Does the company need restructuring in connection with a business sale — or does the buyer simply want a smaller organization than the one you have today? That quickly raises the question: when are you actually allowed to dismiss employees in connection with a transfer, and when do you risk a compensation claim?

Short answer: You can't dismiss an employee simply because the business is changing owner. If the dismissal is instead based on genuine economic, organizational or technical circumstances, it can generally still be lawful, even if it coincides in time with a sale.

The main rule: the transfer alone isn't valid grounds

Neither you as seller nor the incoming owner may dismiss employees solely because of the change of ownership itself. This follows directly from the Business Transfer Act: a dismissal caused purely by the business changing hands is generally considered unfair.

When is a dismissal lawful anyway?

The act doesn't ban dismissals in general — only ones based solely on the transfer. If the dismissal is instead based on genuine economic, organizational or technical circumstances leading to changes in employment — for example because two departments are merged, or because the business's finances require a reduction in staff — the dismissal can generally still be lawful, regardless of it coinciding in time with a sale.

What does an unfair dismissal cost?

Here's a detail many overlook: the Business Transfer Act doesn't in itself give a right to compensation for an unfair dismissal. That right instead follows from other legislation — typically the Danish Salaried Employees Act or an applicable collective agreement. If the employee is covered by one of these, and the dismissal is assessed as unfair because it's solely due to the transfer, it can trigger a compensation claim under the rules applying to that specific employee.

Who's liable — seller or buyer?

Generally, a clear time-based line applies: claims arising before the transfer are the liability of you as seller (transferor). Claims arising after the transfer are the buyer's (transferee's) liability, because the buyer steps into the employment relationships that come with the business. If a dismissal has been given notice but not taken effect before the transfer, it should always be explicitly clarified in the purchase agreement who bears the risk if the dismissal later turns out to be unfair.

What does this mean in practice when selling a business?

If the buyer is planning a larger restructuring after the takeover — for example merging functions duplicated between the buyer's and the acquired business's organization — it's important to be able to document that the dismissals are genuinely due to the organizational change, and not just a cleanup that happens to coincide with the change of ownership. The better documented the business rationale, the lower the risk of a later claim. See also our walkthrough of HR due diligence, where employee matters are typically reviewed thoroughly by a buyer.

Frequently asked questions

Can I, as seller, dismiss employees right before I sell the business?

Only if the dismissal has a genuine, independent justification — for example economic or organizational circumstances. A dismissal made purely to make the business more attractive to a buyer risks being deemed unfair.

Does the employee automatically get compensation if the dismissal is unfair?

No. The Business Transfer Act doesn't grant an independent right to compensation — it depends on whether the employee is covered by the Salaried Employees Act, a collective agreement or similar that grants a right to compensation for unfair dismissal.

Who's liable if an employee dismissed before the transfer raises a claim afterward?

Generally the seller (transferor), because the claim arose before the transfer. The precise split should always be clearly stated in the purchase agreement.

Considering a restructuring in connection with a sale? Read the full walkthrough of the Business Transfer Act, or book a no-obligation call.

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