Can the employer unilaterally make changes to an employment contract?
Revision of the employment contract
Article L.121-7. of the Luxembourg Labour Code
The procedure provided for by Article L.121-7 of the Luxembourg Labour Code, which allows the employer to force employees to accept changes made to their employment contract to their detriment, is based on the management powers of the employer, who is responsible for the organisation and proper functioning of its services.
Principle: any change made to the employment contract to the detriment of the employee touching on an essential clause of the employment contract must, under penalty of nullity, be notified to the employee in line with the formal requirements and deadlines provided for dismissal with notice, indicating the date on which it takes effect.
Scope of application
The procedure does not apply in the following cases:
- A change that is decided by mutual agreement between the employer and the employee is not the topic under discussion here.
- A change in favour of the employee clearly does not make the use of this procedure necessary (e.g.: a wage increase).
- The employer may make slight changes to the employment contract of an employee which, if not substantial, do not require the use of the aforementioned procedure.
- It does not apply in case of reclassification of workers unable to occupy their last position as regulated by articles L.551-1. and following of the Luxembourg Labour Code.
N.B.: Even if the procedure to be followed by the employer is the same as that applicable in the case of dismissal, it is not a question of a dismissal but only of a change made to the employment contract.
If the employee refuses the proposed change, they are obliged to resign; this forced resignation is however equated with dismissal. If they do not resign, they are obliged to respect the new provisions of the contract.
The formal requirements
When the employer employs at least 150 employees, any substantial change must be preceded by a prior interview and the same formalities must be observed as in the event of dismissal.
The substantive conditions
Change with notice: the employer must have specific, real and serious reasons for unilaterally making changes to the contract. This means that the employee who is imposed a substantial change with notice has the right to ask for the reasons for the change, within a one month period.
The employer is required to provide the reasons in writing within one month from the date of the request.
The change with immediate effect: the employer must have a serious reason justifying this change. The letter announcing the change must state this reason in a precise manner.
Maintaining workers' rights in case of business transfer
Articles L.127-1. to L.127-6. of the Luxembourg Labour Code
These provisions apply to any transfer of a public or private enterprise, establishment or part of a business or establishment resulting in particular from a legal transfer, a merger, a succession or a demerger, a business conversion or a company creation.
Maintaining workers' rights
Principle: the rights and obligations that result for the transferor (former employer) of an employment contract (permanent contract, fixed-term contract, part-time employment contract) or an existing employment relationship on the date of the transfer are, as a result of this transfer, transferred to the transferee (new employer taking over the business).
Thus, labour relations as defined by the Labour Code in its articles on temporary work and existing at the date of transfer are also to be considered as labour relations.
The principle of maintaining employment contracts
In principle, a business transfer cannot have any impact on the current employment contracts concluded with the transferor. In fact, the transferee is obliged to take over the current employment contracts, under the same working conditions, if the employees continue to work in the same company.
This means that workers who have joined an establishment by reason of a transfer of a business, establishment or part of a business or establishment are deemed to have been part of that establishment since the date of their entry into service with the initial employer.
Condition: for the principle to apply, there must be a transfer of an economic entity that retains its identity and whose activity is continued or resumed. The transfer operation must relate to a set of factors, an economic entity that forms a whole.
The transfer may also cover part of a business only; such operations, which we call "outsourcing” are common today.
Illustration: this entity must, in terms of human and technical resources, have sufficient consistency to constitute either an establishment or at least a separate production entity or centre of activity. This economic entity refers to a set of factors of production assigned to the same operation. When these means of operation are transferred while maintaining their purpose (their assignment to the same activity or similar activities), the economic entity retains its identity.
-> A double criterion is therefore implemented: the persistence of a set of organised means of production and the pursuit of the same or similar activity (CSJ29.01.1998).
The assessment of the continuity and the permanence of the transferred business is not judged by the material permanence of the enterprise, but by the continuity of its purpose. In order for the company to persist, it is enough for the activity of the personnel to continue in the same premises and for the purpose of producing the same products, and that it is the same company that continues to operate under a new management.
It is up to the judges of the merits to assess supremely the persistence of a commercial or industrial purpose and a set of means intended to achieve this purpose.
Please note: the following are not considered to be a transfer:
- The simple acquisition of a stake in the capital of a company or the takeover of one company by another that does not involve a change in the legal position of the employer;
- The buy-out of a business involving a drinking establishment by a new employer operating a clothing retail store in the premises that have been taken over.
The obligations of the transferor to the transferee
The transferor and the transferee shall, after the date of the transfer, be jointly and severally liable for obligations due before the date of transfer under an employment contract or an existing employment relationship on the date of he transfer. The transferor shall reimburse the amounts paid by the transferee pursuant to the preceding subparagraph, except when the burden resulting from these obligations has been taken into account in an agreement between the transferor and the transferee.
Taking over of the employment contract
The transfer of the business does not in itself constitute a ground for dismissal for the transferor or the transferee. The transferee is obliged to take over employment contracts on unchanged terms.
Thus, if the employee accepts the transfer, the transferee is obliged to take over their employment contract on unchanged terms; the refusal by the new employer to take over their employment contract amounts to a wrongful termination.
However, this is not a protection of the employee against dismissal: The former employer is not forbidden from making redundancies before the transfer of the company; such dismissals must, however, be based on real and serious grounds.
This means that, in order to determine whether or not the dismissal was motivated by the mere fact of the transfer, account must be taken of the objective circumstances in which the dismissal took place, in particular the fact that it took effect at a date close to that of the transfer.
The transferee, who has become the new employer of the transferred employees, enjoys the same rights and prerogatives as any employer; it may therefore, if necessary, make transferred employees redundant, if these dismissals are based on real and serious grounds.
The new employer may also decide to organise the transferred business in the way that it considers most appropriate; thus, a reorganisation of the company after the transfer could result in redundancies for economic reasons. In this case, the reason for the dismissal will be the reorganisation of the business, not the transfer of the business.
If the employee does not accept their transfer, they will take the initiative to terminate the contract and voluntarily resign from their position with the transferor.
However, if the employment contract is terminated by the employee because the transfer involves a substantial change in the working conditions to the detriment of the employee, the termination of the contract is considered to have occurred because of the employer and is therefore interpreted not as a resignation, but as a dismissal.
No new employment contract is concluded with the new employer: the salary remains in principle the same, the employee keeps their seniority acquired from the first employer, the nature of the work remains unchanged.
The working conditions
After the transfer, the transferee must maintain the working conditions agreed upon in the collective labour agreement to the extent that the latter provides them for the transferor until the date of the termination or expiry of the collective agreement or the application of another collective agreement.
The application of the collective agreement
The continued application of the rules of the collective agreement after the transfer obviously does not apply to employees hired only after the transfer.
Information and consultation
(Article L.127-6 of the Luxembourg Labour Code)
The transferor and the transferee are obliged to inform the legal representatives of their respective employees involved in the transfer about:
- The date set or proposed for the transfer,
- The reason for the transfer,
- The legal, economic and social consequences of the transfer for the workers,
- The measures envisaged with regard to workers.
The transferor is required to provide this information to the workers' representatives in good time before the transfer takes place.
The transferee is obliged to communicate this information to its workers’ representatives in good time, and in any case before its workers’ conditions of employment and working conditions are directly affected by the transfer.
When the transferor or the transferee considers measures in respect of their respective workers, they are obliged to consult with the legal representatives of their respective workers in good time with a view to reaching an agreement on these measures.
Information and consultation must at least cover the measures envisaged with regard to the workers.
If the company does not have a staff representative, the employees concerned must be informed in advance of the imminence of the transfer.
The fate of the staff representatives
(Article L-413-2 (5) of the Luxembourg Labour Code)
In the event of a business transfer, the staff representatives retain their status and function as long as the establishment retains its autonomy.
In the event of loss of autonomy: the staff representatives will automatically join the staff representatives of the establishment hosting the transferred workers. The enlarged representative body must immediately organise the appointment of a president, a vice-president, a secretary and a bureau.
The exceptional composition of the body representing the staff will end at its first renewal.
If the workers of the establishment that does not maintain its autonomy are hosted by an establishment which does not have staff representatives, the staff representatives of the transferred establishment will act as joint representatives.
Members of the joint works council
In the event of a business transfer, the joint committee retains its status and function as long as the company retains its autonomy.
In the event of loss of autonomy: the members of the joint committee will automatically become members of the joint committee of the company hosting the transferred workers, without prejudice to the right of the company’s director to renew its own representatives.
The exceptional composition of the joint committee will end upon the first renewal of the staff representatives.
If the workers of the company not maintaining its autonomy are hosted by a company that does not have a joint committee, the joint committee of the transferred company will act as a shared joint committee.
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