A recent ruling by the Supreme Court makes it clear that the statutory prohibition on dismissal in the event of a transfer of undertaking is less absolute than is sometimes thought. Although, in principle, employees retain their jobs following a takeover and are automatically transferred to the new employer, a valid dismissal may still be possible under certain circumstances. The Supreme Court has recently provided further clarification on where the line is drawn between prohibited dismissal due to a takeover and dismissal based on independent economic, technical or organisational reasons.
Protection for employees, but no absolute guarantee
The rules governing the transfer of undertakings are intended to prevent employees from losing their jobs because a company is sold, merges or is split up. Neither the former employer nor the new employer may therefore terminate an employment contract solely on the grounds of the transfer itself.
However, this protection has its limits. Dismissal remains possible where there are economic, technical or organisational reasons that affect employment. In practice, these reasons are often referred to as ETO reasons.
The key question in this regard is always whether the dismissal is actually caused by an independent business or organisational necessity, or whether the transfer of the undertaking is in fact the real reason for the dismissal.
The case brought before the Supreme Court
In the case in question, an employee had been working for a supermarket chain for several decades. In the final years of her employment, she carried out administrative HR tasks for eight hours a week in a role that had been created specifically for that branch and was not formally established within a broader organisational structure.
Following the sale of the supermarket, she was automatically transferred to the new operator. The new operator had centralised the personnel and payroll administration. Following an investigation, the new employer concluded that the employee’s duties were already being performed elsewhere within the organisation and that her role had no actual place within the existing structure.
Although the possibility of redeployment was investigated, no suitable opportunity was found.
Ultimately, the employment contract was terminated. The employee argued that this constituted a breach of the prohibition on termination in the event of a transfer of undertaking. The Supreme Court did not uphold that position.
Read the judgment here .
The actual reason for the dismissal is decisive
According to the Supreme Court, the grounds for dismissal do not need to be entirely unrelated to a takeover. However, there must be an independent economic, technical or organisational reason justifying the dismissal.
In doing so, the Supreme Court confirms that a transferee employer may, following a takeover, organise its business in a manner consistent with its own operational practices. A new owner cannot be expected to continue every taken-over role unchanged if there is no genuine need for it within the new organisation.
Where work is already being carried out elsewhere within the organisation or a post does not fit within the organisational structure, this may, under certain circumstances, constitute a sufficient independent ground for dismissal.
Sound justification is essential
It is particularly important for employers to clearly document why a role is being discontinued. The shorter the period between the transfer of the business and the proposed dismissal, the more critically the justification will be scrutinised.
It is therefore advisable to carry out an analysis of the organisational structure, the existing roles and the way in which work is carried out within the new organisation immediately following a takeover. If it transpires that certain roles are to be discontinued, the underlying commercial or organisational reasons must be carefully documented.
A well-structured file may prove decisive later on.
Redployment remains a key consideration
Even where there is a valid ETO reason, the employer remains obliged to investigate whether redployment is possible. This involves a serious duty of care. The employer must assess whether suitable roles are available within the company, possibly following additional training.
However, this does not mean that every theoretical possibility must be created or that an employer must make unlimited adjustments to roles in order to retain an employee. Ultimately, it is a matter of a realistic assessment of the available options within the organisation.
What does this mean in practice?
The Supreme Court’s ruling confirms that a transfer of undertaking offers employees far-reaching protection, but does not constitute an absolute job guarantee. If, following a takeover, it transpires that roles are actually being made redundant due to economic, technical or organisational circumstances, dismissal may be possible under certain conditions.
For employers, the key lies in careful preparation, a well-founded organisational analysis and a demonstrable redeployment assessment. For employees, it is important to critically assess whether the reason given is genuinely independent, or whether the takeover itself is in fact the cause of the dismissal.
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