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Reorganisation and transfer of undertaking

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Reorganisation and transfer of undertaking

Penrose specialises in personnel restructurings. Our Dutch employment lawyers assist companies, employees and works councils in the preparation and implementation of reorganisations, setting up and the implementation of a social plan and employee participation processes. Below we will discuss a number of important subjects and frequently asked questions on these subjects.

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Companies have to keep up with the sign of the times, and sometimes this requires a reorganisation in order to save costs or to implement a more efficient production process. A reorganisation can affect both business operations and personnel. A reorganisation of business activities moreover often leads to a reorganisation of personnel, possibly in combination with the transfer of undertaking under employment law.

In the event of a personnel reorganisation, the company must first establish whether the reorganisation is related to a ‘collective dismissal’ (i.e. mass layoff) in the Netherlands as referred to in the Wet Melding Collectief Ontslag (the Collective Redundancy Notification Act). A collective dismissal involves a restructuring comprising 20 or more employees that are to be fired within the same working area. In the case of a collective dismissal, the Dutch Employment Agency UWV must be informed and the trade unions and the works council must be involved.

If the company has an employees council, this council will usually have a right of advice with regard to the intended reorganisation. Learn more about the role of the works council.

In order to determine under Dutch law which employees will lose their jobs in the event of a reorganisation or company reform, the company must divide the staff into job groups. For each job group, a selection of employees who are eligible for dismissal is then made in accordance with the reflection of the composition of the workforce. Once a draft reflection has been made, the company can make a provisional calculation of the financial impact and long-term consequences of the reorganisation. Online tools are available for the reflection, including at the Dutch website ontslag.nl.

In line with the draft reflection, an impact analysis can moreover be drawn up in which the projected transition allowances, notice periods, budgets and legal costs are included so as to ascertain in advance whether the intended reorganisation will achieve the objectives or whether the intended plans need to be adjusted.

A large personnel reorganisation in the Netherlands tends to take up at least 4 to 5 months, depending on whether the company has a works council. Including all applicable notice periods, it then takes about 7 to 8 months before the relevant employment contracts effectively end.

A personnel reform and mass layoffs are often part of a reorganisation of business activities. Examples of a reorganisation of business activities are:

– Scaling down and sale of activities. If the hived-off activities form an economic and organisational unit, the Dutch personnel involved in an asset/liability transaction are automatically transferred to the purchaser. From that moment, the personnel is employed by another employer. This is called a transfer of undertaking under employment law.

– Outsourcing is a process whereby certain activities of the latent company are discontinued or transferred to a third party, after which the same activities are repurchased as-a-service. In the case of outsourcing too, if the transferred activities are an economic and organisational unit, this may result in the transfer of personnel by operation of law who will then enter into employment with the acquiring party as a result of a transfer of undertaking under employment law.

– Liquidation or bankruptcy of a Dutch company may occur when the continuation of certain business activities is not an option and the benefits of a sale or outsourcing do not outweigh the costs. Usually this means that in such insolvency situation, the staff involved are terminated as a result. Sometimes, part of the staff is offered a new employment contract in a restart.

A relevant question in reorganisations and more specifically in the sale of a business, i.e. assets and /liabilities, including the aforementioned demerger or outsourcing, is whether employees of the seller or latent party (the original employer) automatically transfer to the buyer. Dutch labour law provides that, in the event of a transfer of a business undertaking (in practice referred to as ‘TUPE’), the employees associated with the undertaking by operation of Dutch law join the buyer or acquirer. The employment contracts with these employees then remain unchanged, except that they will be in the name of the purchaser or acquiring party as the (new) employer.

If the transfer of a business transpires by a sale of shares, there is no matter of a transfer of undertaking under Dutch employment law since the company itself is not affected. In that case, the entire legal entity is transferred to the acquirer of the shares, and everything remains the same for the employees and the target company will continue to be their employer.

It is not always plain and clear whether a situation is related to a transfer of undertaking within the meaning of Dutch labour law. In case of a sale of all business activities, this is clearly a transfer of undertaking. Business activities include, for example, the business premises, the inventory and the customer base. If only certain parts of the business are sold, things becomes more complex and it will have to be examined whether the part of the business that is sold comprises an organisational and economic unit. In order to answer this question, it is advisable to call in the services of a specialist in Dutch employment law.

If an (independent) part of the enterprise is transferred, the employees of that (independent) part are automatically transferred to the transferee. In principle, the legal position of the employee remains unchanged, but it has now become a position in respect of the new owner/employer of the enterprise. However, the former employer will continue to be responsible (and therefore liable) for proper compliance with the employment contract for another year after the transfer of undertaking.

Our lawyers specialise in reorganisations and in the transfer of undertakings under employment law. They help you consider and deal with any of your issues and are happy to answer your questions. The contact details of our experts can be found here.

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