Shepherding a deal through sign-and-close can be a Herculean task. It involves navigating issues across multiple legal disciplines, all of which fight for the deal attorney's attention. With so many balls to keep in the air at one time, it's helpful to have some key touchpoints for each specialty area. Here are five employment law pitfalls where a lack of attention during the deal process can lead to headaches after closing.
- Not getting all the employee details
A new employer should have as much information as possible about its acquired employees, including details such as leave status, disability accommodations, visas, and accrued sick leave. Taking a little extra time up front to make sure the seller has disclosed the status of all of its employees can save months of administrative challenges post-close. In addition to reviewing all applicable documentation, buyers should be sure they have information on all the “informal” arrangements with employees. These situations may have been going on for years without having been documented. For example, a buyer needs to know if an employee is routinely allowed to leave early if her back is bothering her or if an employee takes frequent days off to care for his father.
2. Not reviewing exempt/non-exempt classifications
Most diligence includes information on whether a particular position is hourly or salaried, but rarely does the buyer ask for information to justify that classification. Accepting the target company's decisions and putting off this evaluation is tempting but can mean inheriting significant risk. By waiting, the buyer also loses the advantage of incorporating any classification changes into the overall transition that occurs as the result of an acquisition.
3. Underemphasizing new employment agreements
In the excitement of negotiating a deal, it can be difficult to remember that relationships between acquired executives and their new company do not always remain rosy. Talking about an executive's personal compensation is a touchy subject and buyers are often loath to push the point for fear of souring negotiations. But many company leaders have been blindsided by the terms of a golden parachute put in place years earlier to get a deal done. Working out employment terms as part of the negotiation process can help avoid such an outcome.
4. Not checking for state and local law compliance
Employment laws that are specific to one state — or even one city — have become commonplace. Legal standards on issues like wage and hour requirements, sick leave, and the enforceability of restrictive covenants can vary widely, and not all companies have kept up. Buyers should ensure that state and local law compliance is part of their diligence process.
5. Not keeping HR in the loop
Once the deal is done, HR will deal with culture clashes, integrating payroll, leave tracking, insurance, and the myriad of other issues that are bound to arise for transferred employees. Keeping HR informed about the deal's progress and the target company's current programs can help smooth the transition and avoid pitfalls that can lead to dissatisfied employees and make things difficult for managers down the line.
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.
