Handling Labour Matters in Post M&A Transaction

While undertaking M&A transaction, the buyer may face legal risks regarding license, assets, compliance, including labor matters. One of the challenges of the buyer post M&A is the integration of the labour force into the new structure while ensuring rights and interests of their existing employee complying with the laws.

When negotiating a deal, the buyer and target company may try to retain the advantage combining the strengths of both side. However, it’s challenging to just merely add personnel of the existing of departments with same functions together and group them under i.e. administration departments, sales department, accounting department…Further, one of the benefits of M&A is to improve the effectiveness of the operation through managing the similar scale of the combined business with less resources. Therefore, the re-arrangement of personnel is required and therefore conflicts will have to be managed between employees and employer.

Pursuant to Article 45 of Labor Code: in case of merging, consolidating, splitting or separating an enterprise, the successive employer shall continue employing the existing workforce and modify and supplement their labor contracts; if the existing workforce cannot be fully employed, the successive employer shall prepare a suitable labour plan and implement a labor utilization plan. In case of transferring asset ownership or use rights of an enterprise, the preceding employer shall have to prepare a labor utilization plan.

The labor utilization plan shall have the following contents: the lists and numbers of workforce to be continued employment and workforce to be re-trained for continued employment; the list and number of employees to be retired; the lists and numbers of employees to be assigned part-time jobs and those to terminate their labor contracts; measures and financial sources for implementing the plan. This is responsibility of the employer when the business arise change which greatly affects employee.

Regarding dismissed employee, the employer shall pay a job-loss allowance to the employee who has worked regularly for the employer for 12 months or longer. The job-loss allowance is equal to 1 month of salary for each working year, but must not be lower than 2 months of salary. The working period used for the calculation of job-loss allowance is the total time during which the employee actually works for the employer minus the time during which the employee benefits from unemployment insurance in accordance with the Law of Social Insurance and the working period for which the employer has paid a severance allowance to the employee.

It is important that the seller to retain M&A law firm to assist with the post M&A process to ensure the labour compliance is followed during the integration of labour resources.