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Transfer of Undertaking – A Simple Concept, Lots of Questions

Transfer of Undertaking – A Simple Concept, Lots of Questions

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Although the Romanian law on transfers of undertakings has no more than two pages, it is notorious for its complexity, while the relevant case law is constantly developing. Briefly, if an undertaking is taken over by, or is transferred to, a new entity, the relevant employees are automatically transferred to the new employer, together with their existing rights provided under the individual employment agreements and the applicable collective bargaining agreement.

The application of this simple concept has proved to be extremely problematic in practice. Out of the multiple questions arising on this matter, there are at least two which have regularly troubled both practitioners and courts:

Can the Transferee Change the Terms of Employment of the Transferred Employees?

The new employer may be interested in changing the terms and conditions of the incoming employees, either to save costs or to harmonize their employment terms with those of the employer’s existing workforce. One of the main protection measures set out under the relevant legislation is the takeover by the transferee of all the rights and obligations incumbent upon the transferor at the transfer date, based on the employment relationships with the transferred employees or arising from an employment agreement applicable to those employees. This rule refers to both the individual employment agreements and the collective bargaining agreement existing at the transfer date.

The transferee’s obligation to observe the employment agreements existing at the transfer date is valid until they are terminated or expire. Since individual employment agreements are usually concluded for an indefinite term, the transferee shall be bound by the terms and conditions thereof for the entire employment duration unless the employees consent to their amendment.

As for the transferor’s collective bargaining agreement, the transferee is only allowed to change its terms after one year following the date of transfer and only based on negotiations with employees’ representatives.

How Can the Employees’ Refusal To Be Transferred Be Addressed?

The transfer of employees is supposed to occur by virtue of law, not based on the employees’ consent, on the date when the undertaking itself is transferred.

However, there are practical situations when the employees refuse to be transferred; the relevant legislation does not provide for a straightforward solution in this particular case. Practitioners and courts have a single provision in the Romanian law to rely on, i.e., “if the transfer involves a substantial change in working conditions to the detriment of the employees, the employer shall be regarded as being responsible for the termination of the individual employment agreement”. However, this provision raises another question, as it is unclear whether “the employer responsible for the termination of the individual employment agreement” is the transferor or the transferee.

Two scenarios are possible – the employee refuses the transfer (1) although the transfer does not involve a substantial change in their working conditions; or (2) because the transfer involves a significant change in their working conditions. 

Under the first scenario, it may be construed that the employee is automatically transferred to the transferee. The employee’s refusal to work for their new employer should be treated as disciplinary misconduct that enables the transferee to take disciplinary measures. Nevertheless, the transfer to the transferee is a social protection measure beneficial to the employees. So, it may be claimed that the employees could waive such a benefit and therefore refuse the transfer. However, according to this interpretation, the employee’s refusal to be transferred might be regarded as their resignation.

Under the second scenario, there are strong arguments to support that – since the transfer of undertaking involves significant changes in working conditions to the detriment of the affected employees – the transfer of employees does not occur by virtue of law. Consequently, the employees refusing to be transferred on these grounds will remain employed by the transferor, and the latter is the employer responsible for the termination of their employment contracts. Dismissing the employees under this scenario would entail following the procedure for redundancy dismissals.

By Mihai Anghel, Partner and Co-Head of Employment, Tuca Zbarcea & Asociatii

This Article was originally published in Issue 9.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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