GERMAN LABOR AND EMPLOYMENT NEWS this summer. THE SALE OF A - PDF document

THIRD QUARTER 2004 an Employee’s Demand Can the Discontinuance of an Outsourcing Contract Constitute the Transfer of a Facility? 2 Is the Newly-Enacted Residence Act a Cure for Germany’s Soccer Woes? 3 An Employer’s Right to Reject to Work Part Time to Reinstatement 4 Recent Court Decision Complicates the Conclusion of a Settlement Agreement 5 Employment Law in Today’s 6 Globalized World Must Temporary Employment Agreements Be in Writing? 7 1 to an Employee’s Right GERMAN LABOR AND EMPLOYMENT NEWS this summer. THE SALE OF A BANKRUPT FACILITY WILL NOT LEAD TO AN EMPLOYEE’S RIGHT TO REINSTATEMENT By Angela Autenrieth Frankfurt German Attorney at Law aautenrieth@jonesday.com ++49 69 9726-3977 Employees who are terminated in connection with a bankruptcy procedure do not have a claim to reinstatement of their job if the facility where they were employed is subsequently bought out of bankruptcy. This was already decided by a Cologne court way back in 2002 and was affirmed by Germany’s Federal Labor Court earlier Transfers of a facility’s assets are subject to Section 613a of Germany’s Civil Code Facility Will Not Lead (or to refer to the comparable British provision: Transfer of Undertaking (Protection of Employment) Regulation 1981) which states that if a “works” (otherwise referred to as a “facility” or an “undertaking”) or “part of a works” is transferred, the contracts of employment of those individuals employed in that particular facility are automatically transferred to the buyer. This is in direct contrast to the general common law rule which holds that the transfer of a business causes the respective employment relationships to be terminated since employment relationships may not be assigned. CONTENTS The Sale of a Bankrupt

2 ers that there are other types of situations which may also of a works” is acquired and the acquiror continues to The transfer of a facility occurs only if a “works” or “part automatic transfer of employment relationships. constitute a transfer of a facility, and thus, lead to the the buyer. However, it may be a bit of a surprise to employ- is whether the acquiror truly continues operating the works will automatically be deemed to have been assigned to operating that facility, then the employees of that facility substantial assets of a facility and the buyer continues As discussed in the preceding article, if a buyer acquires ++49 69 9726-3112 fstoffers@jonesday.com German Attorney at Law Frankfurt By Fabian Stoffers operate that “works” or “part of a works”. The critical issue (or part of a works) like the seller did, or whether the buyer OUTSOURCING CONTRACT CONSTITUTE THE tained primarily through the assumption of a significant part the parties’ arrangement called for the supplier to lease the and decided to operate the warehouse itself. Specifically, supplier subsequently terminated the service arrangement warehouse for a supplier to the automobile industry. The case, a third-party provider was responsible for running a cause an employment relationship to be transferred. In that the discontinuance of an outsourcing relationship would The Federal Labor Court was asked to review to what extent of the employees. in that facility while a service company’s identity is main- changes the “identity” of this works. This question can be through the transfer of the machinery and equipment used facturing sector, a facility’s identity is transferred primarily facility in the same fashion as did the seller. In the manu- extent it uses the tangible and intangible assets of the target same organization and methods of operation and to what and management, to what extent the buyer applies the including to what extent the buyer has the same employees resolved only by examining the totality of the circumstances, TRANSFER OF A FACILITY? CAN THE DISCONTINUANCE OF AN If the facility in issue has not filed for bankruptcy and, prior termination notice period expires, then, according to the bankrupt facility. Management had decided to cease ees had been terminated as a result of the closing of the from the general rule. In that case, each of the employ- filed for bankruptcy. This fact caused the court to diverge before the above-mentioned Federal Labor Court case had However, the facility which was the subject of the case claim is made immediately after learning of the transfer. a claim to reinstatement against the buyer, as long as such Federal Labor Court, the terminated employees may have of reinstatement. If the facility is transferred only after the fiable” —and thus, invalid—since there was a possibility and (iii) the fact that the termination was “socially unjusti- (ii) an employee’s constitutional right to occupational liberty, the employer’s statutory requirement to act in good faith, claims are based on various legal arguments including (i) will have a claim to reinstatement against the seller. Such ees is subsequently without basis, then the employees out that the employer’s grounds for terminating the employ- to the expiration of the termination notice periods, it turns operations and there were no other positions available. To the initial relief of the employees, the bankruptcy adminis- or reorganization. transfer of a facility are part of a bankruptcy procedure, the whether the bankrupt facility is the subject of a liquidation efficiently and with finality. This applies regardless of tial disputes in bankruptcy procedures must be resolved ruptcy procedure. The Federal Labor Court held that poten- had such a claim had the facility not been part of a bank- the buyer regardless of whether the employees would have employees do not have a claim to reinstatement against trator was able to find a buyer for the bankrupt facility and The court denied these claims. If a termination and for reinstatement. tions of the facility. This caused the employees to then file had been validly ended, the buyer continued the opera- the employment relationships with the former employees termination notice period had expired. Several days after to conclude a purchase agreement before the employees’ warehouse from its former service provider. They had not