Employment issues in M&A transactions in United Kingdom

1. Check whether:

• the structure of the transaction is a true share sale (and that it is not combined with an asset sale/transfer) to ensure that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) (and therefore additional information and consultation requirements) are not triggered. For example, TUPE would apply to an asset transfer carried out before a share sale to ensure that the relevant assets are contained in, or removed from, the corporate entity whose shares are to be sold. There may also be a transfer of the undertaking (or part of the undertaking) to a holding company following a share sale, or to a parent company that has used a subsidiary to purchase the shares of the target company; 
• relevant works councils exist (often set up under an information and consultation agreement pursuant to the Information and Consultation of Employees Regulations 2004) which impose information and consultation obligations on a share deal (depending on the terms of the specific agreement); 
• the terms of any relevant collective bargaining agreement include any information and consultation obligations in relation to the share deal (only applicable if the UK employer recognises a trade union); 
• a relevant European Works Council (EWC) exists, if the target is located in an EU Member State.

2. Prepare the following in draft form:

• appropriate information pursuant to any agreements with works councils or any relevant collective agreement (if applicable); 
• appropriate information for the EWC, if relevant. 
• There is no change to the identity of the employer in a share deal, and all current contractual rights and liabilities remain in place. The general principles of employment law apply to the transaction, but there are no additional ‘share deal’ employment law requirements.  

3. Inform / Notify

• Although there is no general legal obligation to inform employees of a share deal, in practice employees are usually informed. 
• There may be relevant agreements which contain information obligations. 

4. Consult

• Although there is no general legal obligation to inform or consult employees on a share deal, in practice employees are usually informed of it and consulted in accordance with normal UK employment law principles on any changes or measures which may affect them. 
• There may be relevant agreements containing consultation obligations. 
• Special consultation provisions exist under UK law for large-scale/collective redundancies (20 or more employees).

5. Implement

• Comply appropriately with any relevant agreements containing information and / or consultation obligations.  
• Any personal data relating to employees should be dealt with in accordance with the UK GDPR (the UK’s retained EU law version of the GDPR) and the UK’s Data Protection Act 2018 and data transfers should be secure. No more information than necessary should be provided at each stage of the transaction.

1. Check whether:

• the structure of the transaction is a true share sale (and that it is not combined with an asset sale) to ensure that TUPE (and therefore additional information and consultation requirements) is not triggered. For example, TUPE would apply to an asset transfer carried out before a share sale to ensure that the relevant assets are contained in, or removed from, the corporate entity whose shares are to be sold. There may also be a transfer of the undertaking (or part of the undertaking) to a holding company following a share sale, or to a parent company that has used a subsidiary to purchase the shares of the target company;
• relevant works councils exist (often set up under an information and consultation agreement pursuant to the Information and Consultation of Employees Regulations 2004) which impose information and consultation obligations on a share deal (depending on the terms of the specific agreement);
• the terms of any relevant collective bargaining agreement include any information and consultation obligations in relation to the share deal (only applicable if the UK employer recognises a trade union); 
• the purchaser has appropriate data protection safeguards in place to handle the personal data relating to employees, before any personal data is transferred;  
• a relevant European Works Council (EWC) exists, if the purchaser is located in an EU Member State.

2. Prepare the following in draft form:

• appropriate information pursuant to any agreements with works councils or any relevant collective agreement (if applicable);
• appropriate information for the EWC, if relevant. 
• There is no change to the identity of the employer in a share deal, and all current contractual rights and liabilities remain in place. The general principles of employment law apply to the transaction, but there are no additional ‘share deal’ employment law requirements. Employees are usually unaffected by the mere fact of a share deal, as the change in ownership of shares does not change the employer. As a result, all their terms and conditions of employment remain the same.

3. Inform / Notify

• Although there is no general legal obligation to inform employees of a share deal, in practice employees are usually informed. 
• There may be relevant agreements which contain information obligations

4. Consult

• Although there is no general legal obligation to inform or consult employees on a share deal, in practice employees are usually informed of it and consulted in accordance with normal UK employment law principles on any changes or measures which may affect them. 
• There may be relevant agreements containing consultation obligations. Special consultation provisions exist under UK law for collective redundancies. 

5. Implement

• Comply appropriately with any relevant agreements containing information and/or consultation obligations. 

1. Check whether:

• whether the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply to the transaction. TUPE usually (but not always) applies to asset deals. It imposes additional obligations on employers and gives extra protection to employees in addition to normal UK employment laws.  
• Where TUPE applies to the transaction, determine the scope of the employees affected by the transfer. Both the seller and the purchaser have duties to inform (and normally consult) under TUPE in relation to their employees affected by the transfer. While this definition is wider than simply the group of employees who are transferring, it may not extend to the whole workforce. 
• whether relevant works councils exist (often established under an information and consultation agreement pursuant to the Information and Consultation of Employees Regulations 2004) imposing additional information and consultation obligations on an asset deal (depending on the terms of the specific agreement); 
• the terms of any relevant collective bargaining agreement and whether these include any information and consultation obligations in relation to the asset deal (only applicable if the UK employer recognises a trade union); 
• Whether a relevant European Works Council (EWC) exists, if the purchaser is located in an EU Member State;
• Appropriate safeguards have been put in place to ensure the secure transfer of employee personal data and appropriate timing and level of information. Under UK GDPR and the UK’s Data Protection Act 2018 it is essential for data protection considerations to be taken into account at the start of the transaction.

2. Prepare the following in draft form:

• appropriate ‘employee liability information’ about the transferring staff, which is sent to the purchaser to enable them to comply with their TUPE information obligations. Under TUPE the seller must provide this no later than 28 days before the date of the relevant transfer; 
• appropriate information to be given to the employee representatives (see the second paragraph of section 3 below)
• appropriate information pursuant to any agreements with works councils or any relevant collective agreement (if applicable); 
• appropriate information for the EWC, if relevant. 

3. Inform / Notify

• Information (and possibly consultation) obligations will exist if TUPE applies. There will also be information and consultation obligations if collective redundancies are necessary.  
• In both cases, information and consultation must involve representatives of the affected employees. Employee representatives are representatives of a recognised trade union or, if there are none, elected employee representatives. Employee representatives may need to be put in place and, if so, the seller should allow sufficient time to arrange and hold an election (where there are more candidates than representative spaces). In some situations, pre-existing bodies can be used to avoid holding an election.
• Information must be provided about the fact, date and reasons for the transfer, along with the legal, economic and social implications of the transfer, and any ‘measures’ in relation to the transfer which are envisaged will be taken either by the seller (transferor) or purchaser (transferee). A ‘measure’ is broad in meaning and includes any action, step, or arrangement relating to the affected employees including changes to the working arrangements or redundancies.
• If other information obligations exist, ensure the appropriate information is sent to the relevant people (e.g. individual employees and / or employee representatives).

4. Consult

• If it is envisaged that ‘measures’ are to be taken in relation to the transfer, a duty to consult under TUPE is triggered.
• Consultation is not negotiation. However, it must take place with a view to seeking the employee representatives’ agreement to the intended measures.
• There will be separate information and consultation obligations on the purchaser if collective redundancies are planned by them. It is possible (but not a requirement) for the seller to agree with the purchaser that the purchaser can consult the seller’s affected employees before the transfer, for the purposes of collective redundancy consultation, normally regulated through an agreement between the parties.
• Attempts should normally be made to consult with the same group of representatives under TUPE and in relation to collective redundancies. However, this may not be possible depending on the scope of the transfer, the basis on which the employee representatives have been appointed, and the individuals who are at risk in relation to the proposed redundancies.

5. Implement

• Although there is no time limit specified by UK law, the information required under TUPE must be provided sufficiently in advance of the transfer to allow for meaningful consultation.  
• The maximum penalty for failure to inform (and if required, consult) employee representatives is 13 weeks’ actual pay per affected employee (which can be a wider group of employees than just the employees being transferred).  
• There is a narrow defence if the employer can show that special circumstances existed which meant it was not reasonably practicable for it to comply with its duty, and that it took all such steps towards performing the duty as were reasonably practicable in the circumstances. In practice it is hard to rely on this defence, since ‘special circumstances’ are usually exceptional and unforeseen. 
• Any process should comply appropriately with any relevant agreements containing information and/or consultation obligations

1. Check whether:

• the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply to the transaction. TUPE usually (but not always) applies to asset deals. It imposes additional obligations on employers and gives extra protection to employees in addition to normal UK employment laws. Under TUPE, both the purchaser and the seller have obligations to inform employee representatives of certain facts, and to consult with them if the transfer or any measures taken in connection with it affect any of their own employees.
• relevant works councils exist (often established under an information and consultation agreement pursuant to the Information and Consultation of Employees Regulations 2004) imposing additional information and consultation obligations on an asset deal (depending on the terms of the specific agreement); 
• the terms of any relevant collective bargaining agreement include any information and consultation obligations in relation to the asset deal (only applicable if the UK employer recognises a trade union); 
• a relevant European works council (EWC) exists, if the seller is located in an EU Member State;
• no later than 28 days before the transfer, the seller has provided the employee liability information about the transferring employees in a secure manner;
• sufficient information has been sent to the seller regarding any measures envisaged by the purchaser to enable the seller to provide its employees (via employee representatives) with that information.

2. Prepare the following in draft form:

• the following in draft form: appropriate information to comply with TUPE information obligations in relation to the purchaser’s own workforce and (as regards ‘measures’) the seller’s workforce;
• appropriate information pursuant to any agreements with works councils or any relevant collective agreement (if applicable); 
• appropriate information for the EWC if relevant.

3. Inform / Notify

• Information (and possibly consultation) obligations will exist if TUPE applies. There will also be information (and consultation) obligations if collective redundancies are necessary.  
• In both cases, information and consultation must involve representatives of the affected employees. Employee representatives are representatives of a recognised trade union or, if there are none, elected employee representatives. Employee representatives may need to be elected and, if so, the purchaser should allow sufficient time to arrange and hold an election. In some situations, pre-existing bodies can be used to avoid holding an election.
• Information must be provided about the fact, date and reasons for the transfer, along with the legal, economic and social implications of the transfer, and any ‘measures’ in relation to the transfer which are envisaged will be taken either by the seller (transferor) or purchaser (transferee). A ‘measure’ may include any action, step, or arrangement relating to the affected employees. 

4. Consult

• If it is envisaged that ‘measures’ are to be taken in relation to the transfer, a duty to consult is triggered. Consultation must take place with a view to seeking the employee representatives’ agreement to the intended measures.
• There may also be information and consultation obligations if collective redundancies are necessary. It is possible for the seller to agree with the purchaser that the purchaser can consult with the seller’s affected employees before the transfer, for the purposes of collective redundancy consultation, normally regulated through an agreement between the parties. Attempts should be made to consult with the same group of employee representatives under TUPE and in relation to collective redundancies, as noted above.
• If other consultation obligations exist, ensure these are being carried out with the appropriate people (e.g. the individual employees and / or employee representatives). ).  

5. Implement

• Although there is no time limit specified by UK law, the information required under TUPE must be provided sufficiently in advance of the transfer to allow for meaningful consultation.  
• The maximum penalty for failure to inform (and if required, consult) is 13 weeks’ actual pay per affected employee (which can be a wider group of employees than just the employees being transferred).  
• There is a narrow defence if the employer can show that special circumstances existed which meant it was not reasonably practicable for it to comply with its duty, and that it took all such steps towards performing the duty as were reasonably practicable in the circumstances. In practice it is hard to rely on this defence, since ‘special circumstances’ are usually exceptional and unforeseen. 
• Any process should comply appropriately with any relevant agreements containing information and/or consultation obligations. 

1. Check whether:

• the structure of the merger triggers the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). TUPE imposes additional obligations on employers and gives extra protection to employees in addition to normal UK employment laws, as already described; 
• the information (and consultation) requirements under TUPE apply to both the seller and the purchaser. However, it may be the case in a merger situation that a purchaser will only need to satisfy the information aspects of TUPE towards their own employees. There may not be consultation obligations for their own employees if there are no measures which will affect them. A purchaser will also need to consider what information to disclose to the seller to enable the seller to consult with their affected employees, but also consider the impact on their own workforce in relation to the transferring employees;
• relevant works councils exist and impose obligations relevant to the merger, and, where there is trade union recognition, if the terms of the relevant collective bargaining agreement include any information and consultation obligations; 
• the UK Takeover Code applies to the proposed merger, as the Code sets out rules and general principles regulating the conduct of some takeovers.

2. Prepare the following in draft form:

• the appropriate information to comply with TUPE information obligations (if TUPE applies); 
• the appropriate information pursuant to any agreements with works councils or any relevant collective agreement (if applicable). 

Consider the information that needs to be provided to the other party in order for them to carry out adequate information and consultation.

3. Inform / Notify

• There will be information (and possibly consultation) obligations if TUPE applies. There will also be information and consultation obligations if collective redundancies are necessary.  
• In both cases, information and consultation must involve representatives of the affected employees. Employee representatives are representatives of a recognised trade union or, if there are none, elected employee representatives. Employee representatives may need to be elected and, if this is the case, the parties should allow sufficient time to arrange and hold any elections, where there are more candidates than available positions. In some situations, pre-existing bodies can be used to avoid holding an election.
• In both cases, information and consultation must involve representatives of the affected employees. Employee representatives are representatives of a recognised trade union or, if there are none, elected employee representatives. Employee representatives may need to be elected and, if this is the case, the parties should allow sufficient time to arrange and hold any elections, where there are more candidates than available positions. In some situations, pre-existing bodies can be used to avoid holding an election.
• Under TUPE, information must be provided about the fact, date and reasons for the transfer, along with the legal, economic and social implications of the transfer and any ‘measures’ in relation to the transfer which are envisaged will be taken either by the seller (transferor) or the purchaser (transferee). A ‘measure’ may include any action, step, or arrangement relating to the affected employees.
• If there are other information obligations, ensure the appropriate information is sent to the relevant people (e.g. individual employees and / or employee representatives).

4. Consult

• If it is envisaged that measures are to be taken in relation to the transfer, then a duty to consult is triggered. Consultation must take place with a view to seeking the employee representatives’ agreement to the intended measures.
• Consider whether there is a need to consult with your own employees about the transfer of staff into your organisation.  
• There may also be information and consultation obligations if collective redundancies are necessary. Attempts should normally be made to consult with the same group of representatives under TUPE and in relation to collective redundancies, but this may not be possible depending on the scope of the transfer and the individuals who are at risk in relation to the proposed redundancies.

5. Implement

• Not applicable.