According to the judgment of the Federal Labour Tribunal, a very substantial part of contract succession cases will from now on have to be treated as a transfer of undertakings. This means that the personnel hired by the first contractor passes on to the new contractor who must employ such personnel under unchanged conditions for at least one year. This also means that the first contractor does not have to dismiss his employees and that no social compensation plan is required. These cases mainly concern tasks which were outsourced to external service providers. In this connection, it is important to stress, however, that the above only applies in cases where the new contractor has some form of business presence in Germany which carries out the same or at least similar activities. In particular, the judgement does not apply to the classical BPO cases where the new contractor is located abroad.

Increasingly, cases occur where there is no business transfer in the classical sense, i.e., the transfer of ownership of production facilities, but cases which relate to a mere contract succession. In the case in question, the German Federal Government had signed a contract with a company to provide security services at Cologne/Bonn airport. The personnel employed by the company had received a special training for that purpose. The aviation security equipment, inter alia walk-through metal detectors, an X-Ray unit, hand-held metal detectors and explosives detectors, was the property of the Federal Republic of Germany and had been made available to the company for that purpose. After terminating this contract, the Federal Government had awarded the contract to a new contractor. The first contractor dismissed its employees. Several of these former employees brought an action before the labour court in Cologne arguing that their employment relationship had been transferred to the new contractor by operation of law by way of transfer of undertakings. The Federal Employment Tribunal decided that in this case the requirements of a transfer of undertakings were fulfilled because it was irrelevant whether the personnel had been transferred or not.

The judgment heralds a significant change in the jurisprudence of the Federal Labour Tribunal, according to which a transfer of undertakings did not exist where the contractor in question provided its services only with  equipment and machinery of another undertaking on the premises of such other undertaking and without having the power to decide on use of the other undertaking’s resources. According to the previous jurisprudence of the Federal Employment Tribunal where the new contractor did not have a commercial basis of its own with regard to the assets operated by its employees a transfer of undertakings required that the new contractor had taken over the majority of the employees of the first contractor.

After the European Court of Justice had refused the criterion of an independent commercial basis, the Federal Employment Tribunal followed its opinion. avocado rechtsanwälte represented one of the parties in this lawsuit. 

In light of this new jurisprudence it is even more important to pay very close attention to the legal and factual definition of the outsourcing of jobs in order to avoid a transfer of undertakings in case of a contract succession.