Transfer of undertaking

What we do

The law stipulates that two conditions must be met when a transfer of an undertaking takes place. First, the transfer of the undertaking must be based on an agreement, merger, or demerger. Second, the identity of the transferring undertaking must be preserved. To satisfy the second condition, it is assessed on the basis of specific circumstances whether the identity is preserved (for example, the acquisition of the customer base or the transfer of personnel).

In the event of a transfer of undertaking, the employees of this undertaking also automatically transfer to this new undertaking. For example, the collective labour agreement to which the former employer was bound is transferred to the new employer. Furthermore, the employment contracts as entered into with the former employer are also transferred. An employee may lodge an objection against the transfer of undertaking.

Do you need legal advice regarding the transfer of the business? Then please contact us.

When does a transfer of undertaking legally occur?

The legal framework is set out in Articles 7:662 to 7:666 of the Dutch Civil Code (BW), which transpose European Directive 2001/23/EC into Dutch law. According to Article 7:662, paragraph 2, BW, a transfer of undertaking occurs upon the transfer of an economic unit that retains its identity. An economic unit is an organized set of resources intended for the exercise of an economic activity.

The court assesses whether the identity is preserved based on the so-called Spijkers criteria: the nature of the undertaking, the transfer of assets, the takeover of personnel, the transfer of the customer base, the extent to which activities remain the same, and the duration of any interruption. In labor-intensive sectors (such as cleaning or catering), the takeover of a substantial part of the personnel carries significant weight; in capital-intensive sectors, it is the transfer of business assets that is more important. Our lawyers and in-house counsel assess on a case-by-case basis whether there is genuinely a transfer of undertaking, or whether it concerns an ordinary asset transaction without a transfer of personnel.

Which rights and obligations transfer to the transferee?

Pursuant to Article 7:663 of the Dutch Civil Code, all rights and obligations arising from the employment contract transfer to the transferee by operation of law. The employees therefore automatically enter into service with the new employer, without the need for new contracts. This concerns, among other things:

salary, working hours and job content;
accrued service time, vacation days and holiday allowance;
agreements from the applicable collective labour agreement;
clauses such as the non-compete clause and non-solicitation clause (see also our page on the non-compete clause).

Pursuant to Article 7:663 of the Dutch Civil Code, the transferor (former employer) remains jointly and severally liable alongside the transferee for a period of one year following the transfer for obligations arising from the employment contract that arose prior to the transfer. An exception applies to the pension: subject to conditions, the transferee may apply its own pension scheme (Article 7:664 of the Dutch Civil Code).

Ban on dismissal and harmonisation of employment conditions

The transfer of an undertaking in itself does not constitute a valid reason for dismissal. Article 7:670 paragraph 8 of the Dutch Civil Code contains a prohibition on termination: the employer may not terminate the employment contract due to the transfer of the undertaking. Dismissal for other reasons, such as business economic circumstances or a simultaneous reorganization, remains possible within the ordinary rules of dismissal law.

A common pitfall for the acquiring party is the desire to harmonize employment conditions so that transferred employees receive the same terms as existing staff. The basic principle is that the transferred conditions are retained; unilateral reduction is, in principle, not permitted, even with consent resulting from the transfer. We guide employers through a legally sound harmonization process.

Bankruptcy, pre-pack and exceptions

Article 7:666 of the Dutch Civil Code stipulates that, in principle, the protective rules regarding the transfer of undertakings do not apply when the employer has been declared bankrupt and the undertaking belongs to the bankruptcy estate. In that situation, the personnel do not automatically transfer, and the bankruptcy trustee can act more selectively.

Regarding the pre-pack (a restart prepared before bankruptcy), this exception has been strongly nuanced by case law of the European Court of Justice (including the Smallsteps judgment) and the Supreme Court: if the restart is in reality aimed at the continuation of the business and not at liquidation, employee protection may still apply. This matter is factually and legally complex; our lawyers advise both buyers and sellers on the risks of a restart.

Employee participation: duty to inform and consult

In the event of a transfer of undertaking, the Works Council has the right to advise pursuant to Article 25 of the Works Councils Act (WOR). The employer must ask the Works Council for advice in a timely manner regarding the intended decision to transfer or acquire the business, so that this advice can still have a substantial influence. If this procedure is not followed correctly, the Works Council may lodge an appeal with the Enterprise Chamber. Following this process correctly is an important point of attention; please also read our page on reorganization and employee participation.

Transfer of undertaking in mergers and acquisitions

The transfer of undertaking almost always plays a role in mergers, acquisitions, and carve-outs. For the buyer, personnel represent a substantial cost and risk factor: if you purchase assets, you may unintentionally acquire the personnel as well. Therefore, thorough employment law due diligence is indispensable. We map out in advance which employees are transferring, which obligations are involved, and how these are regulated in the purchase agreement (SPA or asset agreement) and the warranties and indemnities. This helps you avoid surprises after the transaction. Our mixed teams of lawyers and in-house counsel work closely together in this regard, from international corporations to the baker on the corner transferring their business.

How we help you with the transfer of your business

MKB Juristen combines lawyers and (corporate) legal counsel in a single team, ensuring you have both litigation skills and a practical entrepreneurial perspective at your disposal. We advise employers, buyers, sellers, and employees on all facets of business transfers: from the initial assessment of whether rules apply to the execution of the employee participation process and the drafting of transaction documentation. Whether you are acquiring a family business or divesting a business unit, we consider both the legal and commercial consequences. This page is part of our Employment Law.

Frequently asked questions about transfer of business

Do all employees automatically transfer? Yes, pursuant to Article 7:663 of the Dutch Civil Code, employees working in the transferring undertaking transfer by operation of law, retaining their rights and obligations. The employee may choose not to transfer, but in principle loses their employment contract in that case.

May the new employer change the terms of employment? In principle, not solely because of the transfer. The terms carry over unchanged. A subsequent change is only possible under strict conditions.

Does the transfer of undertaking also apply in the event of bankruptcy? In an actual bankruptcy, the protection does not, in principle, apply (Article 7:666 of the Dutch Civil Code). This may be different in the case of a pre-pack or a restart; always have this legally reviewed.

Do you need legal advice regarding a business transfer, an acquisition, or a restart? Contact us for a no-obligation consultation.