News 21 November 2018

Employment considerations following transfers of undertakings

Businesses considering purchasing all or part of a business in Sweden have most likely made several economic and organisational considerations regarding the assets and liabilities of the business being acquired. Employment-related issues and how any redundancies after a transfer can be handled may also have been contemplated. Despite such considerations, buyers commonly disregard entirely, or at least underestimate, the importance of employment regulations in connection with a transfer of undertakings.

The article was published in ILO’s newsletter in October 2018

Employment law
Swedish employment law is harmonised with EU Directive 2001/23/EC relating to the safeguarding of employees’ rights in the event of a transfer of undertakings, businesses or parts of undertakings or businesses. However, in some respects, Swedish law provides expanded rights compared to the EU directive.
As a rule, Swedish law protects employees’ right to transfer to a new employer and have all of their employment terms transferred automatically. A transfer of undertakings may also result in the seller’s existing collective bargaining agreement and terms applying within the buyer’s business after the transfer. This can have significant economic, organisational and employee-related consequences for buyers which take over businesses in a transfer of undertakings.

Transfer of undertakings
A transfer which does not include a change of employer (eg, where stocks or shares change owners) is not considered a transfer of undertakings. According to the European Court of Justice (C-24/85 Spijkers), a business’s identity must be assessed to determine whether a transfer of undertakings has occurred. The courts consider the following criteria important for assessing whether the transferred business is an economic entity and retains its identity at the time of transfer:

  • the type of business;
  • its tangible assets;
  • the value of the intangible assets;
  • its employees;
  • its customers;
  • the degree of similarity between the activities carried on before and after the transfer; and
  • the period, if any, that its activities were interrupted.

Before a purchase of all or part of a business, a legal analysis must be performed to determine whether the purchase is a transfer of undertakings in accordance with these criteria. If the transfer is considered a transfer of undertakings, buyers should at least contemplate the following issues.

Careful consideration of which and how many employees can be transferred
Buyers may be liable to pay both financial and general damages, as well as salaries, for the entire duration of a dispute where an employee is prevented from working or given notice of termination without just cause. Even if just cause exists, costs associated with reorganisation or negotiations with labour unions may arise.

Analysis of current terms of employment
Buyers must apply both statutory and individually agreed benefits. Liability may also include financial obligations relating to the time prior to the transfer.

Has an investigation been performed into whether there are employees who have been terminated by the seller within a period of nine months (from the expiry of the employment)?
Buyers must comply with the rules on employees’ right to priority for re-employment, even though they have been terminated by the previous employer. Business which do not hire an employee with right to priority may be liable for damages.

Does the buyer have a collective bargaining agreement that cannot be applied to the employees that are being taken over and does the seller have a collective bargaining agreement?
Buyers will be bound by applicable parts in the seller’s bargaining agreement until the agreement expires. As a rule, the agreement will apply with regard to the employees that are being taken over, as well as existing employees that are not already covered by any collective agreement.

Does the buyer have a collective bargaining agreement that can be applied to the employees that are being taken over and does the seller have a collective agreement?
Even if the buyer already has an applicable collective bargaining agreement, they must apply the terms agreed in the seller’s collective agreement (eg, holiday and working hours benefits) for the employees that are taken over for one year.

Has the buyer informed and negotiated with labour unions in accordance with the Employment (Co-determination in the Workplace) Act?
Buyers may be held liable for failing to inform labour organisations about employment policies and not requesting negotiations in connection with the transfer of undertakings.

In some cases, sellers may terminate a collective bargaining agreement prior to the transfer to avoid the buyer being bound by the agreement. However, the buyer’s obligation to apply the terms for one year after the transfer is, in principle, valid even though the collective bargaining agreement has been terminated. It is also possible to negotiate and sign a new collective bargaining agreement (ie, a new agreement is agreed regarding the terms of the transferred employees). Ultimately, the importance of employment regulations in connection with a transfer of undertakings should not be underestimated.

Jörgen Larsson, Partner

Frida Toveby, Senior Associate