Transfers of business in the Netherlands

A high level outline of the employment aspects of business transfers in the Netherlands.

Introduction

Sections 7:662-666 of the BW (Dutch Civil Code) implement the European Acquired Rights Directive. Information and consultation obligations are laid down in section 7:665a BW, in the Works Council Act and in the SER Merger Code 2015.

Scope of the law

Sections 7:662-666 BW apply to a “transfer of (parts of a) business” which covers all transactions that are a result of an agreement, a merger or a split up, and must concern the transfer of an economic entity which retains its identity following the transfer. An economic entity constitutes an organised group of resources which has the objective of pursuing an economic activity regardless of whether the activity is central or ancillary.

Effect of transfer on contracts of employment

On the basis of a transfer of business contracts of employment are not terminated, but will continue to have effect as originally made with the transferee. This applies to employment contracts of all employees who are employed in the service of and appointed to perform their duties in the part of the business which is transferred, as well as persons who are employed elsewhere but are permanently seconded at the transferred business. The transfer includes seniority rights/length of service and all rights, benefits accrued and obligations arising from the employment agreement.

Right of objection

The only way employees can prevent their contract of employment being transferred by operation of law is by explicitly rejecting to transfer with the business. This will result in the employment being terminated as per the date of the transfer without the obligation for the employer to compensate the employee.

Occupational pension schemes

The rights and obligations arising from pension commitments also pass to the transferee by operation of law, although there may be exceptions on the basis of the circumstance of the case such as whether the transferee has a pension scheme and whether or not this scheme is different from the current scheme.

Recognition and collective labour agreements

The transferee is bound by the terms and conditions of employment arising from a collective labour agreement (CLA), generally until the CLA has expired or a new CLA comes in force.

Employee representatives

Every business which employs 50 or more employees is required to establish a Works Council. If the transferor’s business continues to exist as such after the transfer, the Works Council will remain in operation. If the transferor’s business does not continue to exist as such, but is included in the transferee’s business, the transferee must establish a new Works Council on short notice.

Changing terms and conditions following transfer

The right to make changes to the employment agreement – with the consent of the employee – is transferred to the transferee. It is possible to harmonise terms and conditions of employment after the transfer, provided that the employees are not worse off and have individually consented to the changes. If the employees do not agree, it will be hard for the transferee to amend the terms and conditions. Terms and conditions arising from a CLA cannot be changed following the transfer, even with consent of the individual employee.

Dismissal because of transfer

The transfer of the business does not constitute grounds for dismissal by the transferor, nor does the fact that the transferee may not need additional staff. Any attempt by the transferor to dismiss the employees concerned prior to the transfer will fail, unless the grounds for the dismissal are not related to the transfer itself.

Transferor’s obligation to inform transferee

The transferor is not under a specific legal obligation to provide the transferee with certain specified information to prevent claims. In practice, however, the transferor is likely to provide information in relation to any employees who are the subject of the relevant transfer and persons whose dismissal, immediately before the transfer, was related to the transfer and therefore unfair. All information must be provided before the date of the transfer.

Informing and consulting the workforce

The transferor and/or the transferee must inform and consult their employees about the transfer. If installed, the advice from the Works Council must be requested in writing. In businesses with 10 to 50 employees, the advice of the employees must be sought if the proposed transfer is likely to affect 25% or more of the total workforce. Both must take place at a time which will allow the outcome to have a significant impact on the decision that is to be taken.

Informing and consulting the Social Economic Council

The SER Merger Code 2015 applies if one of the companies involved in a merger employs 50 or more employees in the Netherlands or forms part of a group of companies which as a whole employs 50 or more people in the Netherlands. The SER Merger Code requires the parties to notify the secretarial department of the Social Economic Council and the competent trade unions of the intention to merge. This must be done before an agreement has been reached and at a stage when the opinion of the trade unions can still have substantial influence on the outcome of the negotiations. There is, however, no obligation to reach agreement with the trade unions on the proposed transaction.

Notifying employees about change of employer

As the transfer is automatic, no steps need to be taken to ensure that the employee becomes employed by the transferee. It is, however, highly recommended to send a transfer letter to the employees involved in the transaction.

Joint liability

The transferor and the transferee are jointly liable in respect of obligations that arose prior to the date of the transfer for a period of one year following the transfer. After this year, only the transferee is liable for said obligations.

Contracting out

It is not possible to contract out of the operation of law of all the above mentioned consequences and obligations.

Registration

Both transferor and transferee are required to register the change of employer with the tax authorities within one month after the transfer date.

Further detail on business transfers in the Netherlands is available here.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.