Labour and Employment

This article is an extract from GTDT Practice Guide Swiss M&A 2023. Click here for the full guide.

Transfer of employees

Overview

In Swiss M&A transactions, there are two key issues with regard to labour and employment law:

• the transfer of the target company’s employees to the buyer, if the two companies are to be merged or otherwise combined; and
• the dismissal of the employees of the target (or both the target and the buyer) company, if the M&A transaction is to be combined with a restructuring of the workforce of the new company.

The applicable regime for the transfer of employees depends on whether the transaction is structured as a share deal or an asset deal.

Share deals

A mere change in the ownership of the shares in the target company does not have an impact on the employment relationships between the target company and its employees. Consequently, in share deals, the employment agreements between the target company and its employees are not affected by the transaction and remain in full force and effect.

Under Swiss law, it is generally possible to implement unilateral changes to the terms of the employment agreement to the detriment of the employees, provided certain requirements are met and the notice period is respected when making such changes.

Asset deals

General principle: transfer of all employees

In asset deals that constitute a transfer of a business undertaking, all employees working for the transferred business and the employment agreements with such employees with all respective rights and obligations are transferred to the buyer automatically as a matter of law, unless an employee rejects the transfer. If only a part of a business is transferred (eg, only the manufacturing department, but not the sales department), the same principle applies to all employees who by way of their function belong to the transferred part.

The same principle applies to transactions that are structured as mergers, demergers or transfers of assets in the form of a universal succession according to the Swiss Merger Act.

The seller and the buyer are jointly and severally liable for any claims of the employees that fell due prior to the transfer or that fall due until the date on which the employment relationship could be or is terminated as a result of the refusal of the transfer (see ‘Refusal of transfer and termination’). While the seller and the buyer are free to agree on a different cost-bearing regime, this arrangement is only effective between them and does not affect their joint and several liability in relation to the employees.

Procedure: information and consultation obligations

Information obligation

If employees are transferred in an asset deal, merger or demerger, the employees’ representatives or, if there is no employees’ representation in place, the employees of all involved companies (ie, as applicable, the transferring and the surviving company) must be informed about the reason for the transfer and the legal, economic and social consequences of the transfer for the employees.

Consultation obligation

Where measures affecting the employees are envisaged as a result of the transfer, the employees’ representatives or, if there is no employees’ representation in place, the employees themselves must be consulted in good time before the relevant decisions are taken.

Such measures may include dismissal, change of workplace or change of other work conditions. The requirement to consult in good time means that there must be sufficient time for a consultation (ie, for the employees to make proposals how such measures might be avoided or their impact mitigated), and for those proposals to be taken into account by management.

As a rule of thumb, a period of two weeks is considered to be sufficient for the consultation, and there should be some additional days for the management to consider the proposals, if any. Thus, there should ideally be three to four weeks from the time when the employees are first informed to the time when the decision about the transaction is taken by the shareholders’ meeting(s) of the respective companies.

Sanction in case of violation of the information and consultation obligation

In the sphere of a mere transfer of employees, there are few sanctions if the information and consultation obligations are not adhered to, in particular as it will generally be very difficult for the employees to establish any claim for damages on such grounds.

However, in the case of mergers, demergers and transfers of assets governed by the Swiss Merger Act, the employees’ representative may request an injunction to prevent the respective transaction from being registered in the Swiss Registry of Commerce if the information and consultation obligations have not been complied with, thus effectively preventing the transaction from being completed.

Refusal of transfer and termination

The general principle is that all employees and employment relationships are transferred, including employees who are unable to work (eg, because of illness). Any agreement between the seller and the buyer by which the circle of transferred employees is limited is invalid as a matter of law (no cherry-picking).

However, the employee may refuse to transfer to the new employer, or any of the involved companies may terminate the employment relationship:

• Refusal: if an employee refuses the transfer, the employment agreement of the employee is terminated pursuant to the statutory (not contractual) notice period.²
• Termination: the mandatory transfer of all employees in the case of an asset deal does not affect the target company’s or, after the transfer, the new employer’s right to terminate the employment relationship in accordance with the terms of the employment agreement, in particular by respecting the contractual (or statutory) notice period (see also ‘Dismissal of employees’).

In view of the mandatory and automatic transfer of all employment relationships, employees who have refused the transfer, or employees whose employment relationship has been

SDGs, Targets, and Indicators

SDGs Addressed or Connected to the Issues Highlighted in the Article:

1. SDG 8: Decent Work and Economic Growth
2. SDG 10: Reduced Inequalities
3. SDG 16: Peace, Justice, and Strong Institutions

Specific Targets Based on the Article’s Content:

• SDG 8.8: Protect labor rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment.
• SDG 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality.
• SDG 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all.

Indicators Mentioned or Implied in the Article:

• Indicator 8.8.1: Frequency rates of fatal and non-fatal occupational injuries, by sex and migrant status.
• Indicator 10.4.1: Labor share of GDP, comprising wages and social protection transfers.
• Indicator 16.3.1: Proportion of victims of violence in the previous 12 months who reported their victimization to competent authorities or other officially recognized mechanisms.

Table: SDGs, Targets, and Indicators

Explanation:

– The article discusses the transfer of employees in M&A transactions, which relates to labor rights and working environments (SDG 8).

– It also mentions the dismissal of employees and the need to adopt policies for greater equality (SDG 10).

– The article touches on the importance of promoting the rule of law and ensuring equal access to justice (SDG 16).

– The specific targets and indicators identified are based on the content related to labor rights, equality, and access to justice.

– The indicators mentioned in the article can be used to measure progress towards the identified targets.

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: lexology.com

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