Employment issues in M&A transactions in Netherlands

1. Check whether:

• a works council has been established within the group of companies the target company belongs to and if so, verify for which entity/entities. Special attention should be given if the works council is installed at the target. Where a works council exists, verify whether covenants with the works council(s) have been concluded and/or whether the target has informed the works council about a possible transaction;
• a European works council has been established for the group of companies to which the target company belongs;
• a collective bargaining agreement applies to the target company and, if so, whether it contains specific requirements towards trade unions (and the works council) relating to a transaction (both regarding timing as content);
• the purchaser is planning to implement changes to the workforce of the target company after the transaction (such as relocation, harmonisation of employment terms, redundancies) which depending on the timing of implementation is something which should be shared with the target company’s works council prior to the transaction, as some changes could trigger the advisory (or additional) rights of a works council;
• the transaction could trigger co-determination rights for the purchaser’s works council and the purchaser’s position on this. If the parties’ views differ, agree on a procedure to avoid a delay to the transaction or court proceedings;
• the transaction is an auction sale, meaning that the shareholder/company does not yet select a possible purchaser, but first arranges a selection procedure. If the target company’s works council has an advisory right regarding the transaction, it is not uncommon to inform the works council about the auction sale first and, once a potential purchaser has been selected, to allow the works council to give advice.

2. Prepare:

• a written request for advice to be prepared by the seller/target company for its works council if it has a right to advise on the transaction. The wording of the request for advice should include the reasons for the target company entering into the transaction, the consequences for the employees involved and any measures being planned to alleviate such consequences. The timing of filing this request is very important: the works council must be able to influence the decision to enter into the transaction;
• confirmation from the target company that communication with its works council will be aligned to (the works council of) the purchaser and that the purchaser will not enter into dialogue with its works council before the parties have aligned their communications. Also, confirmation from the target company that it will ensure not to make promises to its works council regarding future commitments for the employees which the purchaser is not willing to fulfil;
• the wording for trade unions, and/or verification of the draft wording from the target company to its trade unions and the Social and Economic Council based on the Merger Code 2015. Verify the timing of the notification as set out in the collective bargaining agreement and/or the Merger Code 2015.

3. Inform / notify

• the works council(s), if applicable, of both the purchaser and the target company;
• trade unions;
• management and/or key staff;
• the Social Economic Council if the merger qualifies as a merger under the definition found in the Merger Code, notification of which is an obligation from the purchaser and seller.

4. Consult

• at least once in person with the (complete) works council(s). It is mandatory to have one consultation meeting before for the works council(s) can render its advice;
• trade unions, although their level of involvement will depend on whether the transaction is likely to have consequences for individual employees and whether consultation with the trade unions is mandatory under a collective bargaining agreement. An invitation to consult is mandatory if the Merger Code applies.

5. Implement

• After the works council has provided written advice, confirm in writing the manner and timing of the implementation of the decision. Verify whether the response of the works council is positive or negative. In the latter case, it is key to inform the works council in writing whether the conditions set by the works council will be met and if not, why. Bear in mind that following negative advice, the implementation of the decision should be delayed with one month as of the date on which the company informs the works council in writing about the implementation of the decision. Upon confirmation of the works council, the one-month waiting period can be ignored.

1. Check:

• the transaction makes it necessary to ask the works council to render advice. This must be done in good time (meaning that a final decision may not be taken, an agreement may not be entered into and the advice of the works council must have an influence on the transaction). Please note that the target company may be obliged to involve its works council,
  even if the decision to enter into the transaction is taken at a (much) higher level;
• the purchaser wishes to be involved in correspondence with the works council of the target in light of its possible future promises towards staff;
• a collective bargaining agreement applies, allowing trade unions to become involved. Verify timing and arrange to coordinate with the works council on the timing of involvement of trade unions.

2. Prepare the following in draft form:

• a request for advice for the attention of the works council. The wording must contain the reasons for entering into the transaction, the consequences for the employees involved and any measures being taken to alleviate these consequences;
• a notification to trade unions and, in some cases, if the transaction leads to redundancies or other consequences for employees and employment conditions, a draft social plan. Verify in advance whether the social plan should be discussed and agreed with the works council or with trade unions.

3. Inform / notify

• the works council;
• trade unions;
• the Social Economic Council (usually at a later stage);
• staff;
• other stakeholders (customers, press, etc.);

4. Consult

• during at least one consultation meeting with the works council;
• trade unions (if applicable).

5. Implement

• the decision to enter into the transaction once the works council has given its advice and the target company has confirmed in writing to the works council how and when the transaction is to take place. Please note that if the advice from the works council is negative (which is also the case if the target company is not willing to meet the conditions set by the works council), a waiting period of one month must be applied starting from the date of the target company’s written response to that advice.

1. Check:

• the asset deal leads to a transfer of undertaking as defined under Article 662 and Book 7 et seq. of the Dutch Civil Code. This is the case if the identity of the target company or the part of the company from which the assets are sold remains unchanged after the transaction;
• the transaction triggers an advisory right on the part of the works council;
• the collective bargaining agreement includes an obligation to involve trade unions, and if so, when and how;
• certain employment conditions cannot be continued by the new owner (this could be the case if the employer allows its employees to benefit from certain products only the company produces, for example);
• the purchaser has a pension scheme or is willing and able to continue the pension scheme of the target company. Where the target company and purchaser both participate in the same mandatory industry-wide pension scheme, the target company should notify purchaser of the status of pension premium payments;
• in case of a transfer of assets of part of the target company, which employees are structurally involved in the targeted part of the target company on a structural basis.

2. Prepare:

• the wording of the request for advice for the attention of the works council (for content and timing, see above);
• the wording of communications with trade unions;
• the wording of individual letters in which the change of employer is confirmed based on a transfer of undertaking, explaining that all terms and rights of the employee are continued by the new employer. Also, inform whether the pension scheme will continue or if another pension situation applies. Regarding a possible pension change, timing is of the essence. When changing the pension scheme (if such a change is possible), the offer of the new pension scheme should be completed before the transaction date. From a privacy point of view, the employer is also obliged to notify the employee that their personnel file will be transferred;
• the works council, trade unions and key staff;
• the Social Economic Council.

3. Inform / notify

N/A.

4. Consult

• at least once with the works council;
• trade unions;
• Depending on the level of consultation, consult with all staff and affected individuals in good time. Please note that the timing of this depends on communication with the works council and trade unions.

5. Implement

• the decision to transfer assets. Please note that the date on which the actual transfer takes place may differ from the commencement date based on an asset purchase agreement. The seller and purchaser remain jointly liable for one year after the transaction for the obligations of the seller which existed prior to the transaction. Include the date on which the transaction takes place in the individual letters.

1. Check whether:

• the asset deal leads to a transfer of undertakings as defined under Article 662 and Book 7 of the Dutch Civil Code. This can still be the case if the identity of the target company or the part of the target company from which the assets are sold remains unchanged after the transaction;
• the transaction triggers an advisory right on the part of the works council. If so, arrange for the seller to send all communications (including any requests for advice) for the attention of the purchaser for approval first. Verify whether covenants are in place and/or whether promises have been made regarding the continuation of (certain) employment conditions;
• the collective bargaining agreement includes an obligation to involve trade unions and, if so, when and how this is to be done;
• certain employment conditions of the seller can be continued after the transaction by the purchaser;
• a pension scheme applies for the seller’s staff and, if so, which pension scheme (if any) shall apply after the transaction. The purchaser is to verify the status of the seller’s pension premium payments, which were due prior to transfer. The purchaser can be held liable
  by the pension fund directly for unpaid premiums;
• In case of a transfer of assets of part of the target company, verify which employees are involved in the targeted part of the company on a structural basis.

2. Prepare the following in draft form:

• the wording of requests for advice for the attention of the works council (see above for the content and timing of these requests). In the event of changes of employment conditions or other consequences for individual employees, draft a social plan as well. Determine whether the works council or trade unions should take part in negotiations on a social plan;
• the wording for trade unions;
• the wording for individual employees, welcoming them as an employee, sometimes also confirming the employment terms and conditions;
• the wording for the Social Economic Council if the transaction qualifies as a merger under the Merger Code.
• the works council, trade unions, key staff, parties involved with maintaining pension scheme(s) and the Social Economic Council;
• Once advice has been given by the works council, inform individual employees of the consequences of the transaction.

3. Inform / Notify

N/A.

4. Consult

• with the works council at least once;
• trade unions.

5. Implement

• the transaction and any consequences of the transaction. See above for the timing of the confirmation to the works council and consequences (a one-month waiting period) if the advice of the works council is negative and the company is unwilling to comply with the conditions set.

In the Netherlands, everything that applies in the event of an asset deal also applies in the event of a merger, with the exception of pensions if the merger does not trigger a transfer of undertaking in the meaning of Article 662 and Book 7 et seq. of the Dutch Civil Code. The pension scheme is in principle transferred to the new owner, which is then in principle obliged to continue the pension scheme of the seller. See above regarding the possible liability on the purchaser for the pension premiums due prior to transfer in case of participation in the same industry-wide pension fund.