THE BOTTOM LINE
- Automatic Transfer is Non-Negotiable: Under Dutch law, employee contracts automatically transfer to the new owner in a business acquisition. This rule applies even if the transaction is structured as an asset-only sale.
- Side-Deals are Void: Private agreements between a buyer and seller to exclude employees from a transfer are legally unenforceable against the employees. The law protects the continuity of employment.
- Liability is Significant: Ignoring this mandatory rule can lead to substantial financial penalties, including orders to pay full back-wages, statutory increases, interest, and the employee’s legal costs.
THE DETAILS
This case serves as a crucial reminder for any company involved in mergers and acquisitions in the Netherlands. The dispute involved the new owner of a hospitality business who, after acquiring the company, refused to employ or pay a staff member who had a valid two-year contract with the previous owner. The new owner argued that his purchase agreement was for assets only and that he had a specific understanding with the seller that no personnel would be transferred. He believed this agreement protected him from any employment obligations.
The District Court of Midden-Nederland firmly rejected this position. The court’s reasoning hinged on the mandatory provisions of Dutch law concerning the transfer of an undertaking (Article 7:663 of the Dutch Civil Code). This legal doctrine, rooted in European directives, is designed to protect employees’ rights when a business changes hands. The court clarified that when an economic entity retains its identity after a transfer, all rights and obligations from existing employment contracts automatically pass from the seller to the buyer by operation of law.
The key takeaway from the judgment is that this principle of automatic transfer is mandatory law. It cannot be overridden by a private contract between the buyer and seller. Their agreement to exclude the employee was, in the eyes of the law, irrelevant to the employee’s rights. The court dismissed the new owner’s claims, which included an unsubstantiated allegation that the employment contract was falsified. Consequently, the new owner was ordered to immediately reinstate the employee, pay all outstanding wages from the date of the takeover, and cover statutory penalties and legal fees, with the threat of further daily fines for non-compliance.
SOURCE
Rechtbank Midden-Nederland
