[author: Sophie Maes]*
In mergers and acquisitions, both the seller and the buyer may need to include employment-related provisions in the M&A documentation. We have gathered together the most frequent and significant employment provisions for these types of transactions.
11 Top employment provisions for M&As
1 Do transfer rules apply?
Employment provisions are relevant both in asset and share deals but specific transfer rules may apply in certain circumstances and these can have quite significant consequences. Transfer rules apply in many countries if a business will retain its identity after the transfer and they give rise to various obligations on employers and protections of employee rights. It is important to establish whether the deal will be subject to rules of this kind.
2 Which employees are affected and can they object?
Buyers need to have certainty about which employees are employed by the target business. If transfer rules apply, employees assigned to the target business on the transfer date should automatically transfer, but questions may come up concerning whether employees are sufficiently assigned to the target business. In some countries employees may have a right to object to their transfer.
Can employees object to transfer?
3 What kind of rights and obligations transfer?
Buyers need to know the employees’ terms and conditions, as under EU transfer rules, for example, employees transfer on their existing terms and conditions. Sellers should provide the required information and buyers need to conduct sufficient due diligence.
Key employment liabilities in corporate transactions
4 What information and consultation obligations exist?
The employee representatives or the employees themselves may need to be informed and/or consulted about the transaction in advance. The timing and duration of these processes varies by country, so both buyers and sellers need to be aware.
Employee consultation requirements
5 How to transfer employee records safely?
Arrangements should be made concerning the transfer of employee information and records in accordance with data protection requirements.
Key employment liabilities in corporate transactions
6 What kind of representations and warranties are needed?
Buyers must have certainty that they have all relevant information concerning the transfer of employees, their terms and conditions, entitlements and any potential liabilities. It's generally a good idea to obtain warranties of compliance with employment, tax and social security laws.
Key employment liabilities in corporate transactions
7 What kind of indemnities might be payable?
It may be necessary to pay indemnities if there has been a failure to provide all employee liability information or to inform or consult as necessary under transfer rules, for example. The parties should work out what the consequences of failure to comply with their commitments or what should happen if, for example, employees the parties didn't intend to transfer, end up being transferred.
Fines and other consequences of failure to consult employees
8 What to do about other potential financial liabilities?
The parties should make arrangements concerning the transfer of all financial liabilities that they identify. Therefore, a thorough due diligence of these is key.
Key employment liabilities in corporate transactions
9 Should there be transitional arrangements?
The parties may also want to agree on a transitional period during which the buyer still requires the seller to provide some services. This can be a very helpful way to ensure a smooth transfer.
10 How should we prepare for possible claims?
The parties may want to make financial provision for dismissals and/or employee claims. If transfer rules apply, joint and several liability may exist for employee obligations that arose before the transfer date and the transfer may not in itself constitute grounds for dismissal.
Which countries have ongoing liability and where is dismissal solely based on transfer allowed?
11 How should we prepare for the ending of an outsourcing?
If there is outsourcing of activities, the parties may also want to agree on what will happen at the end date and whether employees will re-transfer.
*Claeys & Engels
