How to Avoid Employee-Centred M&A Disputes

Success and failure during a merger or acquisition is often evaluated based on financial results, strategic fit, and expanded market access.

But arguably the biggest obstacles to M&A success are employee-centred disputes. Employees form the foundation of any organisation, and their morale and engagement during a merger can greatly influence the outcome.

If employee-centered M&A disputes are not managed effectively, they can disrupt the transition process and undermine the intended benefits of the merger. Therefore, understanding the nature of these disputes and addressing them proactively is crucial.

Employee-centered disputes during M&As can emerge from a variety of sources, each capable of disrupting the integration process and harming the overall health of the organisation.

Here are a few examples.

Cultural Clashes

One of the most significant challenges in any merger is aligning diverse corporate cultures.

When two companies merge, differences in work ethics, communication styles, and corporate values can lead to misunderstandings and conflicts among employees.

These cultural clashes can erode teamwork and decrease productivity, undermining the strategic goals of the M&A.

Contractual & Compensation Discrepancies

Another common source of dispute arises from differences in employment terms between the merging entities.

Employees may face inequities in pay, benefits, and work conditions, which can lead to dissatisfaction and disputes. Such disparities often prompt calls for renegotiation of terms, which can stall integration efforts and foster resentment within the workforce.

Job Security & Role Redundancy

M&As typically involve some level of restructuring, which can lead to role duplications and job redundancies.

The uncertainty about job security and future career paths can cause significant anxiety among employees, potentially leading to disputes and even legal challenges if not managed with care and transparency.

Strategies to Prevent Employee-Centred M&A Disputes

To address these potential conflicts, companies must adopt proactive and strategic measures that focus on the human aspects of the merger.

Improving Communications

This is arguably foundational to preventing disputes in the first place.

Effective communication is crucial throughout the M&A process. Providing employees with regular updates about how the merger will affect their roles and futures within the company is an essential strategy for managing expectations and reducing uncertainties along the way.

Integrating Corporate Cultures

Developing a strategy for cultural integration is essential. This might involve organising joint cultural workshops, cross-company team-building activities, and inclusive social events to foster mutual understanding and camaraderie among employees from both companies. These initiatives help build a unified corporate culture that aligns with the merged entity's new vision and operational style.

Standardising Employment Terms

To prevent disputes related to contractual discrepancies, it is advisable to harmonise employment terms as seamlessly as possible.

Aligning salary structures, benefits, and other employment conditions across the merged entity not only prevents potential conflicts but also promotes fairness and equity, which are critical for maintaining employee morale and loyalty.

It’s also vital to align any employee transfer with employment laws such as TUPE. Variants of this law exist across the UK and EU countries.

For example, in the UK, the TUPE law governing employee transfer can be triggered in any of the following scenarios. You’ll notice that mergers and acquisitions are at the top of this list.

• Mergers.
• Sales of businesses by sale of assets.
• Transfers from companies in administration.
• Contracting out of services.
• Changing contractors.

The Role of an Employer of Record (EOR) in Minimising M&A Disputes

An Employer of Record can offer invaluable assistance in navigating the complexities of workforce integration during an M&A.

• EORs are more likely to be familiar with local labour laws that could trigger employee-centred M&A disputes in certain scenarios.
• An EOR can help you draw up compliant contracts and onboard team members when you’re transferring employees between entities.

Let’s dig a little deeper into some of the ways that EORs can be useful partners during the M&A process.

Leveraging Expertise in Compliance

EORs bring essential knowledge and expertise in local and international labour laws, helping companies ensure compliance across different regulatory environments. This is particularly crucial when merging entities from different geographical locations, where legal non-compliance could lead to significant penalties or disputes.

Streamlining HR Practices

An EOR can help unify and standardise HR practices across the newly formed entity, ensuring that all employees are subject to the same policies and procedures. This helps to ensure that employees’ and managers’ expectations are aligned throughout the M&A process.

Avoiding Post-M&A Disputes & Ensuring Integration

Another impactful strategy for preventing and resolving disputes is approaching the overall post-merger integration carefully and intentionally.

According to the Harvard Business Review (HBR), one of the main reasons up to 70-90% of M&As fail is poor integration. This is due in large part to the vast differences between merging companies, especially in global cross-border M&As.

Approaching integration strategically mitigates factors that could lead to a deal failing to close; it’s also a critical step toward preventing post-merger disputes and resolving them more quickly.

To that effect, an effective post-merger integration checklist should account for:

• Integrating cultures of both companies, including business cultures specific to the industries and countries that the companies and their stakeholders are based in.
• Integrating personnel and clientele from both companies, ensuring that workers are being treated fairly and customers or clients understand the new company’s vision.
• Integrating technology and systems, including financial reporting infrastructure, to ensure efficient and secure operations along with fully compliant bookkeeping.

Working with an EOR makes it easier to proactively design integration strategies that help to minimise disputes long-term.

For example:

• An EOR can help design competitive compensation and benefits packages to retain key talent from both organisations.
• Using an EOR helps your newly merged company optimise operational efficiency; by handling administrative HR tasks, an EOR can free up the merged entity's internal resources to focus on the strategic aspects of integration.