Part two: Communication & Compliance Considerations
Welcome to part two of our cross-border carve-out blog series. Today, our experts stress the importance of properly communicating the transaction with employees and their trade unions. We also examine the consequences of non-compliance with these activities.
There’s a lot at stake in this part of the transaction. With varying requirements across countries and jurisdictions, businesses need to know how to navigate these requirements to avoid non-compliance and its repercussions.
What happens if a business is not compliant or neglects employee due diligence?
There are many consequences of not properly conducting this employee’s due diligence or missing out on details from the transfer.
For instance, in France, employees must be informed of the sale date at least two months in advance if the company is considering a stock transfer where the entire entity is being sold. The idea here is that employees can position themselves as potential Buyers. This allows them to bring in their representatives and lawyers if desired.
Failure to notify employees, if reported, may result in a penalty of 2% of the final sale price.
Employees making claims against their current or future employer is another risk when companies do not follow correct processes. This is particularly true in countries with TUPE or TUPE-like regulations. Employees can access legal counsel free of charge if there are work councils or unions in place. For example, in the Netherlands, employees may access free legal advice and lawyers through their insurance provider. They can report the Buyer AND the Seller to the labor court.
In some countries, the severance may not be high, but if you don’t do things right, you risk litigation, and that’s when your costs become exponentially greater.
Financial repercussions aside, a good employee experience is the goal. Employee consent must be obtained where required, especially when key employees are not interested in transferring. Failure to do so puts the company at risk.
Local jurisdiction’s strength in numbers: unions, works councils, and Collective Bargaining Agreements.
Some employees may be part of a union in certain countries, or the selling company has a work council. In addition, collective bargaining agreements in many countries apply to the business and employees, governing the employment terms and conditions. As such, businesses must be aware of these.
For example, a CBA typically regulates French and German works councils, giving employees even more protection. The German Works Council, for example, can hold up the transaction from proceeding in the country. Companies must reach an agreement with the works council to proceed, which creates an additional layer of complexity. In these cases, multiple organizations can give an opinion and will need to provide their sign-off.
The important thing to consider is if the Seller is cooperative and supportive in providing information – the best thing the Buyer can do is to be fully transparent to ensure the process runs smoothly when negotiating with these groups.
When you’re doing a carve-out, there can be issues with harmonization. Companies that can’t match the exact benefits the employees had previously must devise ways to fill in the gaps. From an economic value perspective, companies must leave employees no worse off than before the transfer.
Companies must understand their obligations and find ways to cover gaps, such as providing top-ups and allowances and sourcing new benefit plans. The works councils must have this information before introducing it to the employees.
Different thresholds and definitions of “collective” exist across countries. A business with ten employees, for example, makes changes for five employees and not the other five. This group could be considered collective and must be consulted with the works council. Alternatively, consulting with a works council may not be necessary if it’s just one or two in a population.
It’s important to remember that every country has its own laws. Councils in France can act one way, in Italy another, and there are countries where it can be easier or harder. Also, if you have more employees in one country, they can have more rights and unionize.
Communication from the top – communicating the right information at the right time to avoid expensive turnover or employee lawsuits.
One of the biggest considerations is how the company communicates this transaction to its employees.
Someone must oversee liaising with the Buyer and the Seller on what they should say and when. The employees must be aware of the transaction and make sure they say yes – especially where they have the legal right to object to the transfer of employment, and there is a union or works council in place.
For US businesses, employers may not be used to employees having such rights and powers as more commonplace, so it can surprise and confuse companies to realize that workers in Europe, for example, are very well informed.
There are two parts to the communication stage – it is not good to not tell employees what is going on, but you must be careful as to what you communicate and when.
For example, a CEO can tell employees that a transaction is happening and that they can expect a timeline. Still, they can’t provide any specifics related to individual employees and their employment status or what this employment status will be. This is because formal information and consultation processes must be followed in each country.
The CEO can provide general communications about what’s going on, such as telling the employees that they will be advised in due time about a specific situation, but they are not allowed to say whether an employee will have a job.
UK example of communications schedule:
- Initial communication of the deal going through to employees
- Data gathering – Complete employee transfer analysis, review the Seller’s company’s current offerings in terms of benefits and terms of employment, compare them to what the new company is offering, and determine if there are any variances.
- Gap analysis and recommendation – if there’s a gap, you must figure out how to fill it. This may result in a change in the summary presented to the employee(s).
- Employee consultation – complete internal work, receive management approval, present to employees, and have them say yes or no.
- Prepare all the revised employment contracts or transfer letters.
If you don’t handle communications or the process correctly, employees can create their own stories, and all that does is decrease morale and increase tension, uncertainty, and ambiguity – and that’s when you start to put yourself at risk.
Ultimately, working with professionals is important to inform you what and how to say it.
Get help with communicating your carve-out today.
HSP Group has assisted countless businesses with their cross-border carve-outs, providing them with the expertise and insight required to ensure risks are mitigated, and the transaction can be completed without complications or blockages.
Get in touch with us today to discuss your specific requirements and to find out more about how we can help.
