Employment due diligence on corporate transactions (2019)

10/10/2019

1

Employment due diligence on

corporate transactions (2019)

23rd October 2019

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LexisNexis® Confidential 2

The law as stated during this webinar is

up to date as of 9th October 2019

Employment due diligence on

corporate transactions (2019)

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Introduction


Partner

Herbert Smith Freehills LLP

Christine Young

Lucy Boyd

Associate

Herbert Smith Freehills LLP

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Contents

Why is due diligence on employees important?

• Share sales

• Assets sales

• Service provision changes

Key issues for the incoming employer

Key concerns for the outgoing

employer

Managing the process


Why due diligence is important

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Effect of corporate transactions on employees

• Share sale

o Employment is unaffected – change in owner of shares, not employer

o Employer remains liable for accrued and potential liabilities to employees

• Assets sale – if TUPE applies

o ‘Assigned’ employees transfer to incoming employer on current terms

o Variations to terms may be ineffective

o Transfer of most accrued liabilities re transferring employees

o Transfer of liability for some dismissals

o Employees can object to transfer

o Outgoing employer must provide (limited) employee liability information to incoming employer

o Duty to inform and (in certain circumstances) consult

• Service provision changes – outsourcing, change of contractor, insourcing

o If TUPE applies, as above


What transfers on a transaction where TUPE applies

Contractual wages, benefits

Discretionary benefits - right to have discretion exercised

Substantial equivalence for employer-specific benefits

Restrictive covenants

Collective agreements (static)

Union recognition if distinct identity retained

NOT occupational pensions (save for entitlements which are not old age, invalidity or survivor benefits), although obligation to provide minimum scheme

All rights, powers, duties and liabilities under or in connection with the contracts of all

transferring employees

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Employee Liability Information

• Provided by transferor in writing/other readily accessible form no later than 28 days before transfer (plus any updates)

• In relation to "assigned" employees and those employees who would have been assigned had they not been automatically unfairly dismissed

• Transferee can claim compensation for breach (minimum £500 per employee unless not just and equitable)

o identity and age of the employee

o particulars of employment - s1 ERA 96

o any collective agreement applying post-transfer

o any disciplinary procedure covered by the ACAS Code on disciplinary and grievance procedures taken by the transferor within the preceding 2 years

o any grievance covered by the ACAS Code disciplinary and grievance procedures raised by an employee within the preceding 2 years

o any legal claim in the previous 2 years raised by an employee against the transferor

o any legal claim that the transferor has reasonable grounds to believe may be brought by an employee arising out of employment

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Key issues for the incoming

employer


Key issues for incoming employer (1)

• how many?

• who is the employer?

• non-employees?

• where are they located?

Who is working in the business?

• wage bill

• benefits

• redundancy costs

• liabilities

Employee costs

Offices/locations/existing culture or practices

Potential for integration with existing workforce/harmonisation of terms

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Key employees

change of control

provisions

enhanced severance

notice period

garden leave

duration, scope and

enforceability of restrictive covenants

transaction/retention

bonuses or pay out of other incentives



Current litigation and potential latent claims

• equal pay/discrimination

• holiday pay

• national minimum wage

• illegal workers

• other

Union/employee representation

history of industrial action / industrial relations

Calculation of holiday pay?

Incentives – do new arrangements need to be put in place?

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Key concerns for the outgoing

employer


Key concerns for the outgoing employer

Any pre-transfer reorganisation needed?

Need to protect confidentiality of information

Auction – multiple bidders

Scope of warranties and restrictions plus Disclosure against warranties

Data protection issues

• if anonymised, no issue

• necessary for compliance with legal obligation – covers ELI

• necessary for legitimate interests (unless ‘special category personal data’)

• notify employees?

• undertakings of confidentiality and to return/destroy personal data if transaction does not proceed

• restrictions on transfer outside EEA

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Managing the process


Data rooms and due diligence reports

Data room etiquette Level of detail

Format of report: - executive summary

- defined terms - formatting

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Level of detail – contractual terms

• Director service agreements and non-exec appointment letters

• Summary of standard terms of employment and staff handbook

• Summary of non-standard terms

• Key terms, eg:

o staff employed on a salary above £X

o staff with a notice period of more than Y months

o post-termination restrictive covenants

o contractual enhanced redundancy payment term (or custom and practice)

o change of control provisions

• Bonus/incentive schemes, benefits, loans

• Calculation of holiday pay or NMW (if relevant)

• Mobility clauses (if relocation a possibility post-transfer)

• Anything unusually generous

• Any future changes that have been agreed

• Atypical workers

• Details of collective agreements and industrial relations

• Any previous TUPE transfers in the last 2 years

• Any claims – current, intimated and historic (in the last 2 years)


Level of detail - other

• [Anonymised] list of employees/other personnel of target/seller/other entity, working in business, with key detail (eg salary, job title, gender, age, service, location, hours, benefits, recent long term absence)

• Employee shareholders (rare)

• Employees requiring permission to work in the UK

• Employees on long-term sick [or other types of long-term leave]

• Recent disciplinaries/grievances/terminations [of key staff]

• Workplace disputes, employment litigation, potential claims

• Collective agreements, recognised trade unions and other employee representation

• Immigration checks and details of any sponsorships

• Work accidents, health and safety inspections/violations, EHRC investigations

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Warranties (Employment)

List of employees and their employer, details of non-employees

Remuneration and contract details

Arrangements with trade union/other staff bodies

Employees on longer term leave or under notice, recent disciplinary or grievance action and terminations

Individual claims, industrial relation disputes, recent TUPE transfers/collective redundancies

Compliance with employment law requirements (including immigration law), investigations from EHRC, HMRC, ICO


Indemnities

To cover specific liabilities revealed in due diligence/disclosure against warranties

To reapportion liabilities from the way in which TUPE apportions them

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Handover issues

Payroll information Employee records P45s?

Transitional Services Agreement?

Immigration issues

• Right to work checks (60 days)

• Sponsor notices/licence (20 days)

Brexit


Upcoming Employment webinars

• Pay reporting (2019) – 27th November 2019

• Employment Law – End of year round-up 2019 – 13th December 2019

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On Demand Employment webinars

• Drafting settlement agreements – Available until 13th February 2020

• ET/EAT fees: the implications of the Supreme Court’s decision in R (on the application of Unison) v Lord Chancellor – Available until 10th April 2020

• The Taylor Review and developments in employment status – Available until 28th May 2020

• An introduction to the Senior Managers and Certification Regime for employment lawyers – Available until 29th May 2020

• Tricky issues in permanent health insurance – Available until 19th June 2020

• Developments relating to national minimum wage and national living wage – Available until 30th August 2020

• Key issues when recruiting apprentices – Available until 2nd October 2020

• Employer’s obligations towards workers who are pregnant, on maternity or breastfeeding – Available until 23rd October 2020

• Termination payments – Available until 13th November 2020

• Sexual harassment in the workplace – Available until 22nd November 2020

• GDPR and the Data Protection Act: key points for employment lawyers – Available until 29th November 2020

• Employment law yearly round-up 2018 – Available until 4th December 2020

• Diversity reporting in 2019 – Available until 29th January 2021

• Key corporate governance changes affecting employers (2019) – Available until 5th February 2021

• Legal privilege in the employment law sphere (2019) – Available until 1st March 2021

• Equal pay claims in 2019 – Available until 17th July 2021

• Regulatory References (2019) – Available until 26th July 2021

• Requesting medical reports following GDPR (2019) – Available until 25th September 2021


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Employment due diligence on corporate transactions (2019)

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Transcript of Employment due diligence on corporate transactions (2019)