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How to Address Labor Issues Arising During and After a Merger

Author: Jed L. Marcus, Bressler, Amery & Ross, P.C.

In a rapidly changing economy, separate companies, often competitors, will decide to merge, forming one larger company. A merger may take different forms, and the form taken may have an impact on an employer's legal obligations as well as those with a union and its members.

For example, if the acquisition is structured as a stock purchase, with the purchasing company as the survivor, the target company's employees will not be terminated and the buyer will automatically inherit all of the target company's employee benefit plans. If the acquisition is structured as an asset purchase, the buyer has the flexibility to choose the assets and liabilities it wishes to acquire, including the employees and employee benefit plans. In an asset purchase, the target company's employees' employment with the target company will be deemed to have terminated, in which case, they may be hired by the buyer. In deciding whether to hire or not hire these employees, the buyer will have to navigate through various labor laws, such as the National Labor Relations Act (NLRA) which, among other things, prohibits employers from discriminating against applicants because of their union membership and from avoiding hiring unionized workers in order to eliminate union representation. Due diligence is important in an asset purchase in order to assist the buyer in determining what obligations must be assumed and what may be avoided.

In any event, a merger, whether by stock or asset purchase, will certainly affect employees and their unions in many different ways and almost always raise questions concerning the obligations to employees and unions of both organizations both during and after the merger. For example, many employees lose their jobs as part of a reduction in force (RIF) after a merger. Unions who represent employees in one or both of the merging organizations may demand that they be permitted to bargain with the relevant employer over the decision to, and the effects of, a merger. Employers may be required to provide advanced notice to employees of layoffs attendant to the merger. Moreover, one or more unions may even demand the right to represent and bargain over the terms and conditions of employment with the newly merged company.

There are, in fact, many different labor and employment laws that influence an employer's actions when deciding to merge. For example, an employer with a collective bargaining agreement (CBA) will have certain obligations under the National Labor Relations Act (NLRA) to bargain with the union over the impact of the merger, especially if it will result in layoffs. Also, if an employer who employs at least 100 employees intends to lay off all employees, or, if the merger results in an employment loss of either: (1) 33 percent or more of the site's "active employees," but (2) at least 50 employees, it will be required to give advanced notice to its employees, or if unionized, to the employees' union under The Worker Adjustment and Retraining Notification Act (WARN). Laying off employees will also expose the employer to potential discrimination lawsuits under such laws as the Age Discrimination in Employment Act (ADEA) and Title VII of the Civil Rights Act of 1964 (Title VII), which prohibits discrimination based on race, color, sex, religion and national origin, among other things.

Prior to the actual day when the merged organization is brought into existence, both sides of the merger will perform their "due diligence," that is, review all aspects of the employment obligations owed to employees, such as the terms and conditions of employment, pension and health and welfare benefits, and potential severance payments due in the event of layoff. The two employers will also draft a written agreement in which they allocate various employment responsibilities between them. For example, depending on the timing (whether before or after the actual merger) and location of layoffs, the agreement may identify which employer is required to provide applicable WARN notices or provide severance pay.

Accordingly, an employer must be fully prepared when implementing a merger to ensure that it is done in such a way as to avoid unnecessary claims by unions and employees. These risks may be avoided with advance planning and appropriate process.