Workforce plays an important role in ensuring the success of M&A transactions. Issues ensuring employees’ rights focus on the: seller, buyer and management agencies, being  codified in relevant legal documents.

Most business philosophies consider people as the core element of the business. Therefore, regarding M&A transactions (mergers and acquisitions), issues related to people from a legal perspective are labour issues that the parties must pay attention to in order to implement. Besides ensuring the transaction’s success, recognizing and resolving labour issues well ensures the balanced development of the business post-transaction.

1. Labour Use Plan

One of the issues that both the seller and the buyer must pay attention to and implement is the development of a labour use plan. According to the Law on Enterprise 2020 and the Labour Code 2019, when merging, consolidating, selling, leasing an enterprise or transferring ownership or rights to use assets of an enterprise, the employer must develop a labour use plan, which must be implemented by a successive employer. Thus, the responsibility for developing a labour use plan belongs to the seller.

However, from a business perspective, developing a labour use plan should be a mutual issue for both the buyer and the seller. This will help the parties clearly understand the importance of each labour position, reassess the role and capacity of influential positions, and review the obligations and responsibilities of each position. The plans for the future labour use ensures the maintenance of labour numbers and productivity.

2. Labour Contract

The Labour Code 2019 indicates mandatory contents that must be recorded in labour contracts. Furthermore, checking and evaluating labour contracts will help the parties reconsider some of the following issues:

  • Compliance: determine violation elements (if any);
  • Other policies and benefits received under the labour contract: assessment of suitability, salary and benefit costs compared to work performance, assessment of costs for the buyer’s post-M&A period, and others;
  • Labor contract term: check the due status and upcoming expiration to have a backup human resource plan.

3. Internal Labour Rule, Collective Labour Agreement

These are extremely important and necessary documents to consider when conducting M&A transactions. It should be noted that both of these documents must be registered/sent to the competent state agency. However, labour regulations are a mandatory document if the enterprise has more than 10 employees. Meanwhile, the enterprise collective labour agreement is a document that records voluntary agreements between employers and employees. In addition, the enterprise (seller) may have signed industry labour agreements or other labour agreements that the buyer is not aware of.

With the existence of an enterprise collective labour agreement, the buyer may have to inherit issues that the buyer cannot meet.

4. Labour Policies

This is an issue that parties tend to show little concern about.  Nevertheless, labour productivity, financial and business and employee tax issues are significantly influenced by it.. Some companies have policies such as employees not being able to marry each other, policies of sponsoring foreign trips for employees who meet targets, bonus regulations, and health care policies. These policies sometimes violate the Law and can lead to labour disputes. Therefore, reviewing labour policies is necessary for all parties.

5. Personal Income Tax

According to current personal income tax laws, employers are responsible for deducting and paying personal income tax for employees or people performing jobs through other contracts with quite detailed regulations. However, many businesses violate these regulations. This can lead to serious legal consequences such as tax arrears, administrative penalties, and employee complaints. Therefore, this is also an issue that all parties need to pay attention to.

6. Employee Representative Organization

The employee representative organization at the enterprise can be the Grassroots Trade Union with the representative role of the Grassroots Trade Union Executive Committee or of another employee representative organization.

Most employee representative organizations at enterprises do not operate actively. However, they play an important role in connecting and representing the voices of employees. Labour Law also contains detailed regulations on several documents issued by the employer that require the employee’s opinions. Therefore, if the seller fails to comply with relevant requirements, after taking over the business, he or she may face additional legal risks.

In general, labour issues are important and need to be considered and evaluated when carrying out M&A transactions. Therefore, the parties need to have specific plans to approach and evaluate these issues in order to come up with detailed action plans. Besides, the parties, especially the buyer, will price the transaction at a reasonable level as well as develop a plan to prevent legal risks that may arise.

The article is based on laws applicable at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable laws and the specific cases that the reader may wish to apply may have changed. Therefore, the article is for referencing only.


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