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14 November 2018
Many international corporate groups are looking at ways to reorganise their operations, not least in view of the United Kingdom's impending exit from the European Union. However, irrespective of Brexit, companies regularly seek ways to streamline their existing corporate structures and thus to increase efficiency within their business.(1)
Such cross-border corporate reorganisations almost always trigger questions relating to employment law. Depending on the respective project, work streams under employment law can play a significant role in meeting (or failing to meet) tight deadlines.
Historically, many international companies, particularly in the financial sector, have run their domestic operations not via a locally established company, but via a branch of the foreign parent.
If, for regulatory reasons, the business in question is to be transferred to an existing or newly established domestic company, this is effected by way of an asset deal (in the majority of cases). An asset deal involves the transfer of all assets and liabilities relating to the local branch of the foreign company to the domestic company by way of singular succession under a purchase agreement. In practice, assets are never transferred under reorganisation law by way of a cross-border spin-off.
Although cross-border spin-offs are theoretically permitted under European law, they do not represent a feasible option due to the lack of specific domestic regulations and the fact that the registration courts have no relevant experience.
This involves a business transfer from the foreign to the domestic company which, in turn, means that the employment contracts of the staff working at the local branch are transferred from the foreign company to the domestic company.
For example, managers of German branches who occupy prominent positions within the respective organisation (eg, carrying titles such as CEO Germany) are regarded as "normal" employees for the purposes of employment law. If they are to occupy executive positions once the branch's business has been transferred to the new German company (eg, as managing directors of a limited liability company or members of the management board of a corporation), they would have to surrender their status as employees and the corresponding protective rights, in particular statutory protection against unfair dismissal.
The question of whether such a reorganisation also affects the works council's co-determination rights (in particular due to a change in operations) must be assessed on a case-by-case basis. The business transfer itself and the continuation of the business in another legal form do not automatically justify the assertion of co-determination rights.
For further information on this topic please contact Hans-Peter Löw or Boris Blunck at Allen & Overy LLP by telephone (+49 69 2648 5000) or email (firstname.lastname@example.org or email@example.com). The Allen & Overy LLP website can be accessed at www.allenovery.com.
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