The Civil Chamber of the Supreme Court of Azerbaijan has issued an important decision establishing a unified judicial approach regarding termination of employment contracts following a change in ownership of an enterprise. The case concerned a bank employee serving as a branch manager whose employment was terminated after changes in the bank’s shareholder structure. While the lower courts ruled in favor of the employee, the Supreme Court took a different view.
The Court emphasized that Article 68 of the Labor Code grants a new owner the right to terminate employment relationships with employees occupying positions related to enterprise management and management of financial resources. Importantly, the Court clarified that a “change in ownership” is not limited solely to a formal change in the legal ownership structure. A significant change in shareholders or founders may also constitute a change in ownership if it effectively results in the formation of a new controlling owner’s will.
The Supreme Court further clarified that if a shareholder holding 51% or more ownership interest changes, the new owner may rely on the “change in ownership” ground to terminate certain employment contracts. Conversely, where ownership shares are fragmented and no shareholder holds 51% control (for example, 20%, 30%, and 40%), the replacement of one shareholder alone does not create such termination rights. The Court determined that the bank’s principal shareholder’s stake exceeding 51% had changed, and the new shareholder had entered the founders’ structure; accordingly, this situation qualified as a change in ownership of the enterprise.
This decision is significant for companies undergoing mergers and acquisitions, shareholder restructuring, privatizations, or changes in controlling ownership. Employers should carefully assess whether the ownership change meets the effective control threshold established by the Court.
