Transferring employees on an outsourcing in Germany: overview
A Q&A guide to outsourcing in Germany.
This Q&A guide gives a high level overview of the rules relating to transferring employees on an outsourcing, including structuring employee arrangements (including any notice, information and consultation obligations) and calculating redundancy pay.
To compare answers across multiple jurisdictions, visit the Transferring employees Country Q&A tool.
This Q&A is part of the global guide to outsourcing. For a full list of jurisdictional Q&As, visit www.practicallaw.com/resources/global-guides/outsourcing-guide.
For the general rules relating to outsourcing, visit Outsourcing: Germany overview.
Transfer by operation of law
Section 613a of the German Civil Code (BGB) implements employee protection based on Directive 2001/23/EC on safeguarding employees' rights on transfers of undertakings, businesses or parts of businesses (Transfer of Undertakings Directive).
In case of a business transfer, the employees' contracts of the business are transferred to the transferee, potentially including collective agreements tied to these contracts. A business transfer is defined as a long-term economic unit retaining its identity despite being transferred. Whether a long-term economic unit was transferred and whether it retained its identity is determined by the courts on a case-by-case basis, which is, however, based on the following criteria:
The type of business (for example where it is an industry, trade, service and so on).
The transfer of tangible assets (such as buildings and movable goods).
The value of intangible assets at the time of the transfer.
The transfer of the main staff.
The transfer of clients or customers.
The degree of similarity of the business before and after the transfer.
The duration of any interruption to the business.
Change of supplier
In case of a change of supplier, the above applies respectively as far as this change constitutes a business transfer (see above, Initial outsourcing).
If outsourcing is terminated and therefore operations are being insourced again, the above applies respectively as far as this insourcing constitutes a business transfer (see above, Initial outsourcing).
If employees are transferred by operation of law as part of a business transfer, the new employer succeeds the old employer in all rights and duties. Employees who are transferred by operation of law include all blue- and white-collar workers, executives and apprentices and employees with fixed-term or suspended employments that are part of the transferred business, but not board members, self-employed workers and civil servants.
Temporary agency workers are usually not transferred, unless the lender is itself the transferor.
The new employer takes on all pension rights and obligations of the business's active employees. Pensioners and former personnel of the transferred business are not active employees and therefore do not have their pension rights passed on to the new employer.
Generally, the new employer takes on all contractual benefits of the employees of the transferred business.
There is no statutory requirement to pay any severance pay. Consequently, this is an entirely voluntary matter, and therefore a negotiation tool for the employer. The amount of severance is entirely subject to negotiation and usually depends on the employer's legal exposure. In practice, such severance payments generally amount to approximately 50% up to 150% of one monthly salary per year of service, but may be higher.
The transferee may not unilaterally change the conditions of the employment contracts of the transferring employees.
Provided that the outsourcing results in an employee transfer by law, it should be noted that regulations of collective bargaining agreements or other shop agreements become part of the transferring employees' employment contract. However, this does not apply if the transferee is bound to an agreement, which has the same scope of application as the agreement in force at the seller's undertaking. After the expiry of one year, the regulations in the employment contract resulting from the agreement can be amended by a termination for change of contract, or a bilateral agreement between the buyer and the employee.
Information, notice and consultation obligations
Information and consultation of the works council. The economic committee (if any) has to be informed by the transferor prior to the signing of the outsourcing agreement. The economic committee has to be fully informed and in good time. German law states that the economic committee must be given comprehensive information because the economic committee's task is to advise the works council as to whether, and to what extent, the works council has a right to be consulted with prior to the transferor implementing the measure. The information will have been given in good time if the economic committee has the opportunity to discuss the issue with the transferor. If the transferor fails to inform the economic committee, the works council (on behalf of the economic committee) can apply for an injunction. The decision can be that, within a determined timeframe, the transferor has to provide the information the works council (on behalf of the economic committee) is requesting. Otherwise, the transferor would have to pay a fine of up to EUR250,000.
Provided that the outsourcing results in a change of business according to Section 111 of the German Works Constitution Act (BetrVG) and after the signing of the outsourcing agreement, the transferor must initiate and hold works council negotiations on an equalisation of interest agreement and social plan. Consultation is recommended to begin at least two to three months prior to the proposed transfer date. This timeframe may be longer if it is envisioned that "measures" (for example, the relocation of employees) will be taken regarding employees following the transfer.
Timing. The consultation and negotiation process can take approximately two to six months if an agreement on the equalisation agreement and social plan is reached in direct negotiations.
If direct works council negotiations fail, either party may move the matter to the "conciliation board", where the negotiations will be continued under the direction of this board's chairperson. Conciliation board proceedings can take another two to six months but there is no defined maximum duration for such proceedings. If an agreement is reached in such negotiations, the company can proceed with the measure. If no agreement is reached, the conciliation board will confirm that negotiations have failed and will set up a social plan. The company can then proceed with the measure.
Information provided to employees affected by the transfer. Provided that the outsourcing results in an employee transfer by law, the transferor and the transferee must notify employees affected by a transfer in text form prior to transfer of:
The date or planned date of transfer.
The reason for the transfer.
The legal, economic and social consequences of the transfer for the employees.
The measures that are being considered with regard to employees.
The employee may object in writing to the transfer of the employment relationship within one month of receipt of notification. Therefore it is highly recommended to deliver the transfer letters to employees at least one month prior to the proposed transfer of employment. The objection may be addressed to the previous employer or to the new owner.
Timing. It is highly recommended to wait until the negotiations with the works council are finished, or until the negotiations are well advanced, before sending the transfer letters so that the employees can be as up-to-date as possible and informed about the current status.
Description. This free database provided by the German Ministry of Justice and Consumer Protection in co-operation with juris GmbH contains almost all German federal statutory law. It is one of the most reliable websites but the only binding version of German law statutes is the paper version published in the Federal Law Gazette (Bundesgesetzblatt).
Translations of many statutes into English are available on this website, but solely as convenience translations.
Description. This database is provided by the German Ministry of Justice and Consumer Protection in co-operation with juris GmbH. It contains administrative regulations. Translations into English are not available.
Description. Official website of the German Federal Court of Justice (Bundesgerichtshof) (BGH).
Description. Dejure.org is an unofficial, free information portal for German law. It includes around 270 law statutes as well as a database containing more than one million court decisions (the full text versions are available via links to other websites).
Prof. Dr. Wolfgang Fritzemeyer, LL.M., Partner
Baker & McKenzie
Munich / Germany
Professional qualifications. Rechtsanwalt, Germany; Attorney-at-law, New York, US; Solicitor, New South Wales, Australia.
Areas of practice. Information technology; M&A; corporate/commercial; IT and IP transactions.
Representative clients, cases or matters
Accenture: assisted in connection with various IT-outsourcing transactions.
Adobe: acts as IT and corporate counsel for Adobe.
Bertelsmann: assisted in connection with IT matters and IT-related transactions.
First Data Corporation: acted as IT counsel, also in cross-border contract and compliance matters, for this global payment processing company.
Hewlett-Packard: acted and acts as company's counsel for a number of years and assisted in connection with various IT, including IT litigation, and corporate matters, including the take-over of Tandem and Digital Equipment by Compaq, as well as major outsourcing transactions; serves as the firm's client service director for HP.
Hutchison Telecom: acted as IT and corporate counsel and assisted in a variety of transactions.
Numerous M&A transactions for broad range of clients, especially High Tech.
Languages. German, English, French.
Professional associations/memberships. President of the German Chapter of the European Outsourcing Association since the Chapter's establishment; member of the German group of experts drafting the German Sample Electronic Data Interchange Agreement.
Publications, presentations and articles.
Various treatises and articles, mostly on IT, outsourcing, franchising and M&A law matters.
Holds regular internal and external seminars.
Lectures at the law faculties of the Universities of Constance and Munich.