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Is It Possible to Divide an Employment Contract When Dividing an Undertaking?

Is It Possible to Divide an Employment Contract When Dividing an Undertaking?

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Selling a part of an undertaking and the consequent transfer of a part of the business to another employer raises several practical and legal issues. This applies in particular to employees assigned to several organisational units, including the transferred part of the undertaking. According to CJEU case law, such employees' employment contracts may be divided as long as this does not entail a deterioration in the working conditions and does not adversely affect safeguarding employee rights.

Both merging the companies and selling or dividing a part of the undertaking result in transferring the business or its part to the transferee. According to the Labour Code, there is no need to conclude new employment contracts in such a case, as the transferee or the company established in connection with the division becomes, by operation of law, a party to the existing employment relationship. However, pursuant to Article 23(1) of the Labour Code, there is a necessity to notify employees in writing about the planned transfer of business thirty days beforehand. Such a notice must include the information on the anticipated date of transferring the business, the reasons for the transfer, the legal, economic and social consequences for the employees, and measures relating to the terms and conditions of employment, in particular working conditions, wages and retraining.

Importantly, the employer cannot terminate the employee's employment contract by giving the transfer of business as the reason for termination, whereas the employee has the option to terminate the employment contract with seven days' notice within two months following the transfer. Although such termination has the same effects for the employee as those for employment termination with notice by the employer, in this case the employee is not entitled to full notice pay, and the possibility of receiving severance pay is limited.

The situation becomes more complicated when it is difficult to assign the employee in question to one particular department subject to transfer. For example, a company sells a part that produces paints and a sales department that supports this product range. So, if a sales representative sells paints, wallpapers and painting accessories and spends 40% of time handling paint sales, should this sales rep transfer to the buyer of the department? Or should the employment contract be divided?

Guidance on the fate of employees who are not exclusively assigned to the transferred part of the business is provided by the CJEU judgment in Case C-344/18 dated 26 March 2020. This judgment concerned an employee working in Belgium for ISS which informed the employee that given the transfer of part of the undertaking, Atalian, which had been awarded two out of three parts of the contract previously performed by ISS, had become her employer. However, Atalian, the company to which the worker was to transfer, disputed that there had been no transfer of a part of the undertaking. The employee brought an action against both ISS and Atalian for compensation in lieu of employment termination. The CJEU allowed the employment contract division in proportion to the tasks performed by the employee provided that such a division is possible and neither worsens working conditions nor adversely affects the safeguarding of workers' rights. The CJEU justified this approach on the grounds that it ensures a fair balance between the interests of employees and those of the transferees. In practice, however, the division of employment contracts will often not take place as it may be impossible or may involve deteriorating the employee's working conditions.

Dividing an employment contract between two or more employers often results in significantly longer commute due to different workplaces, which makes the division impossible. Such an arrangement may also partially deprive the employee of the remuneration in the form of overtime allowance or the possibility of compensating overtime with time off since in the case of part-time employment such an allowance may not be due to the employee for overtime work that does not exceed the working time standards unless the employment contract provides otherwise.

The division of the employment contract may also lead to worsening the situation of an employee who is a parent entitled to parental leave and who has reduced working time in order to care for a child. Such an employee, as a result of the 50:50 division of the employment relationship between two employers, will not be able to reduce working time. This is because the Polish Labour Code limits the reduction in working time to 1/2 FTE. Therefore, even if as a result of dividing the employment relationship, the employee will be employed by one employer more than 1/2 FTE, the employee's situation will still deteriorate – with two part-time contracts, the employee will be able to reduce the working time by a smaller number of hours in total than would be possible with one full-time contract.

Dividing the employment relationship may also raise issues related to scheduling working hours and the need for appropriate agreements between employers in this regard. Leave planning is also made more difficult. Moreover, it cannot be excluded that an employee will work for employers with conflicting interests, operating and competing within the same industry. In such a situation, an existing non-compete can be an effective barrier to a possible division of an employment contract.

The CJEU judgment in the ISS case therefore provides clues on the fate of employees who are not exclusively assigned to the transferred part of the business. However, it leaves room for additional analysis as to whether the employment contracts of employees performing tasks not exclusively for the transferred part of business should and can be divided between the transferor and the transferee.

If the division of the employment contract is not possible, the degree of the employee's assignment to the part of the business should be the deciding factor. This solution most fully meets the objective of Directive 2001/23/EC which states that in the event of a transfer of an undertaking or business, employees retain their rights and obligations under the existing employment contract.

By Agnieszka Nowak-Błaszczak, Counsel, Wolf Theiss

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