TSA Pre-Signing Review
Price the German TSA before you sign.
We scope the works council reality into the TSA while you still hold leverage. Fixed-fee proposal in 48 hours. The first conversation is always free.
A TSA carve-out in Germany turns on the automatic employee transfer under section 613a BGB, the codetermination rights of the works council, and strict data protection under the BDSG and GDPR. The work belongs inside the broader carve-out advisory plan, and in Germany the employee process sets the timeline more than the technology does. The buyer that underestimates the Betriebsrat loses control of the schedule.
A business transfer in Germany triggers section 613a of the Civil Code, the Buergerliches Gesetzbuch. Employees of the transferring unit move to Newco automatically on their existing terms, and collective agreements and works agreements continue to bind for at least a year unless replaced. The buyer inherits the full employment relationship, including tenure, pension promises, and any company practice that has hardened into an entitlement.
German law gives each employee a right to object to the transfer, the Widerspruchsrecht. The objection window runs one month from a proper transfer notification, and an employee who objects stays with the seller. A defective notification letter restarts the clock and can leave the objection right open for years, so the content of that letter is a precise legal exercise the buyer reviews carefully.
The transfer notification must explain the reason, the legal, economic, and social consequences, and the measures planned. Buyers treat this letter as a controlled document because errors create lasting liability and uncertain headcount. Newco needs to know exactly who transfers before it sizes payroll, systems access, and the TSA.
Because objection risk concentrates in senior and scarce roles, the buyer plans retention around the people Newco cannot afford to lose to the seller during a contested transition.
German payroll is heavier than the UK or US equivalent. Newco registers with the tax office for wage tax, the Lohnsteuer, and with the statutory social insurance system covering health, pension, unemployment, and long term care, each split between employer and employee. Registration with the relevant health insurers as collection agents is part of the stand-up, and the employer also handles accident insurance through the Berufsgenossenschaft.
The data that feeds payroll is detailed, and the monthly reporting to social insurance carriers is unforgiving of errors. Most buyers take a seller run payroll TSA for several cycles because a German payroll stand-up from scratch is rarely ready for Day One. The TSA defines the data exchange, the approval of each run, and the point where Newco assumes control.
Company pension commitments, the betriebliche Altersversorgung, transfer with the employees and can be a material liability. The buyer quantifies the pension promise during diligence because a direct commitment sits on the Newco balance sheet and shapes the price.
The buyer holds the payroll TSA to cost-plus or fixed-fee with audit rights and a firm exit date, the same discipline applied in every jurisdiction.
Where the carve-out separates a unit from a larger German entity, the question of whether the unit qualifies as a transferable business under section 613a is itself a legal judgement the buyer tests early. A weak business characterisation can leave the transfer contestable, which undermines the headcount assumptions Newco relies on for payroll and systems sizing.
Germany applies the GDPR alongside the Federal Data Protection Act, the BDSG, and supervision sits with the data protection authority of each federal state rather than a single national regulator. German enforcement is among the most active in Europe, so a carve-out treats data protection as a primary workstream, not a formality.
Employee data carries an extra layer in Germany: the works council holds codetermination rights over the introduction and use of systems that can monitor employee performance or behaviour. Standing up new HR or IT systems for Newco can require a works agreement with the Betriebsrat before go live, which the buyer builds into the timeline.
During the TSA the seller processes Newco personal data in shared systems, so a data processing agreement naming the seller as processor is essential, with security obligations and a deletion duty at exit. Any support routed outside the EU needs a valid transfer mechanism.
The migration itself usually warrants a data protection impact assessment, both as compliance and as the evidence trail a state regulator would expect.
The works council, the Betriebsrat, is the defining feature of a German carve-out. It holds information and consultation rights over operational changes and codetermination rights over working conditions, IT systems, and many personnel measures. A transaction that touches these areas cannot simply be announced. It is negotiated through the council on a timeline the council partly controls.
Where the carve-out is an operational change, the economic committee or the works council must be informed, and a reconciliation of interests and a social plan may be required if measures affect staff. Buyers that ignore this find systems rollouts and reorganisations blocked until the council process completes.
The practical consequence for the TSA is duration. Because Newco may not be able to stand up monitored systems until a works agreement is signed, the seller TSA often runs longer in Germany than elsewhere. The buyer prices that reality rather than assuming a fast exit.
Engaging the council early, with clear and accurate information, is the fastest route through. The same disciplined consultation logic appears in the French carve-out with its CSE.
The German TSA scope typically covers payroll, IT and identity, finance, and facilities, each with a clear description, a service-level expectation, and a price held to cost-plus or fixed-fee. The buyer insists on line item pricing because German seller cost allocations can bury overhead that does not belong to Newco.
Cutover is sequenced and gated. Payroll cuts at a month boundary after a clean parallel, IT after a tested migration and any required works agreement, finance at a period close. Each step has a reconciliation gate and a rollback path so one failure does not spread.
Cost discipline depends on doing the work before signing. The buyer benchmarks seller charges, removes unjustified mark-up, and sets exit fees that decline across the term. Where the works council process extends the TSA, the buyer at least controls the price and the exit conditions.
A disciplined German separation leaves Newco running its own payroll and social insurance, its own systems under valid works agreements, and its own data estate, with the seller dependency closed on agreed terms. That outcome starts with a pre-signing review that scoped the TSA before leverage shifted to the seller.
The buyer also confirms whether a collective bargaining agreement at sector level applies, because that agreement sets minimum terms independently of the company works agreements and continues to bind Newco. Mapping the full collective picture, sector agreement and works agreements together, prevents an unwelcome discovery that Newco inherited an obligation it never priced.
Section 613a of the Civil Code transfers employees of the unit automatically on their existing terms, with collective and works agreements continuing for at least a year. Each employee holds a one month right to object to the transfer after a proper notification.
The Betriebsrat holds codetermination rights over IT systems and many personnel measures. Standing up monitored systems for Newco can require a works agreement first, which often extends the seller TSA in Germany beyond what buyers expect.
Rarely. The wage tax, social insurance, and health insurer registrations plus detailed monthly reporting mean most buyers take a seller run payroll TSA for several cycles before a clean cutover at a month boundary.
The GDPR applies alongside the Federal Data Protection Act, supervised by the data protection authority of each federal state. Enforcement is active, so a carve-out treats data protection and the seller processor agreement as a primary workstream.
Works council consultation, BGB 613a transfer, and the German cost discipline.
Read the article →CSE consultation, URSSAF registration, and protecting payroll in France.
Read the article →The framework for sequencing a carve-out across multiple jurisdictions.
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