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Employment Lithuania: Business transfer implications on the employment relationship: new trends in case law

Giedrė Dailidėnaitė, partner at Primus (previous firm name – VARUL) wrote an article on business transfer implications on the employment relationship. This article was written for Taylor Vinters and published in International Employment Law Update.

The Vilnius County Court in Lithuania has found that even where only ancillary (internal business support) functions are divested by a business, and such functions are entrusted to another enterprise under a service (outsourcing) agreement, it will be considered a relevant business transfer and fall under Article 138 of the Lithuanian Labour Code (which prohibits the termination of employment of an employee performing such divested functions because of, or for reasons related to, the transfer). Also, it was decided that liability for the employee will attach to the enterprise which commences delivery of such outsourced services, together with the divesting employer.

In a recent judgment of the Vilnius County Court (the ‘Court’), it was held that the Lithuanian Labour Code, which implements European Directive 2001/23/EC of 12 March 2001 which concerns the protection of employees where there has been a change of employer following a transfer of undertaking, applied to a situation where the employee’s employment was terminated because the employer decided that the relevant accounting function should be performed by the outsourced accounting company and the internal accounting function should be discontinued. The Court reached this conclusion notwithstanding that the accounting services to which the employee was assigned were ancillary and no transfer of the primary business (main activities) of the employer was affected. The Court held that the employer divesting the accounting function was the transferor and the outsourced accounting company was the transferee for the purpose of both the Labour Code and the relevant European Directive.

Both the transferor and the transferee unsuccessfully tried to argue that the accounting services to which the employee was assigned were not business services that the transferor provided to its clients and instead were internal support services and ancillary in character. Therefore, the Labour Code did not apply in respect of such transfer and the employee had not been unfairly dismissed as a result of the transfer. However, the Court did not accept this and held that the Labour Code applies even if the service is ancillary.
The Court concluded that the employee’s employment should have continued with the transferee under the same conditions as it was with the transferor. Consequently, the transferee was liable for the termination of the employee’s employment as a result of the transfer.

Comment: This case confirms a new trend in Lithuania, whereby, even if only internal ancillary support functions of an employer’s business (and not the primary business) are being transferred, companies should be careful when contemplating dismissing employees. Companies must evaluate the risk in these situations and be mindful of employees’ rights in these situations, including potentially high costs associated with unlawful dismissals, both for the employer and the outsourcing company.