Transfer of undertaking: can employees refuse a change of employer?
According to a recent position of the Bulgarian Ministry of Labour and Social Policy ( MLSP), employees cannot object to a transfer to another employer when the undertaking employing them has also been transferred. The transfer to the new employer is mandatory and cannot be circumvented, even if the employees object to it. Their only option is to resign.
This opinion seems to deviate from the current practice of the European Court of Justice ruling that employees have a right to object to a transfer based on the fundamental freedom of the contract they enjoy, and thus have a recourse other than resignation.
Background
The transfer of undertakings and businesses is common. Such transfers may occur in various forms, including mergers and acquisitions, transfers of businesses as going concerns, or other types of activity transfers.
EU legislation – specifically Directive 2001/23/EC – sets out rules designed to protect employees whose undertakings are subject to such transfers. Based on this directive, the Bulgarian Labour Code provides that an employment relationship does not terminate when a change of employer occurs through various forms of transfer of undertakings or businesses, or parts of businesses.
Employees are protected against unfair dismissal arising from such transfers. Their employment is automatically transferred to the acquirer of the undertaking or business who becomes their new employer, and their terms of employment remain unchanged.
There is, however, another side to the issue. In some cases, employees may prefer not to be transferred and eventually have their employment relationship terminated by their initial employer. This raises the question: can employees oppose being transferred to another employer?
The law does not impose an obligation to the employee to continue employment with the new employer. However, it remains unclear whether the employee’s only way to enjoy this freedom is through terminating their employment contracts or may they object to being transferred and await termination by the employer on economic, technical, or organisational grounds? Neither Directive 2001/23/EC nor the Bulgarian Labour Code provides an explicit answer.
This issue has been examined by the European Court of Justice in several cases, including Joined Cases C‑132/91, C‑138/91 and C‑139/91 (the Katsikas case). In its judgment, referring to earlier case-law, the Court held that it had never intended to interpret the directive as meaning that an employee is not entitled to object to the transfer of their employment contract or employment relationship. The Court further clarified that “the directive does not preclude an employee from deciding to object to the transfer […] and hence deciding not to take advantage of the protection afforded by the directive.”.
From this and other judgments of the Court, employees have the right to object to the transfer based on the fundamental freedom of contract they enjoy and without having to terminate employment on their initiative.
Despite this, a recent opinion of the Bulgarian Ministry of Labour and Social Policy (MLSP), issued in response to an inquiry, appears not fully aligned with the Court’s case-law. The inquiry concerned the steps a transferor should take when employees refuse to be transferred. The MLSP stated that the “consent of the employees is not required for the transfer to the new employer. In this sense, employees have the opportunity to terminate their employment contracts with the new employer on the grounds expressly regulated in Chapter Sixteen of the Labour Code.”
In other words, the MLSP considers that the transfer to the new employer is mandatory and cannot be circumvented, even if the employee objects to it. The employee’s way to go out of this situation is terminating the employment contract with the new employer through resigning and thus not remain in employment against their will.
The MLSP’s position may be viewed as offering enhanced protection to businesses by limiting cases in which employees, influenced by employers, might be encouraged to object to the transfer.
The position, however, restricts employees’ freedom of contract, potentially obliging individuals to work for an employer with whom they did not originally conclude a contract. Additionally, if the employees’ only means to enforce their freedom of contract is resigning, their entitlement to unemployment benefits would be significantly worse compared to situations where the employer terminates the employment for business reasons.
For more information on the position of the MLSP and its impact on mergers and acquisitions in Bulgaria, contact your CMS client partner or the CMS experts who contributed to this article.
