Kanzlei fuer Arbeitsrecht Schweier
Transfer of a business pursuant to section 613 a German Civil Code – Restructuring and acquisitions

A provision of particular importance in German law, which must be observed in case of restructuring and acquisitions, is section 613 a German Civil Code. This provision applies to transfers of

businesses or parts thereof

If such an economic unit is transferred from a company (seller) to another company (purchaser), section 613 a German Civil Code stipulates that the employment relationships of the affected employees are automatically, i. e. by operation of law, transferred to the purchaser. Any agreement, which shall obstruct this legal consequence, is ineffective.

It is of particular importance to foreign investors from outside Europe to be informed about this provision, which is often unknown to them, and about its far-reaching consequences for the transaction.

Substantial financial consequences accrue from transferred pension obligations. Pension expectancies are also transferred to the purchaser as an element of the employment relationship. The purchaser is liable for all past and future rights and obligations, even if they already existed prior to the transfer of business. The seller is jointly liable in accordance with section 613 a para. 2 German Civil Code. This should absolutely be taken into account in the negotiations and determination of the purchase price.

Transfers of businesses in bankruptcy proceedings are partly treated differently. Section 613 a German Civil Code generally also applies in bankruptcy proceedings. However, the provisions regarding liability in case of bankruptcy supersede the provision regarding liability pursuant to section 613 a German Civil Code.

Furthermore, it should be noted that purchaser and seller must inform the employees, who are affected by the transfer of business, about the reason of the transfer and other relevant circumstances (e.g. point of time, legal consequences etc.) in accordance with section 613 a para. 5 German Civil Code in due form prior to the transfer.

Generally, the employees can object to the transfer of their employment relationship in writing within a period of one month; this period starts upon information about the transfer. If they object, employment with the seller continues. As the employees can object also later if they are not or not properly informed about the transfer, it is important to ensure proper information in order to avoid an unpleasant surprise by objecting employees at a later date.

It can also be of interest to check the possibilities to replace provisions of collective bargaining agreements.

Please Contact me for further information.