In the event of a business acquisition, employees are automatically transferred to the new owner, retaining all rights and obligations under their employment contracts—this is known as a “transfer of business.” Terms and conditions set forth in collective bargaining agreements must be maintained for at least one year. Businesses with 50 or more employees must seek advice from the works council regarding the acquisition. Exceptions to this protection apply only in the event of bankruptcy or a complete change in the business’s activities.
Many entrepreneurs who sell a business want to leave staff well behind. Some even demand certain securities for their employees during negotiations. But what rights do staff have in a business acquisition?
Before you take over the business, it’s wise to thoroughly familiarize yourself with the employees’ situation. What types of contracts are in place? Are there any employees on sick leave? Is there a pension plan, and are payroll payments running smoothly? These and other issues will come to light through a due diligence process.
How do you inform employees about the acquisition?
Often, employees aren’t informed of the sale until the deal has been finalized. However, employees are the first group who should hear the news in person. It’s wise to call a staff meeting the morning after the acquisition and address the employees together with the seller. As the former owner, the seller delivers the big news, explains his reasoning, and thanks the staff for their efforts.
Post an anonymous sales profile on Brookz now and bring your business to the attention of 50,000+ entrepreneurs and investors!
Even more importantly, he introduces the buyer as a capable entrepreneur who is taking over the reins. The buyer then talks about his background, his motivation for taking over the business, and his plans for the company.
In any case, employees are caught off guard by the news. They’re dealing with a range of emotions and want answers to their questions as soon as possible. From that moment on, the buyer is the new point of contact for employees. Be sure to discuss with the seller in advance whether you want to make any statements regarding the purchase price, terms, and deal structure.
If the company has at least 50 employees, the works council (OR) must be consulted regarding the proposed decision to transfer the company (Article 25 of the WOR). That consultation process helps determine when and how employees are informed. Guidelines for this are set forth in the Works Councils Act (WOR). Generally, employees are informed once the letter of intent has been signed.
What are employees’ rights in the event of a business acquisition?
There is fairly little to discuss about the rights of staff, because in a business acquisition, employees are included. There is no choice for the buyer; the employees keep all their rights and obligations. The buyer not only takes over the primary working conditions, but the secondary working conditions also simply go with them.
Even employees who are sick are not to be let go. The wages are simply paid during the period of illness, you have to carry out the reintegration obligations properly and the costs of reintegration are yours.
As the new owner, you must maintain the employees’ collective bargaining agreement (CBA) terms and conditions unchanged for at least one year (Article 14a of the Collective Bargaining Agreement Act). After this period ends—or earlier, if the seller’s collective bargaining agreement expires or you, as the buyer, become bound by a different collective bargaining agreement—you may begin applying your own terms of employment to the acquired staff. Please note: this applies specifically to terms and conditions governed by a collective bargaining agreement; the employment contract itself and the standard protection against dismissal for employees remain in full force even after that.
Are there any exceptions?
Absolutely. Like almost all laws and regulations, there are exceptions. If you take over a business, then in some cases you are allowed to choose which staff members you take over:
- If the business went bankrupt before you take over;
- The business' operations change 180 degrees.
Frequently Asked Questions About Employees During a Business Acquisition
What happens to employees during a business acquisition?
Employees are automatically transferred to the new owner, retaining all their rights and obligations under their employment contract. This is referred to in the law as the “transfer of a business” and applies to both primary and secondary terms of employment.
Do employees retain their terms of employment after a business acquisition?
Yes, the employment contract and the resulting rights and obligations are transferred unchanged. In addition, the buyer must maintain the terms and conditions of employment governed by the collective bargaining agreement for at least one year.
How long must you maintain the terms and conditions of employment under the collective bargaining agreement after a takeover?
Pursuant to Article 14a of the Collective Bargaining Agreement Act, the buyer must continue to apply the terms and conditions of the collective bargaining agreement unchanged for at least one year after the acquisition, unless the seller’s collective bargaining agreement expires earlier or the buyer becomes bound by its own collective bargaining agreement sooner.
What role does the works council (OR) play in a business acquisition?
If the company has 50 or more employees, the Works Council must be consulted regarding the proposed decision to transfer the company, pursuant to Article 25 of the Works Council Act (WOR). This consultation process also plays a role in informing the employees.
Are there any exceptions to employee protection in the event of a takeover?
Yes. In the case of a takeover following bankruptcy, the usual protective rules do not apply, which means the buyer can choose which employees to retain. This may also apply in the event of a complete change in the company’s business activities.
