Navigating M&A employee transfer with James Mallet & Emma Gleaves

Hi, everyone, and welcome to the next installment of our series of webinars around global workforces and mergers and acquisitions.

The focus of this webinar today is all around GP processes and employment free transfer mechanism.

But before we get started, a bit of housekeeping.

You can ask questions throughout the the webinar, just use the, chat on the right where you share to your Q and a section, just clicking that. You can enter, you can ask questions, you can ask the questions. We'll answer the question towards the end of the year and we'll leave this, a text from that.

Now before we get started, let me start by asking my esteemed panelists to introduce themselves. James, why don't you go first?

Thanks, Ruv. Hello everyone. My name is James Malak, co general counsel and the corporate compliance team here at Omnipresent. In with Omnipresent two years and based out of our Lisbon office. My background was in banking, finance, asset management. I've, led some legal functions with a number of international groups listed and regulated and worked on some m and a from both the advisory and client side.

I'm supported by an excellent employment board team here at Omnipresent, for such matters today.

Fantastic. Emma, over to you.

Thank you, George, and thank you, Dane. I've got over twenty years years in pensions and benefits broken in consulting. At some of the larger global consulting firms like Mercer, KPMG, and, some smaller boutique firms as well providing more niche services.

Been involved in a number of benefit merger and harmonized agent project, and I'm currently heading up all things global benefits at Omnipresent, supported by a fantastic team. We've got merger and accreditation experience from both the client advisory and enhanced implementation angle.

Amazing. Welcome, Emma. Welcome, James. Glad to have you both with me today.

So let's get things kicked off. Why are we talking about cross border monitored acquisitions and transfer mechanisms in TP?

For you to mention just to begin with that when businesses go through significant changes like a merger acquisition, they may end up in situations where they need to change the employment of their team members. Maybe they are, inherited a newly linked in a country and need to transfer employees from one entity to another, for example. And this can be a very complicated activity. It can be fraught with risk and incredibly important to get it right. If you're, if you really care about employee retention. So that's why I'm talking about this topic today. Something that comes up fairly frequently in our interactions with, with that client.

So what we're going to be talking about today, a few different topics. The firstly, with different employee transfer mechanisms and how they might vary by country and by local regulation.

We'll dive a bit deeper into one of the most common considerations for a transferring employee, and like, laws like TUPE.

And then we'll look at specifically how 2P might be triggered, the process, the key theme.

Hopefully everyone on the webinar will walk away a little bit wiser with a few nuggets that have been put from, from today.

So let me frame this a little bit. I was reading a, a weekly report by PitchBook that, that merger and acquisition deal in EMEA and the US would, generally be becoming more and more cross border. And that's a trend that's been going on for the last seven years or so. In EMEA last year, the size of the total cross border, our merchant acquisition deals was eight hundred and fifty six billion dollars This has become this is a huge market and it seems to be seems to be on the increase.

Now we're seeing that driven by, a lot of riding industries like AI, electric vehicles, and clean tech. They're kind of stimulating all of this growth, which I think is a really interesting, interesting kind of trend going on there.

And what happens when you have these, these cross border M and A deals, they come with increased complexity around employee transfer mechanisms.

So, Emma, let me come to you first. Regardless of the mechanism that you use, what are the key things that everybody should be thinking about when you have to do one of these transfers?

Thanks, George. I mean, whether a company is going through a merger and acquisition, a divestiture, or carve out, there's three key points that need to be considered. The first one is aligning the contract. This include managing the leave entitlement. There were leave entitlements transferring between the employers. What about the seniority?

Then there's the benefits alignment, of course. It let covers health care, pensions, allowances.

This is super important because not only, like, specific rules apply, depending on the country, the benefit, or even down to the employer type of business, but also because benefits can be really emotive to employee. And then the third one is the human talk and the communicating with the people. The considerations are gonna differ slightly depending on which employee transfer mechanism that we're gonna be talking about.

Yeah. That makes total sense, especially the human touch. This can be a really kind of turbulent period for a for a employee who's working at distance has gone through one of these transactions. So, yeah, I'm really, really, traumatizing that point.

So we've these are some of the considerations.

Why, James over to you. Why don't we, why don't you give us a bit of a summary of the different entry transfer mechanisms that might apply in different countries?

Sure, doc. So broadly speaking, you'll have pre fabs, collaboration, rehire, resign and rehire.

Both scenarios, the former employer would pay all statutory severance payments and in full, all accrued benefits, etcetera, holidays.

And I'll do this the new employer. We've hired the employees, started a brand new employment relationship.

The other category is employer substitution, employer transfer.

This method allows for the employee to be notified of the transfer of their employment, the new employer without the working conditions to assess that they've been altered.

The continuity of employment is occupied. And this is where we, we come to Took it. So anyone who's on the call not familiar with A stands for the transfer of undertakings protection of employment regulations, which is a bit of a mouthful, so we'll go into that. This came into effect in two thousand and six.

There's also many other EU equivalents to be implemented by member states following the acquired rights directive or ARB, and then equivalents in other countries outside the EU, in case by case basis, which each may provide a structure for touch and a transverse.

Yeah. That that makes sense. So let's dig into that, the two piece structure in more detail. Obviously, if you're navigating a merger and acquisition, you're dealing with UK employees or UK being still one of the most, common hiring markets, especially in, in, in Europe.

Let's dig a bit deeper. What else do people need to know about, about this process?

Well, thank you, George. Probably seems an opportune moment to know that we're not legal tax, or benefits pensions advisors.

Especially as I can tell you, maybe one of our partners on the call that do provide such a service.

But please do not take this as advice. Not that I hope anyone would make that assumption.

So yeah, two key regulations that ensure that employees follow Fed steps in connection with a relevant business transfer.

Again, the objective is to protect the entitlement of employees, the same terms and conditions continuity of employment as we had before the transfer and that is known as the automatic transfer principle. And 2P provides a process by which the information about the transfer and any proposed changes, to the employment relationship you have provided to the employees. Consultation then can occur, between the employee, and the the new employer.

With the new employment relationship, contract terms with any lead, maternity, potential rights, accruals, etcetera, transferring across the path of the trend. But I say, unless there's any redundancies, obviously, your changes to terms that may occur within very specific parameters on the look.

Got it. So it's all about making sure that transfer, it goes it goes as soon as possible.

Alright. So we what instance would two p two p trip typically be as a mouthful boy? In what instance would tp typically be triggered?

That's a trickier declaration.

Sure.

But high level that applies where you've got employees based in the UK, and there is a relevant transfer, regardless where you're domicile and acquire a company, broadly within that two scenarios where this occurs, we've got business transfers, so whether it's again, technical term of transfer of an economic, it retains its identity, but where a business unit is essentially transferred from one employee to the another.

So the acquirer, this could also include a share sale, not just the transfer of like a sales team, for example, but including the entire, equity transfer at a company if that involves the acquirer, taking control over the company's business and involves it in restructuring of the organization as part of that process. And then the second type is a service provisional change, and this might happen where a company either outsources a service, but it internally, for the first time, moves it between service providers, or in fourth to clock again.

There are many in web attributing cases to find in the parameters of these and what gets caught hugely complicated. And, again, your legal advisers are the best people to advise you on whether you're in or out, or two beyond central acquisition.

Makes a lot of sense. I heard that loud and clear.

Emma, obviously, you've obviously been quite hands on with a lot of these, these kind of processes.

I think you also were very heavily involved in us, like, making sure that we had our, our, plans and all of here and creating our playbooks for this. What kind of things should, people be thinking about in terms of a two p checklist, when they're going through these processes?

Well, there's action that are before the transfer, and then there's actions that are during the transfer. Before the transfer, it's really crucial to grasp the legal intricacy of two p or the relevant regulation and how they impact the transfer and the transferee.

Expert help, we've not mentioned it before, but it's really, really important. Legal advice relating to rules that are local regulations, and in that to give it, particularly important in countries where there's collective bargaining agreement. But it's also important to consider benefits advisers who are experienced in employee transfer and the requirements that specifically we like to benefit in that local country. And the value of a good benefit broker, you know, cannot be underestimated one who understand benefits. How may I date them?

Well, we typically work with companies in conjunction with our clients and with their advisers and our advisers. All the employees are identified who are affected. That's whether they're moving to the new employer or whether they're staying with the old employer, and that could be all client partner on time with that. It's ensure that you've got a correct conduct a thorough consultation with the employee to discuss the transfers, implications, the employment rights, and benefit, and ensuring that all of the facilities are in a separate.

In the UK, particularly, there is a things coming in on the first of July. This is for when transfers are taking place to owner or actor if you like, and employers can consult directly with the company Instead, it proves that they're having to let the pizza if they're offering representative.

If they acquire in a small business with less than sixty every week or hour or if you bought Samsara with only less than ten employee, then John's paying on. So this only required when there is less than ten employment rate. So this change and migration thing is what's working here and practical, for our people then.

Then next, the contract and policy to the workplace be reviewed within large on tracking of the same agreement, including all the way within the working hours. And then in terms of process, it's important to clarify how the existing benefits like pensions and health care are gonna be handled. Are they gonna continue as they are? Are they gonna change under the new employer? So this is all gonna be included in a document called the employee label information sheet, and that's a mouthful as well. And that's one that the old employer has got to provide to the new employer more than twenty eight days before the transfer. The new employer then got to send the old employer what's called a.

And this has got indications that the proposed changes, the employer arrangement that they wanna make. And it's for the old employer to consult from the employee with these changes.

Specifically for three p, the old employer consults employee representatives by sending them to a transfer letter. There's no specified minimum consultation period for the transfer for a transfer alone. Employees have got to provide the required information, the employee representatives, long enough before the relevant transfer to enable complication.

However, if there's a pen pension particularly, all the benefits, there may be specific consultation requirements that apply though, and that's really relevant in the UK.

It's really, really important to get the consultation piece right because if employer fails to get it right, then they can face penalty, including having to pay staff up to serve in we pay in compensation, and that's the transfer and the contrary of both liable to pay there. So I don't have a about a minimum consultation period of three weeks, which it seemed reasonable.

And there's a comprehensive transfer agreement that then got to be drafted to outline all the, clearly, drawing compliance, and communication is absolutely key. A well sought out plan that's gonna keep everybody informed and supported throughout the process. We'll reduce the anxiety with the integration into the new organization.

And then finally, before the transfer start, really vital to ensure that the HR and payroll systems are prepared for a seamless transition. We've got a gap through compliance maintained at all times with all of the employment regulation.

So that's everything that you've gotta do before the transfer. And then during the transfer, you're gonna have to provide specific details of employee entitlement and personal detail. So for two p in the UK, this typically include terms and conditions of employment, the date of continuous employment, a, any previous disciplinary grievance issues or claim, elective agreements, whether they've been previously made or if new ones apply, as the result of transfer, pay details, how and when they're paid, deducting the total wages to things like child support, student tuition, etcetera.

Call payments, including overtime, commission, onerous payment, holiday entitlement, company thick pay, benefits such as private health, and, of course, pension life as well. And that's just the list for the UK. For the transfer mechanisms and for the country, there may be other requirements. So, again, it's always vital to refer to legal equity.

Yeah. That sounds really simple, Emma. After a few urgent answers point from you both point your people towards towards giving advice on these things. Right? Because I think that's that's a really, really good good time post.

But let me go back to something you mentioned at the start. You talked about the, the human touch element of the estimate. I'm curious for your take having been involved in a lot of these. What about after transfer? What what kind of industry do you think back there and how can you ensure that, employee feel, well connected and and well integrated after the after the transaction?

I mean, of course, maintaining those relationships during the employee transfer is absolutely crucial for morale and the a really successful integration overall. So I'm gonna proactively manage the staff morale. It's gonna be really necessary, especially if there's gonna be any potential dismissals or changes to terms. Organize that is a risk trim may be needed to integrate the new services and the employees, but changes are all subject to the terms of the poo poo remediation.

The key here, as I said before, to help you reduce that negative risk on morale, is a really quality communication plan, and that includes timely employee information, providing opportunities for questions unanswered in advance and feedback session after the transfer.

Yeah. That makes a lot of sense. So, James, let me come back to you. When you think about this in the context of, mergers and acquisitions and some of the complexities that being dealt with by company users during this period, what are, some of the legal considerations that, that that you'd be able to.

Thanks, John. Yeah. Definitely a few things at play. Again, it's maybe Richard, the point in time and resource is key for this. You really can't start the process early enough, proper analysis and planning. Also under the transaction due diligence of both, you might have identified issues that need remediation.

This is where we see clients, need support on remediating contractors who've maybe been misclassified, or might need to support remote workers where, you know, post deal, there might not be a legal entity, in that country for someone who's moving as part of the transfer. So you really can't start early enough because there's always, some things that pop up which were unexpected. And again, your legal tax advisers will do the analysis with you at the early stages. Also service providers should should be, should be in panel for those for those educated, or for those issues.

Got you. And what are the key risks that people should be thinking about? I guess not just the acquirer, but also for the target company being acquired as well.

Yeah, there's obviously quite a few.

So as Em has already mentioned, there's the, just the penalties under the process itself, which can be quite punitive, especially if it's a large group.

So you've got your kind of material legal and financial risks, under the process itself, And it's very complicated, but it's obviously unfair dismissal claims. So subject to the two year qualifying hurdle, if there are any redundancies on the transfer, these might be automatically deemed unfair unless for an economic technical organization or ETO reason. So basically a change in the number of employees or structure you need to, perform that that business function, so a legitimate business need. But even then, none of the ETO redundancy is still subject to the rules of fair dismissal and a process needs to be followed.

Also similar with changes to to employment terms, you know, due to an ETO, this needs to be made. And even with, you'll still need employee consent or there might these might be voids or grounds for welfare as Bissell.

You've got the transfer of liabilities, of course, that move across as part of these transfers, so unpaid wages, historical discrimination claims, any, you know, ground strike and fair dismissal that already exist and passed the new employer, but of course the new employer under the deal may may seek warranties or indemnities from the apparent employer, so really under everyone's interest to get those right remediated pre or during the deal, then probably some more esoteric things like, non financial legal risks that pop up from time to time, if the operational risk on integration of these new employees into HRIS, finance systems, etcetera.

And again, the wider issues around, company culture and employee morale.

Yeah. That's, that's a really, that's a really good point there. And how does this in your mind, how does this compare when you're dealing with, like, the mix of countries somewhere there may be cheaper dollars in place, others where there may not be? How do you come stitch all this stuff together?

Well, yeah, if I was advising the company, on on one of these, multi jurisdictional, m and a deals, outside the UK or involved in the UK. Look up a country since you have the equivalent employer substitution legislation there.

Often these are a bit more for consultation periods and formalities than, than two P O A R D, derived laws, but they'll seek to respect a principle of ability, continuity of employment, work conditions, etcetera. So you've got a deal involving many countries. You're gonna have to look at the whole board, so to speak. And think about countries that e phase two p obligations or Kim's two p obligations or those that are kind of unregulated in this area. But even then, you might try to as a part of that analysis, which is why it's so important to start early that you want to align your contracts and benefits across these multiple jurisdictions, have a certain bar for standardization policy or employee value proposition.

So you might take a kind of a a blended approach from a human resources perspective, as well as a legal one.

Yeah, that's a, that's a really interesting one. So we're going to take all of those legal foundations to put them into that and understand and, and like, make it really, make it really easy for them in it and in the form of a comms plan. Amy Emer, I can, I can quote you on that? How do you kind of balance the social emotional side of the with the with all of the legal considerations? How do you think about like, a, like, an empathetic comms plan for Brent for Lisa going through that kind of transfer?

I mean, I'd say that there's really three pillars to this. Tronborate communication, empathy and understanding, and then lots and lots of internal training and support. For instance, other elements of the legal aspects of the transition that are worth communicating in a company or hiring, our team meeting to give the people a chance to field the questions.

How are you gonna build a cadence of constant communication as things evolve and change? And how can you empower department head and line managers to act as the spokespeople for their team? And you've gotta reinstall the affected employees that you're listening to their concern. You give them the chance to put their views forward.

Yeah. That makes total sense. Great.

I think we've covered a lot of ground here in a relatively short bit of time, so I think there'll be some good, hopefully some good nugget, to take away from this.

I want to come to, there's a one question we've got in there in the chat.

And, James, I can put you on the spot a little bit, but don't give a don't we're not giving any legal advice, but in that caveat in here. So there's one that's come in, from Aya. She says, to clarify James' last point, under two p is when you were talking about, asset purchases, under two p liabilities transferred to the buyer even in an asset deal.

Yep. Sorry if I misspoke. That was definitely my intention. Yeah. These, these will transfer.

Again, listen, you need to know where you are on those, on those definitions, but yes, they're, they're often caught and there's some interesting case law, on that. So, yep, completely agreed.

Perfect.

Well, look, let's, let's let's summarize a bit here. So it sounds like there's, I mean, I'll give you some mickey takeaways from this.

There are different ways of transferring, employees in different countries, and different countries will have their own local regulation. There's and I mentioned there are there are still foundational pieces that you'll need to get right, regardless of the country. There might be countries like the UK where there are specific regulations in place. My key takeaways from this are, be people that know about it. That might be, parallel, that's likely legal, but But also if you're looking to make this transition to your near eye opening, make sure that the neural therapy has the explicit.

Thankfully, I don't need to know all of this stuff cause I have Emma and James within my teams and they're thinking well, who can care. We'll call them back in real clear real key The dream. So lean on the expertise.

And the last thing I'm thinking is that end of communication approach because there's a load of complexity behind the scenes. There's, there's all sorts of different vulnerabilities and ways to get caught out.

But at the end of the day, we're dealing with people, we're dealing with humans, we're making sure we have that empathetic, really clear, really transparent, communicate plan and make sure we're really thinking about all the different, boxes and make sure we tick them all.

I think it's a really crucial element to this because it's a, it's going to be a period for employees, which is fraught with risk uncertainty, and all sorts of things in between. So those would be some of my key takeaway. But, James, let me get from you. What what are your key things for us on this?

So with that, obviously every everything's different, every deal is different, so really, really high level things. I think I mentioned that earlier. So handling your tax needs and advisors, good time, ideally from the planning stage. Bringing service providers also, allow the station time for analysis, decision making, and communication.

It really cannot hurt.

Obviously, you understand the legal and regulatory environment across all the jurisdictions you're involved with, and obviously understand your employees against the effective employees.

With that, comes the due diligence, which we spoke on before. So obviously you're reviewing the contracts, flexible agreements, etcetera, teams that have been many, many times. Some of the things you might find there, your contract misclassification, payroll or otherwise, you might want to do before the DD, but others can be remediated as as conditioned precedent, under the deal.

So those probably, yeah, just start idling with the advisers. So if there are any things that are, unexpected, you have enough time to build those in and you don't delay your DI execution. And we've had a recent case where we were working with, the Acquirer pre deal and we were able to do a lot of the work pre deal. So when it came to sign to time to sign and complete, we were already start working with the the USD part of the acquired group, which we couldn't work with due to confidentiality before then. So sometimes you might need to dial early with your service providers as well, and that really cannot hurt.

Yeah. That makes a lot of sense for us to care that when we can get into the situation and, and understand the, the setup as early as possible, really in the deal, then we can definitely set the set plans up to success.

And, Emma, what are your key takeaways from this?

The more top tips than key takeaways, and you've already covered two two of them, so I'm really glad that you've managed to take those away from this conversation.

The ones you've covered, make sure the right people are in the conversation.

Big professional advice as we've already said, particularly when dealing with pension arrangement.

But from within the few companies, it's really important to have the right people within the company in the conversation.

So the HR leaders, the legal advisers, finance expert, and then it required those employee representatives as well. Because it's not only about bringing the right people in, it's making sure that they're brought in as early as possible in the process as James has already said. And that even order to gain the insights, address the concerns, and build the consensus around the benefit decision.

The other one that you've mentioned was the communicator, and so I'm gonna tie this in with the consultation as well. So depending on the jurisdiction that's got maybe legal requirement to have consultation with the affected employees, it's really important that you've gotta absolutely follow the compliance rules on this consultation.

Super, super important. But then providing easy to understand, clear, timely communications to anyone that's affected about how the benefit and their pensions are gonna be affected by the transfer. And that goes right through to any changes, continuations, or enhancement.

It's really important that you're being honest and trumped out with those employees about the changes or harmonization and that you include the timelines for the changes and the the actual potential impact on them individually as well.

Provide regular update, opportunities for feedback, so all the way through the process, and offer educational resources as well, training session, personalized support to help them understand what's happening with the changes to their benefit, and address those concerns as you already said, navigate any new process in the system, and then everyone can go through the challenge done with the least pain as possible.

And the other top tip that I've got is plan. So not just start early, as Jay said, but also have a really comprehensive plan for integrating those transferred employee into the receiving entity benefit and pension programs, taking into account different date in things like eligibility for benefit, coverage, and contribution rate, and also plan to set up payroll because you've gotta consider the tax, social, and pension contributions that are gonna run through payroll at the result of these changes.

All of this can be really challenging. So, you know, a comprehensive plan from beginning to end with time frames is absolutely vital in my mind.

Yeah. I couldn't agree more. I think one of the most impactful sessions that, that you and your team run on this are those comparisons of, like, what what what the current benefits are, what what future benefits could be. And then how do we then, make sure they're as aligned as the cost we can be. I think that's sort of, that's one of the most, and I see that with clients as well, when they run-in the sessions, it kind of you could feel the wow moment. Oh yeah, no, I understand it now. It just puts their mind at you like, okay, we've got a, we've got a plan here to, to get through this.

So, yeah, there's, there's a really great session that you and your team run.

Thank you. We have one final question, which, Emma, this one's for you. So I put I put you on the spot. This is actually about one of the comments you made about the, feedback sessions with employees for the transfer.

The question is, what are the legal requirements there? Is there a timeline or or format for that?

And this is a legal question, so I'm gonna hand it over to James, but I don't think there's any legal requirements for feedback, Astrin.

James, if you wouldn't mind referring to That's not my understanding, but, we're I would think Hamid, an employment expert, is is definitely on the moderator chat, so he he can might could answer that in the if it's in the negative, but not to my knowledge either.

Okay. Thank you. So that's covering the legal requirement In terms of how you would run it on a practical basis, I would say that you'd have to have a deep time frame, within the first month, certainly, to make sure that you're getting fresh feedback because we all know that things happen and people get bogged down with other stuff, particularly if they're taking on a new role. So I'd say, within a month, then the format should be, anything that, like, the way that you would get free normally. So I mixed up a open and closed question with free text and comments as well.

I think Amir Amir is typing as well, so, hopefully, he can get back to Andy. If we don't, maybe if that, if this message doesn't reach you before the end of, there we go. We'll also follow-up, over email with that. So we'll make sure that you've got the, the answer in your, in your inbox. Brilliant. Well, look, I think that is all we have for today.

So, there's nothing else here except to thank you very much, my esteemed panelists. Really appreciate all of your insight and and knowledge. And I'm so glad that I get to work with you, and you've answered all these questions rather than me. It's, it's greatly appreciated.

We love working with you, George.