A thorough and comprehensive due diligence is an essential process for any person/organization looking to acquire or merge with another business. A corporate restructure can raise a number of complex employment relations implications which can have a significant impact on the profitability or even viability of the proposed merger or acquisition.
It is therefore imperative that the purchaser obtain and review as much information and documentation in relation to the employment history and current status of the prospective business as possible. A purchaser can then make an informed decision as to whether to obviate the need to deal with any employment risks or financial strain by ensuring they are priced into the purchase contract and any relevant warranties and indemnities are adequately drafted.
Some of the more important considerations when conducting a due diligence from an employment law perspective include:
TRANSFER OF INDUSTRIAL INSTRUMENTS – whether there are any industrial instruments that will transfer from the old employer to the new employer, creating immediate obligations in relation to wages or other conditions of employment. Industrial instruments can include an enterprise bargaining agreement (EBA), employer award or workplace determination.
CONTINUITY OF SERVICE – whether the new employer is obliged to recognize a transferring employee's prior service for the purpose of calculating employee entitlements. In this instance, the obligation for entitlements accrued by existing employees (including long service leave, annual leave, sick leave, and redundancy pay) may be transferred to the new employer.
REDUNDANCY - whether transferring employees will be entitled to redundancy pay as a result of the acquisition/merger. If so, whether any measures can be taken to obviate or minimize these payments.
EMPLOYEE ENTITLEMENTS – the effect of employee entitlements under the contract of employment or any collective instrument. In particular:
- whether there are any unusual or above Award/ NES entitlements in the contract of employment or any applicable industrial instrument;
- when and how an employee can be lawfully terminated and what entitlements are payable upon termination of employment;
- whether the employee is entitled to any long/short term bonuses and/or share schemes; and
- confidential information, intellectual property and restraint of trade terms.
HEALTH & SAFETY COMPLIANCE – it is necessary for a purchaser to ensure that all existing policies and procedures in relation to occupation health and safety comply with the respective State's legislative requirements. Information should be obtained in relation to recent occupational health and safety audits, records of accidents and near misses and steps taken to identify previous convictions or existing/pending prosecutions. Failure to conduct a thorough due diligence in this area may pose liability risks for the new employer.
INDUSTRIAL DISPUTES – to avoid unforeseen business disruption and costly negotiation processes, information should be requested from the prospective business in relation to union coverage and any previous, current or prospective industrial disputation.
EMPLOYMENT LITIGATION – purchasers should be aware of any current, pending or prospective litigation in areas such as unfair/ unlawful dismissal, trade practices and breach of confidential information.
CONCLUSION
The importance of conducting a due diligence from an employment law perspective should not be underestimated. An employment law due diligence is essential to any decision to acquire or merge with another business and if so, discussions as to purchase price and terms. Early advice should be sought about employment law matters in the course of any transaction where employee matters are involved.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.