As football fans will be aware, Sheikh Mohammed, through his Dubai International Capital (DIC) Investment Group, has engaged in takeover negotiations for Liverpool FC in a potential multi-million pound deal. This follows a sequence of high-profile takeovers of football clubs including Chelsea, Manchester United and West Ham United.

Naturally a takeover has massive implications for the clubs involved, particularly in terms of finances available for assets such as new players or stadia.

But what impact do these takeovers have on the employees of these clubs, or indeed any other company or entity which is taken over by an outside investor?

Can these new owners easily stamp their own way of working and identity on their new business or will they be constricted by employment legislation?

What is the best way for companies to deal with cultural diffences?

Cultural changes

The new owners of a business may find themselves able to make certain limited changes to enable their new business to fit in with their working style, without making any material contractual changes that could lead to tribunal action.

For instance, the new owners may have decided that the business they have bought is underachieving. Restrictions on e-mail and telephone use, higher performance targets and more frequent and comprehensive appraisals, are all measures a new owner could bring in to attempt to improve performance.

All these aspects are usually non-contractual and therefore if a new owner goes about making such changes in the right way, (ie by introducing them in a suitable, sensitive, and consultative manner) then they should be able to make such changes with little or no opposition.

However, even where no contractual changes are involved, owners should still be aware of the risk of breaching the so-called “mutual obligation” between employer and employee of trust and confidence. This is the obligation not (without good reason) to treat the other unreasonably. For example, by imposing unnecessarily strict changes (such as an unrealistically high performance target) and risking employees resigning and bringing constructive dismissal claims.

It is also true that owners who purchase a business, whose employees are protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), will have stronger protection against non-contractual changes. This will be dealt with in more detail in the TUPE section below.

The Implications of TUPE Regulations

Any changes to terms and conditions of employment in connection with a TUPE transfer are void, irrespective of whether that change was beneficial to the employee. This is without limit of time and irrespective of whether the changes occur before or after the transfer.

There is a purported argument that there can be changes to terms and conditions providing there is an economic, technical or organisational reason entailing changes in the workforce.

However, this argument should be used with caution, as it would appear to contravene the Directive.

The reality is that an employee is unlikely to complain if they are better off and so could accept a package that is more favourable. However, difficulty can arise where a package of terms and conditions is, on the whole, more favourable but certain terms are detrimental.

In these circumstances, an employee could potentially only complain about the detrimental changes after the event and thus cherry pick the beneficial terms and argue the detrimental terms are void!

In practice it is very difficult for employers to make contractual variations, such as a change in hours, or in the amount of holiday each employee receives, without falling foul of TUPE. This is especially the case directly after a transfer, where an Employment Tribunal will be highly suspicious of any changes made by the incoming employer, regardless of the reason given.

Even a change to working conditions can fall foul of TUPE if they result in an employee suffering a material detriment. In other words, even a change that does not breach or alter the employee’s contract could result in the employee resigning and bringing a claim against the employer.

Important contractual changes

Even if the employer can get over the TUPE hurdles, there are still the normal limitations in changing the terms and conditions of employees. Such changes are possible, but there are certain steps that need to be taken and there is always likely to be an element of risk.

It is possible that the employees’ existing contracts allow certain terms to be varied. If that is not the case, then the employer could attempt to agree the changes with the employees either individually or through collective consultation. An incentive payment may help encourage the employees to accept the changes.

As a last resort an employer could terminate their new employees’ current contracts and offer them new contracts with the revised terms. This is a risky strategy and it would be important for an employer to ensure that there was a proper consultation process and that the Statutory Disciplinary Procedure (SDP) was adhered to in each termination.

Bringing in your own people

New employers may well want to bring in their “own people” into their new businesses, especially in the more senior positions, which could result in the existing post-holders becoming surplus to requirements and therefore being dismissed.

Where TUPE applies any such dismissal would be unfair unless it could be shown that the dismissal was for an economic, technical or organisational reason entailing a change to the workforce.

However, an employer may take a commercial decision that they want to bring in their own people anyway and offer the soon to be former employee a payment as compensation in the form of a Compromise Agreement, to sign away their potential claims or alternatively just dismiss the employee (following the SDP) and rely on one of the exceptions.

Even where an existing employee is kept on with exactly the same terms and conditions, if new blood is brought in, then an employer could still potentially face a constructive dismissal claim. For instance if a manager is used to reporting directly to the board, but the new owner brings in another manager to report to the board on the existing manager’s behalf, then this loss of status could be seen as a breach of the duty of trust and confidence and potentially result in a claim.

Practical Steps

Regardless of whether an employer is intending to make contractual changes with their new business, it is essential to achieve a smooth and effective integration between the existing business and the new business at the earliest possible stage. The effects of not dealing with problems caused by differing cultures can be severe.

In fact 70% of acquisitions fail due to culture clashes and people issues. A recent survey by Salveson Stetson Group shows that companies readily admit to failure in this area. 65% of the companies asked admitted being average to poor in integrating newly hired management employees. Only 10% of the companies rated their efforts as excellent.

One of the main problems appears to be not addressing cultural issues from the outset. Companies need to realise that cultural obstacles cannot be removed quickly and that the process takes time. The two years following a takeover are the most difficult, but also the best stage to implement any changes successfully.

It is advisable that the Management introduces itself to the new employees as soon as possible. A suitable time could be during the consultation of employee representatives in accordance with TUPE requirements, or in the event of a share purchase, shortly after the acquisition is made public. The Management can use this opportunity to publicise opportunities within the business as well as reassuring employees of their future.

It is also important for the company to organise management roles as soon as possible during the takeover process. By doing so, the company stands a better chance of avoiding disruptive behaviour amongst the employees.

Giving positive, quick and tangible benefits to the employees (such as an extra days holiday) can also work to the advantage of the company, even if the company is not intending to make any other material changes to employee’s contracts or working conditions. By rewarding the employees, support may be generated at grass roots level.
Finally, communication is a vital element during the acquisition period. Newsletters and corporate intranets can be helpful in providing the employees with an update on the process. It is important that the information is timely, honest and supportive, as takeovers can be very stressful for employees, even if in reality they have nothing to be concerned about.

Conclusion

Whilst there are clearly defence mechanisms, including TUPE, which can make it difficult for a new employer to impose their own stamp on new businesses, in practice there are always commercial options which will allow an employer to make the changes it believes it needs to make, to bring their new business into line with how it wants it to be.

When implementing the changes, a business should aspire to get buy-in from the whole organisation at the earliest opportunity. Effective communication, established management roles and positive benefits are essential in this process and may enable a successful integration of the two businesses and workforces.