What is a transfer of undertaking and when does it occur?
If there is a transfer of undertaking, all rights and obligations arising from the employee's employment contract are transferred by operation of law from the transferor, to the transferee(Article 7:663 of the Civil Code). In this sense, the transferor is the old employer, and the transferee is the new employer. The number of years of service, the accrual of vacation days and vacation pay, and certain terms and conditions of employment are thus transferred to the new employer. There is a transfer of undertaking when, in accordance with Article 7:662 of the Dutch Civil Code, the following three points apply:
- there must be an economic unit;
- there must be a transfer due to an agreement, merger or demerger; and,
- the aforementioned economic unit must retain its identity.
Explanation:
1. An economic unit involves "a set of organized resources intended to carry out an economic activity. In short, an economic unit can be, for example, a department that is transferred in its entirety to the other company. Even if that department consists of only three employees, for example. As long as the entire department (read: economic unit) transfers, this is satisfied. Thus, it does not mean that the entire company must be transferred to speak of a transfer of undertaking.
2. A transfer due to an agreement, merger or demerger means that the enterprise, or a part thereof, is merged or demerged on the basis of an agreement. This is easily met in practice.
3. That the economic unit must retain its identity means that the identity must remain the same before and after the transfer. First, it matters whether the transferred economic unit is capital-intensive or labor-intensive. Capital-intensive means that the emphasis is on, for example, the machinery that has been transferred, while labor-intensive refers to the transfer of certain employees, for example, specialists. In a capital-intensive sector, economic identity can be preserved if the relevant machinery also transfers with it. In a labor-intensive sector, economic identity is then preserved if the relevant workers are transferred.
Thus, whether there is a transfer of undertaking depends on several circumstances, all of which must be assessed to arrive at a - therefore casuistic - consideration and conclusion.
