Author: Colin Blears, partner, Plus HR

Topic: Mergers

About: plusHR

Colin Blears has 28 years’ experience in industrial and employee relations and has managed many high-profile mergers, acquisitions, disposals and outsourcing projects.   

OVERVIEW

The basic principle of business mergers is that when a merger occurs, employees’ contractual terms and their continuity of service are protected by law (the term ‘TUPE’ is an acronym for Transfer of Undertakings (Protection of Employment) Regulations 2006). There are also duties in relation to information and consultation to affected employees and their representatives

WHEN TO USE THIS GUIDE

• When your business is merging with another company.

10-STEPS ACTION PLAN

1. Plan your intermediate arrangements

• When two companies merge, there is normally a lead time of some months before the  businesses fully merge.  During this period, there is much planning to do. The first thing is to decide who is going to sit on the project team, ideally an equal number of project team members from both companies is selected.
  
• When two companies merge, there is often an expectation that the back-office processes and systems supporting the two businesses will merge onto a single platform. Indeed, this is typically the basis for much of the promised synergies and cost-savings. Start planning ahead of the game as to what systems are going to be used for the merged company.
  
• Pre-merger preparation should not focus solely on the economic / financial analysis and the business case, but also on the cultural compatibility of the two organisations. Cultural audits, focusing on values, performance parameters and attitudes, allow you to predict how successful the integration and ultimate business performance of the new, merged organisation will be. They also give clear signposts for faster integration.
  
• During the intermediate period of planning the merger, there will be many employees who will be fearful or apprehensive about their future. People may leave and find other jobs. Some of these may be key people in either the intermediate planning stage or in the newly-merged company. Think ahead as to how you can retain key individuals.  Paying a retention bonus of a specified amount for a specified period set against goals is an important incentive to retain key individuals.

2. Check sale agreement

It is important to check the contract which has been signed by senior executives / legal representatives from both business concerns. This will give you two important details:

• the date when the transfer is to take place
• The details of whether it is a relevant transfer.

The regulations stipulate that transfers have to occur at a single point in time and not over a period of time. Relevant transfers are when there is a transfer of an economic entity or a going concern. Share transfers or sale of equipment do not in themselves constitute a transfer of an undertaking.

3. Plan your new organisation

• What will the newly-merged organisation look like? Unless a CEO has been appointed early on, this is a very difficult process as you have two existing organisations whose senior management will be competing for jobs in the new organisation. 

• It's imperative that a senior HR executive is appointed early on as they will ensure that the procedure and policy for selection will be established early on, initially for senior management selection and will then be used as a template for all other selections down the organisation.

• Draw up organisation charts of how the new company will look. Prepare a checklist of what you need to propose for the new organisation, including:

• HR policies and procedures for  performance management, training, health & safety, recruitment etc.
• Compensation & benefits including pensions, insured benefits, car policy, salaries, bonuses, holidays, job grades.  
• HR systems and payroll.
• Communications including house style, employee information and consultation forums.
• HR suppliers – whether for training, legal advice, pension advisors and recruitment agencies. They need to be informed and new contracts drawn up.

4. Plan and implement your new HR team

• The members of the two HR teams often get overlooked in a big business merger – they are normally the last people to get sorted out. Both teams are going to be very busy and will undergo a lot of stress, not just about the future of their colleagues (in other departments) which they will have to manage but also for their own future.

• It's advisable to start consulting with them about their aspirations. If you can decide on the new HR structure and confirm who is staying and who is not early on before the merger, you will have a much more stable unit that will be able to effectively deal with all the complexities and hard work of the merger.

5. Prepare early the information for employee representatives

Ensure that you gather information regarding the merger early on. Make sure you get approval from your senior management group or specialist advisors. When this information is given to your employee representatives, it will not inspire confidence if, later on, you have to make amendments. If you do not have trades union or employee representatives in your company, you should make arrangements for your employees to hold elections to appoint representatives.  

Details you have to supply employee representatives are: 

• the relevant transfer
• the date of transfer
• the reason for the transfer
• the legal, economic and social implications of the transfer
• whether the newly-merged company intends to take any measures following the transfer in relation to employees i.e. is the new company planning to make redundancies.

6. Prepare your 'employee liability information'

You also have to supply the other company involved in the merger with detailed information. Prepare this early so that any potential problems can be dealt with before the plans are unveiled to your employees. 

You have to provide the following information:

• identity and age of affected employees
• employment contract details 
• information on any disciplinary or tribunal cases over the past two years
• details of any collective agreement in force
• any pension provisions you have in force and their funding rate.
  (Please note that pension provisions equivalent to the TUPE regulations apply to pension rights. In essence, if the previous employer provided a pension scheme then the new employer has to provide some form of pension arrangement for employees who were eligible for, or members of the old employer's scheme. It will not have to be the same as the arrangement provided by the previous employer but will have to be of a certain minimum standard specified under the Pensions Act.)

Please also remember that you have a duty to notify the Secretary of State in writing if the new company is proposing to dismiss as redundant:

• 100 or more employees at one establishment within a period of 90 days or less, then no redundancies can take place before 90 days, and 
• 20 or more employees at one establishment within a period of 90 days or less, then no redundancies can take place before 30 days.

7. Prepare your communications’ strategy

• It's essential for a successful merger to have well-planned communications’ strategy that has been agreed by all members of senior management. Ensure your middle managers are well briefed – they are the group that have to manage their staff’s questions and expectations i.e. they are on the front line.

• Have your script prepared early for the first of the information and consultation meetings and have someone else sit in to take all meeting notes – conducting a meeting and taking accurate notes are too much for one person to handle well.

8. Plan and organise your information and consultation meetings

Have written and agreed plans for holding these meetings. Make sure you have frequent meetings, perhaps even weekly. If you let some of these meetings slip, it can build up suspicion in your representatives and affected staff. So even if there is no news or developments to discuss, give your reps the opportunity of sitting down with you. Also, ensure all minutes are quickly distributed to reps after any meeting. Reduce suspicion by being transparent and having face-to-face meetings. 

9. Be prepared to deal with ETO issues

The  newly-merged company may want to take measures based on an economic, technical or organisational reason.   Remember, if an employee resigns before the transfer takes place as a result of changes to terms that the new company proposes, liability for constructive dismissal will remain with the existing companies. So it is in your interests to facilitate this process.  

10. Harmonising terms and conditions following a transfer

• Changes to terms of employment "in connection with the transfer" will be deemed void, even if the employees agree to them (with the exception of ETO reasons). Changes can only be made if they are not "connected to the transfer". This is likely to be the case if the changes affect all the workforce of both companies at a suitable point following the transfer, e.g. at the start of a new financial year. It's recommended that this should still be at least 12 months after the transfer, but even then their effectiveness is not guaranteed. Advice should be taken if changes to terms of employment are being contemplated.

• Many companies are introducing flexible benefits into newly-merged businesses as this can remove the need to fully harmonise and, in the long run, will be a much cheaper alternative to moving every employees’ pay and benefits up to the highest level that existed in the parent companies.

EXPECTED OUTCOMES | RESULTS

• On the date of the merger, all transferring staff will move over seamlessly to the new company
• The newly-merged business continues to operate successfully and effectively
• No hidden staff issues are raised following the transfer
• No employment tribunal applications are made by either redundant employees or transferred staff to either company
• All HR suppliers continue to offer the new company levels of service previously enjoyed
• The merged company will have its own culture established from day one and all employees will be aware of what they have to do and how they will work in the future.

Disclaimer:
This guide is provided for guidance only. The provided information, whether ‘How to guides’, policies, procedures, samples, examples, or guidelines, while authoritative, is not guaranteed for accuracy and legality. While we make every effort to provide and link to accurate, legal, and complete information, we cannot guarantee it is correct for a worldwide audience. Please seek legal assistance, or assistance from your local or international governmental resources, to make certain that your legal interpretation and decisions are correct.