In a share deal, a shareholder of a company sells shares that entitle him or her to control the company to another party. Although the shareholder changes, the employer company of the company's employees remains unchanged. This article looks at a business transaction, specifically a ”transfer of business”, where the seller is a company and the buyer is another company. When a business is transferred to a new company, the employer of the employees involved also changes.
Transfer of business under the Employment Contracts Act
Under the Employment Contracts Act, the employer must. by transfer of the business Means the transfer of an undertaking, business, community or foundation, or a functional part thereof, to another employer, provided that the business or part of the business transferred remains the same or similar after the transfer.
When a business is transferred, the rights and obligations arising from the employer's employment relationships in force at the time of the transfer, and the related employee benefits, are transferred to the new owner of the business. The employment relationships are therefore not affected by the transfer of the business, but are transferred as such.
Responsibility for employees' wages and other claims
It is important for the buyer to remember that, under the Employment Contracts Act, he is solely responsible for all employment-related claims that fall due after the transfer of the business, regardless of when these claims were earned. This means that the buyer is liable, for example, for annual holiday pay and holiday pay due at a later date, even if the holiday days had accrued before the transfer.
The transferor and the transferee are jointly and severally liable for any claims relating to the employee's wages or other employment-related claims that have fallen due before the transfer. In this case, the employee may, if he wishes, also claim his previously unpaid salary claims from the new owner. However, the seller is liable to the buyer for these claims, unless otherwise agreed. Therefore, even if the buyer has to pay the employee the claims due to him, he can claim the corresponding compensation from the seller.
It is a good idea to identify receivables that will become due at a later date already before the transaction and take them into account in the purchase price. The parties to the divestiture may agree that the criterion is the accrual of the benefit, rather than the due date. It is customary to agree that the seller will assume the employee's claims (e.g. holiday pay, overtime and bonus) up to the time of the transfer of the business, regardless of when they are due. It is also customary to agree comprehensively in the deed of sale what the seller will assume.
The transfer of a business is not a ground for dismissal
The transfer of a business is not in itself a ground for termination of employment, and the employer cannot require employees to agree to changes to the terms of their employment contracts on that basis. The new employer is also bound by the collective agreement that applied before the transfer until the end of the contract period.
If there are employees among them with whom no written employment contracts have been drawn up, it makes sense for the buyer to draw up existing employment contracts in written form. In future disputes, it can be challenging to clarify the details of the employment contract with the old employer if the employee claims that something has been agreed. It is therefore advisable to clarify the content of the employment contracts and the terms and conditions of the employment relationship before the takeover takes place.
Information on the transfer of the business and the obligation to engage in dialogue (Law on Collective Bargaining)
Both the seller and the buyer must inform the representatives of the employee groups about the (planned) date of the transfer, the reasons for the transfer, the consequences for the employees and any planned measures affecting the employees. In practice, it is also a good idea to inform the persons affected by the transfer themselves, as well as other staff.
The seller must provide the information in good time before delivery. The reason for the transfer may be, for example, to improve the efficiency of the business. For employees, this usually means that they move to the new employer as existing employees, and the place of work may also change. Although the transferring employees do not have the right to object to the transfer or to remain with the previous employer, they have a special right to terminate their own employment contract under 7:5 of the Employment Contracts Act.
The buyer must provide the corresponding information within one week of delivery. The buyer is also obliged to engage in dialogue. Staff representatives must be given the opportunity to ask and answer questions. If the transfer of the business is expected to have other consequences for the workforce or if there are plans to reduce the workforce, separate collective bargaining must be organised. There is a separate article on the Joint Action on our website.
Dismissal of employees or changes to the terms and conditions of employment
The transfer of a business does not provide any specific protection for employees after the transfer has taken place. Shortly after the transfer, the new employer may start to reorganise the company's activities, which may lead to productivity and financial redundancies. The existence of these grounds will be assessed in the same way as in other situations. The transfer of the business does not therefore affect the existence of grounds for dismissal. It is very important to note that any redundancies must be based on a substantial and permanent reduction in the workload resulting from the reorganisation, not on the transfer of the business itself.
When new employees are transferred to the buyer as a result of the transfer of the business, the terms and conditions of employment of these employees may differ from those of the previous employees. Equal treatment of employees may require harmonisation of the terms and conditions of employment, in which case there may be a need to negotiate changes with the employees.
Buying a business from a bankruptcy estate
In the case of a business being bought from a bankruptcy estate, slightly different rules apply. In this case, the transferee is not normally liable for claims that were due before the transfer. However, liability may arise if the persons who control or have controlled the transferee business are the same as the bankrupt.
Jari Sotka
Lawyer, MBA
Tel. 040 544 0610
[email protected]
Amos Attorneys at Law Oy
www.amoslaki.fi
The author has worked as a lawyer and advocate for more than 25 years, focusing throughout his career on preventing and solving legal problems for small and medium-sized enterprises.