You only have to turn on the news to see that there is a real surge in collective employee activism at the moment, accelerated in part by the difficult economic climate. From an increase in requests for union recognition in unexpected sectors (including tech), to a material rise in industrial action and employees using social media to mobilise for collective action, all of these trends show that it can be to an employer’s detriment not to properly engage with employee activism and actively listen to the employee voice. Recent announcements of more strike action to come in the UK this month have brought this topic into even sharper focus. The press has given much airtime in recent days to the ‘patchwork’ of strike action across different sectors and services that is due to happen over the coming days, including in particular over Christmas. As a consequence the UK Prime Minister is now under increasing pressure from his party to speed up anti-strike legislation (for more detail on the legislative proposals, see our previous blog post).
Assuming that the M&A market will face a challenging and volatile environment, the running and completing of smooth M&A processes will become ever more critical. One significant issue that can be ‘make-or-break’ for a smooth transaction is the running of an efficient and effective process with the relevant trade unions and other employee representative bodies. Employee information and consultation processes can have a material impact on a transaction’s timetable, and in the most extreme circumstances, lead to a transaction blocker.
In this article, we have set out our top 5 issues to consider in relation to employee representative bodies and other workforce activism when running a global transaction.
1. Know your obligations
Perhaps obvious, but it is critical to properly understand at the outset what the employer needs to do from a legal perspective.
The first point of call will be checking any documentation which applies, such as collective bargaining agreements (whether negotiated individually with the employer or applicable on a sector-wide basis) or the constitutional documents for any other employee representative body (such as an employee forum, works council, group works council or European works council).
Think about checking the following points (if applicable):
- Are there any information and consultation triggers relating to your transaction (depending on how it is structured)?
- Is there a union/works council notification right? Does the notification need to be in any particular format?
- Is there a union/works council consultation right? What does this mean in practice – does the body have a right to negotiate (i.e. requiring the employer to reach an agreement with them)?
- Are there any other obstacles to the transaction as proposed? For example, is there a prohibition on any post-transaction restructuring or collective termination of employees?
In addition, employers will need to consider whether there is a general consultation right for employees in law, regardless of whether an employee representative body is in place (e.g. on an asset sale in the UK where there is a TUPE transfer). In this case, an employer may need to organise an election of employee representatives and this will need to be factored into the deal’s timetable.
2. Understand the timings and think ahead
Where there is an information or consultation obligation, are there any requirements as to the timing? How do these fit with the proposed timetable for the transaction? Is there something material to flag to the deal team?
Depending on what those requirements are and when they are triggered, companies should consider whether to provide for a gap between signing and closing to complete the information and consultation process. Any gap may also be driven by other considerations e.g. tax, or competition. However, in some jurisdictions such as France and the Netherlands, it may not be possible to sign a binding SPA before the relevant employee consultation is complete, and this will have to be reflected in how the transaction documents are structured and the deal timetable.
Thinking ahead, it is also important to consider at the outset of any transaction what the business might look like after closing. Are there any restructuring proposals or possible redundancies? Employee representative groups may have information and consultation rights in relation to each separate post-transaction proposal. Employers need to consider whether to consult separately or together on each proposal, whether any steps can/should be taken before closing to start consultations and how this will affect timelines.
3. Establish strong lines of communication
This may seem like a no-brainer, but regardless of what the legal requirements are, any engagement with employees or employee representative bodies is likely to run more smoothly where there is a good working relationship and sensible transparent communication.
Perhaps bear in mind the following points when you are thinking about communications during a transaction process:
- Be mindful of the tone of employee communications and, where the circumstances permit, seek the views of employee representatives. Employee reps (where they are in place) may have a better sense of how the message should be delivered and what could be potentially inflammatory.
- Aim to establish/maintain good relationships between the key people, such as the HR leads and employee reps and between legal advisers to the employer and any unions. This can help to cut through issues and avoid conflict.
- Where relevant (depending on the jurisdiction), proactively liaise with the (local) government and/or labour bureau in advance. This can help make any legal notification processes smoother and can help employers get ahead of any potential complaints to these bodies by employees.
- For large consultation exercises, consider setting up an intranet site or similar space for any information/documents to be shared with employees. This allows for easy communication between employee reps and employees and reduces the risk of delay. It also reduces the risk of employees turning to social media to share their thoughts on the transaction – something that we are increasingly seeing, including in jurisdictions such as China.
4. Avoid the bear-traps
You’ve looked at all the legal requirements and have thought about the relationship aspects of the transaction. Now it’s time to step back and think about the transaction holistically to avoid tripping up on any sensitive issues.
Are you engaging with employees in one jurisdiction on something which could cause issues relating to the consultation with employees in another? For example, in the UK where there is a consultation right, you need to avoid using language which suggests that a final decision has been made in relation to certain aspects of the transaction. This can be particularly difficult where there are several consultation processes running in parallel in different jurisdictions, to slightly different timetables.
5. Expect the unexpected
Finally, try to expect the unexpected, and try, where possible to prepare for this, such as building-in extra time and planning for additional costs. Even if the employee representative body may not be able to ‘block’ a transaction completely, there are many ways in which an employee representative group could derail a deal timetable e.g. escalating to labour authorities, or organising industrial action.
In China and Korea, for example, we have seen increasing instances where unions or other employee representative bodies have demanded a ‘sweetener’ from the employer in order to agree to the transaction, i.e. payments to which the employees have no contractual or legal entitlement. This may also be a particular risk in jurisdictions where there is no automatic transfer regime and transfers of employees are conducted by way of offer and acceptance. Being aware of these potential issues, and the in-scope jurisdictions where it is common for employees to make this ask, will allow you to anticipate this request and plan for this additional cost from the outset.
Even where there is no employee representative body at the start of the transaction process, that will not necessarily be the case by the end. In Germany, for example, a small number of employees can decide to elect a works council at any time and there is a right to have employee representatives on the supervisory board above a certain threshold. So be ready to face the unexpected!
With thanks to our colleagues for their international insights: Stephanie Chiu in Hong Kong, Fan Li in China and Judith Roemer in Germany.