A transfer of undertaking describes the situation where a business, or part of one, passes to a new owner. The existing employment contracts move with it automatically. The team that worked for you yesterday works for the buyer from the handover day, under the same contracts. Nobody has to be re-hired, and the terms stay as they were.
In Germany this is set out in §613a of the Civil Code, in Austria in the AVRAG, and in Switzerland in Art. 333 of the Code of Obligations. The core idea is the same everywhere and goes back to the EU Transfer of Undertakings directive: employees should not end up worse off because of a change of owner. For a small business, say a bakery with four staff or a car workshop with three mechanics, this is just as binding as for a large firm.
The buyer steps into all the rights and duties of the employment contracts. Salary, holiday entitlement, length of service and notice periods all continue unchanged. Someone who has been there for fifteen years stays a fifteen-year person under the new boss too. This matters especially in an asset deal, where individual assets are transferred: the people still come along.
Employees must be informed in writing before the transfer, and about the essentials: who is taking over, when, and what changes. They may object to the transfer of their contract. Then they stay with the old employer, though in practice this rarely makes sense when the whole business changes hands. A dismissal purely because of the transfer is expressly prohibited.
For an orderly business handover the transfer of undertaking is often an advantage. The well-rehearsed team stays, the know-how stays in the house, and customers barely notice a break. How exactly the takeover of staff is reflected belongs in the sale agreement (SPA). This text does not replace legal advice. For specific cases it is worth having a specialist lawyer look through it.
For business sellers
For you as the seller, a transfer of undertaking means your employees do not lose their jobs or their accrued entitlements because of the sale. That removes a lot of worry. And it makes your business more attractive as a living whole during a business handover.
You are obliged to inform your team in good time and in writing. Do not dismiss anyone as a precaution because of the sale, that is prohibited and can get expensive. Better to set out the details cleanly in the sale agreement (SPA), especially if you opt for an asset deal.
For corporate buyers
As the buyer, a transfer of undertaking means you take on the entire team with all existing contracts: salaries, holiday entitlements, years of service. Factor this into your calculation and look closely at staff costs during due diligence.
In an asset deal in particular, the transfer of undertaking is a gift. You buy not just machines and customers, you keep the well-rehearsed staff. Make sure the takeover is clearly stated in the sale agreement (SPA) and that you know which legal form the business should have going forward.
Example
A butcher's shop with four employees is sold for EUR 220,000. In the transfer of undertaking, all four employment contracts pass automatically to the new owner. The long-serving sales assistant keeps her 18 years of service and her salary, and nobody has to be re-hired.
FAQ
What does transfer of undertaking mean in simple terms?
When your business changes owner, the existing employment contracts pass automatically with it. From the handover day the team works under the same contracts for the new boss. This is set out in §613a (DE), the AVRAG (AT) and Art. 333 (CH). How it is worded belongs in the sale agreement (SPA).
Do my employees keep their terms?
Yes. Salary, holiday entitlement, notice periods and length of service all continue unchanged. Someone who has been there for ten years stays a ten-year person under the new owner too. A big plus for a smooth business handover.
Can I dismiss employees before the sale?
A dismissal purely because of the transfer is prohibited. Dismissals for other, genuine reasons remain possible but are sensitive and should be legally checked. Better to sort out open staff questions transparently before you enter the price negotiation.
Can employees object to the transfer?
Yes, the law gives them a right to object. Then they stay with the old employer. In practice this rarely makes sense when the whole business changes hands. That is why honest, early information for the team is so important.
Does the transfer of undertaking also apply in an asset deal?
Yes. Even if in an asset deal you only buy individual assets, the staff still come along, provided the business is continued as a unit. For the buyer this is often an advantage: the well-rehearsed team and the know-how stay in the house.
Buying instead of founding, does the transfer of undertaking help with that?
Very much. If you buy instead of found, the transfer of undertaking means you take on a ready, well-rehearsed team instead of starting from scratch. No tedious recruiting, no training from the ground up, the people already know the routines and the customers. Together with a solid due diligence, that makes the start much easier.
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