Successive terms of employment after insolvency: an update

In the October 2012 Newsflash, we informed you about the notion of “successive terms of employment” and the consequences associated herewith. We discussed the Dutch Supreme Court’s recent Van Tuinen decision, in which the Court limited the doctrine of successive terms of employment after insolvency by following the case law pertaining to the probationary period. The Court ruled that if the new employer after insolvency has no link whatsoever with the former employer, the new employer apparently need not fear that “successive terms of employment” will be deemed to apply (Van Tuinen specifically involved the transfer of a taxi services concession). Instead, the employer can freely and flexibly negotiate a “new” employment contract with the employees, without being stuck in the “chain” of employment contracts passed on by the previous employer.

Risk of successive terms of employment

The risk that successive terms of employment will be found to apply depends on how an employment contract is characterised: is it an employment contract for a fixed or indefinite period? If you are considered a “successive employer”, you may be faced with a situation in which an employment contract for a fixed period which you had agreed on with your employee is converted into an employment contract for an indefinite period. Thus, the employment contract will not end by operation of law, but will have to be terminated with notice, with all the attendant consequences.

Experience and insights gained into the employee

Following on from Van Tuinen, the Amsterdam Sub-District Court issued a decision on 28 February 2013 about successive terms of employment after insolvency.

In that specific case, employee X had started working in 1999 for an employer which was declared insolvent on 18 October 2011. As a result of the insolvency, the receiver [curator] terminated all of the employment contracts with the employer, including employee X’s contract. A short time later, however, the employer's liquidated business was acquired by another company, with the acquiring company offering employment contracts to several employees within three months after the receiver had terminated the old employment contracts. Hence, employee X entered into an employment contract with the acquiring company for a definite one-year period, for the same position he had held with the insolvent company.

However, a year later, employee X was told that his employment contract for a definite period was not being extended. He disagreed with this, asserting that he had not been working pursuant to an employment contract for a definite period, but an employment contract for an indefinite period. Therefore the employment contract had not ended by operation of law. As support for his position, he pointed out that, when the acquiring company had taken him on for the same position, it had likewise taken on the insolvent company’s former managing director as a manager. “Successive terms of employment” therefore applied, because:

1) in performing the work ensuing from the employment contract with the acquiring company, employee X had essentially been expected to exercise the same skills and responsibilities as during the contract with the insolvent company; and

2) the insolvent company’s former managing director had similarly become employed by the acquiring company, so the connections between the insolvent and acquiring companies were such that the insights gained – based on the experience with employee X obtained by the insolvent company's former managing director – should reasonably have been imputed to the acquiring company.

As the acquiring company had to be considered a “successive employer”, an employment contract for an indefinite period had arisen which could not be terminated by operation of law.

The Sub-District Court rejected employee X’s arguments reasoning that the mere fact that the acquiring company had taken on the insolvent company’s former managing director was not enough to automatically impute any knowledge which the former director had to the acquiring company. In particular, the former director had not been present at employee X’s job interview, nor had the director exerted influence in any way or substantively discussed employee X with the acquiring company.

Accordingly, the Van Tuinen criterion – “such connections between the insolvent and acquiring companies” – did not apply here, even though the former managing director had probably dealt with employee X in the course of the new company’s day-to-day business.

Summary

The mere fact that a company acquires an insolvent company and thereby takes on employees who, based on their experience, have insight into each other's suitability need not in every case give rise to the assumption of connections between the insolvent company and the new company.