Labor Law and Business Transfer: Section 613a Rights and Obligations

German law § 613a (Business and Firm Transfer Act) says: when you sell your business, all employment relationships automatically transfer to the buyer. The employee doesn't need to sign a new contract – they're automatically employed by the new owner with the same terms (salary, vacation, benefits). This protects employees from being fired as a result of sale.

But there are nuances: employees have a right to object within specific timeframes. They can refuse the transfer and claim severance pay. Also, buyers sometimes negotiate changes to employment terms post-close (lower salary, different role) – that's a separate negotiation.

For you as seller: this means you're still legally responsible for certain obligations until day of closing. For the buyer: they inherit all labor law obligations, including unknown liabilities (unpaid bonuses, pension obligations, union agreements).

Before the transfer closes, you must notify all employees in writing – in a clear, understandable form. The notification must include: the date of transfer, the buyer's name and address, the rights and obligations that transfer, any changes to employment terms. Timing: "in good time" – usually interpreted as 2–4 weeks before closing.

This isn't optional: failure to notify gives employees grounds to sue post-close for wrongful termination, and they can claim severance even if they would have accepted transfer. So document that you notified everyone, in writing, with proof of delivery.

Best practice: have your lawyer draft the notification, include it in closing documents, and ensure buyer signs off on content before you send. This prevents disputes later about who said what.

The law says: all terms of employment transfer unchanged. Salary, vacation, benefits, any special agreements – all go to the buyer. But: the buyer can propose changes after closing (lower salary, different role, relocation). Employees can accept or refuse.

If employees refuse changes and stay with the buyer under old terms, that's okay. If they refuse and quit, they can claim severance from the buyer (not you – you're off the hook post-close). If the buyer unilaterally imposes new terms without agreement, that's wrongful termination under German law – and employees have claims.

Key: as the seller, you're not responsible for post-closing employment changes. That's between buyer and employee. But buyers often try to shift costs to you (arguing you promised cooperation on "integration discussions"). Don't agree to vague "cooperation" – be specific about what you'll do.

Many entrepreneurs have made pension promises to executives (old-age provisions, disability insurance). These obligations transfer to the buyer under § 613a – but they're often unclear or underfunded. This is a major M&A surprise.

Before sale: get a pension audit. Quantify exactly what obligations exist, who they're promised to, and what funding exists. Include these in your disclosure to buyers – surprises post-close trigger indemnification claims. Some buyers demand that you fund pension obligations before closing (put money in escrow). Budget for this.

Pro tip: if pension obligations are large and unclear, pension insurance or a security deposit can solve the problem without litigation.

Yes – but with conditions. After closing, the buyer can technically propose layoffs. But: under German law (§ 1 KSchG), layoffs must be "socially justified" (business reasons, performance, personal reasons). If the buyer fires people just to "reduce costs", that's wrongful termination – and employees sue.

The buyer also might face union resistance or codetermination (if you have a works council, they have veto rights). Changes to major employment terms usually require works council approval.

For you as seller: don't promise the buyer that you'll "help with restructuring" or "smooth layoffs". That creates legal liability and bad employee relations. Let the buyer make their own decisions post-close.

If you have a works council (Betriebsrat), they have codetermination rights (Mitbestimmungsrechte) over hiring, firing, compensation, benefits. These rights transfer to the buyer. A works council can block major changes – and they often do.

If you have collective agreements (Tarifverträge), those continue under the buyer (unless the buyer is in a different union/association). This can be a surprise for buyers – they expected flexibility, they got rigid terms.

Disclosure: clearly document whether you have a works council, what their powers are, and which collective agreements bind your business. Buyers need this to assess post-close flexibility.

1. Conduct labor law audit: list all employees, their contracts, any special agreements, pension obligations, union status. Include in VDR.

2. Notify employees 2–4 weeks pre-closing in writing (with lawyer). Keep proof.

3. Disclose works councils, collective agreements, any litigation (wrongful termination lawsuits, wage disputes).

4. Clear indemnification clause: buyer indemnifies you for post-closing employment claims (unless they arise from your breach).

5. Escrow pool: 5–10% of purchase price held for 1–2 years to cover unknown liabilities (severance, pension, wage claims). This protects you.

6. Transition services: if buyer wants you to "help with integration", define scope clearly. And charge for it (transition fee).

7. With VALENTYR VOS Assessment we review your employment law position – that prevents post-close surprises. Costs 3,500 euros, saves tenfold.