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Written by

Christian K. Clasen
Managing Partner

Same owner but no identity in terms of labour law

A company was entitled to renounce a collective agreement in connection with a merger. That was the decision by the presiding Labour Court judge in this case.

According to the Transfer of Undertakings Act, the transferee may within certain deadlines renounce the applicable collective agreement in the event of a business transfer. However, the renunciation will not be lawful if there is such identity between the companies and their owners that the companies are de facto identical – i.e. there is identity in terms of labour law. The question of whether there was identity to such an extent that the collective agreement could not be renounced in connection with a specific business transfer was decided by the Labour Court in this case.

An automation and software company merged with a company providing industrial automation solutions. In connection with the merger, the transferee renounced the Industrial Agreement, which was the applicable collective agreement. FH – Danish Trade Union Confederation, including several professional organisations, had the opinion that prior to the merger there was identity between the two companies with the effect that the collective agreement could not be renounced. The transferee disagreed, so the case ended up in the Labour Court.

During the Labour Court proceedings, the parties agreed that the transferee was entitled to renounce the collective agreement unless there was identity between the companies.

No identity
The Labour Court took into account that also after the transfer the companies continued to carry on their business with separate names and from separate locations and ”essentially” also had separate staff. The Labour Court noted that even though the companies operated in the same market and collaborated to some extent as well, e.g. through hiring-out of staff, the companies continued to have their own business areas and clients because of differences in the companies’ expertise.

The exchange of certain services, such as the hiring-out of staff, was subject to invoices between the companies, and the transferor had independent management since it maintained its general manager also after the merger.

All in all, the Labour Court found that the employees’ employer had changed in connection with the merger and that the renunciation of the collective agreement was lawful.

Norrbom Vinding notes

  • that the concept ”identity in terms of labour law” will be assessed on the basis of a wide range of factors, including company structure, management, customers, the general business area, etc.

The content of the above is not, and should not be a substitute for legal advice.