Business Transfer in Germany | Rights, Obligations and Legal Pitfalls

A business transfer under Section 613a BGB occurs when a business or part of a business is transferred to a new owner through a legal transaction. The decisive factor is the transfer of an economic entity that retains its identity.

The employment relationship continues automatically; only the employer changes, regardless of the will of the contracting parties.

According to established case law in Germany, an “economic entity” is an organized combination of resources aimed at pursuing an economic main or secondary activity. The term refers to an organized grouping of people and assets designed to carry out an economic activity with its own objective.

What is crucial is that this economic entity retains its identity as it existed prior to the transfer. The German Federal Labour Court (BAG) does not apply a purely formalistic test but instead conducts an overall assessment, including:

• Are essential operational assets and the workforce transferred?
• Is the business activity continued in essentially the same manner?
• In labor-intensive sectors (e.g., care services, social work, or childcare), how is the transfer of employees handled in practice?

Legal transactions that may lead to a business transfer include in particular:

• Sale or lease of a business through the transfer of an entire economic entity, either based on workforce or based on operational assets
• Change of leaseholder
• Corporate split
• Corporate merger
• Transfer of functions from one company to another, for example in outsourcing arrangements

A business unit is any independently separable subdivision of an entire business and may include, for example, a department, branch, or office.

By contrast, there is no business transfer in cases involving a mere transfer of shares (share deal), such as the sale of stock in a corporation or shares in a limited liability company (GmbH).

The key point is that the legal entity remains the same. Also, the continued performance of a single activity or contract by a new company (for example, the reawarding of a new contract without the transfer of personnel or assets) does not constitute a business transfer.

Section 613a BGB provides that, in the event of a business transfer, employees automatically become employees of the new owner. All employment relationships in existence at the time of the transfer are transferred to the acquirer together with all rights and obligations.

The acquirer steps into all rights and duties arising from the employment relationships, including claims that originated prior to the transfer. Under Section 613a (2) BGB, the former employer remains jointly and severally liable alongside the new employer for obligations that arose before the transfer and become due within one year after the transfer.

This particularly affects:

• outstanding vacation entitlements
• unpaid overtime compensation
• working time accounts
• claims arising from occupational pension schemes

Occupational pension commitments are a key risk factor: if the former employer has granted pension promises, the new employer may be required to fulfil them, which can result in significant financial burdens.

The most common and most serious issue is incomplete or incorrect employee information under Section 613a (5) BGB.

The former and/or new employer must inform employees in text form prior to the transfer about:

• the date or planned date of the transfer
• the reason for the transfer
• the legal, economic, and social consequences for employees
• any planned measures affecting employees

Important: The one-month objection period does not start if the information provided is defective. In practical terms, this means an employee may object to the transfer years later and return to the former employer. The right to object only expires after seven years of continued employment with the new employer without objection, provided that at least basic information was properly communicated.

Regarding the timing of employee notification, Section 613a (5) BGB does not provide a fixed deadline. It only requires that information be provided “prior to” the business transfer. It is often incorrectly assumed that the objection period under Section 613a (6) BGB implies that notification must occur at least one month before the transfer. This is not correct.

While early notification is advisable in order to ensure legal certainty at the time the transfer becomes effective (especially regarding whether employees will object), it is not mandatory that the information be provided one month in advance. The objection period may also begin only after the transfer has taken effect. However, informing employees too early may create uncertainty and unrest within the organization, potentially negatively affecting the transfer process.

WINHELLER regularly reviews employee information letters to ensure legal compliance and alignment with the transaction and operational reality. We also advise on optimal timing strategies to create legal certainty without causing unnecessary disruption in the workforce.

A second key issue arises in partial business transfers: which employees actually transfer to the new employer?

The allocation depends on the managerial authority (right to direct work) of the former employer and the actual integration into the organizational structure of the transferring unit. The German Federal Labour Court has clarified that an economic unit may also be created specifically for the purpose of a business transfer. Reassignments of employees are generally permissible, as long as they are not abusive or made in bad faith.

The situation becomes particularly sensitive in outsourcing scenarios. The key question is whether the new service provider actually takes over the existing workforce or merely the contract itself. If a new contractor is engaged without taking over personnel or operational assets, the BAG case law generally does not consider this a business transfer.

The treatment of collective labor arrangements in a business transfer follows a differentiated legal framework. Errors in this area can be costly, as they may lead to long-term obligations or unexpected payments.

For collective agreements, the decisive factor is whether and how the transferee is bound by the agreement. Different legal consequences apply depending on the situation:

If the transferee is bound by a different collective agreement with a matching scope, the so-called ordering principle under Section 613a (1) sentence 3 BGB applies, meaning the transferee’s collective agreement governs the transferred employees. Only if the transferee is not bound by any collective agreement are the previously applicable collective norms transformed into individual contractual terms.

Works agreements of the transferor are transformed under Section 613a (1) sentence 2 BGB. However, this only applies if there is no competing collective regulation at the transferee’s company. If the transferee already has a works council with an applicable works agreement covering the same subject matter, this new agreement immediately replaces the old one. If a works council exists but no corresponding works agreement is in place, the transformed rules continue to apply and retain their collective character. If there is no works council at the transferee, the transformed rules apply as individual contractual terms.

The so-called change lock under Section 613a (1) sentence 2 BGB protects transformed employment conditions from being altered to the employee’s detriment for one year after the transfer. However, this protection does not apply to replacements under collective law pursuant to Section 613a (1) sentence 3 BGB.

Where a competing collective agreement or works agreement already exists at the transferee, it can replace the transferred rules immediately, even if this results in less favorable conditions for employees. Similarly, a works agreement that continues to apply in the receiving business may be renegotiated and amended before the one-year period expires, including changes that are unfavorable to employees. The legislator assumes that the works council in the receiving entity provides sufficient protection as an equal negotiation partner.

Section 613a (4) BGB establishes an independent prohibition of dismissals: terminations issued due to a business transfer are invalid. This prohibition also applies in small businesses and even where general dismissal protection rules would otherwise not apply. The new owner is therefore not allowed to “pick and choose” which employees they want to retain for the operation.

However, a dismissal is only invalid if the business transfer itself is the decisive reason for the termination. Terminations based on other reasons – such as operational, conduct-related, or personal reasons – remain permissible, for example where they are necessary due to a reorganization of the business. In such cases, however, the new employer must still conduct a social selection process. If a termination is issued shortly before or after a business transfer, the employer must be able to document that the decision was based on legitimate reasons unrelated to the transfer.

If an employee objects to the transfer of their employment relationship, the dismissal protection under Section 613a (4) BGB no longer applies in the same way. In such cases, the former employer may issue a termination for operational reasons if there is no longer any possibility of continued employment.

The WINHELLER team supports clients in this area in two ways: first, in structuring restructuring measures in compliance with employment law around the transfer, and second, in preparing employment law measures in a risk-minimizing and legally secure manner.

Changes in business organization – such as mergers, divisions, or consolidations that trigger a business transfer – are often classified as operational changes under Section 111 of the Works Constitution Act (BetrVG). This means:

• The works council must be involved before the planned measures are implemented through negotiations on a reconciliation of interests.
• The works council may also be able to enforce the establishment of a social plan.
• A social plan is intended to compensate or mitigate economic disadvantages suffered by employees as a result of the organizational change.

If the entire business is transferred to a new owner, the works council generally transfers together with the employees. However, this only applies as long as the transferred business continues to exist within the acquiring company. The works council ceases to exist if the transferred unit is integrated into another business or if it is shut down entirely.

A business transfer is never “just a formality.” Proper handling requires that employment law, communication, and implementation are designed as one coherent process. In doing so, both corporate requirements and the needs of private clients benefit from tailored legal advice.

Particularly in complex matters involving nonprofit law, specialized expertise is essential to ensure that all relevant legal aspects are properly secured. This enables a holistic approach that goes far beyond a mere transfer of operations.

For charitable limited liability companies (gGmbHs), registered associations, and other nonprofit organizations, additional legal and tax requirements and risks arise. The expert team at WINHELLER helps avoid mistakes and reduce costs in the context of a business transfer.

Improper structuring of a business transfer may lead to the revocation of charitable status. The tax authorities may retroactively withdraw tax exemptions and demand back taxes (including corporate income tax and trade tax).