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HR Legal

Acquirer in a business transfer was liable for employee representative’s claim

24. november 2017

The Danish Supreme Court has ruled that a terminated employee released from duties could bring his claim of 1.3 million Danish kroner for unfair dismissal directly against the transferee in a business transfer.

A company had reached an agreement with a bankruptcy trustee on the acquisition of a bankrupt company. The asset purchase agreement was signed on 23 December and the transfer date set to 30 December the same year. It appeared from the purchase agreement that the transfer included goodwill, part of the operating equipment, IT equipment etc. and also 42 out of about 220 employees. An employee representative employed at the business was told that he was not part of the transfer. He was therefore terminated and released from duties a few days before the transfer.

However, according to the collective bargaining agreement that applied to the employment, employee representatives could only be dismissed in cases of “… specific compelling circumstances.” The employee representative was of the opinion that the dismissal was not rooted in specific compelling circumstances and he therefore made a claim against the transferee of 6 months’ salary during the notice period as well as compensation for unfair dismissal equivalent to 12 months’ salary.

At the Supreme Court, the question was whether the transferee had entered into the obligations towards the employee representative in such a manner that the representative could bring his claim directly against the transferee or whether he had to make the claim against the insolvent estate.

The Supreme Court affirmed the practice of the CJEU

First of all, the Danish Supreme Court stated that the acquirer enters into the rights and obligations that exist on the date of the transfer according to a collective agreement and agreements in line with the Danish Act on the Transfer of Businesses. In that context, the Supreme Court noted that, according to case law, an employee is not considered to be in employment on the date of the transfer if the employee actually and definitively has been dismissed and released before the date of the transfer.

With reference to the legislative history of the act, the Supreme Court found that the protection against unfair dismissal under the Danish act on the transfer of businesses also covers groups of employees, such as employee representatives, who have an expanded protection against dismissal.

Subsequently, with reference to the case law of the CJEU, the Supreme Court held that employees who are dismissed shortly before the date of the transfer in violation of law, collective bargaining agreements or other agreements can bring their claim against both the transferor and the transferee, regardless of the fact that the employee has been dismissed and released from duty before the date of the transfer. Furthermore, the Supreme Court stated that this also applies in cases where the transferor is an insolvent estate.

In this particular case, the Supreme Court found that the employee representative had been dismissed because of the transfer of the business. As the representative had broad experience and could be used in many functions, the Supreme Court did not find that there had been compelling reasons to dismiss the representative.

Therefore, the Supreme Court concluded that the employee representative could bring his claim of remuneration during the notice period and compensation for unfair dismissal, 1.3 million Danish crowns in total, against the acquirer.

IUNO’s opinion

With this judgement, the Supreme Court establishes that the protection against unfair dismissal under the Danish Act on the Transfer of Businesses covers all groups of employees, including employees who have an expanded protection against unfair dismissal such as employee representatives. Furthermore, the Supreme Court states that the transferor and transferee are both responsible to the employee in cases of unfair dismissal and this also applies when the transferor is an insolvent estate.

In a transfer of businesses where the transferee doesn’t take over all employees, it’s important that the parties involved have a clear agreement on who is responsible for potential claims. If the transferor is an insolvent estate or a company with financial difficulties, it’s important for the transferee in advance to get security or payment for potential claims from employees in cases where the transferee is jointly and severally liable.

Cases regarding a transfer of businesses are often very complex and IUNO therefore recommends that the companies pay attention to details and seek legal advice.

[The Danish Supreme Court’s judgement of 17 October 2017 in case 284/2016]

A company had reached an agreement with a bankruptcy trustee on the acquisition of a bankrupt company. The asset purchase agreement was signed on 23 December and the transfer date set to 30 December the same year. It appeared from the purchase agreement that the transfer included goodwill, part of the operating equipment, IT equipment etc. and also 42 out of about 220 employees. An employee representative employed at the business was told that he was not part of the transfer. He was therefore terminated and released from duties a few days before the transfer.

However, according to the collective bargaining agreement that applied to the employment, employee representatives could only be dismissed in cases of “… specific compelling circumstances.” The employee representative was of the opinion that the dismissal was not rooted in specific compelling circumstances and he therefore made a claim against the transferee of 6 months’ salary during the notice period as well as compensation for unfair dismissal equivalent to 12 months’ salary.

At the Supreme Court, the question was whether the transferee had entered into the obligations towards the employee representative in such a manner that the representative could bring his claim directly against the transferee or whether he had to make the claim against the insolvent estate.

The Supreme Court affirmed the practice of the CJEU

First of all, the Danish Supreme Court stated that the acquirer enters into the rights and obligations that exist on the date of the transfer according to a collective agreement and agreements in line with the Danish Act on the Transfer of Businesses. In that context, the Supreme Court noted that, according to case law, an employee is not considered to be in employment on the date of the transfer if the employee actually and definitively has been dismissed and released before the date of the transfer.

With reference to the legislative history of the act, the Supreme Court found that the protection against unfair dismissal under the Danish act on the transfer of businesses also covers groups of employees, such as employee representatives, who have an expanded protection against dismissal.

Subsequently, with reference to the case law of the CJEU, the Supreme Court held that employees who are dismissed shortly before the date of the transfer in violation of law, collective bargaining agreements or other agreements can bring their claim against both the transferor and the transferee, regardless of the fact that the employee has been dismissed and released from duty before the date of the transfer. Furthermore, the Supreme Court stated that this also applies in cases where the transferor is an insolvent estate.

In this particular case, the Supreme Court found that the employee representative had been dismissed because of the transfer of the business. As the representative had broad experience and could be used in many functions, the Supreme Court did not find that there had been compelling reasons to dismiss the representative.

Therefore, the Supreme Court concluded that the employee representative could bring his claim of remuneration during the notice period and compensation for unfair dismissal, 1.3 million Danish crowns in total, against the acquirer.

IUNO’s opinion

With this judgement, the Supreme Court establishes that the protection against unfair dismissal under the Danish Act on the Transfer of Businesses covers all groups of employees, including employees who have an expanded protection against unfair dismissal such as employee representatives. Furthermore, the Supreme Court states that the transferor and transferee are both responsible to the employee in cases of unfair dismissal and this also applies when the transferor is an insolvent estate.

In a transfer of businesses where the transferee doesn’t take over all employees, it’s important that the parties involved have a clear agreement on who is responsible for potential claims. If the transferor is an insolvent estate or a company with financial difficulties, it’s important for the transferee in advance to get security or payment for potential claims from employees in cases where the transferee is jointly and severally liable.

Cases regarding a transfer of businesses are often very complex and IUNO therefore recommends that the companies pay attention to details and seek legal advice.

[The Danish Supreme Court’s judgement of 17 October 2017 in case 284/2016]

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Anders

Etgen Reitz

Partner

Søren

Hessellund Klausen

Partner

Kathrine

Skøtt Jespersen

Senior associate

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