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 Asset or share deal?
Employment provisions are relevant both in asset and share deals. It is key to determining upfront whether TUPE (or similar legislation) applies and its consequences. TUPE refers to transfer of (a part of) an undertaking as ‘an economic entity which retains its identity' and gives rise to various obligations on employers and protection of employees' rights (including automatic transfer rights) where there is a TUPE transfer in the EU.
2 Employees assigned to the target business and key personnel
Buyers need to have certainty which employees are employed by the target business. If TUPE applies, employees assigned to the target business on the transfer date 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.
Can employees object to transfer?
3 Employment terms and conditions and transfer of rights and obligations
Buyers need to know the employees' terms and conditions. Under TUPE, employees transfer on their existing terms and conditions of employment. Sellers should provide the required information and buyers should conduct sufficient due diligence.
Key employment liabilities in corporate transactions
4 Compliance with information and consultation obligations
Employee representatives (works councils) or employees may need to be informed and/or consulted in advance. Timing requirements and duration of this process may vary depending on the country or countries concerned.
Employee consultation requirements
5 Transfer of employee information and records
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 Representation and warranties on information and compliance
Buyers must have certainty that they have all relevant information concerning the transferring employees, their terms and conditions, entitlements and any (potential) liabilities. They may want to include general or specific warranties of compliance with employment, tax and social security laws.
Key employment liabilities in corporate transactions
7 Payment of indemnities
Payment of indemnities in the event of a failure to provide all employee liability information, failure to inform and consult and any unintended transferring employees should be covered. The parties should address the consequences in the event of a failure to comply with their commitments or in the event unintended employees nonetheless transfer.
Fines and other consequences of failure to consult employees
8 Arrangements for payments, pension schemes and indemnities
The parties should make arrangements concerning transferring financial liabilities and payments. In this respect a proper due diligence of such liabilities and payments is key.
Key employment liabilities in corporate transactions
9 Collaboration during the transitional period
The parties may also want to agree on a transitional period during which the buyer still requires the seller to provide some services.
10 Indemnification regarding dismissals or employee claims
The parties may want to make financial arrangements concerning dismissals and/or employee claims. If TUPE applies, 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 Principles for re-transfer (if applicable)
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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
