In the ever changing world of business, mergers, splits, buying and selling of assets, transfer of business establishments, and other merger and acquisition dealings occur frequently. This means more than just the subscription of various commercial contracts and procedures that involve corporate law. It also calls for the need to define legal labor and human resources strategies to handle the people involved. This is relevant in every event, with or without employee transfer.

The question is, how do you best define the human resources strategy in transactions of this nature?

Normally, when a company begins this process, a small group of people are involved. Not until the decisions have been made are they communicated to the rest of the organization.

So, to start, the group that will be informed about the Merger and Acquisition process needs to be defined. With the goal of establishing the responsibilities and confidentiality agreements of the group, and taking into account the possibility that information will be leaked ahead of time, let’s consider some situations that could impact this deal.

(i) Key employees that hope to be retained begin the search for a new job.

(ii) Employees intentionally seek to obtain an exemption for job security through channels like health, maternity, paternity, workplace harassment, etc.

(iii) Unions are formed with the sole purpose of workers gaining an applicable exemption.

Once the team has been chosen for the process in question, it is a wise idea to identify the implications this will have on the workforce of the corporate business. Meaning that it must be clearly defined whether all of the employees will continue working or if it will be necessary to terminate some job contracts.

In the case of the employees continuing, the relevant legal concept needs to be defined. Will there be a change of management or a cession of contracts? Or on the other hand, will the current employer terminate the contracts and the new employer hire them starting from scratch?

It is worth mentioning that the change the management means fully changing one employer for another, for any reason, and it does not require the employee’s consent, as long as the following conditions are met.

(i) The employee continues to provide the service in question.

(ii) There is continuity in the development of the work within the company and the conservation of the turn/transfer of their activities.

On the other hand, the cession of a contract, which is not only a figure of Commercial Law that requires a Mergers and Acquisitions deal, involves the interest in assigning a labor contract to a new employee. This requires the employee’s approval.

Cession and Substitution

In the case of cession, the new employee is responsible for all of the job functions caused by said act, unless the transferor and transferee agree on different terms. In the case of substitution, as a general rule, the new employee absorbs all of the prevailing responsibilities and applies the support between the old and new employer.

Now, if someone is proceeding with the termination of job contracts, they need to verify the legal limit for collective firing and define whether they need to request authorization before the Minister of Labor.

A collective firing is considered as such when a company with more than ten employees, in a period of six months, unilaterally terminates the specific number of contracts allowed by law. Once this amount is surpassed, it is necessary to ask for authorization.

However, taking into account the practical difficulties that this process entails and the delays this can cause for the M&A deal, it is a good idea to design strategies to foster voluntary leave. This enables the company to proceed with the personnel reduction without necessitating the aforementioned legal process.

Once the scope of the corporate agreement is defined regarding personnel, a communications strategy to inform stakeholders of the decisions and changes should be developed. Through this missive, the business decisions and their implications should be passed on without generating panic and uncertainty that could lead employees to do things that could affect the processes in question.

This communications strategy is extremely important because, generally, M&A transactions aim to maintain some or all of the workers as future employees. They are the ones with the experience, know-how, and valuable knowledge that will keep the business functioning effectively.

This communications strategy should include several things:

(i) the starting message;

(ii) the conversation with each worker, whether to notify them of the management change , the termination of their contract, or to offer a choice between a cession of the contract or a voluntary retirement plan.

(iii) follow-up during the actual change throughout the company. This is particularly relevant when the deal involves moving to a new location with new institutional policies, such as a different corporate culture.

It is essential to come up with a step by step strategy for the administrative aspects of personnel in M&A transactions. Employees, considered as an asset, provide significant value to a deal. Decisions should be made in accordance with business strategy. They should produce the smallest negative impact on the organization. And they should always be aligned with the guidelines of Labor Law without ignoring the human side of work relationships.

Author: Marlén Quintero