Transfer of undertakings: the concept of transfer

transfer of assets

Polish labour law does not give a definition of the transfer of undertakings. However, it is traditionally understood as any organizational change which leads to transfer of ownership and includes mergers, takeovers or divisions of undertakings. Legal titles for such transfers are various: sale, lease, inheritance or other.

In the recent years, mostly under the influence of the Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses, and the related  rulings of the Court of Justice of the European Union, the understanding of the transfer of undertakings has changed, or rather – broadened to include a number of further sets of circumstances. In short, the transfer of undertakings may be considered to occur:

  • on takeover of tasks, not necessarily assets;
  • on subcontracting certain tasks to a third party contractor (in bilateral relationships);
  • on takeover of services, previously outsourced to one party, by another service provider, especially if such takeover of services was accompanied by takeover of assets related to these services (in tripartite relationships).
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Obviously, not all situations described above will automatically trigger the transfer of undertakings. There are certain additional aspects which must be taken into consideration, such as:

  • the kind of day-to-day activity of the parties involved;
  • whether the takeover of tasks/services was accompanied by takeover of assets;
  • whether the tasks/services taken over constitute the major or auxiliary part of the business of the party who launched the takeover.

Because of this it is becoming increasingly difficult to state conclusively whether business transactions are caught by the transfer of undertakings. Needless to say, this leads to a lot of legal uncertainty, both on the part of the employee and the employer. Depending on particular circumstances, the party to whom tasks or services have been subcontracted may not even be aware that the transfer of undertakings has taken place, not mentioning the related employees. From this perspective, even though the broadening concept of the transfer of undertakings was originally and is still meant to protect the employees, it may oftentimes backfire rather than help.

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Recently I have had a case court case with just that problem. Another company had taken over subcontracted security services. Before it started to provide the services, it employed a certain number of employees of the previous contractor. Employment was preceded by a regular recruiment process. Not all employees got through it. Not all employees of the previous contractor had been employed by the new company, and certainly not a majority of them. The previous contractor fired some of its employees involved in provision of the security services and removed all its belongings, including kitchen utilities and furniture. The successor provided all necessary equipment, like firearms, vehicles, torches, computers, furniture, etc.

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Based on this, the court had to decide whether there had been a partial transfer of undertakings.

The issues to consider were:

  • whether there had been a transfer of tasks and manpower;
  • whether there had been a transfer of assets;
  • which factor: the transfer of tasks/manpower or the transfer of assets was crucial to continue with the provision of security services.

In the end the court resoved that there had been no transfer of undertakings as there was no transfer of assets. Assets, such as firearms, were crucial to provide security services.  This opened the door for my clients to claim severance pay related to mass dismissals.

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