Some years ago, a leading London corporate lawyer told The New York Times that in “merging two regular companies...you just do it and sort out the people issues
afterwards.” (A. Sorkin, “A Lawyer’s Lawyer: Bridging Borders,” March 26, 2000) If that was ever true, it no longer is. In any merger or acquisition between two employers, especially in the cross-border context, human resources and employment law compliance have grown particularly vital.
Employee matters can be persistent and bedeviling over the entire course of a cross-border transaction, from deal structuring to due diligence to acquisition-agreement drafting to closing, and then especially during post-merger integration. In today’s knowledge-based economy, the driver for a growing number of mergers and acquisitions is talent acquisition. It stands to reason that employment issues might even predominate in these employment- driven deals.
But actually, employment issues do not drive the merger and acquisition process. If we break down the mechanics of how M&A deals get structured, workforce issues are at best peripheral to the M&A process. Human resources leaders rarely get a “seat at the table” in planning acquisitions and divestitures. Employment and even employee benefits lawyers usually play at best a supporting role, and sometimes little to no role.
Yet employment, benefits and compensation issues in cross-border mergers and acquisitions can get complex. Businesses need expert guidance focused on cross-border staffing challenges. One law firm has noted that “although M&A projects tend to be driven by corporate or tax lawyers, in many cases labor law issues have significant influence on whether…the deal is successful.”
Our discussion here amounts to a toolkit for US human resources professionals and lawyers responsible for the workforce issues in cross-border M&A deals (transactions where the seller employs staff in more than one country). We focus on the multinational buyer and seller as they account for the seller’s outside-US staff who, at closing, will transfer over
to the buyer. Our discussion breaks down into three topics: (1) staff transfers outside the United States (vested rights, acquired rights, de facto firings); (2) an international M&A employment due diligence checklist; and (3) a checklist of workplace issues in international mergers and acquisitions.
Each monthly issue of Global HR Hot Topic focuses on a specific challenge to globalizing HR and offers state-of-the-art ideas for ensuring best practices in international HR management and compliance. White & Case’s International Labor and Employment Law practice helps multinationals globalize business operations, monitor employment law compliance across borders, and resolve international labor and employment issues.
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Donald C. Dowling, Jr.
Partner, International Employment Law New York
+ 1 212 819 8665
ddowling@whitecase.com
. . . . . . . . . . . . . . . . . . . . . .
White & Case LLP
1155 Avenue of the Americas New York, NY 10036-2787
United States
+ 1 212 819 8200
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Part 1: M&A Employee Transfers Outside the United States: Vested Rights, Acquired Rights and de Facto Firings
In most multijurisdictional business deals, a single threshold employment-law question predominates and permeates every other question about employment and human resources: After the closing, what will happen to the seller’s personnel? In some way or another, every workforce issue that arises during a merger or acquisition plugs back into this one central question. Indeed, anyone who is not quite sure what will happen to the seller’s staff after a merger or acquisition closes is in no position to answer any personnel-related questions regarding a given deal.
Pre-closing layoffs: Rarely but occasionally the answer to the central question of the fate of seller employees at the moment before closing is there will be no seller employees at closing— the seller will first have laid them all off. That is, occasionally, more often in small local deals than in big international ones, the parties negotiate for the seller to lay off or “make redundant”
all employees before closing so the seller can turn over the business with no staff at all.
Any pre-closing complete layoff or “collective redundancy” needs to comply with each affected jurisdiction’s reduction- in-force and notice/severance laws, including local labor laws
that require information/consultation/bargaining with employee representatives. (See our Global HR Hot Topic of June 2013) However, in certain jurisdictions including the European Union and Turkey, the fact of a merger or acquisition deal “shall
not in itself constitute grounds for dismissal.” (EU Transfer of Undertaking Directive 2001/23/EC at art. 4(1); see Turkey Labour Law 4857/2003, art. 6)
But because lay-off laws are not unique to the merger and acquisition context (at least outside Europe, Turkey and other jurisdictions that prohibit M&A-motivated layoffs), a pre-closing complete reduction-in-force is largely the same as any other layoff, except that any unsatisfied severance liabilities might reach a buyer after closing. For our purposes, the point here is that only in those rare deals where the seller has no staff at the moment of closing do employment law issues drop out as a deal consideration.
In the vast majority of cross-border transactions, at closing the seller employs staff in more than one country. In these deals, the answer to our central question of what happens to seller staff at closing differs from jurisdiction to jurisdiction, particularly if the transaction is an asset purchase and not a stock purchase. This issue of what happens to seller’s staff at the moment of closing gets particularly complex outside the United States because overseas jurisdictions strive to protect sellers’ employees more paternalistically than under laissez-faire US employment-at-will.
To explain the various ways employee transfers work overseas in mergers and acquisitions, we begin by looking at how US law treats sellers’ staff in a merger or acquisition deal. Then we contrast the very different scenario of what happens to a sellers’ workforce in an M&A deal abroad.
US context
In addressing the fate of a seller’s stateside workforce at the moment of closing a merger or acquisition, the key distinction to draw is whether the deal structure has the buyer buying the seller’s stock (in Europe and elsewhere called “shares”) or its business assets.
Stock (shares) deal and US employee transfers. A stock sale (including a merger by acquiring stock) does not change employees’ status at closing. If we look through the lens of employment law, a stock transaction appears invisible: The buyer, at closing, becomes the employer entity. The employer entity itself stays the same. Therefore, employer/employee
relationships, employment liabilities and individual and collective bargaining arrangements stay exactly the same—except of course to the extent that staff have change-in-control clauses written that into employment, compensation or collective agreements. In short, putting contractual change-in-control provisions aside, a stock purchase (or merger by stock) in most countries of the world does not implicate employee transfers, and so usually does not trigger any legal issues as to transferring staff. In the words of the classic rock song, employees on the morning after the closing of a stock deal come into work and “meet the new boss, same as the old boss.”
Then, after closing, the acquirer of a business’s stock enjoys genuine flexibility as to its newly acquired American employees because of the unique US doctrine of employment-at-will. If, for example, some stock buyer acquires the shares of a business and decides to lay off some or all of its newly acquired US staff, the new boss (the stock acquirer) is free to do the layoff without paying any severance pay or separation charges (assuming that: neither a severance pay plan nor the stock purchase agreement restricts layoffs; none of the US staff enjoys contractual, quasi- contractual or union contract dismissal rights; the layoffs are
not for an illegal discriminatory or retaliatory reason; and any mass downsizing complies with notice mandates under US
W.A.R.N. law).
Going beyond layoffs, US employment-at-will also grants
stock buyers almost complete operational flexibility as to newly acquired staff, because US law imposes no vested rights obligation to maintain work conditions after closing. (See our Global HR Hot Topic of December 2013) That is, a stock buyer immediately after closing is generally free to reduce American employees’ existing terms and conditions of employment,
to demote American employees, to discontinue American employees’ benefits, to reduce their pay, to change their job titles and otherwise to restructure its new American workforce however it wants to (subject to any contractual or
quasi-contractual restrictions and subject to benefits continuity rules under US ERISA law, 29 U.S.C. §1001 et seq.).
Asset-purchase deal and US employee transfers. The analysis differs markedly as to the effect on a seller’s American employees when a merger or acquisition gets structured as
an asset purchase. US labor union law imposes doctrines of “alter ego” and “successorship” on the 6 percent of US
nongovernment workforces represented by labor unions. But otherwise, in the asset-purchase context where there is no US labor union—the other 94 percent of the time—American workforces get no statutory job protection when their boss sells the business. This leaves the buyer of a business’s assets free not to offer the seller’s US employees any jobs at all. An American asset buyer that decides to offer jobs to the seller’s staff is free to offer worse or tougher jobs at lower pay and
at a new and distant workplace. An asset buyer of a business that decides to hire any of the seller’s US staff is free (unless contractually committed otherwise) to offer whatever terms and conditions it wants—even terms materially lower than what the seller provided. And an asset buyer is free to start American employment fresh, with no credit for years of service with
the seller. (Outside the union context, seniority credit is often meaningless in US employment, anyway.) In short, where there is no labor union, US employment law imposes no concept of so-called “acquired rights.”
Outside-US context
Outside the United States, what happens to a seller’s staff in a merger or acquisition plays out completely differently. And yet we can analyze how M&A-context employee transfers work overseas using the same structural distinction—stock transactions versus asset-purchase transactions. At that point, though, everything differs.
Stock (shares) deal and outside-US employee transfers. As in the United States, in a merger or acquisition by stock purchase overseas, the buyer also becomes the employer entity at the instant of closing. Therefore, existing employer/
employee relationships, employment contracts and employment liabilities all stay the same after closing. Overseas (as in the United States), a stock transfer M&A deal is invisible from
an employment law standpoint—with the exception that a few European jurisdictions like Belgium, France, Hungary and
Romania (and arguably Austria, Denmark and Germany) impose obligations of “information and consultation” with worker representatives before a seller can commit to or close even a stock shares sale of a business. (And, of course, any contractual change-in-control clauses apply by their terms.)
This said, outside of US employment-at-will, from the moment of closing, a stock buyer slams into a rigid legal hurdle that does not exist stateside: the doctrine of vested rights. Because of vested rights, stock buyers enjoy less flexibility to change the terms and conditions of employment of their non-US
staff. Outside-US jurisdictions impose a regime usually called “indefinite employment,” but in the Philippines called the more-descriptive label security of tenure. (Labor Code of the Philippines art. 279) Indefinite employment regimes regulate, restrict or prohibit no-cause employment terminations by granting fired employees a cause of action for dismissals without notice, without good cause or without following mandated dismissal procedures. Because the vested rights principle follows a stock transfer deal through closing, a stock buyer after closing cannot lay off any of its newly acquired outside-US employees after closing unless it complies with these employment law restrictions, pays legally imposed
severance costs and follows local notice/termination/severance pay and lay-off mandates. In short, as to staff outside the United States, a stock shares buyer that closes an M&A deal on a Tuesday evening wakes up Wednesday morning shackled to the new business’s staff by the very same chains that had shackled the seller on Monday.
And these vested rights rules reach well beyond restrictions against layoffs. An implicit corollary of any functional doctrine limiting no-cause employment dismissals is that legal restrictions against firings also restrict constructive dismissals. (Otherwise, an indefinite employment regime’s prohibition against unfair dismissals would become meaningless—an employer could freely “fire” workers, without cause, by demoting them, cutting their pay and assigning them intolerable tasks until they quit.) The upshot is that vested rights rules outside the United States severely restrict the power of an employer stock buyer, after closing, unilaterally to reduce employees’ material employment terms and conditions.
(See our Global HR Hot Topic of December 2013) That means that after closing, a stock buyer outside the United States faces tough obstacles if it wants to cut pay, restructure, transfer workers to new office locations, realign job titles or discontinue bonuses, benefits or equity plans (absent employee consent— which often requires making substantial concessions).
Asset-purchase deal and outside-US employee transfers. The vested rights doctrine we just discussed does not reach a buyer of business assets, because an asset buyer is a distinct legal entity—a new and separate employer. This fact alone sometimes tempts business buyers to structure their acquisitions as asset purchases, just to maximize flexibility in staffing operations by sidestepping vested rights (and also sidestepping the seller’s accrued liabilities). This strategy is
particularly common stateside, where many business sales, especially purchases of smaller businesses, get structured as asset purchases to free up the buyer to decide which of the employers’ staff, if any, it may want to hire.
But the strategy of structuring a deal as an asset purchase to sidestep the seller’s employment liabilities is much less attractive to parties doing mergers and acquisitions abroad. Jurisdictions outside the United States tend to close the perceived vested rights loophole in one of two very different ways: either by imposing an acquired rights rule or else by imposing what we might call a de facto firing doctrine. Both
models make the asset purchase structure much less attractive to a business buyer outside the United States.
➤ Acquired rights jurisdictions. If the buyer of a business could skirt the seller’s vested rights obligations to its staff simply by structuring its acquisition as an asset purchase, this would threaten the public policy outside the United States that underlies the vested rights doctrine: safeguarding employees’ security in their existing jobs. Many countries see an asset sale transaction as a potential loophole that threatens to let the asset seller compromise its employees’ vested rights. Many of those jurisdictions close this perceived loophole by legislating in a doctrine usually called “acquired rights.” Acquired rights laws are statutory mandates that force an acquirer of the assets of a business—in Europe called an “undertaking”—to assume the transferor’s existing workforce along with the seller’s vested rights obligations. (Indeed, acquired rights laws in Europe are so broad that they reach not only asset sales but also outsourcings and other business transfers in addition to asset sales. But here we focus on acquired rights laws in the sale-of-business-assets context.)
In an acquired rights jurisdiction, the vested and acquired rights concepts together add up to a strict but fairly simple rule that reaches all mergers and acquisitions: Regardless of whether parties structure their transaction as a purchase of stock shares or assets, at the instant of closing the buyer steps into the seller’s shoes as employer of record and assumes a legal obligation to perpetuate the staff’s existing jobs, pay, employment terms, conditions and seniority
(unless employees consent otherwise—which they have little incentive to do unless granted concessions).
But to the seller of business assets, the other side of this coin looks a lot shinier. The quid pro quo of any coherent acquired rights mandate is that when staff transfer in an asset sale with their terms, conditions and seniority intact, the transferor (the seller) walks away from its workforce without having to lay anyone off—free of severance pay, notice and “collective redundancy” (layoff) obligations. Yes, some acquired rights
laws keep an asset seller jointly and severally on the hook with the buyer for employment claims for a while after closing—for example, in Turkey the post-closing employment claims joint liability period runs for two years (Labour Law 4857/2003, art. 6) and in the United Arab Emirates the
post-closing joint liability period runs for six months (Labour Law art. 126). In any event, the buyer usually makes good on employment liabilities that accrue during this post-closing window period. Either way, in acquired rights jurisdictions, asset sales trigger no severance pay obligations, and this ends up helping both parties: A seller with no severance pay burden does not pass severance pay costs onto the buyer in the form of a higher sales price.
This summarizes acquired rights laws generally. But in their particulars, acquired rights laws work in different ways depending on the jurisdiction. Here are some examples:
Brazil. Article 448 of the Brazil Labor code is a blunt acquired rights rule, but it reaches only asset sales when an entire line of business transfers. In those deals, the staff transfers as a matter of law. But article 448 does not reach sales of partial lines of business.
EU. Each EU member state imposes a sophisticated and strict acquired rights law under which an asset seller’s employees automatically transfer to an acquirer with their pay, terms/conditions of employment and service credit intact. EU member state acquired rights laws adopt (“transpose”) the amended European Union “acquired rights” or “transfer of undertakings” directive. (EU directive 2001/23/EC) These same laws require information and consultation (like mandatory union bargaining) with employee representatives over the asset sale. Examples of these laws include: France labor code article L 122-12; Italy law 428/1990 as amended; Malta Employment and Industrial Relations Act XXII of 2002 article 38 as amended by Act IX 2003.124; and the UK Transfer of Undertakings (Protection of Employment) Regulations [TUPE] as amended. Colloquially (if inaccurately), these local European acquired rights laws often get referred to by the local British acronym “TUPE.” Member state laws implementing the EU acquired rights directive are particularly robust and
well-enforced—Austria’s and Germany’s acquired rights laws, for example, actually let employees refuse the transfer, at least in some circumstances. That said, the EU acquired rights directive lets European states except pension plans—so some EU jurisdictions except pension rights as not acquired rights. (See EU directive at art. 3(4); “Pension Issues in European Mergers and Acquisitions,” Euro Watch, Nov. 15, 2007)
Bahamas, Malawi, South Africa and Turkey. The Bahamas Employment Act 2001 section 72, the Malawi Employment Act number 6 of 2000 at sections 32(2), 42, South
Africa’s Labour Relations Act section 197 and Turkey’s Labour Law 4857/2003 article 6 plus Turkey’s Commercial Code 6102/2012 art. 178 are acquired rights laws meant to work more or less like laws under the EU directive. In Turkey, as in Austria and Germany, affected employees can actually reject an asset transfer.
Singapore. Under the Singapore Employment Act section 18A, only low-level employees (staff other than managers, executives and those in confidential positions) transfer by operation of law to an asset buyer with their pay rates, terms and conditions of employment and seniority intact. A Singapore seller must notify these non-exempt employees (and any union) of the transfer before closing. Employment contracts automatically transfer, too, unless employees agree with the buyer on new terms.
South Korea. South Korea imposes acquired rights restrictions on many asset transfers. Transferring employees must get reasonable notice and must consent to (or, at least, can reject) the transfers. Parties may execute an “Employment Transfer Agreement” confirming that consent. South Korea requires ETAs if the buyer will change terms or conditions of employment.
➤ De facto firing jurisdictions. We said that most all jurisdictions outside the United States are vested rights jurisdictions that protect the vested rights of a seller’s staff, and we said that in one way or another all vested rights jurisdictions end up safeguarding employee vested rights if the employer sells its business assets. The first and more “elegant” way that some vested rights jurisdictions protect vested rights in an asset sale is the method just discussed: legislatively imposing acquired rights obligations. But not all vested rights jurisdictions impose acquired rights laws. The second—the blunter and less elegant—way that other vested rights jurisdictions end up safeguarding vested rights when an employer sells its business assets is a model we might call the de facto firing doctrine.
De facto firing jurisdictions bluntly presume that an asset seller’s employees continue on as seller employees even after an asset sale closes—unless and until the seller lawfully dismisses them and pays them all the notice and severance pay they are entitled to. After all, the seller, the employer of record, may decide to sell its business assets, but its sale of inanimate things does not exempt the seller from its ongoing responsibilities to the humans that comprise its staff. In a
de facto firing jurisdiction, a worker whose job relates to transferring business assets either keeps right on working for the seller even though the business assets have now disappeared, or else he gets fired and paid out accordingly—
even, in many cases, where the asset buyer agrees to hire him after closing.
Of course, in practice a seller of business assets has no jobs for its staff after it closes its asset sale. The legal system considers the asset seller still to be the employer, but what is that seller to do now that it no longer has jobs for its people? Obviously the seller has to do a layoff—funding severance pay notice, and all other obligations of a mass firing. While severance costs fall on the seller in the first instance, because it is the asset sale itself that triggers those costs, a smart seller factors severance pay liabilities into the asset sales price. And so the asset buyer ultimately, if indirectly, ends
up paying.
The good news for the parties is that there is a shinier side to this coin, too. There is a quid pro quo to the de facto firing doctrine, the opposite of the quid pro quo of the acquired
rights doctrine. In a de facto firing jurisdiction, the asset buyer is free to ignore the seller employees’ old vested rights.
Ex-employees of the seller, having been fully “cashed out” in severance pay, get no right to a job with the asset buyer. If the asset buyer does hire a seller’s staff anyway, it is free to offer lower pay, reduced terms and conditions, and no retroactive seniority credit.
De facto firing regimes work particularly smoothly in those deals where the buyer does not want any of the seller’s workforce. But in many merger and acquisition deals,
the buyer seeks a “turn-key” operation complete with experienced staff ready to work. Indeed, sometimes a fundamental reason motivating a buyer to do the deal is that the buyer wants to acquire the seller’s “human capital.” In other deals, the asset buyer may not be too eager to hire the seller’s workforce, but the seller may insist the buyer take on its staff to minimize human resources problems and costs (sometimes a benevolent seller wants to walk away from its old business knowing it “took care of its people”). The challenge in these scenarios is that even where the buyer in a de facto firing jurisdiction agrees to hire seller employees at closing under identical terms/conditions and seniority, that commitment does not necessarily relieve the
seller of its severance pay obligations. This creates a potential double-dipping scenario that employees in these jurisdictions often seek to exploit: In de facto firing jurisdictions, expect staff in an asset transfer to maneuver so they get both a
full severance pay-out from the seller plus a good job from the buyer. This double-dipping often happens because, in these systems, an asset seller that chooses to sell only its business assets has no right to expect the law to credit the asset-buyer’s post-closing job offers toward the seller’s pre-
closing severance pay obligations. In the eyes of the law, what happens here is exactly the same as the lucky guy who gets
laid off one day, cashes a severance pay check the next day— and the following day lands a great new job somewhere else.
That said, the parties to an asset deal in a de facto firing country might save a lot of money if they think ahead. In an asset deal where the buyer is willing to hire seller staff on mostly similar terms and conditions of employment (ideally if the buyer is even willing to recognize service or seniority credit with the seller), both parties have a keen financial incentive to save severance money. (Again, a smart seller inevitably passes severance pay costs onto the buyer in the form of a higher asset sale price.)
In short, in asset deals where the buyer will take on some or all of the seller’s staff, de facto firing jurisdictions shift the burden to the deal parties to structure their transaction in
a way that saves severance payments that, in all fairness, would be an undeserved windfall—unjust enrichment—to transferring employees.
Formal employer substitutions. The law in some de facto firing jurisdictions—Mexico, for example—lets a buyer and seller affirmatively structure a so-called “employer substitution” by which the buyer steps into the shoes of the seller as employer, with all terms and conditions transferring. An employer substitution shifts vested rights obligations to the asset buyer, relieving the seller of its severance pay liability. Usually the employees or their trade union must affirmatively accept the employer substitution. To nudge employees toward accepting—remember, the sellers’ staff will want both severance pay from the seller and new jobs from the buyer—the buyer might commit to the seller that it will not hire (say, for a year) any seller employee who rejects the employer substitution. By law, under an employer substitution if some employment liability arises after closing, the seller remains jointly and severally liable for employment claims during a fixed period (six months, in Mexico). Therefore, a buyer and seller usually address pre- and post-closing employment liabilities in their purchase agreements.
Informal employer substitutions. Even absent a formal employer substitution, parties to an asset sale might forge a sort of private employer substitution vehicle by agreeing that the buyer will offer jobs to seller staff on same pay rates, terms, conditions and service credit—but only in exchange for each employee’s agreement to resign from the seller or otherwise to waive and release severance pay claims. Under this scenario, the buyer and seller in effect team up and present the seller’s staff with a choice: Either get a full severance package from the seller or get a comparable job with the buyer—but pick one, because you cannot have both. This strategy stops “double-dipping” and saves the seller severance pay costs that the seller would otherwise pass onto the buyer. And this approach ensures
the buyer takes on only those of the sellers’ employees who really value their jobs. This said, though, in practice informal employer substitutions do not always work: Sometimes the asset buyer and seller agree on a purchase price too early before they hammer out the details of staff transfers. By the time this staff transfer issue arises deep into deal negotiations, the buyer decides it wants the freedom to hire any of the seller’s staff—even employees who may insist on a seller severance pay check. In these situations, employees who end up with both severance pay from the seller and good jobs from the buyer are very lucky people indeed.
Examples of de facto firing jurisdictions include:
Australia. Articles 307 – 320 of Australia’s Fair Work Act 2009 address the transfer of collective bargaining agreements in an asset deal, paralleling the US successorship and alter ego doctrines and focused on “the transfer of rights and obligations under [collective] enterprise agreements, certain modern awards and certain other instruments if there is a transfer of business from an old employer to a new employer.” (Art. 310). Otherwise, though, Australian employees themselves do not transfer to an asset buyer, even if most collective employment agreements do. Also, some social security (“National Employment Standards entitlements”) transfer when an asset buyer hires a seller’s staff and retains them for
three months.
China. An asset seller in China that fires staff associated with transferring assets is subject to notice and severance pay obligations. China’s layoff (“massive workforce reduction”) law kicks in where a seller fires at least
20 employees or 10 percent of its workforce. Employees can insist on getting severance pay, or they can agree to a transfer (such as where jobs with the buyer depend on transfer consent). The mechanics of an “agreed transfer” (effectively an informal employer substitution) are either resignation-plus-buyer-hire or else executing a mutual termination agreement plus a new employment agreement with the buyer, which can be structured as a three-party contract. Of course, Chinese employees will not likely agree to a transfer like this unless the buyer perpetuates terms/ conditions/seniority.
India. Indian law distinguishes unskilled low-wage manual- laborer “workmen” from non-workmen, who are usually managers, administrators and supervisors. Where an asset seller does not intend to retain workmen associated with transferring assets, the buyer can decide whether to hire these workmen on the same terms, conditions and seniority. Where an asset buyer declines to hire a seller’s workmen on replicated terms, there is a de facto firing and the seller owes the workmen notice and severance pay.
Indian law is similar as to non-workmen, except that a non-workman might transfer onto the payroll of an asset buyer even if the seller pays no severance pay and even if the buyer does not replicate the seller’s terms/ conditions/seniority (unless employment agreements require otherwise).
Japan. An employer (and hence a seller) in Japan cannot unilaterally lay off staff without cause, even where the employer is willing to give notice and tender severance pay. This means that Japanese employees affected by an asset sale (called a jigyoujouto) enjoy a right to keep working for the seller even after closing, even if the buyer and seller contractually provide for an employment transfer, and even if continued employment proves impossible because no seller business remains. Needless to say, this presents a conundrum to an asset seller—and also to a buyer that needs the seller’s “human capital.” Where buyer, seller and employees all agree, they can forge an informal employer substitution by which the buyer assumes the seller’s employment contracts, or by which the seller and its employees agree on separation terms or negotiated retirement agreements with releases. Where employees consent to a cash-out, the buyer is free to hire the seller’s staff on new terms/conditions without respecting seniority (unless, of course, the buyer contractually committed to another arrangement).
Latin America and Bahamas. Argentina, Bahamas, Mexico and most of Latin America other than Brazil constitute de facto firing jurisdictions where employees who lose their jobs in an asset sale are deemed to have been dismissed, and so enjoy a right to full notice and severance pay unless they consent to some other arrangement, like an “employer substitution.” In some Latin American jurisdictions, a buyer and seller will be held jointly liable for severance payments (legal systems fear the buyer who sells all its business assets and then flees the jurisdiction before satisfying severance pay obligations). This said, though, as mentioned an exception in Latin America is Brazil—a sale of the assets of an entire line of business can trigger a sort of acquired rights rule. (Brazil Labor Code art. 448)
Puerto Rico. Puerto Rico Labor Law §185(b) sets out a mandate that statutorily imposes the de facto firing rule, with a refinement regarding service/seniority credit: “If the new acquirer continues to use the services of the employees who were working with the former owner, such employees shall be credited with the time they have worked… under former owners.”
Part 2: International M&A Employment Due Diligence Checklist
Having addressed the central employment question in every merger or acquisition transaction—what happens to a seller’s employees at the instant of closing the deal—we turn now to process, the staffing issues that lawyers need to address in any international merger or acquisition. And the first “people”
issue in any M&A deal is always human resources due diligence.
Every prudent buyer of a business undergoes an investigation or discovery process to find out what it is and is not buying, and
whether the purchase will be worth the price. The seller, therefore, first needs to be ready to “show its hand” to the buyer.
Thorough due diligence involves a wide range of business and legal issues including antitrust analysis, accounting principles, intellectual property rights, environmental compliance, tax status, and an analysis of pending and potential lawsuits against the seller. One part of any thorough due diligence process is the staffing piece—workplace due diligence into the seller’s labor practices, its employment law compliance and its employee benefits offerings. Due diligence into workforce issues outside the US is particularly vital, because as discussed, business acquirers away from employment-at-will in effect inherit the seller’s human resources status quo—whether by vested rights in a stock purchase, by acquired rights in an asset purchase or else by some contractual commitment amounting to some sort of employer substitution. Also, because law in many places shifts pre-closing employment liabilities to the buyer after closing, any prospective buyer of a business needs to study the seller’s global personnel operations and get familiar with the to-be-acquired worldwide workforce.
Using a thorough due diligence checklist helps a prospective business buyer figure out what data to scrutinize and also helps a prospective business seller anticipate what data prospective buyers will expect to see. But conducting due diligence into human resources across borders is tricky, because employment is inherently local, rooted in issues indigenous to each affected country. For example, Hong Kong imposes unique social security and pension compliance requirements, Mexico imposes strict profit-sharing mandates, Brazil imposes an unusual employer- financed unemployment compensation regime, Saudi Arabia imposes unique workforce gender-segregation rules, and South Africa imposes unique diversity plan obligations. An employment due diligence checklist can account for these inherently local
workplace and employment law issues only if it gets tailored for all the jurisdictions in play in the present deal.
Nigeria and the Philippines. Nigeria and the Philippines are examples of straight de facto firing jurisdictions. Where no labor agreements require otherwise, an asset seller is liable for severance obligations to employees it lays off.
This international human resources due diligence checklist focuses on staffing issues that tend to arise across various jurisdictions. So this checklist is merely an outline that needs tailoring for each local jurisdiction where a seller in a given deal employs staff:
Data laws in due diligence. The due diligence process exists to root out noncompliant problems, so the due diligence process itself should never cause its own compliance breach. Many jurisdictions, including the European Union as well as most of the rest of Europe plus Argentina, Canada, Israel, Japan, Korea, Philippines, South Africa, Uruguay and a growing number of others, impose broad data privacy (“data protection”) laws that inevitably have unexpected consequences in the due diligence context. Electronic due diligence data rooms raise exposure under these laws if they offer up to bidders personal information about identifiable seller employees. Bidders cannot shrug
this off as the seller’s problem, because liability for breach of data laws can transfer to a buyer at closing, particularly in a stock deal. Compliance steps may require “anonymizing” data room information, entering into “onward transfer agreements” with bidders, entering into cross-border “model contractual clauses” agreements, collecting signed employee consents and taking other steps. Jurisdictions including Argentina, Hong Kong, Japan, Korea and the United Kingdom have issued legal guidance specific to the M&A due diligence context. Follow it.
Materiality threshold. Prospective business buyers do not care about immaterial aspects of the seller’s staffing operations. International HR due diligence in any merger or acquisition therefore needs to be subject to some materiality threshold. Find out what the threshold is, and then focus HR due diligence only on issues that could exceed it.
Claims, liabilities and exposure. Is the seller subject to any pending, threatened or potential employment-related
grievances, claims, lawsuits, appeals, disciplinary proceedings, workplace inspections or audits, government complaints or investigations, administrative charges, unfair labor practice charges, criminal proceedings or unpaid employee judgments? What about claims disposed of over the last few years, be they settlements or judgments? What is the exposure for the seller’s noncompliance with labor/employment, payroll, safety, and
HR data privacy laws? What are the seller’s cash reserves for these claims?
Corporate employer issues. In each country, identify the seller’s local affiliated corporate entities that employ staff. Learn the relationships among the seller’s operating entities and any “services companies” that employ people.
Census and organization chart of employees plus contingent staff. Get a census of seller employees (and directors) worldwide, including part-time and contracted- out employees. Include both employees who service the target entity and target-entity employees “seconded” out to
service other organizations. Ideally this census should include dates of hire, compensation and job category. Separately,
get an organization chart and verify that only the employees who actually serve the target unit—regardless of title or designation—will transfer as part of the deal. Conversely, verify that all essential staff who should transfer will come over as part of the deal. Identify any “shared services” employees who work for both the target unit and non-acquired units. Next, identify the seller’s contingent staff (independent contractors, consultants, agents, secondees, sales representatives, “business partner” staff dedicated to this business and employees working from home or remotely, even overseas).
Expatriates and immigrants. Collect information on the seller’s expatriate and immigrant populations and programs. Who are the overseas secondees and other posted expatriates? Which corporate entity employs each expatriate? Identify “stealth expatriates” outside the formal expatriate program who are nevertheless working outside their home countries. Check
the visa status of non-local-citizen employees worldwide. How might this deal affect these visas?
Compliance with policies and laws. Identify (and check compliance with) the seller’s own employment policies, written and unwritten. Look at employee handbooks, written work rules, health/safety guidelines. Separately, check whether the seller complies with legally mandated terms and conditions
of employment. What special terms and conditions (beyond legal minimums and above market) does the seller extend to employees? The buyer will likely have to replicate these terms after closing.
Code of conduct. Check compliance with the seller’s internal ethics code of conduct and social responsibility programs, including any commitment to an industry code, any corporate social responsibility program and any so-called “framework” (global union neutrality) agreement. Are these translated into local languages and compliant with overseas language laws? Do the seller’s HR practices comply? Will the seller’s current practices align with the buyer’s practices and comply with the buyer’s policies and codes? Check seller practices regarding government procurement, payment procedures to government officials, and compliance with anti-bribery laws and audit/ accounting rules. Verify that any seller whistleblower hotline complies with Europe’s tough data protection law mandates.
Supply chain and human rights. Get the seller’s supplier code of conduct, if any, and collect compliance data like social/human rights audits. Collect data on labor practices in the supply chain, particularly as to components and products sourced from poor countries, including construction projects. Consider post-closing obligations on the buyer under California’s Transparency in Supply Chain Act 2010. (Cal. Civil Code §1714.43; Cal. Revenue and Taxation Code §19547.5) Consider post-closing exposure to workplace-context human rights claims. Consider whether the seller’s supply chain practices might, after closing, breach the buyer’s supplier code of conduct, if any. This said, keep human rights issues in perspective. Discount advice (from certain consultants and activists) that the United Nations Guiding Principles on Business and Human Rights and other aspirational declarations somehow impose binding legal obligations relevant to international mergers and acquisitions. For the most part, they do not.
Compensation and benefits. Using a separate compensation/ benefits checklist, check the seller’s benefits and compensation offerings, including bonus plans. Are they above market?
Do they comply with legal minimums? Look into the seller’s compensation philosophy, compensation/benefits “schemes” or plans, severance plans, retirement plans, bonus plans and perquisites (like meals, housing and expatriate benefits). Check sales compensation. Check individual pension promises, special agreements, grandfather clauses, death/disability benefits, cafeteria plans, service awards, profit-sharing and savings plans, tuition and adoption reimbursement plans, employee assistance programs, employee loans and guarantees—even unusual expense reimbursements. Understand the interplay between foreign pension plans and foreign social security in each affected country. Check compliance with local laws that mandate extra payments and benefits (like thirteenth-month pay and profit sharing in Latin America). Get an accounting of any transferring plans and study funding—unfunded, underfunded, and “book reserve” plans can raise huge problems and occasionally even kill deals.
Equity. Look at seller stock options, stock grants, phantom stock and other equity plans, plus employee ownership programs, officer/director stock ownership, and employee ownership in affiliates and entities doing business with the seller. What will happen to these after closing? If the buyer will not or cannot replicate them, what will it need to do instead?
Employee insurance coverage. Look at the employment-related insurance the seller provides, like employee life/health/accident insurance, hazardous duty/kidnap insurance, payments to state- mandated insurance funds (workers’ compensation and state social security insurance), expatriate coverage and “key man” policies naming the employer as beneficiary. Consider analogous insurance needs post-closing and, in an asset deal, consider the logistics of getting insurance in place by the closing date.
Performance management. Study the seller’s performance management system. Focusing on key employees, collect data on job evaluations, performance appraisals and problem employees. Consider integration after closing.
Labor organization relationships. What labor organizations represent the seller’s workers? Are these independent unions, in-house unions or so-called “white unions”? What about pending employee requests for union recognition or organization? Separately, collect organizational data on the seller’s in-house or company-sponsored labor organizations
like local/national works councils, any European Works Council, health/safety committees, staff consultation committees, worker committees, workplace forums, labor/management committees and ombudsmen. How cooperative or contentious are these groups? Collect meeting minutes and records memorializing labor disturbances and days lost to strikes.
Collective agreements. Look at applicable collective bargaining agreements, “industrial awards,” “social plans” and other agreements with employee representatives—not only union agreements, but also accords with works councils, worker committees, health and safety committees, ombudsmen and the like. Avoid the common mistake of asking only for “collective bargaining agreements”—a phrase usually interpreted as meaning only formal union agreements, excluding informal
one-off accords and arrangements with works councils. Get expired agreements with terms that still apply. Identify all industry (“sectoral”) collective agreements that bind the seller even as a non-signatory. Does the seller participate in any multiemployer bargaining associations?
Individual employment agreements. Look at individual employment contracts with employees, including employment agreements labeled “offer letters,” “statement of particulars,” restrictive covenants, non-competes and confidentiality agreements, indemnification agreements, invention and intellectual property agreements, expatriate arrangements, resignation letters and releases. At least check these for
key executives and look at form/template agreements for rank-and-file employees. Be sure to look at contracts
with contingent workers—service providers like “temps,” independent contractors, consultants and agents).
Employee consents. Check individual employee consent forms. Employee consents come in many flavors: In jurisdictions like the UK and Korea, employees may have consented in writing
to work overtime. European employees may have consented to employer processing of sensitive personal data. Employees may have acknowledged a code of conduct or work rules in writing. If these consents are electronic, do signatures comply with electronic signature protocols?
Change-in-control clauses. Check change-in-control, golden parachute, and other transfer-related clauses in employment and agency agreements, including M&A-ratification provisions in any labor union contracts and European Works Council agreements. Of course, dig out every change-in-control clause in every executive employment agreement and find all transferability clauses in independent contractor agreements. These are vital.
External agreements. Do any external agreements (with third parties) limit staffing flexibility? For example, in a stock purchase, are there acquisition agreements from earlier deals that limit reductions-in-force? Has the seller signed onto any supplier codes of conduct of its customers? Is the seller a government contractor that has taken on staffing-related public-procurement obligations? In the United States, for example, a buyer of a government contractor can take on big “affirmative action” obligations after closing, and analogous issues can arise abroad. Separately, look at outsourcing agreements with HR service providers like payroll providers, “temp” agencies, benefits providers and whistleblower hotline providers.
Payroll and government filings. Check the seller’s payroll processing compliance as to deductions, withholdings, reporting, compliance with mandatory payments to unions and remittances to agencies including government tax, social, unemployment and housing funds. How is payroll issued? Are there any extra deductions (such as for charitable contributions or employee loan repayments)? Does the seller pay mandated
benefits like premium-pay vacation, profit sharing and thirteenth- month pay? If the seller employs anyone in countries where it is not registered to do business, how does the seller comply with host-country payroll obligations? Be sure to check “permanent establishment” issues—are there “floating” employees doing business in countries where the seller is unregistered, not paying taxes, and flouting local payroll mandates? This scenario is common.
Wage/hour compliance. Verify compliance with wage/hour laws, cap-on-hours laws, vacation and holiday mandates, overtime payments, payments during business travel, exempt- status designations, mandatory meal breaks, toilet breaks and rest periods.
Health and safety; duty of care. Check compliance with health and safety laws, including recordkeeping mandates. Get information on duty of care/safety/evacuation and other protocols such as for hazardous-duty work and occupational health/safety law compliance, particularly for expatriates.
Discrimination/harassment. Verify compliance with local discrimination/diversity/harassment laws including laws on pay equity, affirmative action, mandatory training and bullying. Verify compliance with the seller’s own discrimination/harassment
policies. For example, does the seller impose mandatory retirement in violation of a no-age-discrimination provision in its own code of conduct? (That, unfortunately, is a common
problem. Indeed, many international discrimination/harassment policies go well beyond local laws, and many employers violate their own policies.)
Recent layoffs and divestitures. What layoffs or “collective redundancies” have occurred in the last few years? What divestitures of business units have occurred? Did these comply with applicable laws? What lingering obligations exist in old “social plans”? Any recall rights?
HRIS. Look into the seller’s employee data-processing and human resources information systems (HRIS). Check how HRIS complies with data protection laws, especially as to cross-border data exports. Has the seller made all required notices/communications to employees about HR data processing and collected necessary consents? What so-called “sensitive” staff data does the seller process? Beyond HRIS, verify compliance with data protection laws in the HR context, including as to routine HR data exports overseas, and as to global whistleblower hotlines.
Powers of attorney. Find out what powers of attorney employees, officers and directors hold. These are particularly critical in Latin America, where there can be different levels of powers, some of which include the power to dispose of
company assets. Consider how these powers will need to work after closing.
Management oversight. What controls does the seller’s headquarters use to monitor local management’s compliance with laws and corporate policies?
Part 3: Checklist of Workplace Issues in International Mergers and Acquisitions
Understanding what happens to a multinational seller’s staff when an international merger or acquisition closes, and understanding the employment law issues to check for in preliminary deal due diligence, we are now ready to inventory all the other employment law issues that can come up during the course of a cross-border merger or acquisition transaction. Be sure to account for these matters when they come up in an international deal:
Post-merger integration strategy. A buyer structuring a merger or acquisition first needs to account for post-closing employment integration. Vital issues relating to the deal inevitably turn on the extent to which the buyer intends, after closing, to integrate its existing workforces with its new ones. Too often the transaction lawyers pushing the deal along operate under incorrect assumptions about the buyer’s post-closing integration plans. This leaves the deal team prone to mistakes
that could compromise the buyer’s position later. For example, sometimes M&A lawyers assume the buyer will continue to employ the acquired workforce, but the buyer client meanwhile is planning a huge post-closing layoff or “restructuring.” A buyer structuring an international merger or acquisition should articulate from the beginning where it will fall on the spectrum between managing the new operation as a stand-alone versus fully integrating all acquired workforces into existing buyer operations, or doing a post-closing layoff. And does the buyer need a transition period after closing but before integration, with the seller continuing to employ staff under a transition services agreement?
Restructurings and layoffs. We mentioned that in some jurisdictions a business sale itself is not legal grounds for firing staff. (See EU Transfer of Undertakings Directive, 2001/23/EC, at art. 4(1)) That said, some buyers may insist that the seller do a pre-closing layoff. In other deals, a buyer will plan layoffs or
a “restructuring” for after closing. If there will be layoffs or a restructuring after closing, lay the groundwork when structuring the transaction itself. For example, if the buyer anticipates doing layoffs after closing, severance provisions in the seller’s employment contracts and information/consultation obligations
with employee representatives may actually get triggered before
closing. Be sure to comply.
Retention. The flip side of the layoff coin is retention, often a challenge after a merger or acquisition. A buyer that will need workforce or leadership continuity should implement,
well before closing, strategies like proactive communications, incentives and retention or “stay bonuses.” To start thinking about retention after closing is usually too late.
Purchase agreement drafting. Employment issues factor into a number of the key provisions in any thorough international M&A agreement. Even in an asset sale in de facto firing countries where a buyer does not intend to employ any of the seller’s workforce, a merger or acquisition purchase agreement’s representations, warranties, covenants and schedules should account for employment issues across the seller’s operations, accounting for the scenario of laid-off seller employees suing the buyer under various theories. Of course, the details—what the purchase agreement says about employment—differ from deal to deal. The parties usually agree in principle that pre-closing employee-related liabilities lie with the seller and post-closing liabilities lie with the buyer. But as already mentioned, local laws in many jurisdictions can hold both parties jointly and severally liable for employment claims that accrue in the months before or after a deal; the purchase agreement needs to reapportion these liabilities.
There are other employment complications that the parties typically iron out in the purchase agreements’ representations and warranties. What if the buyer, after signing the agreement
but before closing, grants pay raises or takes other steps that raise the buyer’s post-closing employment costs? What if an asset buyer fails to match employment terms and conditions, triggering imputed firings by the seller? What if the seller concealed vital HR information in due diligence or in the purchase agreement schedules? How will the parties
transfer pension rights and address unfunded liabilities? Clarify these and other personnel issues in the purchase agreement. Consider using indemnities or setting aside a basket of funds to cover post-closing employment claims between the parties.
Employer entity and powers of attorney. The buyer in an asset deal may need to set up new corporate entities in certain countries to employ local staff after closing. Factor employment issues into entity structure. Forming a new local corporate entity implicates issues not only of corporate and tax law, but also employment law. For example, German “AG” corporations bear stricter employee-involvement burdens than “GmbH” entities. In some parts of Latin America, multinationals set up a “services company” to employ staff separate from their “operating” entity, to control liabilities under local profit-sharing mandates. And “Representative Offices” in some countries are limited as to what their staff is empowered to do. Also, work out who will get powers of attorney to act on behalf of these entities.
Buyer human resources codes and rules. As mentioned in our due diligence discussion, the buyer in an international M&A deal should factor in its own global code of ethics, human resources policies, diversity programs, commitments to industry or customer codes, and any “framework” (global union neutrality) agreement. Do any seller practices run afoul of these? Will the buyer be able to impose these commitments on newly acquired workforces after closing? Do the seller’s sourcing practices comply with the buyer’s supplier code of conduct?
Worker representative consultations and irrevocable offers (“put options”). Because employee representative bodies like trade unions, works councils, health and safety committees, worker committees and ombudsmen are so much more common outside the United States than stateside, collective employee representation abroad ends up playing an outsize role in cross-border mergers and acquisitions. Even before a seller commits to sell a business (particularly an asset sale), many countries impose a mandatory-subject-of-bargaining duty of “information and consultation” and (in Germany) “participation” involving worker representatives in the ultimate sale decision. For example, the French Labour Code (article L 2323) requires active collective consultations in a business sale and Japan’s Demerger Act requires some, albeit rather minimal, information obligations. Across Europe, even buyers bear pre-closing employee representative consultation obligations with their own workforces. (EU directive 2001/23/EC, art. 7(1), final sentence)
Compliance with these consultation obligations in the business sale context is vital—as we have seen, liability for a seller’s pre- closing labor law violations often passes, at closing, to the buyer. But merger and acquisition context employee consultation mandates are particularly tough to follow in practice while a
deal still needs to stay under wraps and where the bargaining obligations arise at remote overseas outposts far from headquarters, in foreign business units that are only peripheral to the deal. This conundrum leads to complex and creative work- arounds like (particularly in France and the Netherlands) the buyer and seller downgrading their initial merger or acquisition purchase agreement to a mere “irrevocable offer”—essentially a “put option” that the seller commits to accept only after it completes deal-mandated labor consultations.
Some examples of jurisdiction-specific challenges relating to worker representative consultations and negotiations in overseas mergers and acquisitions:
In some jurisdictions, failing to consult with worker representatives about a deal is a crime. (E.g., France Labour Code arts. L. 2328-1, L.2346-1)
In France, Germany and elsewhere, a works council that has not been fully informed and consulted over a deal can win an interim injunction holding up the closing. This happened, for example, in the 2014 Printemps deal. (Court of Appeals of Paris, Mar. 10, 2014, case no. 13-17082, ch. 6-1)
Information and consultation obligations in the merger and acquisition context get particularly strict as to European Works Councils—the pan-European employee bodies that exist inside large employers, separate from local national works councils. EWCs are sleeping giants that can lie rather dormant in day-to-day European human resources operations but spring to life in the context of an acquisition or divestiture. In any deal involving an EWC, get on top of EWC consultation obligations from the beginning.
France’s new Florange law imposes particularly heavy consultation obligations on mergers and acquisitions that the seller cobbles together after originally intending to shut down. (Law no. 2014-384 of Mar. 29, 2014)
Replicating employee representative bodies. Under US law, employer-dominated labor organizations are flatly illegal. But outside the United States, many employee representative bodies owe their very existence to their employer sponsor (examples include works councils and EWCs in Europe,
labor-management councils in Korea, company unions in Latin America, health and safety committees, staff consultation committees and ombudsmen around the world.) A buyer of
assets may need to arrange to transfer and then host (or to replicate) the seller’s non-union employee representative
bodies upon closing. (See EU Transfer of Undertakings Directive, 2001/23/EC at art. 6(1)) Where a seller spins off less than
its entire workforce, employees may transfer without their employer-hosted staff representative bodies, forcing the buyer to scramble to launch its own worker bodies upon closing. Parties to mergers and acquisitions too often overlook this problem in the pre-closing rush.
In some asset deals, the buyer may have a strategic reason to invite in a so-called “white” (employer-friendly) union right after closing. And any deal that will push the buyer’s combined post- closing EU employee population over the 1,000 mark will make an EWC a possibility for the first time.
Individual employment contracts. We discussed that when employees transfer over to a buyer either by contract or by operation of law, the buyer often assumes an obligation to maintain their terms and conditions of employment and seniority status quo as they were with the seller. In this scenario,
the buyer often inherits the existing individual employment contracts, as written, even though those contracts have the seller’s name on them as the employer party. As a housekeeping matter, buyers may want to substitute their own individual
form employment contracts naming the buyer as the employer, and making permissible (non-material) tweaks to employment terms and conditions, to align HR offerings with the buyer’s actual codes, policies, programs and offerings. Employees who sign new employment contracts with the buyer should always unambiguously revoke their previous employment agreements with the seller (the ones that transferred). Too often this step gets skipped.
Payroll, benefits delivery, HRIS and transition
services agreements. At closing the buyer needs to be in full gear, ready to issue payroll in each country, make tax and social security withholdings and contributions and provide payroll-linked benefits that replicate seller benefits. This requires taxpayer identification numbers and government filings. Some benefits plans automatically transfer to a buyer (such as in a stock transaction), but others do not. And so a buyer in an international deal, particularly an asset deal, almost inevitably has to scramble to issue legal payrolls around the world and to implement programs and structures that replicate seller offerings, starting the day after closing. Indeed, replicating equity plans can be effectively impossible where the buyer is not publicly traded.
Be sure a global payroll provider is in place at closing.
Separately, the buyer needs to figure out a compliant way to “migrate” acquired employees onto its HRIS.
whitecase.com
Often these payroll, benefits delivery and HRIS issues prove impossible to resolve by closing. In those deals, parties work out transition services agreements that keep staff payrolled by the seller for a while after closing. For example, German Federal Employment Court decision no. 8 AZR 826/11 (Sept. 27, 2012) authorizes these transition services agreements in Germany. In structuring transition services, be alert to the threat of co-/dual/ joint employer claims from the transition staff.
Expatriates and visas. A seller’s expatriates pose a challenge in a deal where the buyer must employ the expatriates, must reconcile (or replicate) their compensation packages, and must account for the problem of an asset transfer nullifying visas and work permits. Separately, a buyer that will dispatch its own expatriates into new overseas operations right after closing should apply early for its own new visas and work permits.
Employee communications. Employees will be hungry for information about the deal. A buyer and seller should coordinate their employee communications. In Europe and some other jurisdictions, the seller may have to tell its employees, before closing, about the buyer’s post-closing integration or layoff plans—which is one reason, as already mentioned, a buyer should articulate early its post-merger integration strategy.
In making staff communications about a deal, remember to comply with workforce language (translation) laws.
Never get into the position of issuing an internal announcement to employees about a merger or acquisition that betrays the employer just did an end-run around its consultation and bargaining obligations with its worker representatives. That employee communication will end up as “Exhibit A” in the unfair labor practices case.
Press releases. When the buyer and seller get together to issue their joint press release announcing their deal to the world, they better first think through the ramifications of overseas labor laws. Never get into the position of issuing a press release about a deal that betrays that one or both parties just did an
end-run around its consultation and bargaining obligations with its worker representatives—that press release will be compelling evidence later in a labor case.
HR integration. Following through on HR issues after a merger or acquisition is vital to business success, but successful
post-merger integrations in the international context can be slow, expensive and risky. Work out a coherent post-merger HR integration strategy. Be careful, thorough and smart when combining global workforces after a merger. Learn the lessons of the famous mergers between publicly traded companies that later broke apart because of flawed post-closing staff integrations (AT&T/NCR, for example).
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Contrary to the assertion of a London corporate lawyer, parties to an international merger or acquisition deal can never afford to “just do it and sort out the people issues afterwards.” Outside the United States, a stock (shares) transaction, merger or asset purchase that affects staff across a number of countries confers significant rights on employees. Precisely what these rights are, though, differs by country and depends on transaction structure. Address the fate of overseas employee populations in a deal head-on. Handle employee due diligence proactively. Account for all the other employment issues in each affected country.
