Employment issues in M&A transactions in Brazil

In this case, there is no change in the employer, but it is necessary to check whether any liabilities have materialised: 

Check 

• Which union applies to the Target company and its employees. According to Brazilian law, the union framework is based on the law and the company's predominant activity, as a rule. Therefore, negotiations on collective bargaining agreements are mandatory for the category, regardless of the company's or employee's participation in the negotiations. This assessment allows the purchaser to evaluate specific applicable rules in advance and anticipate possible expenses or compatibility when implementing new benefits. 
• If there is a benefits policy in the Target to prepare for expenses or organisation when harmonising the benefits. Under Brazilian employment law, changes to an employee's employment contract (and policies) can only be made by law or negotiation with the union or with the express agreement of the employees if they do not result in direct or indirect harm. 
• Any pending litigation, inspections, or debts concerning the employees detected while auditing the Target shall avoid costs and liability. Under Brazilian employment law, the new employer becomes liable for any pending issues concerning the employees, even when the problem originated and arose before the acquisition or resulted from a previous situation attributable to the former employer. 
• Any stabilities or impediments to the dismissal or replacement of employees, if this is the intention. Under Brazilian employment law, there are cases in which employees cannot be dismissed for a certain period (return from work-related sick leave, maternity leave, among others), which may impact internal decisions regarding the employees involved. 
• Any employee who enjoys special rights because of the share deal (e.g. golden parachute rights, compensation rights in the event of a share deal, stock option rights, among others), which may be set out in an individual employment contract, collective bargaining agreement, internal regulation of the Target, etc. 
• Whether social security, FGTS, vacation, 13th salaries, and other employee-related obligations are up to date as of the date of sale. 
• The number of employees who will be dismissed and not absorbed since mass dismissal requires prior negotiation with the union. 

Prepare  

• Although there is no change in the figure of the employee, if it is necessary to incorporate or change employees, we suggest organising the transfer of employees, if applicable, including annotating each employee's Employment and Social Security Record booklet (CTPS), making adjustments to the unemployment fund (FGTS) linked account, and communicating with “eSocial” (Brazilian government system), among others. As a rule, it is not necessary to terminate the employment contract with the consequent payment of severance pay since – in the case of buying the company – there will be the same employer or economic group (i.e. companies with corporate ties or joint management or interests). 
• An amendment of the employment agreement to set down and formalise the employee transfer to the new employer, including any changes regarding union benefits, among others. In this document, it is recommended to gain the acceptance of employees.  

Inform/Notify  

• If applicable, the change of employer or even the transfer of employees need only be adjusted in the eSocial and FGTS system unless otherwise stated in an individual employment agreement, collective bargaining agreement, or internal regulations in force at the target company. 
• The union, in the case of mass dismissal. 

Consult 

• Under Brazilian employment law, the purchaser is not obliged to conduct a consultation period for the transaction, neither with the employees nor any government entity. 

Implement   

• See the recommendations above in the sections Check, Prepare and Inform. 

Check 

• Any employee who enjoys special rights as a result of the share deal (e.g. golden parachute rights, compensation rights in the event of a share deal, stock option rights, etc.) which may be set out in an individual employment contract, collective bargaining agreement, internal regulation of the Target, etc.; 
• Before the transaction, it is recommended that the seller ensure compliance with social security, the FGTS and any obligations towards the employees arising from the working relationship until the sale. This is necessary because the former and new employer remain jointly liable for a certain period, depending on the nature of the obligations. 
• It is recommended to duly inform the purchaser about the employees’ current labour conditions, which may include providing the individual or collective employment agreement. Indemnities in the sale and purchase agreement may be set, and disputes brought before courts may arise from misinformation attributable to the seller. 
• The number of employees who will be dismissed and not absorbed because mass dismissal requires prior negotiation with the union. 

Prepare  

• No documents need be prepared unless stated otherwise in the individual employment agreement, collective bargaining agreement, or internal regulations in force at the Target company.  

Inform/Notify  

• If applicable, the change of employer or even the transfer of employees need only be adjusted in the eSocial and FGTS system unless otherwise stated in an individual employment agreement, collective bargaining agreement, or internal regulations in force at the target company. 
• Union, in case of a mass dismissal. 

Consult 

• Under Brazilian employment law, the purchaser is not obliged to conduct a consultation period for the transaction, neither with the employees nor any government entity. 

Implement   

• See the recommendations above in the sections Check, Prepare, Inform/Notify and Consult. 
• The files and information for every transferred employee must be handed over to the purchaser (e.g. payroll files, information regarding the Social Security entities where the transferred employees are enrolled, annual leave records, benefits, and additional allowances, outstanding loans, and promissory notes, among others). 

• In this case, the employer is presumed to be another company (without the concept of the same employer), and there is no possibility of a mere transfer between companies but rather a termination of the contract with the seller and rehiring by the purchaser: 

Check 

• If any employees will be absorbed by the new operation. We suggest confirming who will be responsible for this movement to enable resources and to organise the appropriate termination, such as dismissal exam, payment of severance pay on time, and provision of severance documents, etc. (This is usually the Seller’s obligation). 
• The possibility and costs of fulfilling benefits, stability, or any other obligation of the employment relationship until the sale, including any pending court disputes with former and existing employees, inspections, etc. 
• The number of employees who will be dismissed and not absorbed because mass dismissal requires prior negotiation with the union. 

Prepare  

• Documents relating to termination and severance pay for termination of employment, where applicable. 

Inform/Notify  

• No specific communication is required apart from registering the end of the employment relationship and the start of the new one in eSocial. 
• The union, in the event of a mass dismissal. 

Consult 

• Under Brazilian employment law, the purchaser is not obliged to conduct a consultation period for the transaction, neither with the employees nor any government entity. 

Implement   

• See the recommendations above in the sections Check, Prepare, Inform/Notify and Consult. 

Check 

• If any employees will be absorbed by the new operation. We suggest confirming who will be responsible for this movement to enable resources and to organise the appropriate termination, such as dismissal exams, payment of severance pay on time, and provision of severance documents, among others. (This is usually a Seller’s obligation). 
• In the case of direct hiring of employees, all legal requirements must be complied with, including medical examinations, new employment contracts, etc. The purchaser must treat this hiring as initial and unrelated to the previous agreement. 

Prepare  

• Documents relating to the employee's new employment, as described above. 

Inform/Notify  

• No exceptional communication is required apart from registering the end of the employment relationship and the start of the new employment relationship in eSocial. 
• The union, in the case of mass dismissal. 

Consult 

• Under Brazilian employment law, the purchaser is not obliged to conduct a consultation period for the transaction, neither with the employees nor any government entity. 

Implement   

• See the recommendations above in the sections Check, Prepare, Inform/Notify and Consult. 

Check 

N/A.

Prepare  

N/A.

Inform/Notify  

  N/A.

Consult 

N/A.

Implement   

N/A.