What is meant by a business transfer?

This is the transfer of an economic entity which maintains its identity, i.e. the same undertaking or part of an undertaking is continued in an identical, if not similar, manner by the transferee, and which constitutes an organised set of resources, in particular personnel and equipment, enabling the continuation of an essential or ancillary economic activity.

An internal administrative reorganisation of public administrative authorities or the internal transfer of administrative functions between public administrative authorities does not constitute a transfer within the meaning of the rules on transfer of undertakings, which will be described below.

A change in the management, the organs of the company or the shareholders does not give rise to the application of the rules on transfers of undertakings.

What is meant by a transferor?

The transferor is any natural or legal person who, as a result of a transfer, loses the status of employer in respect of the undertaking, business or part of an undertaking or business.

What is a transferee?

The transferee is any natural or legal person who, as a result of the transfer, acquires the status of employer in respect of the undertaking, business or part of an undertaking or business.

To whom do the rules on the employment of employees apply in the event of a business transfer?

The rules on the transfer of an undertaking shall apply to any transfer of an undertaking or part of an undertaking or part of an establishment resulting in particular from:

  • a contractual transfer;
  • a merger;
  • the settling of an estate;
  • a split-off;
  • a transformation of assets; or
  • the creation of a company.

These rules are applicable to public and private enterprises engaged in economic activity, whether they are profit-making or not.

They apply whenever the company to be transferred is located on the national territory of the Grand Duchy of Luxembourg and to all employees, including those employed on a part-time or fixed-term contract, including temporary work contracts.

What happens to employees' employment contracts when ownership of a business is transferred?

When ownership of a business is transferred or a change in the employer’s situation occurs, in particular by the settling of an estate, sale, merger, transformation of a company’s assets or incorporation, all employment contracts in force on the date of the change shall continue to exist between the new employer and the employees of the business.

The main principle is that in the event of a transfer, the employees’ rights are maintained and transferred to the transferee.

The rights and obligations of the transferor arising from an employment contract or employment relationship existing at the date of the transfer are transferred to the transferee by reason of the transfer of the undertaking.

Even a customary bonus that is constant, general and fixed remains due to transferred employees and cannot be changed by a new, less favourable contractual clause.

What about the transferor and transferee's liability?

The transferor and the transferee shall be jointly and severally liable after the date of the transfer for obligations that have arisen before the date of the transfer as a result of a work contract or an employment relationship existing at the date of the transfer.

The transferor must reimburse the amounts paid by the transferee, unless responsibility for these obligations is covered in an agreement between the transferor and the transferee.

What are the obligations of the transferor and the transferee?

The transferor shall give timely notice to the transferee of all rights and obligations transferred to it, to the extent that such rights and obligations are known or ought to be known to the transferor at the time of the transfer.

A copy of this notification shall be sent to the Labour and Mines Inspectorate (ITM).

The failure of the transferor to notify the transferee of any such right or obligation shall not affect the transfer of that right or obligation or the rights of the employees against the transferee or transferor in respect of that right or obligation.

What about the collective rights of employees in the event of a company transfer?

After the transfer, the transferee is obliged to maintain the collective rights that have arisen under a collective labour agreement until the date of the termination or expiry of the collective labour agreement or the entry into force or application of another collective labour agreement.

Can the transfer of a business be a reason for dismissal?

The transfer cannot in itself constitute grounds for dismissal for the transferor or the transferee.

What obligations do the transferor and the transferee have with regard to providing information and consultations?

The transferor and the transferee shall be obliged to inform in good time and before the transfer:

  • the legal representatives of their respective employees affected by the transfer, or in the absence of a staff delegation;
  • the employees concerned.

Notice will be provided that included the following points:

  • the date set or proposed for the transfer;
  • the reason for the transfer;
  • the legal, economic and social consequences of the transfer for employees;
  • the measures being considered for employees.

The transferor or the transferee, when contemplating measures in respect of their respective employees, shall consult in good time on such measures with the legal representatives of their respective employees with a view to reaching an agreement.

The reporting requirements apply regardless of whether the decision to transfer is made by the employer or a controlling company.

What is the impact of the transfer on the status of employee representatives?

The first question is whether employee representatives can be included among the transferred employees because of their protective status.

There is no legal provision excluding employee representatives from such a transfer. As the transfer of an undertaking implies the automatic takeover of employment contracts by the transferee, staff representatives may also be affected.

Unless the transfer implies a modification of an essential element of a representative’s employment contract to their disadvantage, such as if the transfer implies a change in the representative’s place of work with a significantly increased daily commuting time and the representative has not signed a flexibility clause regarding the place of work in the employment contract. The transfer therefore implies a change in such representatives’ place of work which is unfavourable to them. However, a modification of an essential element of the employment contract in an unfavourable direction cannot be imposed on the representative. Such representatives could therefore oppose the transfer.

The same rules apply to all representatives, whether they are full or substitute.

The second issue is whether or not these persons remain representatives after the transfer.

According to Article L. 413-2 (5) of the Labour Code, a distinction must be made as to whether or not the transferred establishment retains its autonomy within the entity receiving the transferred employees.

  • If the establishment keeps its autonomy after the transfer of a company, establishment or part of a company or establishment, the status and function of the staff delegation remain in place. If the establishment does not keep its autonomy, it must be determined whether the host establishment has a staff delegation or not.
  • Where a host establishment does have a staff delegation (and/or joint committee), the members of the staff delegation will automatically become part of the staff delegation of the establishment that receives the transferred employees. The enlarged delegation will appoint a chairman, a vice-chairman, a secretary and a bureau without delay, in accordance with article L. 416-1. The exceptional composition of the staff delegation will end at the time it is next renewed.
  • If the host establishment does not have a staff delegation, the staff delegation of the transferred establishment shall act as a common delegation.

In the preparatory works of the reform of the social dialogue, we can read: “according to the legal provisions in force, the mandate of the representatives cannot expire because of a transfer of undertaking”.

As a result, all employee representatives retain their representative status and the protection attached to it even after a transfer of undertaking.