In the event of a transfer of an undertaking or a division thereof

Transfer of Employees Is Not a Choice, but a Legal Obligation

The essence of this mechanism is simple: employees "follow" their business or its part. It's not a matter of the new owner offering them a job. It is an automatic transfer of all existing employment relationships under the law. This happens regardless of the employees' consent and without the need to conclude new employment contracts.

Whether a transfer of rights and obligations will occur at all is determined before signing. We describe the scope and process of such a review in our article on how a due diligence before a transaction works.

The original employment contract, including the agreed salary, job position, and all benefits, remains fully valid. In this area, ARROWS provides comprehensive labour law services. Only the entity on the employer's side changes. You might be interested in how the payment of profits in 2026 for the year 2025 is handled in similar situations.

Many entrepreneurs mistakenly believe they can dismiss employees before a sale, for example, for redundancy, to hand over a "clean slate" to the acquirer. However, such a procedure is extremely risky. If the only real reason for the dismissal is the impending transfer, such a dismissal is invalid.

What specifically is checked regarding employees before a transaction—from non-compete clauses to unused vacation—is discussed in our text on HR due diligence. In the event of a dispute, a court would rule that the employment relationship continues. You can learn more about resolving similar conflicts in our article on commercial and court disputes. The employee would thus transfer to the acquirer anyway, along with a claim for full wage compensation for the duration of the dispute.

The ARROWS legal team conducts a comprehensive legal audit of the transaction to assess whether and under what conditions a transfer of rights and obligations occurs. For an immediate solution to your situation, write to us at consultation@arws.cz. Further information on this legal service is available HERE.

When Does a Transfer Affect You? The Key Concept is "Economic Entity"

The biggest legal pitfall of the entire operation is determining when a transfer actually occurs. The Czech Labour Code was historically unclear in this definition, so its regulation was clarified in response to a European directive and the binding case law of the Court of Justice of the EU (CJEU). A transfer occurs upon the transfer of a so-called economic entity. CJEU case law defines it as "an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective".

It is not enough to simply transfer tasks; it must be a functional whole. You can find details on alternative procedures in the text focusing on the sale, merger, or transfer of a company. Assessing whether such an entity has been transferred is not just a matter of Czech law. It is governed by complex criteria from CJEU case law.

For example, it is assessed whether tangible assets were transferred, whether the majority of employees were transferred, whether customers were transferred, and whether the activity retained its identity. This is a critical point. The acquirer may believe they are only buying a set of individual assets—such as machinery, inventory, and a domain name—to avoid taking on liabilities.

However, if a court concludes (even several years later) that these assets actually formed an organised "economic entity," the acquirer automatically and often unknowingly inherited all the employees and their claims. Our lawyers, who handle cases with an international element daily, are intimately familiar with CJEU case law. 

We will prepare a legal opinion that assesses your transaction and protects you from the risk of unknowingly assuming liabilities. Contact us at consultation@arws.cz.

Inform, Inform, Inform: Obligations Towards Employees and Trade Unions

The transfer itself is associated with extensive administrative obligations. According to Section 339 of the Labour Code, both employers (the transferor and the transferee) must fulfill their information and consultation duties.

This obligation must be fulfilled in a timely manner, no later than 30 days before the effective date of the transfer. Did you know that ARROWS has a specialized team for corporate law, holding companies, and structures that can help you set up these processes? The information and subsequent consultation must be directed to the trade union or employee council. 

If neither of these bodies exists at the employer's company, the employers must inform and consult on the plan directly with all individual employees affected by the transfer.

The content of the communication is strictly defined. It must include the set date of the transfer, the reasons for the transfer, and, above all, a detailed description of the legal, economic, and social consequences for the employees, as well as information about planned measures concerning them.

Failure to comply with this obligation is not just a formality. It is an offence under the Act on Labour Inspection, for which significant fines can be imposed. Moreover, as we will see later, it gives employees very powerful tools to leave the company at a completely inconvenient time.

ARROWS routinely prepares complete documentation for clients to meet the information obligation and conducts strategic negotiations with trade unions on behalf of the client. Protect yourself from fines and contact us at consultation@arws.cz.

Penalties for Errors in the Transfer Process

An Employee Does Not Want to Transfer. What Are Their Rights? (Three Departure Scenarios)

Employee reactions are a key operational risk in any transaction. Although they cannot "prevent" the transfer, the Labour Code gives them three different options to leave their employment in connection with the transfer. Each has different consequences for the employer.

Scenario 1: Dismissal BEFORE the transfer (Section 51a(1) of the Labour Code)

If the employee was duly and timely informed (i.e., 30 days in advance), they can give notice of termination. In such a case, the employment relationship will end no later than the day preceding the effective date of the transfer. For the acquirer, this is a "clean" departure—the employee does not transfer to them at all, and in this scenario, they are not entitled to severance pay.

Scenario 2: Dismissal AFTER the transfer due to missing information (Section 51a(2) of the Labour Code)

This is the penalty for failing to comply with the information obligation. If the employers did not inform the employee duly and in a timely manner, the employee can give notice of termination even after the transfer, within a period of 2 months from the effective date of the transfer.

The notice period in this case is only 15 days. For the acquirer, this is an operational disaster—they buy a company, and for two months afterwards, key people can leave with a 15-day notice period.

Scenario 3: Dismissal AFTER the transfer due to "substantial deterioration" (Section 339a of the Labour Code)

This is a financial bombshell for the acquirer. The employee transfers to them, but the acquirer tries to change their conditions (e.g., reduce salary, remove benefits, change the place of work, or fundamentally alter the job description).

If an employee terminates their employment (by notice or agreement) within 2 months of the transfer, they can seek a court ruling that the reason was a substantial deterioration of working conditions.

Although this term is not precisely defined, case law has already confirmed that, for example, a significant salary reduction (in the order of tens of thousands of crowns) is considered a substantial deterioration. If the court rules in the employee's favour, they are entitled to full statutory severance pay, as if they had been dismissed for organisational reasons.

Our lawyers, who represent a portfolio of more than 150 joint-stock companies and 250 limited liability companies, have extensive experience with court disputes over the invalidity of dismissals and claims for severance pay. We will prepare an employee integration strategy for you that minimises the risk of "substantial deterioration." Do not hesitate to contact our office – consultation@arws.cz.

Do You Also Take Over Old Contracts, Benefits, and Debts?

Yes. The basic rule is that everything is transferred. The acquirer steps into the rights and obligations in their entirety. This includes areas that are often forgotten during a transaction.

Collective Agreements

If the original employer had a collective agreement in place, it transfers to the acquirer. The acquirer is then bound by all above-standard benefits (e.g., 13th-month salaries, longer holidays, meal vouchers). However, the law provides some relief for the acquirer here. 

The effectiveness of these "inherited" collective agreements is time-limited: they are valid at the latest until the end of the calendar year following the year in which the transfer occurred. This gives the acquirer strategic time to negotiate a new collective agreement.

Management Contracts and Non-Compete Clauses

These are also transferred.  However, a significant risk lies here. While the contract transfers automatically, the enforceability of key provisions, such as a non-compete clause (Section 310 of the Labour Code), is highly questionable with the new employer.

A non-compete clause is typically a personal commitment to the original employer. Relying on a court to confirm its validity for the acquirer in the future is a gamble. The acquirer might pay a high price for a company only to have key managers immediately leave for a competitor.

Relying on the automatic transfer of these clauses is a mistake. We will prepare tripartite agreements or new management contracts for you that ensure the enforceability of non-compete clauses. Protect your know-how and investments, write to us at consultation@arws.cz.

Debts to Employees

Because all rights and obligations are transferred, liability for debts incurred before the transfer also passes to the acquirer. This can include unpaid wages, travel allowances, or unpaid overtime.

Although the European directive allowed for the introduction of so-called joint and several liability (shared responsibility) for both the transferor and the transferee, the Czech legislator did not fully utilize this option. The acquirer may thus become the sole entity from which employees can claim their entitlements.

The Solution? Precise Labour Law Due Diligence

Given all the risks—from hidden debts and disadvantageous collective agreements to unenforceable non-compete clauses—labour law due diligence (a detailed review) before signing the transaction is absolutely crucial.

During due diligence for our clients, we primarily review:

• An audit of all employment contracts, agreements on work performed outside of an employment relationship, and management contracts.

• An analysis of valid collective agreements and internal regulations for hidden financial liabilities and future claims.

• A review of the validity and conditions of all agreed non-compete clauses.

• A check of payroll accounting (records of debts on wages, overtime, and allowances).

• Identification of ongoing or threatened legal disputes with employees.

Based on this review, we then prepare and revise the transaction documentation (purchase agreement). 

We ensure that it contains sufficient guarantees, representations, and indemnification mechanisms from the seller to cover all the labour law "skeletons in the closet" we identify. Our lawyers are ready to help you—write to us at consultation@arws.cz.

Hidden Labour Law Liabilities in an Acquisition

Cross-Border Mergers and the International Element

If your transaction crosses borders—for example, you are buying a Czech company that has employees in Poland, or a German parent company is transferring a division to the Czech Republic—you are entering a new level of complexity.

You cannot automatically apply only the Czech Labour Code. Employee protection and the determination of the applicable law for their contracts are governed by European regulations, primarily the Rome I Regulation. The Rome I Regulation comprehensively determines which law applies to a contract—typically, it is the law of the country where the employee habitually carries out their work.

Your transaction thus legally "breaks down" into several jurisdictions. You must simultaneously handle the transfer process according to Czech, Polish, and German law.

This is our specialty. Thanks to the ARROWS International network, built over ten years, we handle cases with an international element on a daily basis. We will provide legal advice and ensure compliance in all affected countries. Do you need legal assistance with an international scope? Contact us at consultation@arws.cz.

Don't Let Your Transaction Get Complicated. Entrust the Labour Law Agenda to Experts.

As you can see, a process that may seem like a simple administrative task is actually full of procedural deadlines (Section 339 of the Labour Code), hidden financial liabilities (collective agreements, severance pay), and legal uncertainty (CJEU case law, non-compete clauses).

ARROWS handles this agenda daily. We minimise the risk of errors and save you time. We are accustomed to being partners for in-house counsel and HR directors who need specialised expertise for a specific transaction.

By taking on this risk, we protect your transaction. Our professional liability is insured for CZK 500,000,000, which gives you the certainty that you are covered even in the worst-case scenario. We are not just lawyers. We are business partners to our clients. We enjoy connecting interesting investment and business opportunities and are always happy to hear new entrepreneurial ideas.

If you don't want to risk fines from the inspectorate, legal disputes over severance pay, or the invalidity of non-compete clauses, leave the entire matter safely to us. For an immediate solution to your situation, write to us at consultation@arws.cz.