What is a transfer of undertaking?
A transfer of undertaking is a situation in which an organised business, part of a business, or an economic activity is transferred from one employer to another while retaining its identity. In employment law, the key issue is not only the legal form of the transaction, but whether the transferred operation continues as an identifiable economic unit.
In Poland, the consequences of a transfer of undertaking are regulated primarily by Article 231 of the Labour Code, which implements the principles arising from Directive 2001/23/EC. The provision may apply, for example, to the sale of a business, a merger, the outsourcing or insourcing of services, the transfer of a production line, or the replacement of a service provider.
Where the conditions for a transfer are met, the acquiring entity generally becomes the employer of the employees assigned to the transferred undertaking or part of it. Their employment relationships continue by operation of law. This means that a new employment contract does not normally need to be signed merely because the employer has changed.
What does a transfer of undertaking involve?
The assessment depends on the facts of the transaction and the nature of the business. A transfer may involve tangible assets, such as premises, machinery, equipment or stock, but it can also concern an activity based mainly on employees, know-how, customer relationships, contracts or organisational structures.
Not every sale of assets or change of contractor constitutes a transfer of undertaking. In particular, the mere loss or award of a service contract will not automatically trigger employment transfer rules. It must be determined whether an organised economic entity has been transferred and whether it has retained its identity after the transaction. Courts may examine factors such as the type of activity, transfer of assets, takeover of employees, continuity of operations and retention of customers.
The transfer of undertaking principle is especially relevant in transactions involving business acquisitions, restructuring, outsourcing, facilities management, logistics, IT services, catering, cleaning, security services and other activities performed by organised teams. Its application may also need to be considered when a company transfers only one department, branch, project or production process.
Employees transferred to the new employer retain the rights and obligations arising from their existing employment relationships. Their seniority, agreed remuneration, working time arrangements and other employment terms generally continue, subject to subsequent lawful changes. The transfer itself should not be treated as an independent reason for termination of employment.
When is legal assistance with a transfer of undertaking advisable?
Legal support is advisable before the transaction is completed, particularly where the parties are uncertain whether Article 231 of the Labour Code applies. An incorrect assessment may result in disputes concerning the identity of the employer, employee claims, dismissals, employment conditions or liability for unpaid remuneration and other employment-related obligations.
The transferor and transferee may be jointly and severally liable for obligations arising from employment relationships before the transfer, as provided in Article 231 § 2 of the Polish Labour Code. This risk should be reviewed during legal due diligence and properly addressed in transaction documentation, including indemnities, representations and arrangements concerning employment liabilities.
Both employers may also have information and consultation obligations. Under Article 231 § 3 of the Labour Code, employers are generally required to provide written information to trade unions operating at their establishments at least 30 days before the planned transfer. Where no trade unions operate, employers are required to provide the relevant information to employees in writing. Employees may, within two months after the transfer, terminate their employment relationship by giving seven days’ prior notice under the statutory procedure set out in Article 231 § 4 of the Labour Code.
Early consultation with a lawyer can help identify whether a planned restructuring amounts to a transfer of undertaking, organise employee communication, reduce the risk of employment disputes and avoid unforeseen financial exposure. This is particularly important where the transaction involves collective employment matters, changes to working conditions or a cross-border element.
Law firm support in transfer of undertaking matters includes in particular:
- assessing whether a planned transaction constitutes a transfer of undertaking;
- reviewing employment risks during legal due diligence;
- preparing employee and trade union information notices;
- advising on the transfer of employment contracts and employee documentation;
- drafting transaction provisions concerning employment liabilities;
- supporting outsourcing, insourcing and restructuring projects;
- representing employers in disputes connected with the transfer of employees.
Need legal assistance with a transfer of undertaking? Contact us.