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The Legal Effect of Transfer of Undertaking through Foreclosure on Employees Right: Cassation Case No.: 33314

Legal Rule (Interpretation of Law):

1.    Transfer of Ownership vs. Assumption of Obligations: When a bank forecloses on a business and takes possession of it, this does not automatically mean the bank assumes all the obligations of the previous owner, especially concerning employment contracts. The key factor is why the bank took possession. If it's simply to sell the assets and recover the debt (as in this case), the bank is not obligated to continue the business or honor pre-existing employment contracts.

2.    Purpose of Foreclosure: The purpose of foreclosure under Proclamations 97/90 and 98/90 is for the bank to recover its loan by selling the collateral, not to take over and run the business indefinitely. The bank's actions must be consistent with this purpose.

3.    Employee Rights in Business Transfer: While Article 16 of Proclamation 377/96 (the Labor Proclamation) protects employee rights when a business changes ownership, this protection applies when the business continues to operate. It does not apply when the bank takes possession solely to liquidate the assets and has no intention of continuing the business operation. In such cases, the bank is not considered a successor employer.

4.    Distinction between Ownership Transfer and Asset Liquidation: It's crucial to distinguish between a transfer of ownership where the business continues to operate, and a situation where the bank takes possession only to liquidate assets. In the latter case, the bank's role is similar to that of a secured creditor realizing its collateral; it is not assuming the role of an employer.

5.    No Contractual Relationship: If there is no employment contract between the bank and the employees, and the bank's possession of the business is solely for the purpose of asset liquidation, there is no legal basis for holding the bank liable for the previous owner's employment obligations.

6.    Previous Owner's Responsibility: The employees' claims for unpaid wages and severance should be directed toward the previous owner of the business, who was their employer at the time the obligations accrued. The bank, having taken possession only for liquidation, is not responsible for these pre-existing debts.

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