HR-Glossar

Transfergesellschaft (transfer company)

How a German transfer company works, what the three-party agreement does and which conditions transfer short-time allowance has.

1. What is Transfergesellschaft (transfer company)?

A Transfergesellschaft is a separate company into which employees move for a limited period on a business change, instead of becoming unemployed straight away. There they are trained and supported in looking for a new position. The legal basis for the funding is Sections 110 and 111 SGB III. The arrangement has no direct counterpart in most other systems, which is why the German term is used here rather than translated.

The move is made through a three-party agreement between the previous employer, the employee and the transfer company. It has two parts: the termination of the previous employment relationship and the creation of a fixed-term employment relationship with the transfer company.

That is the point that frequently gets lost in advice: because a termination agreement is concluded, the blocking period question under Section 159 SGB III arises. In practice a blocking period is regularly not imposed on a move into a transfer company, because employment continues – but that should not be relied on without checking.

2. Origin and development

On larger workforce reductions two poor alternatives face each other: drawn-out unfair dismissal proceedings with an uncertain outcome, or an abrupt move into unemployment. The transfer company is an attempt at a third way.

Its core is a redirection of funds: instead of paying severance which is spent after the separation, part of it is invested in a phase in which those affected are still employed – with training, support in applying, and the statistically demonstrated advantage of searching from within an existing employment relationship.

The funding is mixed. Transfer short-time allowance under Section 111 SGB III carries part of the pay; the employer tops it up and funds the measures. For the employer this creates planning certainty: the employment relationships are ended, the number of unfair dismissal claims falls considerably, and the reduction has a date.

For those affected the calculation is less clear-cut. Entry presupposes giving up dismissal protection – and whether that is worth it depends on how good the chances in proceedings would have been and on what the transfer company actually delivers.

3. Core principles and how it works

The three-party agreement is the entry

It terminates the previous employment relationship and creates a fixed-term one with the transfer company. Entry is voluntary – nobody can be obliged to take it.

Transfer short-time allowance under Section 111 SGB III

It requires a business change, a permanent and unavoidable loss of work, the creation of an organisationally independent unit, and a profiling of those affected before the move.

Profiling before the move

Establishing the prospects of placement must happen beforehand. If it is omitted the funding falls away – a formal error with full financial effect.

Fixed-term employment without a duty to work

No productive work is done in the transfer company. The time serves training and placement; there is a duty to cooperate in that.

Advice and measures under Section 110 SGB III

Transfer measures such as training and application coaching are funded separately; they can also be used without a transfer company.

The blocking period question arises

The three-party agreement contains a termination. The assessment under Section 159 SGB III regularly comes out favourably where employment continues in the transfer company, but it has to be settled.

There is no way back

On entry the employment relationship with the previous employer ends finally. Dismissal protection is thereby used up.

4. Who is Transfergesellschaft (transfer company) relevant for?

  • Businesses in restructuring – site closures, larger workforce reductions.
  • Works councils – the transfer company is typically part of the social plan.
  • Affected employees – for them it is the trade-off between security and dismissal protection.
  • Insolvency administrators – frequently the instrument that makes a reduction workable at all.
  • HR – they coordinate profiling, contracts and liaison with the Employment Agency.

5. How it differs from related terms

- Transfer short-time allowance and short-time work allowance – ordinary short-time work allowance offsets a temporary loss of work and aims to preserve jobs. Transfer short-time allowance presupposes a permanent loss. - Transfer company and social plan – the social plan is the basis; the transfer company is one option within it, frequently in place of part of the severance. - Transfer company and outplacement – outplacement is an advisory service with the employment relationship continuing or ending, without a separate company and without funding. - Transfer company and dismissal – entry is voluntary. Anyone declining keeps their dismissal protection and the risk of proceedings. - Transfer company and insolvency pay – both can apply in sequence in an insolvency; insolvency pay covers arrears of pay, the transfer company the time after.

6. Variants and adaptations

The arrangements differ considerably:

- External transfer company – a specialist provider takes over; the standard case. - An organisationally independent unit within the business – legally possible, organisationally demanding, because the independence has to be demonstrable. - Transfer measures without a company – training and placement support under Section 110 SGB III with the employment relationship continuing. - Combined with severance – usual: part as severance, part funding the transfer phase. - A transfer company in insolvency – common, often combined with pre-financed insolvency pay.

7. Advantages and challenges

Advantages

  • Those affected search from employment, not from unemployment – statistically the better position
  • Training is funded and takes effect promptly
  • The business gains planning certainty and considerably less litigation risk
  • Transfer short-time allowance lowers the cost against a pure severance solution
  • The reduction has a date instead of being tied up in proceedings for years

Challenges

  • Entry costs dismissal protection finally – there is no way back
  • Pay in the transfer company is considerably below the previous level
  • Profiling omitted before the move costs the entire funding
  • The quality and placement success of providers differ considerably
  • The blocking period question is frequently glossed over in advice
  • Someone who would have found a position quickly anyway might have preferred the severance

8. Best practices for implementation

Carry out the profiling before the move

Section 111 SGB III requires it as a condition of funding. Profiling omitted cannot be made good – and the funding then falls away for everyone affected.

Involve the Employment Agency early

Conditions, notification and liaison need lead time. A transfer company set up at short notice fails on formalities, not on the concept.

Choose the provider on placement rate, not on price

The quality of the support determines the benefit to those affected – and that is the only reason they are giving up their dismissal protection.

Explain the blocking period question

The three-party agreement contains a termination. A note on that, and on settling it with the Employment Agency, belongs in the advice given to those affected.

Leave both routes genuinely open

Anyone with a good alternative should be free to choose it. Pressure to enter endangers the voluntariness – and with it the effectiveness of the termination.

9. Tips for employers and employees

For employers

  • **Profiling before the move** – Section 111 SGB III, or the funding falls away
  • **Involve the Employment Agency early** – the conditions need lead time
  • **Preserve voluntariness** – pressure endangers the effectiveness of the termination
  • **Choose the provider on placement success** – that is the measure of the benefit

For employees

  • **Entry ends your dismissal protection** – finally and with no way back
  • **Compare both routes** – transfer company against severance plus a claim
  • **Settle the blocking period question** – the agreement contains a termination
  • **Ask about the placement rate** – it is the real value of the offer

10. Conclusion

The Transfergesellschaft is an attempt at a third way between unfair dismissal proceedings and immediate unemployment: those affected move for a fixed period into a company of its own, are trained, and search from within an existing employment relationship – statistically the better position. It has no direct counterpart in most other systems, which is why it is worth understanding on its own terms rather than by analogy.

Entry is through a three-party agreement, and that contains a termination of the previous employment relationship. Dismissal protection is thereby used up finally, and the blocking period question under Section 159 SGB III arises – it regularly comes out favourably where employment continues, but it belongs settled, not assumed. For those affected it is therefore a genuine trade-off: security and support against giving up proceedings that might have ended better.

On the employer's side there is one formal point on which the whole thing can fail: the profiling under Section 111 SGB III must happen before the move. If it is omitted the funding falls away – for everyone affected, with no possibility of making it good.

Sources

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