Business Restructuring and Business Transfer
Business transfers and restructurings can be extensive processes with various legal complexities.
We have extensive experience advising companies on the employment law aspects of business transfers and restructurings, both on a large and small scale.
When is a transfer considered a business transfer?
It is important to be aware of the fundamental protective legislation governing employees' legal status in connection with business transfers. In Denmark, this is regulated by the Transfer of Undertakings (Protection of Employment) Act (“TUPE”), which implements the EU Directive on the protection of employees in the event of transfers of undertakings.
The Transfer of Undertakings Act applies when, as a result of an agreement between the parties, there is a transfer of a business or part of a business from one legal entity to another. Three conditions must be met before a transfer is covered by the Transfer of Undertakings Act:
- A transfer of a business or part thereof must occur.
- The transferred entity must constitute a separate economic entity.
- The economic entity must retain its identity after the transfer.
Moreover, the Transfer of Undertakings Act only applies to the transfer of assets (including the transfer of employees) and not to the transfer of shares in a company.
As a consequence of globalization, business transfers often involve companies in multiple countries. Such transfers require compliance with the rules of several jurisdictions and effective collaboration between advisors in these countries.
As part of an international law firm, we have colleagues in most jurisdictions in Europe and the USA, and we are broadly represented in South and Central America and Asia. Therefore, we are well-equipped to advise on business transfers with a cross-border element.
Employer's obligations and employee's rights under the Transfer of Undertakings Act
The main principle under the Transfer of Undertakings Act is that employees are entitled to transfer with the business, making the transferee of the business immediately liable for claims from the employees covered by the transfer.
Both the transferor and the transferee of the business are obligated to inform the affected employees about the business transfer within a reasonable time before the transfer and, under certain circumstances, commence negotiations.
The transferee takes over the transferor's rights and obligations towards the employees covered by the transfer. The transferee is thus obligated to maintain the salary and employment conditions for the employees at the same level as the transferor. Employees also retain their seniority in connection with the transfer.
If there is a collective bargaining agreement in place at the time of the business transfer, the transferee inherits the terms of the agreement for the employees covered by it. However, the transferee has the option to renounce the agreement within specific deadlines set by the TUPE act.
A business transfer cannot, in itself, justify the termination of an employee. The company terminating the employee must be able to prove that the termination is justified by economic, technical, or organizational reasons.
At Littler | Denmark, we are experts in handling the employment law aspects of business transfers and restructurings. We assist companies throughout the entire process, from planning to execution.
