Hire and Higher? Employee recruitment and German merger control

The idea that hiring employees might engage German merger control is not entirely novel. The FCO has previously encountered cases involving talent transfers – and its approach has historically been one of restraint. Indeed, past decisions suggest a clear distinction between hiring personnel and acquiring businesses.

Take, for instance, the illustrative case of WAZ/Ostthüringer Nachrichten. After the FCO prohibited WAZ’s acquisition of a minority stake in a regional newspaper publisher in the year 2000, the company launched a competing newspaper title – and promptly offered positions to most of the target’s editorial and administrative staff. The employees accepted, the target exited the market, and the FCO… did nothing. Despite the market impact, no further action was taken, and no new concentration was assumed. A more recent example is the CTS Eventim/Four Artists case, where the prohibition of a planned merger was followed by the acquirer establishing a new company – and hiring large swathes of the target’s workforce. Here too, the FCO refrained from intervening. The FCO’s president publicly confirmed that hiring employees alone did not trigger the merger control regime.

However, this precedent-driven clarity has now been unsettled. In the abovementioned AI sector press release, the FCO stated that “the takeover of all employees together with the accompanying agreements on financing and the use of intellectual property rights to constitute a merger which is generally subject to merger control in Germany”. It declined, however, to specify whether it viewed the case as an asset acquisition under Section 37(1) No. 1 ARC or as a control acquisition under No. 2 – nor did it elaborate on what distinguished the scenario from those previously examined. This absence of clarity has left commentators and stakeholders guessing.

Time, then, to look more closely at what German merger law has to say about these cases.

Direct recruitment of employees does not entail any acquisition of shares, participations, or structural combinations between undertakings. Accordingly, Sections 37(1) Nos. 3 and 4 ARC – which address the acquisition of shareholdings and combinations allowing for material competitive influence – will not apply. That leaves only two possible paths for scrutiny under German merger control:

• Section 37(1) No. 1 ARC, covering the acquisition of all or a substantial part of another undertaking’s assets; and
• Section 37(1) No. 2 ARC, covering the acquisition of control over the whole or part of another undertaking.

“They’re our best assets!” But are they?

The first question, then, is whether a recruitment effort – even one involving a coordinated move of key personnel – could qualify as an asset deal within the meaning of Section 37(1) No. 1 ARC. This provision presupposes that an undertaking acquires either all or a substantial part of another’s assets. In this context, two interrelated questions arise:

• Can employees be regarded as “assets” in the legal sense?
• If so, does the act of hiring constitute an acquisition of those assets sufficient to fall within merger control?

What’s an asset anyway?

The term “asset” generally refers to something that can be traded, assigned, or transferred in a way that enables the acquirer to make ongoing use of it. On this view, assets are identifiable, alienable and capable of yielding sustained competitive value.

Whether employees meet these criteria is a matter of debate. Unlike machines or databases, employees are not disposed of by their current employer, nor are they typically “acquired” in a transactional sense. Their employment decisions are voluntary and individual, shaped by factors such as compensation, role, and working environment – not by agreements between undertakings. Yet, arguably, this does not entirely resolve the matter. Some have suggested that in direct hiring cases, the know-how and customer relationships brought by key individuals could amount to intangible assets which are (indirectly) transferred to the new employer. It has been acknowledged in the case law and the literature that know-how and customer relationships can indeed form assets relevant for merger control.

However, the nature of these intangibles complicates matters. Know-how in direct hiring cases is typically embedded in individuals, not separable from them. Similarly, client relationships often depend on personal rapport and may not persist under new employment. This raises doubts as to whether such attributes can be treated as transferrable “assets” in the conventional sense. Moreover, courts and commentators have thus far addressed know-how and customer relationships only in the context of broader transactional frameworks – where personnel moves are accompanied by formal transfer agreements between a buyer and seller and additional operational components such as tangible or separately available intangible assets. But in the absence of a seller, a transfer agreement, or accompanying business infrastructure, the case for treating direct hiring (that is, mere personnel recruitment) as an asset acquisition is far less clear-cut.

Owning it – can employees actually be “acquired”?

Assuming for a moment that know-how or client goodwill held by employees could qualify as assets, another hurdle remains: whether these assets are acquired in the sense required by merger control law. Section 37(1) No. 1 ARC requires the full transfer of ownership rights (called Vollrechtserwerb in German), enabling the acquirer to assume the seller’s legal and economic position in a lasting manner. This raises a fundamental question: does an employment relationship give the new employer such a position with respect to the employee’s know-how and commercial relationships?

In one view, the employer obtains structured access to such intangible value through its right to direct the employee’s work. The new employer’s influence over these “assets” is the same as that of the previous employer. Indeed, over the course of the employment, the employer may benefit considerably from the skills and networks the employee brings. Yet important caveats remain. Employees retain a high degree of personal autonomy and can generally terminate their contracts at short notice. As a result, even if such intangibles were to be considered “assets”, it is doubtful whether a “full transfer” takes place. Unlike licenses, trademarks, or proprietary databases, employee-held intangibles are neither formally assigned nor durably acquired. They remain personal, and their accessibility can change with little notice. Whether this qualifies as a Vollrechtserwerb in the merger control sense remains subject to debate.

All or a substantial part – but of what?

The final element under Section 37(1) No. 1 ARC is the requirement that the acquirer take over “all or a substantial part” of another undertaking’s assets. In merger control terms, this is understood to mean that the acquired assets must form the foundation of a certain market presence of the transferor – such that the acquirer can assume, replicate, or continue these business activities.

It is this criterion which, irrespective of the uncertainties surrounding the other parts of the “concentration” definition, differentiates direct hiring from actual asset deals, where buyer and seller consciously transfer a bundle of assets. Viewed separately, it is not conceivable how a single employee could ever be found to represent a substantial part of an employer’s assets in the legal sense (and, in any event, the turnover or value thresholds of Section 35 ARC will never be met by one hire alone, as this would require such person to have a “price tag” of at least EUR 400 million and/or be solely responsible for at least EUR 500 million worth of turnover). Hence, direct hiring could fall under German merger control only if multiple individual hires were aggregated into one notifiable transaction.

Statutory aggregation is possible under Section 38(5) sentence 3 ARC (mirroring Article 5(2) EUMR), which combines asset acquisitions from the same seller to the same buyer within two years. Pure hiring, however, involves no “seller”: the former employer neither transfers assets nor participates in the employees’ decisions. Furthermore, employees do not “sell” themselves as assets; they only offer services for the duration of their employment contract. Consequently, this provision cannot consolidate individual employment contracts.

German case law offers a further route: separate acquisitions may be lumped together when, from an economic point of view, they are brought about by a single event that is likely to influence the market structure (BGH KVR 95/10; OLG Düsseldorf VI-Kart 5/16 (V)). While EU jurisprudence usually demands contractual interdependence in that regard, German courts are less rigid. Yet in hiring scenarios, what counts as the “single event”? Employees exercise constitutionally protected freedom of occupation and decide on employers for personal reasons – salary, career prospects, commuting, work-life balance – rarely in lockstep with colleagues. Employment contracts are neither mutually conditional nor synchronized in their execution, and there is no coordinated act between old and new employers.

Treating the new employer’s unilateral ambition to hire en masse as the requisite “event” would ignore precedent and the fundamentally decentralized nature of the relationships: The court decisions concerned cases where there were a single buyer and seller who agreed on the acquisition of legally distinct businesses based on a “uniform entrepreneurial decision.” This underscores that an entrepreneurial decision alone is insufficient; specific transactional interactions between the companies involved must occur. Direct hiring starkly contrasts with this scenario, as it involves independent, individual decisions made by private individuals rather than structured negotiations between undertakings.

Furthermore, collapsing autonomous employment choices into an artificial mega-transaction would not just distort reality but also destabilize the boundaries of the notification regime: Every subsequent opportunistic hire could be swept into the supposed transaction, rendering threshold predictions impossible and contradicting the accepted view that even serial acquirers’ strategic motives do not, by themselves, aggregate separate deals into one filing obligation. It would be inconsistent to treat direct hiring differently.

Control – or Ctrl/Alt/Del?

Beyond asset acquisitions, Section 37(1) No. 2 ARC offers a second potential route for merger review: the acquisition of control over all or part of one or more undertakings. The latter term aligns closely with the interpretation of 'substantial part of the assets' in Section 37(1) No. 1 ARC. Central to both concepts is whether the object of acquisition represents a market presence transferable to the acquiring entity. Importantly, the control must be acquired on a lasting basis.

At first glance, it might seem a stretch to view direct recruitment as conferring “control” over anything resembling a business unit. No corporate link is established, no entity is absorbed, and the hiring employer gains no rights over the structure or decision-making processes of the previous employer. Still, some have queried whether, in cases involving the transfer of specialized teams or strategic personnel, the new employer might obtain control over a functionally distinct part of the former employer’s undertaking – in effect, transplanting a self-contained activity from one corporate context into another.

The line of reasoning here is complex. While an employer may gain contractual rights over the services of an employee, this is different from acquiring control over a business. Employees retain autonomy over whether and how long to stay. They may leave, refuse to share prior knowledge, or otherwise resist integration. The legal and practical nature of such arrangements is inherently fluid – and, crucially, not shaped by a mutual transactional commitment between two undertakings. That said, German merger law does recognize that licensing, leasing, or supply agreements – assets frequently acquired in conventional M&A transactions – can be a means of acquiring control even though they often permit unilateral termination by the contractual partner without the acquirer's agreement.

Ultimately, the treatment of direct hiring depends on whether it is treated as sufficiently analogous – or fundamentally distinct – from such other contractual arrangements. The distinguishing factor remains the unique position of the “asset” itself, which here retains the agency to independently determine the continuity of its status.

In any event, however, the logic applied to asset acquisitions under Section 37(1) No. 1 ARC carries over. Since the respective terms correspond to each other, individual employment contracts will neitherform a substantial part of the former employer’s assets, nor will they constitute a distinct part of its undertaking. At the same time, the concept of a single transaction, suitable to bundle the individual decisions of various employees, does not apply either. There is no sufficient legal basis for aggregating independently concluded employment contracts – even if executed concurrently – into a coherent (part of a) business over which control could be acquired. To put it differently: In merger control terms, direct hiring is not about acquiring control over an existing business – but (re-)starting one’s own.