Employment issues in M&A transactions in China

1. Check whether:

• any individual employment agreements, collective bargaining agreements or internal regulations of the target company exist which may stipulate special rights for employees or groups of employees in connection with the transaction;
• any trade union exists at the target company, and whether any provisions of the collective bargaining agreement or internal regulations at the target company exist which govern the information and/or consultation of the trade union in connection with the transaction;
• whether the target company is a state-owned company, local company or a foreign-invested company.

1. Check whether:

• any individual employment agreements, collective bargaining agreements or internal regulations grant individual employees or groups of employees any special rights in connection with the transaction;
• any trade union exists, and whether any provisions of the collective bargaining agreement or internal regulations exist which govern the information and/ or consultation of the trade union in relation to the transaction;
• whether the transaction is related to the transfer of so-called state- owned assets, i.e. shares held by state-owned entities, the acquisition of a local company or a foreign-invested company.

2. Prepare the following in draft form:

• No documents need to be prepared unless stated otherwise in the collective bargaining agreement or internal regulations in force at the target company.
• If the transaction is related to the transfer of state-owned assets or the acquisition of a local company by a foreign company, an employee settlement plan shall be prepared.

3. Inform / Notify

• The target company is required by statutory law to seek the thoughts of the trade union and hear the opinions and proposals of the employees through the employees’ representative congress or other means. However, there is no legal consequence if the target company fails to do so.
• If the transaction is related to the transfer of state-owned assets which may lead to mass redundancies or the dismissal of employees, the target company must notify the transaction to the employees and consult the opinions of the employees’ representative congress. 

4. Consult

• Not applicable, unless stated otherwise in the collective bargaining agreement or internal regulations in force at the target company.
• If the transaction is related to the transfer of state-owned assets which may lead to mass redundancies or the dismissal of employees, an employee settlement plan shall be approved by the employees’ representative congress of the target company.

5. Implement 

• Not applicable, unless stated otherwise in the collective bargaining agreement or internal regulations in force at the target company. All the employment relationships of the employees with the target company will remain unchanged after the transaction.

1. Check whether:

• any individual employment agreements, collective bargaining agreements or internal regulations grant individual employees or group employees any special rights in connection with the transaction;
• any trade union exists, and whether any provisions of the collective bargaining agreement or internal regulations exist which govern the information and/ or consultation of the trade union in relation to the transaction;
• whether the transaction is related to the transfer of the assets of a state-owned company, a local company or a foreign-invested company. 

2. Prepare the following in draft form:

• No documents need to be prepared unless stated otherwise in the collective bargaining agreement or internal regulations in force at the target company.
• If the transaction is related to the transfer of the assets of a state-owned company or the acquisition of the assets of a local company by a foreign company, an employee settlement plan shall be prepared.

3. Inform / Notify

• The seller is required by statutory law to seek the thoughts of the trade union and hear the opinions and proposals of the employees through the employees’ representative congress or other means. However, there is no legal consequence if the target company fails to do so.
• If the transaction is related to the transfer of the assets of a state-owned company which might cause the transfer of the employees, the seller must notify the transaction to the employees and consult the opinions of the employees’ representative congress. 

4. Consult

• Not applicable, unless stated otherwise in the collective bargaining agreement or internal regulations in force at the seller.
• If the transaction is related to the transfer of the assets of a state-owned company which might cause the transfer of the employees, an employee settlement plan shall be approved by the employees’ representative congress of the seller.

5. Implement 

• If the seller and purchaser agree to transfer the employees, the seller shall terminate the current employment contracts with the transferred employees, and the purchaser shall conclude new employment contracts with them. The rights and obligations of the transferred employees towards the seller under their current employment contracts are only transferred to the purchaser if a relevant transfer agreement is concluded between the seller, the purchaser and the transferred employees. The rights and obligations of the transferred employees with the purchaser are subject to the new employment contracts.
• Implementation becomes effective on the date as agreed by the seller, the purchaser and the transferred employee.

1. Check whether:

• any individual employment agreements, collective bargaining agreements or internal regulations of the seller exist which may stipulate special rights for employees or groups of employees in connection with the transaction;
• any trade union exists at the seller, and whether any provisions of the collective bargaining agreement or internal regulations at the seller exist which govern the information and/or consultation of the trade union in connection with the transaction;
• the seller is a state-owned company, a local company or a foreign-invested company. 

5. Implement 

• The purchaser shall conclude a new employment contract with the transferred employees. No rights and obligations of the transferred employees under their employment contract with the seller will be taken over by the purchaser unless specifically agreed otherwise. The rights and obligations of the transferred employees with the purchaser are subject to the new employment contract.
• Implementation becomes effective on the date as agreed by the seller, the purchaser and the transferred employees.

A merger always results in a transfer of undertakings by law, i.e. the employees of the company(ies) involved in the merger, as well as their employment relationships, will be transferred automatically to the surviving entity (or the new entity) after the merger.

1. Check whether:

• any individual employment agreements, collective bargaining agreements or internal regulations grant individual employees or groups of employees of the company(ies) involved in the merger any special rights in connection with the merger;
• any trade union exists at the company(ies) involved in the merger, and whether any provisions of the collective bargaining agreement or internal regulations at the company(ies) involved in the merger exist which govern the information and/or consultation of the trade union in connection with the transaction;
• the company(ies) involved in the merger is/are state-owned.

2. Prepare the following in draft form:

• No documents need to be prepared unless stated otherwise in the collective bargaining agreement or internal regulations in force at the company (ies) involved in the merger.
• If any of the company(ies) involved in the merger is/are state-owned, an employee settlement plan shall be prepared. 

3. Inform / Notify

• The company(ies) involved in the merger is/are required by statutory law to seek the thoughts of the trade union and hear the opinions and proposals of the employees through the employees’ representative congress or other means. However, there is no legal consequence if the company fails to do so.
• If a state-owned company is engaged in the merger, where the legal interests of the employees are concerned, the company(ies) involved in the merger must notify the merger to the employees and consult the opinions of the employees’ representative congress.

4. Consult

• Not applicable, unless stated otherwise in the collective bargaining agreement or internal regulations in force at the company(ies) involved in the merger.
• If a state-owned company is engaged in the merger, where the legal interests of the employees are concerned, the employee settlement plan shall be approved by the employees’ representative congress of the company(ies) involved in the merger.

5. Implement

• The employment contracts between the employees and the company(ies) involved in the merger shall remain valid after the merger. The surviving entity (or the new entity) shall succeed in the rights and obligations and continue to perform the employment contracts.
• Implementation becomes effective on the date when the amended business licence of the surviving entity (in the case of merger by absorption) or a new business licence for the new entity (in case of merger by the creation of a newco) is issued.