During corporate acquisitions and restructuring projects, executive attention frequently focuses on corporate and tax planning. Where a business or operational unit is acquired by way of an asset deal, however, statutory transfer of undertakings rules under Section 613a of the German Civil Code apply automatically. This protective framework dictates that employment relationships belonging to the transferred operation pass to the new owner by operation of law, retaining all established contractual terms and conditions. Contractual terms attempting to exclude individual employees are void.

This commentary examines the primary legal challenges associated with business transfers, explains the requirements governing statutory notification letters and demonstrates how commercial parties can manage employment exposures.

Defining an identifiable economic unit

Not every sale of commercial assets constitutes a transfer of a business under German law. The decisive legal test developed by the courts is whether an identifiable economic entity continues its commercial activities while retaining its operational identity. In asset-heavy sectors such as manufacturing, the transfer turns primarily on taking over critical machinery, physical premises, transport fleets and production systems.

In knowledge-based or service sectors, by contrast, the focus rests on the transfer of human capital. Where an acquirer takes over an essential proportion of staff in terms of numbers and expertise, a business transfer will be established even without substantial tangible assets.

Enterprises must determine prior to signing which employees are functionally allocated to the transferring unit. Shared service roles require a careful audit based on contemporary working time records and organisational reporting lines.

The statutory notification letter

Prior to completion, the transferor or transferee must provide all affected employees with formal notification in text form. This document is not a routine administrative notice; it represents the central mechanism for managing post-closing employer liability. The notification must be delivered individually to each employee.

Statutory rules require exhaustive explanations regarding four mandatory elements: the reason for the transfer, the scheduled transfer date, the legal, economic and social consequences for the workforce, and any operational measures planned in respect of employees. Generic summaries fail to satisfy judicial scrutiny.

In particular, the commercial background to the change of ownership must be set out clearly, and alterations concerning collective agreements, works agreements or company pension commitments must be described in detail.

These figures reflect established statutory parameters under German employment transfer regulations. Specific notice periods and collective terms depend on underlying agreements and applicable collective bargaining frameworks.

Employee rights of objection

Every affected employee holds a statutory right to object in writing to the transfer of their employment within one month of receiving the notification letter. If an employee exercises this right, the employment contract remains with the transferor. The objection requires no statement of reasons and may be declared to either transferor or transferee.

If the notification letter was flawed, inaccurate or incomplete, the one-month statutory objection period does not begin to run. In practice, this allows employees to object to the transfer months or even years after completion, unless the right has been forfeited in an individual case. This creates significant commercial exposure for the seller, who remains burdened with staff for whom no ongoing operational roles exist.

Consequences of objection and redundancy risks

Where an employee objects to the transfer and the transferor retains no vacant posts within its remaining operations, operational redundancy may be considered. However, the employer must conduct a regular social selection audit across all remaining comparable staff of the transferor. The company cannot dismiss the objecting employee without satisfying these statutory criteria.

The buyer, for its part, risks losing essential personnel if key contributors exercise their objection rights and decline to transfer. Parties often agree contractual thresholds tying closing to a minimum transfer quota.

Dismissal restrictions and collective agreements

German law prohibits dismissals issued by reason of a business transfer, binding both the former and incoming employers. Any dismissal issued on transfer grounds is legally void. Dismissals motivated by urgent operational requirements, such as a genuine post-closing corporate reorganisation, remain permissible.

Complex issues arise regarding the continuation of works agreements and collective agreements. Where the buyer maintains differing collective terms, statutory transformation rules take effect. Existing collective rights generally cannot be altered to the detriment of transferring employees for at least one year following the transfer.

Early consultation with works councils across both organisations is therefore recommended to prevent operational friction when integrating teams.

Forward-looking employment planning

A business transfer requires close alignment between transaction teams and employment specialists. Treating staff communications casually jeopardises the commercial objectives of the entire corporate transaction.

Auditing staff assignments early, preparing careful notification letters and maintaining structured dialogue with employee representatives establishes clarity for buyers and sellers alike.

Note: General information, not legal advice. Demo content.