In an asset deal, employment contracts do not automatically transfer to the buyer unless there is a transfer of undertaking under Section 7:662 of the Civil Code. This differs fundamentally from a share deal where all employment contracts remain unchanged. The decisive factor is whether a economic entity with retained identity is transferred, which should be assessed on a transaction-by-transaction basis.
What is an asset deal and how is it different from other acquisition variants?
An asset deal involves the purchase of specific business assets such as machinery, inventory, contracts and goodwill, without taking over the legal entity itself. In a share deal, the acquirer buys shares and thus takes over the entire company including all liabilities.
The legal difference has direct implications for employment contracts. In share deals, all employment contracts automatically continue to exist because the same employer (the legal entity) remains in place. In asset deals, a new employment relationship only arises when the criteria for transfer of undertaking are met.
For M&A-transactions means that the choice of structure has a direct impact on staff transfer, liability and transaction costs. Asset deals offer more selectivity but require explicit agreements on personnel.
Do employment contracts automatically transfer on an asset deal?
Employment contracts transfer automatically on an asset deal only when there are transfer of undertaking in accordance with the European Acquired Rights Directive. This requires transfer of an economic unit where identity is retained after the transaction.
Jurisprudence uses the Nails criteria to determine whether identity is preserved. These include the nature of the business, transfer of tangible and intangible assets, acquisition of staff, customer base, comparability of activities and duration of interruption.
In labour-intensive services, staff takeover weighs heavily in the assessment. Not all criteria have to be met - the assessment is factual and case-by-case. If there is no transfer of undertaking, employment contracts end with the seller and the buyer must conclude new contracts.
What rights do employees have in an asset deal acquisition?
Employees have the right to timely information about the proposed takeover and possible impact on their workplace. The employer must consult the works council on decisions that significantly affect staff.
In a transfer of undertaking, employees cannot oppose the transfer - it is compulsory. However, they do retain all accrued rights and entitlements. Collective bargaining agreements that were applicable remain in force with the transferee for one year.
About eighty per cent of the Dutch workforce is covered by a collective agreement with specific provisions for mergers and acquisitions. These may grant additional works council rights, prescribe compulsory social plans and set minimum levels of severance payments higher than the statutory transitional compensation.
What happens to pension rights and fringe benefits?
In a transfer of undertaking, all rights and obligations under employment contracts pass to the acquiring employer by operation of law. This includes salary, working hours, positions, fringe benefits and pension schemes without exception.
Accrued years of service are fully taken into account for calculation of notice periods and transition compensation. Holidays accrued but not taken go with you and must be respected by the new employer. Seniority rights for periodicals and promotions remain.
Pension rights require specific attention because transfer between pension funds can require complex administrative procedures. In due diligence, employers should identify all pension liabilities and analyse impact to avoid unexpected costs.
How does the treatment of staff differ between asset deals and mergers?
At legal merger all employment contracts automatically transfer as legal entities merge. Asset deals require assessment whether transfer of undertaking takes place, creating more uncertainty for employees and employers.
Mergers offer greater legal certainty as all liabilities pass automatically. Asset deals offer selectivity - buyers can acquire specific assets without unwanted liabilities. This difference has strategic implications for deal structuring.
The consultation obligations also differ. In mergers, the works council must exercise advisory rights on the merger decision. In asset deals, this depends on the impact on employment and working conditions. Both scenarios may require mandatory social plans depending on the collective agreement provisions.
What steps should an employer take with staff during an asset deal?
Employers must first determine whether there is a transfer of undertaking by applying the Spijkers criteria. This assessment requires legal expertise because misjudgement leads to liability and claims can lead.
Timely communication to staff and works council is mandatory. The information obligation includes the reason for transfer, legal and economic consequences, and measures for employees. Consultation must take place before final decisions are taken.
Practical steps include identification of all applicable collective agreements, identification of individual employment conditions, alignment of pension schemes and preparation of transitional arrangements. Due diligence should cover all employment law aspects to manage risks and ensure compliance.
Asset deals require careful staff transfer analysis to manage legal risks and maximise value. Professional guidance helps navigate complex employment law issues and structure optimal transaction terms. For strategic support on your transaction, please contact with us.
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