Merger and Acquisition (M&A) transactions are economic transactions that take
place between two or more companies to become a single entity. Mergers are
combinations of two companies while an acquisition means a takeover of a
company's assets and liabilities by another company. Merger and acquisition
transactions are not always amenable transactions between the two companies that
are involved and can be hostile takeovers or leveraged buyouts.
Such transactions are entered into in order to increase the market power and
reduce competition, or for more economical reasons such as savings of cost,
sharing infrastructure, and complementary resources. Finally, M&A transactions
can open up new markets which in turn can help in increasing revenue and growth
On the other hand, M&A transactions have a significant impact on the companies'
employees and management and can lead to job losses. M&A transactions can
negatively affect the parties involved as certain positions may be eliminated
due to redundancy.
To combat this repercussion of M&A transactions, labour laws were put into place
in every country. Such laws safeguard the interests of employees and offer them
legal protection against the impacts of an M&A.
Following is a description of the labour laws relating to M&A transactions in
In the United States, labor laws related to merger and acquisition (M&A)
transactions are primarily governed by the Worker Adjustment and Retraining
Notification Act (WARN) and the National Labor Relations Act (NLRA).
The WARN Act applies to employers that are engaged in a merger or acquisition
that results in a plant closing or mass layoff. The WARN Act requires employers
with 100 or more employees to provide at least 60 calendar days of advance
written notice to affected employees prior to a plant closing or a mass layoff.
A plant closing is defined as the permanent or temporary shutdown of a single
site of employment that results in an employment loss for 50 or more employees
during any 30-day period.
A mass layoff is defined as a reduction in force that
results in an employment loss at a single site of employment during any 30-day
period for 500 or more employees, or for 50-499 employees if they make up at
least 33% of the employer's active workforce. If the acquiring company is
considered a successor employer under the WARN Act, it may be held responsible
for complying with the notice requirements.
The NLRA protects employees' rights to unionize and engage in collective
bargaining. In the context of an M&A transaction, the NLRA may come into play if
the transaction involves a change in ownership or control of a unionized
workforce. The NLRA requires the new employer to recognize and bargain with the
union representing the workforce, and to honor the terms and conditions of any
existing collective bargaining agreement.
It is important to note that other federal and state labor laws may also apply
to M&A transactions, depending on the specific circumstances of the transaction.
In the European Union (EU), the Acquired Right Directive governs the labor laws
related to merger and acquisition (M&A) transactions.
The Acquired Rights Directive requires that employees of a company being
acquired must be informed and consulted about the transaction. This includes
providing information about the legal, economic and social implications of the
transaction, and consulting with employee representatives or trade unions. The
purpose of this requirement is to ensure that employees are informed about the
potential impact of the transaction on their employment.
Under the Acquired Rights Directive, employees also have the right to transfer
to the new company on the same terms and conditions of employment. This means
that the new employer is required to honor existing employment contracts, and
employees cannot be forced to accept less favorable employment terms or be
dismissed as a result of the transfer. The directive applies to transfers of an
undertaking, or part of an undertaking, to another employer as a result of a
legal transfer or merger.
In addition to the Acquired Rights Directive, EU labor laws related to M&A
transactions may also be influenced by other EU directives or regulations, as
well as national laws and regulations in individual member states.
It's important to note that the specific labor laws related to M&A transactions
in the EU can vary depending on the specific circumstances of the transaction,
and may be subject to interpretation by the courts.
In China, labor laws related to merger and acquisition (M&A) transactions come
under the Labor Law of the People's Republic of China and the Regulations on
Once again, employees have the right to be informed regarding the various
aspects of the M&A, which ensures that employees are aware of impacts on their
The Regulations on Labor Dispatch regulate the use of labor dispatch services in
China. Labor dispatch refers to the practice of a third-party agency dispatching
employees to work for a company. If the acquiring company in an M&A transaction
uses labor dispatch services, it must ensure that the employees dispatched by
the third-party agency receive the same treatment and benefits as the acquiring
company's own employees.
In addition, the Labor Contract Law of the People's Republic of China requires
that the acquiring company honor the existing employment contracts of the
transferred employees. If the acquiring company wishes to change the terms and
conditions of employment, it must negotiate with the employees or their
representatives to reach an agreement.
In Japan, labor laws related to merger and acquisition (M&A) transactions are
controlled by the Labor Standards Act and the Act on Securing, Etc. of Equal
Opportunity and Treatment between Men and Women in Employment.
Similar to the countries above, the act requires that the employees of a company
being acquired must be informed and consulted about the transaction, including
the legal, economic and social implications. The purpose of this requirement is
to ensure that employees are informed about the potential impact of the
transaction on their employment.
The Act on Securing, Etc. of Equal Opportunity and Treatment between Men and
Women in Employment requires that the acquiring company ensure that there is no
discrimination against employees on the basis of gender, and that men and women
are treated equally in terms of employment conditions, including pay and
In addition, if the acquiring company wishes to change the terms and conditions
of employment, it must negotiate with the employees or their representatives to
reach an agreement. If an agreement cannot be reached, the acquiring company may
need to follow a formal consultation process and obtain approval from the labor
Labour Laws governing M&A in India
In India, rights of employees related to merger and acquisition transactions is
majorly governed by the Industrial Disputes Act, 1947
According to Section 25FF of the Industrial Disputes Act, 1947, whenever the
ownership of a concern is transferred to another owner, all workmen who have
been in the employment of the previous owner are entitled to receive notice of
such transfer of undertaking and compensation thereof.
There is a proviso to the aforementioned section which provides that the
workers are not entitled to notice or retrenchment compensation if the following
conditions are not met
- The workman's service has not been disrupted as a result of the transfer
- The terms and conditions of the worker is not any less favourable to him as a
result of the transfer
However, in the case of Sunil Kr. Ghosh v. K. Ram Chandran, it was held that the
old employer is required to take the consent of the employees regarding the
transfer of ownership notwithstanding any change in their terms and conditions
According to Section 9A of the Industrial Disputes Act, 1947, if an employee's
working conditions change as per Schedule IV of the ID Act, then they are
entitled to notice of change in ownership 21 days prior to such transfer
Finally, employees are entitled to retrenchment compensation if they lose their
jobs as result of the merger or acquisition. Retrenchment means termination of
employment of an employee due to reasons other than indiscipline on the part of
the employee. Section 25F of the Industrial D Act specifies the compensation
that a company must pay in case it retrenches its employees as a result of the
transfer of ownership
Labour laws have been monumental in protecting the rights of employees in
several instances over the years. They establish a sense of equality where an
employee is not at the mercy of the employer, reverting the oppression that
employees faced in the history of trade and employment. Nevertheless, one should
be careful that labour laws in all countries are very complex and subject to
interpretation by courts. It is therefore safe to navigate these laws by
consulting a local legal advisor. While the current laws are quite
comprehensive, it is important for these laws to keep evolving according to the
needs of society at global and domestic levels in order to continue serving
- Worker Adjustment and Retraining Notification Act, 1988
- National Labour Relations Act, 1935
- Acquired Rights Directive; Council Directive No. 77/187 of 1977
- Labour Law of People's Republic of China, 1995
- The Labour Standards Act, 1947 (Act No. 49 of 1947)
- Act on Securing, Etc. of Equal Opportunity and Treatment between Men and Women in Employment, 1972 (Act No. 113 of 1972)
- Industrial Disputes Act, 1947 (Act No. 14 of 1947)
- Sunil Kr. Ghosh vs. K. Ram Chandran (2011) 14 SCC 320