It can be tricky to keep a workforce engaged when two or more different companies come together in M&As – after all, employees are one of a company’s greatest assets, and often the most expensive. As a result, decisions impacting a workforce can (and do) impact employee retention, availability of skills and capabilities, knowledge retention, and the future operational success of any business.
As a result, M&A execution needs to be on the one hand, strategic and well-planned, but on the other, consistent and fair, especially as M&As can often lead to restructuring and loss of jobs in an organisation; sound people processes can help to mitigate potential employer legal risks, as well as helping to maintain a positive employer brand. Some initial considerations, therefore, in how to achieve this are detailed below:
1) Establishing a strategy
It is imperative that any business strategy carefully considers the required skills, capabilities, knowledge and behaviours for the future business. Restructuring processes, as a result, need to align to these requirements to assist managers in identifying key skills required organisational success and to achieve this operationally through a carefully considered legally compliant process.
2) Managing restructures during M&As – Transfer and Dismissal of Employees
Whilst it is important to support your employees with a strategy, due diligence conducted before M&As is vital in terms of considering legally viable options after the completion of the deal, particularly if restructuring is being considered.
Many companies focus on the commercial aspect of M&As and fail to consider the employment matters associated with M&As leaving little to no time to conduct due diligence checks, consider transferring liabilities, or review any applicable legal procedures. The Key legislation that impacts an M&A in Europe is the Transfers of Undertakings Directive (TUD) 2001. In the UK, the European TUD was ratified into domestic law by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which protects employment terms and rights of transferring employees. Note that TUPE still remains in force despite Brexit – you can read more on the impact of Brexit in our blog.
TUPE mandates legal obligations for the parties involved in a M&A transaction. For example, transferred employees under TUPE automatically become employees of the acquiring company; employees’ continuity of employment is preserved, as are their terms and conditions of employment (except for certain occupational pension rights). Identifying the transfers TUPE applies to is not straightforward and has been challenged on numerous occasions in court, failure to meet legal obligations has led to costly damages for employers as a result.
Businesses may also have to downsize their workforce as part of M&A transactions due to many reasons, including economic uncertainty, operational flexibility, or reduction in cost. From a legal perspective, however, redundancy and downsizing across Europe must often be rationalised, assessed and justified under what are commonly known as ETO reasons (Economic, Technological or Organisational). There may also be local legislative requirements to adhere to, as well. Failure to fully justify a termination or follow legal process can lead to claims of unfair dismissal by the employee. As a result, planning for future organisational structures, and incorporating the rights skills, capabilities, and behaviours, that are aligned to business goals, is essential in any M&A and required for the performance of the future organisation.
Some Key Considerations
Other often overlooked considerations in managing restructures or redundancies in M&As include:
- Immigration Requirements – Any sponsored migrant must also be transferred over in M&As. Note, however, that the sponsorship license does not automatically transfer from one employer to another. Any proposed changes to employment terms and conditions could also have an adverse effect of immigration status, and as such should be carefully considered.
- Benefits – When employees transfer from one employing entity to another, consideration should also be given to consolidating and harmonising employee benefits across the board.
- The Cost of Getting it wrong – Unfair Dismissal claims can be subject to uncapped damages in certain cases. So careful consideration of the people processes at an early stage will be beneficial longer term in order to mitigate any damages.
How Can IRIS HR Consulting Help
If you’re starting a Merger and/or Acquisition process and want a team of experts to assist you with workforce planning, speak to IRIS HR and see how we can help.