Creative Dealing with ‘Transfer of Undertaking’ and Protection of Employees
Judgment of the Supreme Court, 26 June 2009 LJN:
BH4043
Transfer of Undertaking
The transfer of undertakings is set out in Sections 7:662-666 of
the Dutch Civil Code ("BW"). This part is based on
European Directives. Directives and the law aim to protect
employees. The essence of the regulation is that employees
belonging to an undertaking (or a part thereof) are transferred as
well by operation of law, and therefore enter the employment of the
new employer, but do keep their rights and employment conditions
from before the transfer.
The Facts
The employee worked at Sara Lee/DE International B.V.
("SL/DE") at the logistics department. In 2003 SL/DE and
Pax concluded a framework agreement under which SL/DE outsourced
all its logistics activities to Pax, which had been established
specifically for that purpose. As of September 2003 all employees
involved were transferred to Detrex B.V. ("Detrex"), a
subsidiary of SL/DE, and were seconded by Detrex to Pax. In June
2005 and January 2006 Detrex informed the employees of the
projected decision to dismiss them as of January 2006, and that
they could enter the employment of Pax on the same date. Detrex
also promised them a one-off payment to compensate the difference
in employment conditions as a result of the possible harmonization
of employment conditions by Pax.
During an argument in February 2006, the employee informed Pax
that he would not accept to be employed by Pax, and he recredited
his salary of January. Pax exempted him from work on full pay. The
Employee received a salary from Detrex until August 2006. At the
request of Detrex the Subdistrict Court rescinded the employment
agreement with Detrex as of 1 August 2006 and granted the employee
compensation. The Subdistrict Court rescinded the employment
agreement between the employee and Pax, as far as it still existed,
as of 1 March 2007.
In preliminary relief proceedings the employee claimed a salary
for the entire year 2006 from Pax. He relied on the fact that his
employment agreement with SL/DE had been transferred to Pax by
operation of law if not in September 2003, then in any case in
January 2006. The Subdistrict Court refused to grant the relief and
the Court of Appeal upheld this judgment, without considering the
question of whether in 2003 there had been a transfer of
undertaking already. The Court of Appeal did consider that on 1
January 2006 there was no question of a transfer, because it has
neither been argued, nor has it become evident that the business
activities of Detrex were taken over by Pax as of that date.
According to the Court of Appeal, no employment agreement has been
concluded between the employee and Pax. Before the Supreme Court
the employee argued among other things that the Court of Appeal had
set incorrect requirements to the renunciation of the employment
with SL/DE and the agreement to enter the employment of Detrex in
2003.
The Supreme Court
The Supreme Court emphasized first and foremost that the purpose
of the law and the directives is to protect employees. This
protection is a matter of public order and is mandatory: it cannot
be deviated from to the detriment of the employee. However, the
protection is not necessary if the employee himself decides not to
continue his employment with the new employer after the transfer,
for example if the employee himself terminates the employment
relationship of his own free will as of the day after the transfer,
or if the employee concludes an agreement to that effect with the
old or the new employer.
Since the employee in this case had terminated the employment
with SL/DE on invitation of SL/DE by signing the letter of
September 2003, it seemed according to form that there was no
transfer of undertaking within the meaning of the law. However, the
construction of a specially incorporated company (Pax), the
transfer of the employees of SL/DE to Detrex in order to second
them subsequently with Pax, and finally their dismissal by Detrex
and hiring by Pax is, in the opinion of the Supreme Court,
definitively aimed at a transfer of undertaking within the meaning
of the law. The renunciation by the employees of their employment
with SL/DE at the initiative of SL/DE while simultaneously entering
the employment of Detrex was an "essential link" in this
process.
According to the Supreme Court, the Court of Appeal should not
have concluded from the mere fact that the employee in 2003 had
explicitly agreed to enter the employment of Detrex that the
employee had not entered the employment of Pax by operation of law
because of the effect of Section 7:663 of the BW. As a 'good
employer', SL/DE should have given its employees full
disclosure of the state of affairs, should have informed them of
the choices they had, and the consequences for their legal
position, in order to be able to guarantee that the employees could
take a fully informed and unambiguous decision to abandon their
legal protection. The Supreme Court referred the case to another
Court of Appeal, because it is still necessary to examine whether
this had been done or not.
Tips
- Sections 7:662 ff. of the BW contain a number of (formal)
requirements that must be fulfilled in order to be able to
speak of 'transfer of undertaking' as defined by
law.
- If these requirements have been met, the employees derive
protection from the regulation and it cannot be deviated from
to the detriment of the employees.
- In the event of a transfer construction in which the legal
requirements of 'transfer of undertaking' have not been
fulfilled, the idea of protection continues to have an effect
and the employer must, as a 'good employer', keep his
employees correctly and fully informed of the plans, their
legal position, their options and the accompanying legal
consequences.