Changes to the corporate structure of a business (such as through mergers and acquisitions, outsourcing and/or disposal) may have significant human resources implications. Although HR issues may not always start out as a priority agenda item, they can become a sticking point in the transaction if not managed effectively. Early input from HR can help to ensure the transaction proceeds more swiftly and with less legal and commercial risk to the business. In this article, Christopher Fisher and Michelle Last examine some of the ways HR can assist in this respect.
Managing affected employees
One of the most basic, yet critical, HR issues in corporate transactions is the early identification of employees who are likely to be affected. This can be a difficult and time-consuming task, particularly where the business is large, employees have mixed roles, and there are contractors and/or international secondments. If the transaction is one to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) might apply, this will be one of the first issues to consider. Be aware that TUPE may also apply in share-sale scenarios if there is also to be a business transfer or outsourcing before or after the transaction.
HR can also play a key part in ensuring that the workforce employed in the business post-transaction is stable and motivated, and that key employees are retained in the business. For instance, these employees can be provided with financial incentives in return for agreeing to stay with the business and, possibly, to enter into non-compete provisions. Other methods that can be deployed can include: effective appraisal processes; training and developing employees; and employee road shows. It may also be useful to undertake an employee survey once the dust has settled, to identify any ongoing employee concerns.
Harmonising terms and conditions
One issue that often arises is a purchaser's desire to harmonise terms and conditions of employment. In Europe, if the transaction is one to which the Acquired Rights Directive (ARD) applies (ie the European legislation upon which TUPE is based), it can be difficult to make such changes: the ARD is generally aimed at preventing such changes taking place. In the UK, an employer can make changes to terms and conditions provided they are unconnected to the transfer, or are for a reason which is connected to the transfer but is an economic, technical or organisational reason, which entails changes in the workforce (ie changes to numbers or functions of employees). In practice, it can be difficult to satisfy these criteria, so employers may wish to consider dismissing and re-engaging the employees on new terms (recognising that this brings its own issues, such as possible claims for unfair dismissal).
HR may also need to be involved in comparing terms and conditions of employment of inherited employees against those of existing employees. If the inherited employees are entitled to different benefits, these can be high-value features in many cases, either because the business is obliged to replicate them or wishes to remove or replace them (subject to the purchaser's limits on changes to terms on a TUPE transfer, as set out above).
The corporate agenda should factor in sufficient time to comply with local legal obligations on informing and consulting with employees (particularly where ARD/TUPE applies or redundancies are anticipated). Failure to do so can lead to costly claims and delay the transaction. For example, in the UK, failure to properly inform and consult on a TUPE transfer can lead to an award of 13 weeks' actual pay per affected employee. Employers can run TUPE and redundancy consultation processes concurrently, to help speed up the process.
Likewise, in international transactions, it is advisable to obtain early input from local HR. In France, for example, a breach of local consultation provisions could lead to criminal sanctions and court action to halt the transaction.
Impact of the revised Takeover Code
If the transaction is one to which the Takeover Code applies (which is, broadly, on the takeover of a listed company), then early strategic input from HR can be vital. The code now requires a bidder to provide information about its offer to employee representatives of the target company. This information must include the likely effects of the offer on future staffing levels and conditions of employment, including any planned material changes. The bidder is then expected to comply with those proposals for at least one year. This will require a closer analysis of the long-term proposals for the business (for example, in relation to possible relocations and/or redundancies) in comparison to non-code transactions.
Christopher Fisher (partner) and Michelle Last (senior associate) are members of Mayer Brown's employment and benefits group, which advises clients on all aspects of the employment relationship. This includes the employment aspects of international corporate transactions.