Employment issues in M&A transactions in Germany

1. Check whether:

• a target or business sector requiring specific handling is involved. In Germany, this is particularly true of acquisitions made under the German Securities Acquisition and Takeover Act (‘WpÜG’);
• a European works council (EWC) exists, if the target company is located in another EU member state;
• an economic committee (EC, ‘Wirtschaftsausschuss’) exists at the purchaser;
• a mere share deal is intended, or the deal is to be combined with an operational change to a business unit (‘Betrieb’) of the purchaser. If the latter is true, check additionally whether a (company) works council (WC, ‘Gesamtbetriebsrat’, ‘Betriebsrat’) and/or an executives' representation committee (‘Sprecherausschuss’) exists at the purchaser, since such changes may trigger additional information/consultation requirements vis-à-vis such representative bodies.

2. Prepare the following in draft form:

• in the event that the acquisition is being made under the WpÜG, information for the WC or, if a WC does not exist, for the employees directly (§ 14, Sec. 4 WpÜG);
• information for the EWC if section 1.2. above applies;
• information for the EC if section 1.3. above applies;
• any additional documents if, as described in section 1.4. above, the share deal is to involve change to a business unit. For details, see Section B. Asset Deal ‘operational change of a business unit’.

3. Inform / Notify

Forward the information drafted for the attention of the respective addressee ‘in good time’ (while the feasible proposed solutions are still under development, and prior to the implementation of a final purchase agreement).

4. Consult

No consultation requirement.

5. Implement

After conclusion of consultations and in accordance with sections 1-4 above.

1. Check whether:

• the deal implies the acquisition of control over the company;
• an economic committee (EC) or, if not, a (company) works council (WC) has been established at the target;
• an executives' representation committee exists at the target;
• a mere share deal is intended, or the deal is to be combined with an operational change to a business unit (‘Betrieb’) of the target.

2. Prepare the following in draft form:

• information for the attention of the EC and/ or WC, assuming sections 1.1. and 1.2. above apply. If neither an EC nor a WC exists, it is not necessary to inform the employees and/or employees’ representative bodies.
• additional documents if changes are to be made to a business unit as described in section 1.4. above (for details, see Section B. Asset Deal).

3. Inform / Notify

the EC/WC/executives' representation committee, subject to its existence and assuming that sections 2.1. and/or 2.2. above apply. The information has to be provided in good time, i.e. prior to a final decision on the acquisition being made.

4. Consult

If the deal is linked to an operational change to a business unit, it may be necessary to observe consultation requirements (see comments in Section B., Asset Deal). The transaction itself is not subject to the consent or advice of an EC / WC / executives' representation committee. Furthermore, a failure to inform such bodies can neither delay the transaction nor render it ineffective. Despite this, non-involvement constitutes an administrative offence punishable by a fine up to EUR 10,000.00.

5. Implement

After conclusion of consultations and in accordance with sections 1-4 above.

1. Check whether:

• a relevant

1. economic committee (EC, ‘Wirtschaftsausschuss’); or
2. (company) works council (WC, ‘Gesamtbetriebsrat’, ‘Betriebsrat’); or
3. executives' representation committee (‘Sprecherausschuss’); or
4. collective bargaining agreements (which may stipulate special requirements) exists

• the assets are significant and may form a business or part thereof in the sense of the relevant EU Directive on the transfer of businesses;
• the deal is linked to operational change to a local business unit (‘Betrieb’).

2. Prepare the following in draft form:

• if an entire business is to be transferred:

1. information to the EC, where such body exist;
2. information to the employees working at the business.

• if significant parts of a business are to be transferred and/or relevant operational changes are to be made as mentioned in section 1.3. above:

1. information to the EC/WC/executives' representation committee where such bodies exists;
2. information to employees whose employment shall also be transferred;
3. a balance of interests (‘Interessenausgleich’) and a social plan (‘Sozialplan’).

3. Inform / Notify

• in the event that an entire business is to be transferred, the EC, where such body exists, and any and all employees working at the business as described under section 3.4. below.
• in the event that significant parts of a business are to be transferred or relevant operational changes to a local business unit are intended, the EC / WC / executives' representation committee, where such bodies exist.
• The aforementioned information must be provided ‘in good time’.
• If a part of business is to be transferred that forms a unit in the sense of the EU Directive, every single employee who is part of the unit to be transferred must be properly informed. It is recommended to inform at least one month prior to the effective date to act in accordance with the employee’s right to object to their individual transfer.

4. Consult

An obligation exists to consult the WC about a balance of interests (‘Interessenausgleich’) if the deal is linked to operational changes to a local business unit (e.g. merging or the splitting up of a business in units and transfer of a part thereof). There is no need to consult the WC if an entire local business unit (Betrieb) is to be transferred.
A union present in the local unit may demand additional consultation (although there is no statutory requirement to inform the union in advance or to consult with the union). Furthermore, an obligation to consult the executives' representation committee may be required.

5. Implement

Implementation following proper information/ notification, and a consultation process if applicable.

1. Check whether:

• an economic committee (EC) exists at the purchaser;
• the assets are to be formed as an entire local business unit (‘Betrieb’) and/or a part thereof or be merged with an existing local business unit of the purchaser. If the latter is true, check whether a works council (WC) exists at that unit and whether an executives' representation committee exists at the purchaser;
• the assets form a business or part thereof in the sense of the relevant EU Directive on Transfer of Businesses.

2. Prepare the following in draft form:

• information for the attention of the EC (if such a body exists) outlining whether the acquisition may be of substantial relevance to a business unit and/or the present workforce of the purchaser.
• information for the attention of the WC / executives' representation committee (where such body exists) if the assets are to become a part of an existing unit represented by an aforementioned body and on the condition that the assets are significant.
• in the case of a transfer as described in sections 1.2. and 1.3., information for the attention of each individual employee working at the unit being transferred (this is a joint obligation on the part of the seller and the purchaser).
• a balance of interests (‘Interessenausgleich’) and a social plan (‘Sozialplan’) if: (i) the assets are to become a part of an existing unit represented by a WC and (ii) it will trigger a substantial change of the organisation of such unit.

3. Inform / Notify

• Release information for the attention of the EC if such information is required according to sections 1.1. and 2.1.
• Information for the attention of the WC if assets are to become part of a unit represented by the WC, and to the executives' representation committee if the latter may result in substantial changes for executives.
• Any information mentioned above must be provided ‘in good time’, meaning prior to a final decision being taken by the purchaser to acquire the assets.
• If a part of business is to be transferred that forms a unit in the sense of the EU Directive, every single employee who is part of the unit to be transferred must be properly informed. It is recommended to inform at least one month prior to the effective date to act in accordance with the employee’s right to object to their individual transfer.

4. Consult

An obligation to consult the WC exists if substantial assets are to be integrated into the local unit represented by the WC, and such integration could have relevant influence on the current organisation of such unit (see section 2.4. above). Please note that a WC may stop the integration by lodging an interim injunction until the end of a proper consultation process. Such a process can take a significant amount of time, since it may include the formation of and consultation with a conciliation board. Furthermore, an obligation to consult the executives' representation committee may be required if executives should be negatively affected.

5. Implement

After the conclusion of consultations and in accordance with sections 1-4 above.

1. Check whether:

1. economic committee (EC);
2. works council (WC);
3. executives' representation committee;
4. collective bargaining agreements and/or works agreements (which may stipulate special requirements);

• the measure is to be linked with an operational change at one or more local business units (‘Betrieb/e’).

2. Prepare the following in draft form:

• information for the attention of the EC, WC and executives' representation committee, where such bodies exist;
• the employment-related sections of the merger agreement;
• information to each individual employee of the companies whose contractual employer is set to change as a result of the merger;
• further information for the attention of WC at the affected units plus a balance of interests (‘Interessenausgleich’) and social plan (‘Sozialplan’) if an operational change such as that described in section section B (1.4. ) is intended.

3. Inform / Notify

• Inform the EC and executives' representation committee about the intended merger ‘in good time’
• Forward the draft merger agreement for the attention of the relevant WC. Please note that, assuming a relevant WC exists, such a draft agreement must be submitted one month prior to the shareholders’ meeting due to resolve upon the merger at the latest.
• Notify the EC/WC/executives' representation committee about the final decision of the shareholders.
• Inform formally and individually the employees whose contractual employer is set to change as a result of the merger. It is recommended to inform at least one month prior to the effective date to act in accordance with employees’ right to object (or declare instant notice of termination) within one month after notification. The effective date is deemed to be the date when the merger is finally entered into the public register.

4. Consult

Obligation to consult with the WC (only) if the merger is to be linked to operational changes to local business units (e.g. merger of operating units of the merging companies). For further information, see Section B., Asset Deal.

5. Implement

The merger comes into effect with its entry in the public register.