Tip Tuesday: 6 Key HR and Labor Items to Remember During the Due Diligence Process
In the world of mergers and acquisitions, HR, labor, and employment issues often arise during the due diligence process. These issues can be diverse and range in topics from employee benefits matters to combining employee workgroups. Failure to spot key HR and employment diligence issues can cause liabilities, business interruptions and negatively impact employee morale.
Here are a few essential labor, HR, and employment matters to keep in mind during the due diligence process:
- Unique State or Local Requirements: Depending on the transaction type and jurisdictions involved, conduct targeted local due diligence. For example, CA has several notable state and local laws on employee privacy, restrictive covenants, paid sick leave, vacation payout, and employee classification that do not apply to many other US states.
- Pension Schemes: Review employee retirement and pension schemes. Pay particularly close attention to the types of pension plans the target company has in place in any asset purchase transaction.
- Immigration Issues: Companies that have multinational workforces often employ individuals with visa requirements or other immigration needs. When a change in ownership of the company or corporate structure that sponsors the applicable employee visa or work permit occurs, the change typically requires a filing or notification with the local immigration authority.
- Employee Consultation Obligations and CBAs: Closely analyze employee workgroups to assess if there are notification or consultation obligations that must occur before the transaction is signed and/or the deal is closed.
- Change in Control and Severance Provisions: To determine whether any meaningful payouts or entitlements will be triggered by the transaction, review key employees’ agreements. Perform diligence on any agreements containing transaction bonuses, severance provisions, equity acceleration clauses, or so-called “change in control” terms.
- Independent Contractor Status: If a misclassified individual who provides services to the company is not employed by another entity that is properly treating the individual as an employee (e.g. withholding taxes and remitting social security contributions, accounting for overtime, etc.), liabilities for the company can be significant.