Employment issues in M&A transactions in Colombia

1. Check whether:

• In general, no consequences for working conditions and no notifications are necessary as there is no change of employer.

But check whether:

• any individual employee or groups of employees enjoy 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, among others) which may be set out in an individual employment contract, collective agreement, internal regulation of the target, etc. Please note this remains rare in Colombia;
• a mere share deal is intended, or whether the deal is to be combined with an operational change to a business unit of the purchaser. The latter may trigger additional information/consultation requirements;
• any risks are identified during the due diligence process carried out on the target company, e.g. any pending employment-related litigation, inspections by labour control authorities, etc.

2. Prepare the following in draft form:

• Not applicable, unless stated otherwise in the individual employment agreement, collective bargaining agreement or internal regulations in force at the target company. 

3. Inform / Notify

• Not applicable, unless stated otherwise in an individual employment agreement, collective bargaining agreement or internal regulations in force at the target company.

4. Consult

• The purchaser is not obliged to consult with the employees of the target company.  

5. Implement

• Closing formalities regarding the execution of a share deal, such as filing the registration of the operation carried out between the parties in the shareholder register book, issuance of the share titles, approvals of the competition authority (if applicable), etc. However, these would not normally trigger direct obligations related to employees.  

In general, no consequences for working conditions and no notifications are necessary as there is no change of employer.

1. Check whether:

• any individual employee or groups of employees enjoy 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, among others) which may be set out in an individual employment contract, internal regulation of the target, etc. Please note this remains rare in Colombia;
• a mere share deal is intended, or whether the deal is to be combined with an operational change to a business unit of the purchaser. The latter may trigger additional Information/consultation requirements.
• In general, no consequences for working conditions and no notifications are necessary as there is no change of employer. 

But check whether: 

• any individual employee or groups of employees enjoy 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, among others) which may be set out in an individual employment contract, internal regulation of the target, etc. Please note this remains rare in Colombia and it is usually applicable for very limited cases regarding senior management employees. 
•  merely a share deal is intended, or whether the deal is to be combined with an operational change to a business unit of the purchaser. The latter may trigger additional information/consultation requirements. 

2. Prepare the following in draft form:

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

3. Inform / Notify

• Not applicable, unless stated otherwise in the individual employment agreement, collective bargaining agreement or internal regulations in force at the target company. 

4. Consult

• Not applicable, unless stated otherwise in the individual employment agreement, collective bargaining agreement or internal regulations in force at the target company.    

5. Implement

• Closing formalities regarding the execution of a share deal, such as filing the registration of the operation carried out between the parties in the shareholder register book, issuance of the share certificates, approvals of the competition authority (if applicable), etc. However, these would not normally trigger direct obligations related to employees.

1. Check whether:

• sufficient reserves have been accrued to cover all theoretical fringe benefits and company pension entitlements at the time of the deal; 
• one or more employees will be transferred to the purchaser of the assets as a result of the contemplated transfer; 
• the working conditions deriving from individual and/or collective bargaining agreements (including pension schemes) are applicable to employees affected by the transfer; 
• the relevant employment files and information in connection with the transferred employees are complete and up to date; 
• there are any obligations still outstanding from the employment of staff to be taken over, such as pending court disputes with former and existing employees, administrative investigations, etc; 
• any measure affecting the employees – such as dismissals, salary reductions or any other substantial modification that may have a negative impact regarding the working conditions of the employees – is intended once the transaction is implemented. If this is the case, the employees must not only be informed but also consulted in good time prior to a decision over such measures being taken; 
• It is important for the seller to identify the employees to be transferred jointly with the asset(s) in order to allow the seller and the purchaser to take appropriate measures allocating the workforce in a mutually acceptable way.

2. Prepare the following in draft form:

Since all affected employment relationships are transferred from the seller to the purchaser ipso jure, no contractual agreement is mandatory in this regard. Nevertheless, it is recommended to prepare the following documents:

• a Transfer Agreement between the seller and purchaser pursuant to Articles 67 et seq of the Colombian Labour Code. Further representations and indemnities are usually included in the pointed agreement on behalf of the purchaser;
• notification letters to the employees providing for:
  • the change related to the new employer (i.e. the purchaser) and the respective date on which this change is planned to be implemented;
  • the possible legal implications derived from the transfer.

The relevant information pursuant to any individual or collective bargaining agreement, or internal regulations of the seller (if applicable) subject to be transferred. 

3. Inform / Notify

• All affected employees must be provided with certain written information in advance. Such information must include the name of the new employer (i.e. the purchaser), the date of the transfer and the legal consequences thereof; 
• The Colombian Pension, Health and Occupational Risk Insurance entities and the Parafiscal entities must be informed about the transfer of the employees to a new employer (i.e. the purchaser). This notice must be provided to the respective addressees ‘in good time’ (i.e. upon execution of the transfer); 
• The Colombian National Service of Apprentices (SENA) must be informed about the transfer of the employees to a new employer (i.e. the purchaser) and the decrease in the number of employees in order to adjust the apprenticeship quote in accordance with the real number of employees; 
• The trade union representatives and employee representatives if stated in the collective bargaining agreement.  

4. Consult

• The seller is not subject to any consultation or approval in advance from the transferred employees or trade union representatives.

5. Implement

• In principle, all working and salary conditions are maintained after the transfer, although it is possible to harmonise differences in these conditions through an amendment of the employment agreement. The transfer may not in itself lead to an employment termination or (unilateral) change of working conditions. After the transaction, the seller and purchaser remain jointly and severally liable for the seller’s obligations which existed prior to the transaction.
• The file and information of 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, pending vacation information, benefits and additional allowances, outstanding loans and promissory notes, among others).

1. Check whether:

• employees are to be transferred to the purchaser of the assets as a result of the transfer. It is also important to identify the payment scheme applicable to these employees, including basic remuneration, any additional bonuses, payments and other incentives, labour regulations, vacation entitlements, etc; 
• any employees enjoy special termination protection. This applies to disabled persons or with significant health limitations, pregnant employees, male employees whose wife is pregnant and exclusively depends on her partner/husband, persons on parental leave, persons on medical leave and trade union representatives. Such employees may only be terminated with the prior consent of a competent court or authority; 
• any current authorisation to work overtime was issued by the Colombian Ministry of Labour to the seller; 
• a works council or trade union has been set up, or pertinent agreements are in place (if so, the above-mentioned bodies shall continue their activities); 
• any trade union exists at the seller, and whether any provision of the collective bargaining agreement at the seller mandates the information and/or consultation of the trade union in connection with the transaction; 
• a collective bargaining agreement has been concluded (if so, a collective bargaining agreement which applied to employees before the change of employer continues to apply until a new collective bargaining agreement is concluded); 
• any risks are identified during the due diligence process of the target, e.g. any pending employment-related litigation, inspections by labour control authorities, etc; 
• the seller has fulfilled all of its obligations towards former employees, such as outstanding salaries, fringe benefits, social security contributions, reinstatement guarantees, etc. This is because both the former and the new employer will be jointly and severally liable for any such outstanding liabilities as a result of the asset deal; 
• the asset deal would impact: (I) the recent and future economic status of the company; (II) the status, structure and future evolution of the workforce; and (III) the organisation of the workforce and employment contractual and collective relationships; 
• any measure affecting the employees – such as employment terminations, salary reductions or any other substantial modification which may have a negative impact regarding employment conditions of the employees – is intended once the transaction is implemented. If this is the case, the employees themselves must not only be informed, but also consulted in good time prior to a decision over such measures being taken.

2. Prepare the following in draft form:

Since all affected employment relationships are transferred from the seller to the purchaser ipso jure, no contractual agreement is necessary in this regard. Nevertheless, it is recommended to prepare the following document:

• a Transfer Agreement between the seller and purchaser pursuant to Articles 67 et seq of the Colombian Labour Code. Further representations and indemnities are usually included in the pointed agreement on behalf of the purchaser. 

Also, the purchaser shall prepare the following in draft form: 

• information to the Colombian Pension, Health and Occupational Risk Insurance entities and parafiscal entities about the transfer of the employees. An additional report must be carried out through the online platform for paying social security contributions (PILA) informing of the transfer and the new employee in charge of the payment; 
• information for the Colombian National Service of Apprentices (SENA) about the transfer of the employees for the purpose of regulating the apprenticeship quota, if applicable;
• information for the Colombian Ministry of Labour aimed at the issuance or transfer of the overtime authorisation;
• information for the Colombian Ministry of Labour informing of the transfer of employees for the relevant effects on the trade union relationships or the collective bargaining agreements in force. 

3. Inform / Notify

• the Colombian Pension, Health and Occupational Risk Insurance organisations about the transfer of the employees. This notice must be provided to the respective addressees ‘in good time’ (e.g. to the Occupational Risk Insurance within 24 hours before the transfer/initiation of the activities).
• An additional report must be carried out through the online platform for paying social security contributions (PILA) informing of the transfer and the new employee in charge of the payment.
• the Colombian National Service of Apprentices (SENA) about the transfer of the employees for the purpose of regulating of the apprenticeship quota, if applicable.
• the Colombian Ministry of Labour regarding the information indicated in the forth paragraph of sections 2 and in the fifth paragraph of sections 2 above, if applicable.

4. Consult

• Consultation regarding measures affecting employees on the back of the transaction must be carried out in good time prior to a decision on such measures being taken.

5. Implement 

• The purchaser must provide the transferred employees of the target company with the same working conditions they enjoyed previously.
• If the transferred employees of the target company were subject to a collective agreement, the latter remains valid until its expiry.
• Provide each of the transferred employees with a copy of all HR policies, rules and regulations used by the purchaser, if applicable.
• Adjust any internal rules and regulations applicable to employees as a result of the transaction where necessary and ensure that all employees (both new and old) read and understand them.

The steps, rules, and regulations applicable to a merger transaction are similar to Section B. - Asset Deal above.