EU Directive on Transfers of Undertakings

PurposeThe Directive1 imposes obligations on employers and protects certain employee rights in connection with certain corporate transactions.


Covered Employees.
The Directive covers full-time, part-time and indefinite-term or fixed-term employees.  The Directive does not cover independent contractors or other persons who are not regarded as “employees” under national law.

Covered Transactions.
The Directive broadly covers transactions involving a change in the entity responsible for a business (or part of a business)2 resulting in a change of employer, such as an asset sale or a merger.3  The Directive requires the relevant business (or part) to constitute an “economic entity”.  Broadly, this requires resources (whether tangible and/or intangible) that are deliberately organized together for purposes of pursuing economic activity of some sort.

Excluded Transactions.
The Directive does not generally apply to: 

  • Businesses (or the relevant part) not situated within the EEA.
  • Stock sales.  
  • Transfers of assets not constituting an “economic entity” or where the economic entity does not retain its identity.  However, the analysis of whether the transfer of assets constitutes an economic entity is fact-specific, and legal advice should always be sought before concluding that the Directive does not apply.
  • Unless an EU Member State provides otherwise, liquidations in bankruptcy or analogous proceedings.4  Where an EU Member State provides that the Directive does apply in this context, the EU Member State may relax the usual rules and provide that (i) certain employee debts do not transfer where they are otherwise protected under national law and (ii) changes to employees’ terms

[1] Directive 2001/23/EC.

[2] The Directive also applies to undertakings, which is a broad concept and includes, for example, charities, trade associations, certain governmental bodies, schools and universities, whether or not operating for profit.

[3] The Directive may protect employees of the surviving entity in a merger, subject to the structure of the transaction and the applicable law of the member state in which such merger occurs.

[4] With respect to insolvency proceedings that do not involve a liquidation, the Directive will apply, but certain of the Directive’s requirements may be relaxed by the EU Member State.


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