Recent ruling by the Dutch district court regarding a transfer of undertaking following an ICT-contract change

20 March 2024

In a recent judgement on February 14, 2024 (ECLI:NL:RBMNE:2024:749), the Dutch district court ruled that there was no transfer of undertaking following a change of contract between two ICT companies, concerning the provision of a bank’s datacenter services.

Transfer of undertaking

Because the employees involved in a transfer of undertaking retain the rights and obligations that arise from their employment agreements, it is relevant for the transferor, the transferee and the employees involved to know when a change of contract results in a transfer of undertaking. According to art. 7:622 (1) a Dutch Civil Code, a transfer of undertaking occurs when (part of) an undertaking is transferred as an economic entity which retains its identity, as a result of an agreement, merger or division.

To determine whether there is a transfer of undertaking, it is necessary – in short – to assess whether the transferred economic entity has retained its identity. The relevance of the circumstances by which identity preservation must be assessed varies by sector. In the case of undertakings in capital-intensive sectors, more importance is given to the circumstance that (in)tangible assets are transferred. In the case of undertakings in labor-intensive sectors, more importance is given to the circumstance that a substantial part of the workforce, in terms of quantity and expertise, is transferred.

The ruling

The ruling of the Dutch District Court was based on the circumstance that services concerning datacenter service management and maintenance is characterized by (the problem-solving ability of) the personnel of the ICT company. Because of the labor-intensive nature of the ICT work, the circumstance that the employees were not transferred with the change of contract indicates that there was no transfer of undertaking.

Procedurally interesting was the courts judgment that not only the employees involved, but also the transferor can independently claim compliance with the regulations on transfer of undertaking. This power follows from the circumstance that transferors also benefit from clarity with regard to their employees’ employment status. All the more so because the transferor has the obligation, as a good employer, to inform the employees about their legal position and to give them insight into the choices that can be made.