Denmark: The Supreme Court has given judgment regarding an acquirer's liability to employees who were dismissed before a transfer of the business undertaking

Case summary:

The employee A was employed by the company X and was a union representative. Following the bankruptcy of X, the bankruptcy estate concluded an agreement with Y regarding transferal of the part of the company, in which A was employed, to Y.

Y chose to take over 42 of the employees. A was not included among these employees. Therefore, the bankruptcy estate dismissed and released A on 27 December 2011, only a few days prior to transfer of the business undertaking on 30 December 2011. Consequently, Y, who had acquired the company, did not take over A.

Subsequently, A claimed for salary during the termination period and compensation for unfair dismissal. Please note that so-called "compelling reasons" must exist in order to dismiss a union representative which implies that "further reasons" are required when a union representative is dismissed compared to other non-protected employees.  

The main question of the matter was if Y was liable for A's claim given that A was dismissed by the bankruptcy estate and released prior to transfer of the business undertaking to Y. The parties did agree that the transfer of the business undertaking was in accordance with the Danish act regarding transfer of business undertakings ("VOL").

Earlier proceedings

The court in Glostrup noted amongst other things that in accordance with the "Dethier-case"[1], claims can be made against the acquirer if the employee is dismissed by the acquirer shortly prior to transfer of the business undertaking. In this case, the employee was dismissed immediately prior to transfer of the business undertaking. Consequently, the court ruled that the claim could be filed against the acquirer Y.

Contrary, the Eastern High Court held that due to the fact that A's employment with Y did not exist at the time of transfer of the business undertaking, pursuant to VOL section 2, sub-section 1, Y has not assumed the responsibilities of the bankruptcy estate and consequently, the bankruptcy estate was not released from its obligations towards A. Thus, the Eastern High Court held that the transferor, i.e. the bankruptcy estate, was liable to A in this case.

The judgment of the Supreme Court

The Supreme Court divides its grounds in two; 1) the rules of transfer of business undertakings and 2) the specific case.

The Supreme Court notes with regard to 1) i.a. that the protection against unfair dismissal in connection with transfer of business undertakings, pursuant to VOL section 3, includes all groups of employees, including union representatives, which have extended protection against dismissal, also see VOL section 4.

Further, the Supreme Court refers to the "Bork case"[2] and notes that the European Court of Justice specifies that if an employment contract or employment relationship has been terminated unlawfully at an earlier point than the time of transfer, the employee shall be considered as still employed at the time of the transfer, implying i.a. that the employer's obligations towards the employees are transferred from the transferor to the acquirer.

On this basis, the Supreme Court states that:

"On this basis, the Supreme Court finds that section 2 of the Act on transfer of business undertakings in connection with section 3 must be construed in the manner that an employee who has been dismissed unfairly according to section 3, sub-section 1, by the transferor, can file a claim against the acquirer for e.g. salary during the termination period and compensation for unfair dismissal."

In the preambles to VOL, no basis is found to construe the law in another way when a business undertaking is transferred from a bankruptcy estate rather than without a bankruptcy. However, the Supreme Court notes that when the transferor is a bankruptcy estate, it will often be easier to prove that the dismissal is done for financial, technical or organisational reasons and thereby fair.

Then the Supreme Court continues to 2) the specific case in which the Supreme Court initially holds that due to the large number of employees (42) taken over, it must be assumed that A was dismissed due to transfer of the business undertaking.

Further, the Supreme Court considers that A had wide experience and could have been employed in all functions of the sales department, and therefore it is not proven that there are urgent reasons for dismissing A, considering that 42 of the former employees of the company were taken over.

Consequently, the Supreme Court considers that the dismissal of A was due to transfer of the business undertaking and states that the dismissal was unlawful pursuant to VOL section 3, sub-section 1. Therefore, Y is liable as acquirer of the company for the claims that A has filed.

Bird & Bird's comments:

It does not seem that the Supreme Court considers it decisive that the employment relationship did not exist at the time of the transfer but is instead taking into account that the dismissal was unfair and on this basis concludes that the acquirer is liable. The chronological aspect, which the City Court i.a. considered important when passing its judgment, does not seem to be a deciding factor for the Supreme Court.

Therefore, it may be concluded that if the dismissal had been considered fair, the liability would have stayed with the transferor (i.e. X), notwithstanding that the dismissal and release occurred shortly prior to the transfer.

Furthermore, we have noted that the Supreme Court holds that the compensation for unfair dismissal can be claimed from Y as the acquirer of the company. Therefore, it must be concluded that A also may file the claim against X.