Employment and Labour Considerations in Business Transactions – Part I: Understanding the Transaction

Those who plan, structure and execute business transactions for organizations, and those with human resources and labour relations responsibilities within them, must identify and understand related employment and labour issues. They must also take steps to ensure that they meet the transaction’s objectives without unintended consequences. In Part 1 of our two-part presentation, we underscore the importance of understanding the transaction by asking these four questions about a transaction’s objective and nature, jurisdiction, and post-transaction employment needs:

1. What is the objective of the transaction?

The first question has to be, "What are we trying to achieve with this transaction?"

In some cases, the proposed transaction is driven by employment and labour issues — for example, to reduce labour costs.

In many cases, there is no direct labour or employment objective, but it may be possible to identify collateral objectives related to labour and employment. For example, a merger or acquisition may introduce new opportunities for skill development or for promotion. You will want to ensure that the transaction captures those benefits and allows them to be exploited.

And there is almost always the possibility that labour and employment issues can affect the outcome, for good or ill. Communication with employees is always crucial to limit the potential for misunderstanding and uncertainty and to emphasize the positive for the sake of employee morale.

In all situations, it is crucial to understand the objective of a transaction and to review all labour and employment issues with a view to improving the chances of achieving the objective or to minimizing the risks associated with the objective.

A useful early step to help understand the objective and identify the issues is to sketch out the pre- and post-transaction organization and work-flow charts.

2. What is the nature of the transaction?

Is the proposed transaction a purchase of another business? If so, is it an asset or share purchase? Or is it a merger/amalgamation with another company, an outsourcing, or a corporate reorganization?

It is important to review all labour and employment issues as soon as possible to make an initial assessment of whether the objectives can be met. Early identification of the issues can also influence the final structure of the transaction. HR and labour relations leaders should not be shy about reviewing the issues with those who are leading the transaction to ensure that the best possible structure is chosen.

3. What jurisdictions are involved?

If the transaction involves organizations from different jurisdictions, there could be very different treatment of employment issues. That could be an issue for organizations operating under different provincial jurisdictions. Even more complicated is a transaction involving organizations whose employees are variously federally and provincially regulated. The different successor and termination provisions of labour and employment legislation will have to be considered, and how the post-transaction organization is to be governed must be determined.

4. What are the employment needs?

Post-transaction employment needs are a crucial consideration. Acquiring another business, bringing together two or more operations, or outsourcing certain work may result in the opportunity or need to reduce the workforce.

If there is to be a reduction, there are issues of when and how it should be accomplished, and at whose expense.

A realistic sense of timing is also needed. Many changes require a period of transition and can generate the need to offer incentives for employees to stay to a certain date, even though they know their employment is ending.

In many situations, key employees will need encouragement to stay. It is likely that as the economy improves, a renewed effort to retain the top talent will be necessary and the number of employees considered "key" will increase.

In Part II, we will review in detail the labour and employment issues that typically arise in various transactions. We will also look at new developments in privacy law that assist in the full collection, use and disclosure of personal information necessary for proper consideration of the labour and employment issues. In the meantime, here is a checklist of the considerations to be addressed more fully in our next issue:

  • Terms of employment: What are all the common law, statutory and contractual terms of employment of affected employees?
  • Collective bargaining obligations: What collective agreements, certifications and union relationships are in place?
  • Union and non-union "successorship": Will the transaction lead to assuming collective bargaining obligations or the accrued seniority and rights of non-union employees?
  • Offers of employment: Do new offers of employment need to be made, by whom, when, and how?
  • Terminations: Are terminations of employment required, and what are the common law, statutory and contractual obligations?
  • Employees not actively at work: Who will employ those who are currently on some form of leave, and who will employ them when they are ready to return to work?
  • Employment/labour claims and litigation: What ongoing or threatened claims and suits might be assumed in the transaction, how will they be handled, and who will be liable?
  • Pensions and benefits: Will changes to pensions and benefits be necessary? Are there any funding issues with pension obligations? What regulatory hurdles are in the way?
  • Workers’ compensation: Will the transaction be good or bad for the rate payable for workers’ compensation?
  • Employment Insurance and Canada Pension Plan: Will the transaction result in employer contributions starting anew, and is the cost significant enough to alter the structure or timing of the transaction?
  • Immigration: Do any of the employees of a party need to enter Canada from time to time as part of the negotiation or due diligence for the transaction? Are any of the affected employees in Canada on a work permit specific to the current employer?

Click here to read "Employment and Labour Considerations in Business Transactions —  Part II: Typical Labour and Employment Issues."