1. Transfer of Employees in Secondary Outsourcing
Exchange of Information and other Key Legal Considerations
Helsinki, 10 June 2010
Dr. Timo Karsten

2. Agenda
1. Transfer of Employees: Legal context
and EU jurisdiction
2. Change of Service Provider

3. 1. Legal Context and EU Jurisdiction

4. Acquired Rights Directive 2001/23/EG:
When will the Employment Relationships transfer?
• Definition of transfer of an undertaking, business or part of an undertaking or business
as a result of a legal transfer or merger
"There is a transfer within the meaning of this Directive where there is a transfer of
an economic entity which retains its identity, meaning an organised grouping of
resources which has the objective of pursuing an economic activity, whether or not
that activity is central or ancillary."
• But no Transfer of business according to Directive in cases of
• Mere change of service provider
• Purchase of single assets which are not organisationally connected and therefore
do not form a economic entity

5. 7 Criteria for a Transfer of Business
Following facts characterising the transaction have to be considered:
1. Type of undertaking or business concerned
2. Whether or not its tangible assets, such as buildings and movable property, are
transferred
3. The value of its intangible assets at the time of the transfer,
4. Whether or not the majority of its employees are taken over by the new
employer,
5. Whether or not its customers are transferred,
6. The degree of similarity between the activities carried on before and after the
transfer,
7. The period, if any, for which those activities were suspended.

6. Transfer of business in service providing sectors
Where a business is reliant on manpower, the fact of whether
tangible or intangible assets are transferred carries little weight
when determining whether the business has retained its identity.
Therefore taking over a major part, in terms of their number and
skills, of the employees assigned by the predecessor to that task
and the continuation of the services mostly unchanged can meet
the conditions for a transfer of business.
In consequence all employment relationships will transfer with all
acquired rights.

7. 1. European Court 20.11.2003,
C-340/01 (Carlito Abler and Others
v
Sodexho MM Catering Gesellschaft mbH)
2. European Court 15.12 2005, C-232,
233/04 (Güney-Görres and Demir
v
Securicor Aviation (Germany) Ltd. and
Kötter Aviation Security GmbH & Co. KG)

8. EuGH 15.12.2005, C 232, 233/04 (Güney-Görres)
Change of Provider - Transfer of Business
Customer
Return of Customer owned Use of assets formerly used
Se
assets rvi by 1st Provider
ce
s
?
1st Provider 2nd Provider
ARD: Transfer of Employees
The fact that the tangible assets taken over by the new contractor did not belong to its predecessor but
were provided by the contracting authority/Customer cannot preclude the existence of a transfer of
business

9. Lessons learned from the cases "Abler" and
"Güney-Görres"
• No direct contractual relationship between the transferor and the
transferee needed. The transfer of business may take place through the
intermediary of a third party.
• Use of customer's assets by the 2nd Provider for performing the services
may provoke a transfer of the employees of the 1st provider, even if the
assets are not owned or transferred to him for independent commercial
use.
• Advantage for 1st provider: Staff reduction without costs
• Transfer of employees with all acquired rights makes lower prizing for
2nd provider difficult
• Continuity of staff might be a problem if the earlier service level was not
to the satisfaction of the customer

10. European Court
12 Februar 2009, C-466/07
(Klarenberg v Ferrotron Technologies
GmbH)

11. Can a transfer of business be avoided by changing
the organisational structure ?
Does the economic entity transferred not retain its "identity" in a situation
where it looses after the transfer its organisational autonomy and the
acquired resources are integrated by the transferee into an entirely new
structure?
(e.g. German Federal Employment Court 14.8.2007 – 8 AZR 1043/06)

12. Can a transfer of business be avoided by changing
the organisational structure ?
European Court 12 February 2009, C-466/07 (Klarenberg):
Raised Question to European Court:
• Is the Directive applicable in a situation where the new employer does not
preserve the organisational autonomy of the part of the undertaking or business
transferred?
Judgement:
• The Directive may also apply in a situation where the part of the undertaking or
business transferred does not retain its organisational autonomy,
• provided that the functional link between the various elements of production
transferred is preserved,
• and that that link enables the transferee to use those elements to pursue an
identical or analogous economic activity.

13. Lessons learned from the case Klarenberg
• If a mayor part of the employees and/or other resources are taken over, a
transfer of business can be avoided if the organisational autonomy is
changed and the functional link between the various elements of
production transferred is dissolved.
• Request of customer to use same human resources for reasons of
continuity or to use assets (e.g. R&D Centre) formerly used by the
predecessor will bear the high risk of a transfer of business and the transfer
of employees from 1st to 2nd provider.
• In a manpower reliant business it is an indication for not preserving the
functional link between the resources, if not a major part of the staff in terms
of their number and skills is taken over.

14. How to destroy the functional link between various
elements of production ?
Customer
§ 613a BGB /
Betriebsübergang Dienstleistungsauftrag
(without employees)
Service Provider
Sub-Contractor
Agency work
Employees Assets
Dividing up of resources between different legal entities as solution ?

15. No transfer of business:
The change of the service provider is no transfer of business if …
• The services are carried out with own resources/assets in the own
establishment of the service provider
• No transfer of a mayor part of the employees
• No transfer of immaterial assets e.g. customer base and licences

16. 2. Change of Service Provider

17. Three-Party Situation
Return of Customer owned
Customer
Use of assets formerly used
assets by 1st Provider
Se
r v ic
es
?
1st Provider 2nd Provider
ARD: Transfer of Employees

18. Change of Provider
The change of the provider could be a transfer of undertakings or
business:
• Use of assets formerly used by the predecessor
• Taking over / recruiting major part of the employees / key personnel
 Statutory transfer of employees with acquired rights
The employees assigned by the predecessor to the task at the
moment of the transfer will transfer.

19. Change of provider – Lack of
information concerning the Employees
• 1st provider can relocate the employees assigned to the project
 Risk for Customer / 2nd provider which employees will transfer
 No influence on the allocation of the employees?
• Customer and potential 2nd provider do not know the acquired rights of
the employees and the HR costs related hereto
 Risk for the calculation of the offer based on many assumptions
• 1st provider is during the offer phase competitor of other potential
providers and not obliged to give information

20. Change of provider – Cooperation of
the old provider?
Statutory situation: Obligation to cooperate?
• 1st provider has no obligation to help but to fulfil his own
contract and to end the services at the end of the contract
Consequences:
• Only soft influence from Customer on 1st provider
• But: Also 1st provider should be interested to keep a good
reputation in the market
• Contractual regulations should be used to regulate the change
of the provider
• Variety of terms and conditions exist

21. Contractual clauses concerning the change
of service provider
Employees - Relocation
• 1st provider should not be allowed to relocate the employees
assigned to the project or to use them mainly for other projects
without consent
• But: Employees might object to the transfer of their employment
relationship
 No perfect solution exists

22. Contractual clauses concerning the change
of service provider
Employees – acquired rights
• Lack of information concerning the terms and conditions of their
contract / acquired rights
• Information needed for the calculation of the offer concerning
• Number of used personnel
• Details like age, length of service, salary, contractual benefits, pension
schemes, holiday entitlement etc.
 Contractual obligation between the 1st provider and the
customer to share 6 months before the end of contract
the needed information and the right to make the
information available to a potential 2nd provider

23. Contractual clauses concerning the change
of service provider
Employees – Pension rights
• e.g. Germany: Pension rights transfer to new employer pursuant
to Sec. 613a German Civil Code
• Pension accruals do not automatically transfer
• Assessment of the pension obligations according to international
accounting standards (interest rate, salary trends, age trends
etc.) by actuary necessary, not according to the German
accounting rules
 Contractual agreement concerning the accounting
standards and the transfer of the accruals / values from
1st to 2nd provider.

24. Contractual clauses concerning the change
of service provider
Employees – Further clauses concerning the
termination of the agreement with 1st provider
• Communication plan agreed with customer concerning
employees, unions, works councils and similar employees
representatives
• Right to approach affected employees
• Right to approach works councils etc concerning consequences
of the expiration or termination of the agreement

25. Contractual clauses concerning the change
of service provider
Alternative solutions for the information exchange
process
• BITKOM = Bundesverband Informationswirtschaft,
Telekommunikation und neue Medien e.V. represents around
1.200 enterprises in Germany.
• BITKOM Codex: Voluntary Commitment to cooperate and for
stepwise information exchange between old and new provider
concerning thre transfer of employees in 2nd generation
outsourcing in Germany
 BITKOM-Codex commitment

26. Contractual clauses concerning the change
of service provider
BITKOM Codex: Progressive Exchange of information
• "Request for Information" Phase: No exchange of information between the providers
before the down selection
• "Request for Proposal" and "Best and Final Offer" Phase: Customer shall give his
assumptions concerning the transfer of employees to potential new providers.
Information given to potential providers only via the customer to the permissible
extend
• "Down select" Phase: Pursuant to the data protection laws and authorised by
customer all relevant, anonymous made HR data shall be given in from old provider
to the potential new provider
• How many employees are assigned more than 50 % to the project and in which work sections
• Annual average salary (anonymous)
• Places of work of the employees
• After Closing of contract: Rest of relevant HR data shall be provided
• Close cooperation between o/n provider
• Definition of joint employee information/communication
• Agreement concerning transfer of pensions, insurances, other benefits, working/overtime accounts,
holiday entitlements/accruals etc.

27. BITKOM Codex: Cooperation of Providers
Contract Transfer of Employees
Negotiations RFI,
Transition Phase HR Integration
RFP, BAFO
• Analysis of the • Cooperation with • First appraisal • Transformation
organisational old provider with employees
structure of old and change
provider • Interviews with • Coaching and management
• Data analysis Employees Monitoring
(Identification of key
• Knowledge • Integration of the
employees and
terms and transfer from old new employees
conditions between provider in the service
customer and old organisation
new provider • Participation / co-
determination of • communication
• Legal analysis:
employees to old Provider
Transfer of
business and representatives and employees
employees?
1st Provider 2nd Provider

28. Contact
Questions?
Dr. Timo Karsten
Rechtsanwalt, Fachanwalt für
Arbeitsrecht
Innere Kanalstr. 15
50823 Köln
t +49 (0) 221 5108 4192
f +49 (0) 221 5108 4193
Timo.Karsten@osborneclarke.com