Transition compensation in a business takeover is a complex issue that depends on specific circumstances. Employees are entitled to transition compensation when their employment contracts are terminated, but in takeovers, employment contracts automatically transfer to the new owner. This means that transition compensation only applies to actual dismissals after the takeover, not to the transfer of ownership itself.
What is a transitional allowance and when are you entitled to it?
A transition allowance is a legal compensation that employees receive when their employment contract is terminated. The right arises when the employment contract ends, regardless of the reason, provided specific conditions are met.
The legal conditions for transition compensation include an employment contract of at least two years and termination by the employer or due to circumstances attributable to the employer. In business takeovers, the transition-from-enterprise scheme a crucial role, as employment contracts automatically transfer to the new owner.
The transition compensation is calculated on the basis of years of service and monthly salary. For each six-month period of service, the employee will receive one-third of the monthly salary, with a maximum of €88,000 or one year's salary.
What happens to my employment contract in the event of a takeover?
In a business takeover, employment contracts automatically transfer to the new owner based on Section 7:662 of the Civil Code. This transfer occurs by operation of law, without the consent of employees or new owner.
The Nails criteria determine whether there is a transfer of undertaking. These criteria assess the nature of the enterprise, transfer of tangible assets, value of intangible assets, personnel takeover, customer base and comparability of activities. In the case of services, personnel takeover weighs heavily in this assessment.
All rights and obligations transfer automatically, including salary, working hours, positions, fringe benefits and pension rights. Years of service, holidays and seniority are retained. Any applicable collective agreement will remain in force for one year after the takeover.
Dismissal because of the takeover is strictly prohibited and null and void. Only dismissal for economic, technical or organisational (ETO) reasons unrelated to the takeover is allowed. The burden of proof that dismissal is not related to the takeover lies with the employer.
In what situations are you or are you not entitled to transitional compensation in a takeover?
Transition compensation does not automatically apply in the case of an acquisition. The right only arises when the employment contract is actually terminated after the transfer of ownership.
There is no right to transitional compensation if the employment contract simply continues under the new owner. This is the normal scenario in takeovers, as employment contracts transfer automatically. The dismissal ban also applies to reorganisations directly related to the acquisition.
However, entitlement to transition compensation does arise in case of dismissal after the acquisition for reasons not directly related to the transfer of ownership. This may be the case, for example, in the case of subsequent reorganisations, job changes or business economic circumstances unrelated to the M&A transaction.
In equity transactions (share deals), the legal entity remains unchanged and all employment contracts remain in place. In asset deals (asset deals), specific employment contracts can be taken over, with the transfer-of-company rules continuing to apply.
How is the amount of severance pay calculated in a business takeover?
The calculation formula for transition compensation is laid down by law and also applies to dismissals following company takeovers. For each six-month period of employment, the employee receives one-third of the monthly salary as transition compensation.
Factors that affect the amount are the length of employment and the monthly salary. Monthly salary includes the fixed salary plus structural allowances such as holiday pay, thirteenth month and fixed bonuses. Incidental rewards do not count.
The maximum amount is €88,000 or the annual salary, whichever is higher. For employees with more than 10 years of service, an increased formula applies: half a month's salary per six-month period for the years above 10.
For partial working weeks, the transition allowance is calculated on a pro rata basis. Periods shorter than six months are rounded up to a full six-month period.
What are your rights as an employee during a merger or acquisition process?
Employees have extensive rights during fusion and takeover processes. The main protection is the automatic transfer of employment contracts while retaining all rights and conditions of employment.
The information duty of employers includes timely communication about the proposed acquisition. In companies with a works council, it has advisory rights in the case of decisions that significantly affect employees. The works council must be informed and consulted before final decisions are taken.
Protection against arbitrary dismissal strengthened during takeovers. Dismissal due to takeover is null and void. Employees can invoke the transfer-of-company rule and retention of employment conditions.
Additional procedures apply to collective dismissals of 20 or more employees within three months. This requires a UWV notification one month in advance and mandatory trade union consultation. A social plan is not required by law, unless the collective agreement or Works Council requires it.
How can you claim your transitional allowance in a takeover?
Claiming transfer compensation in a takeover requires proof of termination of the employment contract and compliance with the legal conditions. This is only relevant in case of actual dismissal after the takeover.
Required documentation includes the employment contract, pay slips, the dismissal letter and proof of the duration of employment. In the case of dismissal after an acquisition, it must be shown that the dismissal is not directly related to the transfer of ownership.
The deadline for claiming transitional compensation is two months after termination of the employment contract. This period is an expiry period, meaning that the right expires if it is exceeded.
Legal assistance may be necessary when the employer disputes the transfer compensation or when there is a lack of clarity on the application of the transfer of undertaking scheme. Professional advice is also advisable in complex takeovers involving multiple legal acts.
In business acquisitions, the legal complexity of employment law plays a crucial role in determining employee rights. We regularly assist companies in navigating this complex matter during M&A transactions. For specific questions about your situation, please contact with us.
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