The perils of unwittingly stepping into a works council, union or other employee-representative legal landmine during M&A are numerous. In M&A transactions, works councils or unions should be considered part of the overall audience identification and stakeholder analysis. Their impact on deal timing, structure and even viability cannot be overstated.
With a 25-fold increase in cross-border deals since 1985, addressing works council/unions early in due diligence is critical. Understanding the legal considerations of these representative bodies, which vary by geography and sector, is critical. This important topic was the focus of a recent Metro New York HR M&A roundtable hosted by WTW, comprising multinational Fortune 500 clients representing diverse industries and facilitated by senior executives at the global law firm Freshfields Bruckhaus Deringer, experts in complex M&A, litigation, governance and regulatory work.
Here are some of the key takeaways from our roundtable:
Unions make general labor and collective bargaining agreements on a national or industry level worldwide, whereas works councils and local unions represent employees at the company level, especially (but not only) in Europe. The power and application of works councils and labor unions varies by country.
When contemplating significant change, it is important that you are cognizant of the workforce representation body and the process for working with them.
In terms of M&A, works councils and unions typically have the right to:
Rights of employees to be provided with information before or after deal signing.
Agreement or ruling of a mediation board to implement measures. This gives works councils the power to disagree with a project. While this rarely blocks a deal, it can take a lot of time to resolve, impacting deal timing.
Right to give an informed opinion before implementing any measures, but no consent needed.
Areas where employee representatives can block a deal.
Understanding what information/consultation obligations might apply at the outset of the transaction and assessing whether they need to be built into the transaction structure and/or timetable are essential.
Not factoring in works councils is costly, time-consuming, detrimental to the deal’s “optics,” and will hinder the progression of a deal and even cause its demise. Tackling works council rights quickly and proactively is crucial to avoid unwanted delays or sanctions including:
It’s difficult for even the most experienced M&A professional to keep up with all the nuances, differences and complexities inherent to works councils. We asked our roundtable participants which jurisdictions they’ve encountered difficulties in an M&A context due to employee representatives. Austria, France, Germany, Japan and Mexico were among the countries at the top of the list. Speakers and participants also mentioned specific challenges they’ve experienced including:
At the outset, make sure you know the answers to the following questions.
It‘s critical to know what information/consultation (I&C) obligations might apply at the outset of a transaction and to assess whether these need to be built into the transaction structure and timetable. Here are six best practices:
The I&C process should start when the deal is sufficiently defined before any irreversible decisions or actions are implemented.
Separate the world into regions and follow the evolution of all consultation processes globally. Additionally, a single approach will not work in each location so ensure that your approach is tailored.
Preparing the documentation to kick off the information and consultation process takes time and significant input from all parties. Leverage trackers, tables, checklists and other tools.
Record and document calls about the evolution of the information and consultation process to ensure challenges are addressed before escalating into problems. Make sufficient time for the process, which can take up to several months depending on the geography, sector or transaction.
Be prudent with external communications until the consultation processes are complete.
The consultation process is important. Provide the necessary amount of information immediately to help avoid enabling works councils to delay the transaction.
Effective interaction with works councils and unions requires close collaboration and coordination among M&A advisors, employment counsel, HR business partners and other key stakeholders. It is a team effort. Leveraging the tips and insights above will help you anticipate and mitigate challenges and streamline the process for you and the organizations you represent.
A special thank you to Elodie Favre-Thellmann and Nicole Foster of Freshfields Bruckhaus Deringer for their partnership on this article.
Please note that any information of a legal or tax nature contained in this article would be general information only and should not be relied upon by the Company without further review by the appropriate professional advisors. WTW is not a law or tax firm, and we are not engaged to provide legal services or tax advice to the Company. Some of the information included in the article might. t involve the application of law or tax in various jurisdictions. Accordingly, we strongly recommend that the Company consult with and involve its legal counsel and other professional advisors as appropriate to ensure that the Company is fully advised concerning such matters.