Employment law implications of mergers and acquisitions

Basically, a merger or acquisition means two companies amalgamating to form a single entity. There are three types of merger.

Three types of merger

A legal merger

Two or more companies are amalgamated to form one new legal entity;

A share transaction

The shareholders in a private limited company (a BV under Dutch law) or a public limited company (an NV under Dutch law) transfer their shares to a new owner;

A transfer of assets and liabilities

A BV or NV transfers its business activities to another BV or NV. This is effected by transferring the target company’s assets and liabilities in a transaction known as an acquisition.

It is not always clear whether a transfer of assets and liabilities actually involves the transfer of an undertaking as defined by the law. If such a transfer does indeed take place, all the staff employed by the target company are automatically transferred to the acquiring company. An undertaking is assumed to have been transferred if the acquiring company acquires the target company’s fixed assets, trade name, customers, accounts and a large part of the staff. If the takeover involves only the acquisition of a building or certain machinery, or only the transfer of the target company’s staff, this usually means that the undertaking has not actually been transferred. In cases where just about the only elements transferred to the acquiring company are the target company’s staff, this may nonetheless be regarded as constituting the transfer of an undertaking if the target company’s staff are its principal asset.

The effects of a merger or acquisition

All mergers and acquisitions involve various aspects of employment law. In most cases, the rights of the target company’s staff are transferred to the acquiring company, and this can cause problems. For this reason, it is important to carefully examine the rights and obligations existing between the employer and its staff well in advance. These are embodied, for example, in:

restraint of trade clauses;
collective agreements;
terms and conditions of employment;
pension schemes;
temporary and flexible employment contracts.

Why should you contact our employment law lawyers?

Not only can we assist and advise you on the employment law aspects of mergers and acquisitions, we can also represent you in court should this prove necessary.