Company transfer in Luxembourg and change of employer

1. Definition and scope of application

The concept of a company transfer (Art. L.127-2)

A transfer within the meaning of the law is the transfer of an economic entity that meets two cumulative conditions:

• it retains its identity after the transaction;
• it constitutes an organised set of resources — human and material — enabling the pursuit of an economic activity, whether that activity is core or merely ancillary.

The concept of an economic entity is assessed globally: neither the mere transfer of isolated assets nor the simple takeover of a customer base is sufficient to characterise a transfer. What matters is the capacity of the taken-over unit to operate autonomously in pursuit of the activity.

Transactions covered (Art. L.127-1)

The regime applies to all transactions resulting in a change of owner of the entity, regardless of legal form:

• conventional sale (asset sale, partial contribution of assets);
• merger or demerger of companies;
• inheritance or donation of a family business;
• conversion of a business or incorporation into a company;
• any other transaction leading to a change of employer.

The regime covers both private and public entities, whether or not they operate for profit. The transferred entity must be located on the territory of the Grand Duchy of Luxembourg.

Exclusions (Art. L.127-1 and L.127-2)

Two categories are explicitly excluded from the scope:

• internal administrative reorganisations between public authorities, which do not constitute a transfer within the meaning of the law;
• the exclusive transfer of one or more seagoing vessels.

2. Continuity of employment contracts (Art. L.127-3)

The fundamental principle is the automatic transfer by operation of law of all rights and obligations arising from the employment contract or employment relationship existing at the date of transfer. This transfer occurs without the need to obtain each employee's individual consent and without the parties having to sign a new agreement.

Scope of the automatic transfer

All elements of the contract pass to the transferee: seniority, classification, remuneration, individually acquired benefits, and terms of the employment relationship. The regime also extends to agency contracts concluded with temporary workers in the course of performance at the date of transfer.

Employees on notice or on leave

Employees whose contracts are being performed at the date of transfer — including those on sick leave, parental leave, or suspension of contract — are taken over by operation of law by the transferee. The date of transfer serves as the dividing line: everything prior to it may trigger the joint and several liability of both parties (see section 3).

3. Joint and several liability and maintenance of collective agreements (Art. L.127-3)

Joint and several liability for pre-transfer obligations

The transferor and the transferee are jointly and severally liable for obligations that fell due before the date of transfer. This covers in particular unpaid wages, outstanding indemnities, accrued but untaken annual leave, and social security contributions in arrears for the period before the change of employer. The employee may therefore pursue either party to obtain payment.

Maintenance of applicable collective agreements

The transferee must maintain the working conditions provided for by the collective agreement applicable to the transferor, until one of the following two events occurs:

• expiry of the collective agreement originally applicable;
• entry into force of a new collective agreement binding on the transferee.

This obligation applies even if the transferee is not a member of the employers' organisation that signed the agreement. It prohibits any unilateral downgrading of collective conditions during the transitional period following the transfer.

4. Employment protection and substantial modifications (Art. L.127-4)

Prohibition of dismissal on grounds of transfer

A company transfer cannot constitute, in itself, grounds for dismissal — whether by the transferor before the transaction or by the transferee after it. This prohibition is designed to prevent the transaction from serving as a pretext for workforce reductions that ordinary dismissal rules would not have permitted.

Dismissals for economic or personal reasons nevertheless remain possible, provided they are based on grounds independent of the transfer and comply with the applicable legal procedures.

Substantial modification of working conditions

If the contract is terminated because the transfer results in a substantial modification of working conditions to the detriment of the employee, the termination is legally deemed to have occurred at the employer's initiative (Art. L.127-4). This rule protects an employee forced to leave because of the deterioration of their situation: they then benefit from the same rights as in cases of wrongful dismissal.

5. Information and consultation obligations (Art. L.127-6)

Before the transfer takes place, the employer (transferor and/or transferee, depending on the situation) must inform staff representatives or, failing that, the employees themselves. This obligation applies in good time, meaning early enough for the consultation to take place before the final decision is made.

Mandatory content of the information

The information must cover the following:

• the proposed date of the transfer;
• the reason for the transfer;
• the legal consequences for the employees;
• the economic and social consequences envisaged;
• the measures planned in respect of the employees (redeployments, training, changes of post, etc.).

Procedure depending on the presence or absence of a staff delegation

6. Special cases

Transfer in the context of insolvency or bankruptcy proceedings (Art. L.127-5)

Where a transfer takes place in the context of bankruptcy, judicial liquidation or court-supervised management proceedings, the ordinary protective regime is relaxed. The transferor, the transferee and the employees' representatives may then agree, by way of an agreement, to modify the working conditions of the employees taken over, within the limits set by legislation.

This derogation is justified by the objective of preserving employment and ensuring the survival of the business: adaptations that would normally constitute a substantial modification may be accepted in this context, provided they are negotiated and limited to what is necessary.

Part-time workers and fixed-term contract employees

The protective regime applies to all employees, regardless of the nature of their contract (Art. L.127-1). Part-time workers and those on fixed-term contracts (FTC) therefore benefit from the same continuity guarantees as full-time permanent employees. The temporary or reduced nature of the contract does not result in any exclusion from the regime.