an entrepreneurial decision.

France Small Flag France

Whenever a sale of assets entailing a transfer of undertaking occurs (TUPE transfer), the seller may not, except under a very limited derogation, carry out redundancies prior to the transfer. Failure to respect this prohibition causes dismissals to be null and void. Redundancies, if any, must be carried out once the transfer has taken place.

Finland Small Flag Finland

A transfer of business is not considered as legal grounds for termination as such. Therefore, a termination of an employment contract may not be based solely on a business sale or a transfer of business. Therefore, the above described general provisions regarding dismissal and redundancies have to be followed.

China Small Flag China

In general, a worker’s employment cannot be terminated solely on the basis of a business sale. Whether the employment relationship can be terminated legally depends on different scenarios. For example, in the case of a shut-down and where the legal entity does not exist anymore, the employees can be terminated and the employer shall pay economic compensation to the employees. In circumstances where one company is merged into another company, the existing labour contract shall remain valid and the employing unit which succeeds to its rights and obligations shall continue to perform the original labour contract. If the business sale causes the objective situation to change significantly as provided in LCL, the company may have a reason to do unilateral termination after going through the legal procedures as well as paying the relevant compensation, etc.

Belgium Small Flag Belgium

In case of a sale of the business, understood as a transfer of undertaking under the meaning of Directive 2001/23, the transfer as such is not a valid reason to dismiss an employee.

If the company cannot provide economical, technical or organisational reasons for the dismissal, it exposes itself to damages, not legally fixed, but which could, for instance amount to 17 weeks on the grounds of manifestly unfair dismissal (see question 1).

Austria Small Flag Austria

Under Austrian law there is a statutory protection of employees when a business sale or business transfer occurs. The Employment Contract Law Adaptation Act regulates the rights and obligations in connection with a business transfer. Pursuant to section 3, all rights and obligations under the employment relationship automatically transfer by virtue of the law to the new owner. In general, dismissals are legally invalid if they are made exclusively due to the transfer. The Court assumes such reasoning if terminated within six months after a transfer has occurred. However, they can be permitted if they are carried out due to economic, technical or organisational reasons.

Furthermore, an employee can only object to a transfer if a buyer either does not grant the protection against dismissal as specified in the relevant Collective Bargaining Agreements (CBA) or does not undertake to comply with the former company pension schemes.

Switzerland Small Flag Switzerland

First of all, one has to differentiate whether the business is sold by way of a share purchase agreement or by way of an asset purchase agreement.

In case of a share purchase agreement, no additional considerations apply.

In case an asset purchase agreement provides for a transfer of a business or a part thereof to a third party, however, the business’ employments and all attendant rights and obligations automatically pass to the third party as of the day of the transfer, unless the respective employee refuses such transfer. In the latter case, the employment ends on expiry of the statutory notice period (see art. 333 of the Swiss Code of Obligations). In order to save the employees’ interests, before such transfer takes place, the employer must inform the organisation that represents the employees respectively the employees themselves on the reasons for the transfer and its consequences. Where measures affecting the employees are envisaged as a result of such transfer, the employer must furthermore consult the employees before the relevant decisions are taken (see art. 333a of the Swiss Code of Obligations). According to the prevailing doctrine, non-compliance with these provisions does not lead to the abusiveness of notices given. Depending on the specific case, there might be other sanctions (such as a commercial register ban according to the Swiss Merger Act), however.

Singapore Small Flag Singapore

In a business sale, there are generally three potential outcomes for an employee’s employment.

First, under the EA, subject to conditions, it may be possible for the seller (outgoing employer) to automatically transfer the employees employed by the business to the buyer (the incoming employer).

Second, the affected employees may be transferred to the buyer by the seller terminating the services of the affected employees and buyer hiring the same employees.

Third, where the seller chooses not to transfer the affected employees, it would typically terminate their employment before the business sale. In this regard, please refer to our response in question 2 for more details on retrenchment exercises.

Should the employers wish to transfer foreign employees to the buyer, it would be important for the employers to consider if their work passes can be transferred to the buyer, or if the buyer can obtain fresh work passes for these employees.

New Zealand Small Flag New Zealand

Every employment agreement must contain an ‘employee protection provision’ clause to protect the employment of an affected employee in the event of a restructuring, which includes the sale or part or all of an employer’s business.

The vendor employer (along with the purchaser) will need to consider whether there are any employees are entitled to transfer from the vendor to purchaser as of right. The Employment Relations Act 2000 specifies certain groups of workers (often referred to as ‘vulnerable workers’) including those who perform cleaning, catering, laundry and caretaking work in particular industry sectors. These workers may have special rights, including the right to transfer to the purchaser employer on their existing terms and conditions, or bargain for alternative entitlements.

In regard to those employees who are not ‘vulnerable workers’, the employer must follow the process set out in the employees’ protection provisions which, at bare minimum, will involve consultation with the affected employees, and determination of what entitlements (if any) are available to employees, negotiations with the purchaser employer about whether employees will transfer, who do not transfer to the purchaser's new employer.

Italy Small Flag Italy

When the whole (or part) of the business is transferred, all employees belonging to the business being transferred have an automatic right to be transferred to the incoming employer.

The transfer is not a valid reason for dismissal. Therefore, the transferor cannot dismiss the employees on the grounds of the transfer (i.e. the dismissal will be considered null and void and the employment relationship will continue with the transferee). Any dismissal made in connection with the transfer will be considered null and void unless there is a reason that according to general rules would justify it. Therefore the transferor may dismiss the employee for an organisational reason which entails changes to the workforce (restructuring resulting in job losses) but this cannot be based solely on the transfer of business. In addition, the transfer does not prevent an employee from being dismissed for just cause, for example, where the employee has committed an act of gross misconduct.

Mexico Small Flag Mexico

There is no employment termination on business sales. If there is a purchase of shares or stock, then it does not trigger a termination (unless established otherwise in the employee’s individual employment agreement, which is not very common for regular employees, though sometimes it is established for officers). If the purchase is of assets, then an employer substitution is triggered.

The employer substitution will not affect employment relationships. The substituted employer will be jointly liable with the new employer for the obligations under the employment agreements and the law that were made before the substitution for six months, after which the new employer will be solely responsible.

The term of six months referred to in the last paragraph will begin on the date of the announcement of the employer substitution to the union and the employees.

Luxembourg Small Flag Luxembourg

A business sale may give rise to the application of the legal provisions governing the transfer of undertaking. However, the transfer of shares, as well as the reduction of capital within a company, may not be considered as a transfer of undertaking within the meaning of the law, as such operation only affects the ownership of the legal entity which remains the employer of the concerned employees.

However if such transfer takes the form of a transfer of the universality of a branch of activity, it will potentially trigger the application of the legal provisions governing the safeguarding of employees' rights in the event of transfers of undertakings, businesses or part of undertakings or businesses.

Such legal provisions shall apply to any transfer of an undertaking, business, or part of an undertaking or business (hereinafter referred to as “Transfer of Undertaking”) as a result of a contractual sale, merger, inheritance, scission and conversion of a business or incorporation of a company. Both European and Luxembourg case law accepts that all forms of outsourcing can amount to transfers of undertakings, but there is no presumption that they will.

The first step consists, for the purpose of determining whether such legal provisions apply, in identifying an undertaking or “economic entity” in the hands of the outgoing service provider, the Transferor. The economic entity is described as an organized grouping of resources (persons/assets) facilitating the exercise of an economic activity which pursues a specific objective. The activity may be central or ancillary.

The second step is to assess whether the economic activity has been transferred and has retained its identity after the operation of transfer.

A different and more restrictive test consists in concluding that there is no transfer of undertaking without the transfer of either significant assets or a transfer of the major part, in terms of numbers or skills, of the previous service provider’s workforce.

Spain Small Flag Spain

The termination of an employment contract based on the sale of its business does not match nor correspond with any of the reasons stated by law for dismissals.
Therefore, if the Company decides to make redundant some employees due to the sale of its business, the legal consequence would be the unfair dismissal declaration by Court , and hence the employees shall be entitled to the statutory unfair dismissal severance.

Japan Small Flag Japan

There are no additional considerations that would apply to termination in the context of a business sale. The business sale and surrounding facts would be considered in determining the existence of reasonable grounds for dismissal.

United States Small Flag United States

No statute governs the employment relationship when a business transfers to new ownership. As most employees are employed “at-will,” a new employer is free to offer employment to the employees of the seller/transferor employer or alter the terms and conditions of employment at the employment site. If a union represents the employees of the seller, the new employer may be under a duty to bargain with the labor union and cannot change any terms and conditions of employment without first bargaining with the labor union.

There is no obligation for a party acquiring a business in an asset sale to retain any of the seller’s employees. However, if the new employer reorganizes the workforce after the transfer, which results in a covered plant closing or mass layoff, the new employer or “take over party” must provide the employees with 60 days’ advance notice. In addition, an employer who acquires a workforce consisting of unionized employees is required to bargain with the union in good faith regarding the effect of the layoff on unionized employees and, in certain situations, may be required to honor the terms and conditions of employment articulated in an existing collective bargaining agreement.

Luxembourg Small Flag Luxembourg

A business sale may give rise to the application of the legal provisions governing the transfer of undertaking. However, the transfer of shares, as well as the reduction of capital within a company, may not be considered as a transfer of undertaking within the meaning of the law, as such operation only affects the ownership of the legal entity which remains the employer of the concerned employees.

However if such transfer takes the form of a transfer of the universality of a branch of activity, it will potentially trigger the application of the legal provisions governing the safeguarding of employees' rights in the event of transfers of undertakings, businesses or part of undertakings or businesses.

Such legal provisions shall apply to any transfer of an undertaking, business, or part of an undertaking or business (hereinafter referred to as “Transfer of Undertaking”) as a result of a contractual sale, merger, inheritance, scission and conversion of a business or incorporation of a company. Both European and Luxembourg case law accepts that all forms of outsourcing can amount to transfers of undertakings, but there is no presumption that they will.

The first step consists, for the purpose of determining whether such legal provisions apply, in identifying an undertaking or “economic entity” in the hands of the outgoing service provider, the Transferor. The economic entity is described as an organized grouping of resources (persons/assets) facilitating the exercise of an economic activity which pursues a specific objective. The activity may be central or ancillary.

The second step is to assess whether the economic activity has been transferred and has retained its identity after the operation of transfer.

A different and more restrictive test consists in concluding that there is no transfer of undertaking without the transfer of either significant assets or a transfer of the major part, in terms of numbers or skills, of the previous service provider’s workforce.

India Small Flag India

In cases where the business of a company is being transferred, the ID Act provides conditions wherein the workers who have been in continuous service of not less than 1 year in that undertaking immediately before such transfer, shall be entitled to notice and retrenchment compensation. Judicial precedents also insist on the requirement to obtain consent of the workers being transferred.

The workers shall not be entitled to notice and retrenchment compensation in the event the following conditions are met: a) the service of the workman has not been interrupted by such transfer; (b) the terms and conditions of service applicable to the workman after such transfer are not in any way less favourable to the workman than those applicable to him immediately before the transfer; and (c) the new employer is, under the terms of such transfer or otherwise, legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer.

Updated: May 9, 2018