The transfer of all or part of an establishment (zakład pracy) is a special concept in labour law relating to changes in ownership. Put simply, it is the automatic transfer of all the rights and obligations of the employer from one entity to another, without the need for any additional actions or consents from the parties involved.
However, this must be preceded by the fulfilment of a range of informing obligations by both the new and former employers. Let’s take a look at what the process should involve.
Polish vs. European regulations – things are no less complicated for our neighbours
The transfer of all or part of an establishment to a new employer is more or less the same in all European Union countries, being regulated by Council Directive 2001/23/EC of 12 March 2001 and, in Poland, by Article 231 of the Labour Code.[1]
Furthermore, the solutions resulting from EU regulations also apply in the United Kingdom, where the Transfer of Undertakings (Protection of Employment) Regulations 2006[2] (which transpose the provisions of the aforementioned directive) continue to apply.
This means that companies must comply with a number of formalities when buying or selling part of their business, whether the transaction is with a Polish undertaking or a company from another EU country. Failure to do so can be costly and pose legal risks.
Taking over some tasks treated as a transfer of an establishment – risky outsourcing
A transfer of the whole or part of an establishment to a new employer occurs when one company (X) acquires all or part of another company’s (Y) undertaking, and as part of this transaction, some or all of company Y’s employees change employer.
For example, Article 231 of the Labour Code would apply to a company operating a chain of restaurants that acquires a local wine producer to expand its business profile. However, this is not the only case.
The courts take the view that, one service provider replacing another, can involve the quasi-transfer of an establishment to the new employer.
For example, in its judgment of 10 October 2023 (III PSKP 17/22), the Supreme Court stated the following:
“Article 231 does not define the concepts of ‘part of an establishment’ or ‘establishment’. As interpreted in accordance with Council Directive 2001/23/EC of 12 March 2001 (OJ EU L 2001 No. 82, p. 16), these concepts mean that the transfer of an undertaking, establishment or part of an establishment is not solely manifested in the transfer of its assets, rather it is first and foremost necessary to consider whether the undertaking, establishment or part of the establishment has been transferred as a going concern and whether its operations are actually continued or resumed by the new employer. Therefore, to assess whether the transfer of an establishment has actually occurred, all the facts must be considered, in particular: (i) the type of undertaking or business concerned, (ii) whether or not assets (e.g. buildings, production halls, machinery and tools) have been taken over, (iii) the value of intangible assets (licences, concessions, etc.) at the time of the takeover, (iv) whether or not the majority of employees have been taken over by the new employer, (v) whether or not customers have been taken over, as well as the degree of similarity between the activity carried out before and after the takeover and the duration of any suspension of that activity.”
In some cases, the mere takeover by a new employer of some of the employees/experts providing specialised services may constitute a transfer of the establishment:
“To determine whether a transfer of the establishment has occurred as a result of the transfer of work tasks alone, it is not solely relevant whether these tasks are public or non-public. The decisive factor is whether the undertaking’s activity is based mainly on its tangible assets or on the activities performed by its employees (staff).” (judgment of the Supreme Court – Labour, Social Insurance and Public Affairs Chamber of 13 March 2014, Case No. I BP 8/13).
This approach is well established, as evidenced by the latest judgment of the Supreme Court – Labour and Social Insurance Chamber of 11 June 2024, Case No. II PSKP 60/23:
“In order to assess whether a transfer under Article 231 of the Labour Code has taken place, a test consisting of the following steps must be carried out. First, the entity – the establishment or part of the establishment – that is the subject of the transfer must be identified. This element of the test requires the identification of the tasks assigned to the entity, its team of employees and specific management structure, as well as the possibility of using material resources, equipment, specialist knowledge, etc. The second step is to determine the type of entity that was transferred in a given case, and in particular, whether the entity’s essential resources and values, which determine its nature and ability to operate, are its employees and their qualifications, or whether its nature is determined by tangible assets. The third step is to assess whether this entity has retained its identity after the transfer.”
The test to determine whether an establishment has been transferred to a new entity should be carried out with the utmost caution.
This is because such a transfer is automatic and its occurrence is established on the basis of all the pertinent facts. Ignorance of the law, or lack of awareness, does not protect employers from legal consequences.
Lease as a transfer of an establishment
The above provisions also apply to leases (dzierżawa).
According to common court rulings, the conclusion and subsequent termination of a lease agreement have the effects specified in Article 231 of the Labour Code.
In its judgment of 18 February 2010 (III UK 75/09, OSNP 2011, Nos. 15-16, item 215), the Supreme Court stated that:
“A lessor who has terminated a lease agreement becomes a party to the existing employment relationships upon the actual recovery of the leased assets, regardless of whether the assets were returned to the lessor by the lessee, or handed over by the administrator appointed to secure an action for eviction after the final conclusion of eviction proceedings.”
Conversely, terminating a lease agreement for the operation of a facility that was a separate legal entity with its own legal personality prior to the lease, does not result in the establishment being transferred to the lessor (see the Supreme Court’s judgment of 14 October 1997, I PKN 299/97, OSNP 1998, No. 18, item 536).
This issue may prove particularly important for entities dealing with warehouse space.
Transfer of an establishment undergoing bankruptcy or restructuring
In practice, transfers of establishments often occur in the context of restructuring or bankruptcy processes, particularly in the case of the sale of organised parts of undertakings or pre-pack transactions.
Importantly, the initiation of restructuring or bankruptcy proceedings does not automatically preclude the application of Article 231. This means that, by operation of law, the purchaser of an undertaking or part thereof may become the employer of the employees taken over, even if the transaction is a forced sale of assets.
Therefore, transactions carried out in crisis conditions require particular caution. In each case, it is necessary to analyse whether acquiring the assets and personnel would result in a transfer of the establishment under labour law. This applies regardless of the structure of the agreement and the intentions of the parties.
The consequences of non-compliance with the regulations on transfers of establishments
As Polish regulations neither define ‘establishment’ nor specify what ‘transfer of an establishment to a new employer’ means in practice, many entities fail to apply Article 231 of the Labour Code, despite being obliged to do given the facts of the case.
The risks associated with failing to do so primarily include employee claims. The most problematic of these are:
- Actions to establish an employment relationship between employees and a new employer (e.g. if the latter has concluded an outsourcing agreement for services identical to those previously provided by the employees to the same entity)
- Actions for reinstatement or compensation (e.g. if contracts of employment are terminated due to a change of ownership)
The scale and likelihood of negative consequences depend on the specifics of each case. A detailed analysis, careful process planning and legal support can often help avoid these consequences altogether.
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[1] Act of 26 June 1974 – Labour Law
[2] https://www.legislation.gov.uk/uksi/2006/246/contents
[3] OJEU L No 82, p. 16
