Company takeover: ten tips

Are you a potential buyer or seller of a company? Then you will most likely conduct a due diligence investigation and subsequently negotiate the takeover. Do you already know the most important aspects of employment law that are involved? We will give you ten tips:

SPEE lawyers & mediation regularly advises on takeovers. In this area both our knowledge of company law and our experience in employment law come in useful! In close consultation with the financial and tax advisors, the lawyers of the parties strive for a favourable and safe deal. This week we give parties a few tips on employment law.

Tip 1: Watch out for 'transfer of undertaking'!
Not every takeover is the same. There can be a share transaction, for example, but also an asset deal is possible. In the latter case, it often happens that the staff is transferred (completely or partly) to another legal entity, as well as the activities, which results in a transfer of undertaking.

By 'transfer of undertaking', Section 7:662 of the Dutch Civil Code means the situation in which, on the basis of an agreement, a merger or a demerger, an economic unit is transferred and that unit retains its identity after the transfer. In short: the business activities are transferred.

If there is a transfer of undertaking, this has legal consequences that may be far-reaching. The employees attached to the company are automatically transferred to the acquiring company. All rights and obligations arising from the contract of employment are retained. The acquiring company cannot therefore simply choose which employees to transfer. Furthermore, it is not possible to dismiss staff solely because of the transfer of undertaking. The purpose of the law here is to protect employees.

Tip 2: Don't forget about employee participation
The Works Council Act (WOR) contains various decisions that require an opinion from the Works Council. For instance, an intended decision on a share transaction or an asset deal requires advice from the Works Council on both sides (buyer and seller). Therefore, involve your Works Council in the plans in good time and seek proper advice on all the pitfalls. It is always highly recommended to draw up a clear schedule in advance, showing all the steps in the decision-making process. Experience shows that this is often overlooked!

Tip 3: Check all employment contracts
We recommend to scrutinise all employment contracts of the personnel of the company to be taken over, to check whether these contracts are in accordance with the law. In case of temporary contracts, also write down when notice must be given.

Tip 4: Check self-employed workers, temporary workers and payroll workers
Make sure all agreements are correct and that there are no fictitious employment relationships with self-employed persons. If the Tax Authorities qualify the assignment agreement as fictitious employment, wage tax and social security contributions will have to be paid retroactively. This can be quite costly.

Tip 5: Think about the pensions!
We have previously written on the subject of pensions in the context of acquisitions. You can read it here Especially the affiliation to industry pension funds deserves attention.

Tip 6: Check the status of collective labour agreements
Parties should check carefully whether a universally applicable collective labour agreement applies. This can be overlooked and subsequently cost a lot of money, especially if it turns out that a collective labour agreement has not been applied or the wrong collective labour agreement has been applied. In the worst case scenario, this can lead to claims from employees about salary, holidays, extra allowances and so on.

Tip 7: Has sick leave been charted?
As is well known, employers have reintegration obligations towards sick employees under the law. It is therefore wise to find out what the absenteeism is within the company to be taken over, whether there are long-term sick employees, employees who are currently reintegrating, or dormant employment contracts.

Tip 8: Occupational accidents?
It is important to investigate - in any case over the last five years – whether occupational accidents have occurred and, if so, how they were handled. Did the employer fulfil his duty of care? If not, costly claims may still follow.

Tip 9: Are there any legal proceedings pending?
Are there any proceedings pending against (former) employees, or can these be reasonably expected? We recommend to thoroughly investigate this.

Tip 10: Privacy first!
The General Data Protection Regulation (GDPR) should not be overlooked. This means, among other things, that personal data of employees must be handled with care and that a selling party must ensure that personal data provided to the interested buyer are anonymised.

These are our tips for now. This is obviously not an exhaustive overview; each situation requires customisation. Do you have plans to sell or take over your company? SPEE advocaten & mediation will be happy to help you!

SPEE advocaten & mediation Maastricht