Publication of the CMS Guide on managing employee aspects in M&A transactions in Europe

The "CMS Guide on managing employee aspects in M&A transactions in Europe" offers a wide-ranging and detailed look at the obligations regarding labour law for M&A transactions in countries covered by this study: Germany, Austria, Belgium, Bulgaria, Croatia, Spain, France, Hungary, Italy, the Netherlands, Poland, Portugal, the Czech Republic, the United Kingdom, Russia, Serbia, Slovakia, Switzerland and the Ukraine. Cross-border mergers, which are the subject of a separate CMS Guide, are not covered by this study.

The good management of the employee aspects of M&A transactions is an increasingly important factor in the success of transactions

Although M&A transactions predominantly raise corporate or tax questions, issues concerning labour law and particularly the role of staff representation is a central and decisive point in the success of a transaction.

In fact, staff representatives, as part of providing information and transparency, benefit from extensive rights, which must be complied with and implemented to successfully conclude the transaction while having a notable impact on the implementation schedule.

M&A transactions may result in significant changes to the economic and legal organisation of the target company or the group to which it belongs. These transactions, which can also have an impact on employees, require employees to be notified and consulted through their representative bodies.

Obligations affecting the negotiations schedule of the transaction – often well upstream of the implementation phase

Negotiations do not stop at a dialogue between buyers and sellers, with the employee factor being increasingly decisive and often resulting in the involvement of staff representatives well upstream of the implementation phase, which this study also shows.

• Therefore, for the transfer of assets or merger transactions, staff representatives must be notified and consulted according to schedules specific to each country at least two months before carrying out a transaction in Bulgaria, and a minimum of 25 days before carrying out a transaction in Italy. In Poland, the Czech Republic and in Germany, the works council must be consulted at least 30 days before the implementation date.
• Quite often, informing the employees therefore takes place well upstream, during the phases of talks and negotiations between the parties. In fact, under local legislation, the works council can only be consulted for a project and not for an irreversible measure or one already decided where no change would be possible, so as to preserve the useful effect of consulting the works council, when it is required. Consequently, in the majority of cases, this principle results in consulting staff representatives before signing the sales contract and therefore upstream of the corporate bodies' decisions.
• The study also shows some similarities between French and German legislation, as well as in countries in which different national and community information and consultation procedures coexist. The requirements regarding consulting employees may then correspond to very complex mechanics. Thus, in the event of a transfer resulting in a merger, no less than three procedures may have to be carried out, each one comprising several phases.
• The accumulation of information and consultation procedures is more moderate in Belgian law. But in the different legislations, another sequence of information and consultation procedures must be added if the transaction under consideration is of a cross-border dimension.

Significant civil and sometimes criminal penalties

In the majority of the countries concerned by the study, the employer which does not comply with its obligations concerning providing information to members of the works council incurs penalties, which are different depending on the country and typology of the transaction concerned. For example:

• Failure to provide information and consultation is punished by the civil court, by damages corresponding to 13 weeks pay per employee concerned in the United Kingdom and going up to €10,000 in Germany and between €626 and €6,250 in Spain.
• In France: the breach of the prior consultation obligation constitutes an offence ("offence of obstruction") penalised by imprisonment of up to one year and a fine of €3,750. The company itself may also be fined up to €18,750. In addition to the offence of obstruction, incomplete information may be civilly penalised by the awarding of damages and indeed, during summary proceedings, by a suspension of the decision-making process.

Therefore, this guide forms a precious resource in that it tackles in a practical and pragmatic way, by transaction typology (transfer of shares, assets or merger), the schedules and steps to follow for participants in the transaction: buyer, seller, target and this, in each country covered.

For more information, please contact:

• Nicolas Merigeau, NewCap
  nmerigeau@newcap.fr
  +33 1 44 71 94 98
  
• CMS Bureau Francis Lefebvre
  Florence Jouffroy, Marketing and Communication Director
  Laetitia Mostowski, External Communication Manager
  florence.jouffroy@cms-bfl.com, laetitia.mostowski@cms-bfl.com
  +33 1 47 38 40 32 / 40 74