Global employment issues in M&A transactions and post-acquisition integrations

Global employment issues in M&A transactions and post-acquisition integrations is a two-part series examining key global employment issues that may arise during merger and acquisition (M&A) transactions involving Israeli companies.

While the first article focused on employment considerations at the transaction stage, this article addresses employment issues that could arise during the post-acquisition integration (PAI) process. 

PAI generally involves the process of combining organizations, workforces, and operations following a transaction. While anticipated synergies – such as the right-sizing of headcounts and entities – often underpin acquisition strategies, employment-related complexities frequently affect integration timelines and outcomes. This article outlines key employment considerations that commonly arise during PAI, emphasizing the importance of early planning, jurisdiction-specific execution, and coordinated legal involvement to support a successful transition. 

Integration planning considerations

Given that talent is often a key reason for the deal and a driver of the new company’s success, employment issues often warrant early consideration alongside tax and corporate matters. Early attention to these issues may affect workforce continuity and integration outcomes. In asset deals, employees typically transfer into the appropriate acquiror entity, but in share deals, acquiring companies may inherit multiple legal entities, each with their own workforce. 

Integration involves consolidating duplicative entities and transferring personnel. Jurisdiction-specific planning supported by country-level checklists may help to ensure a seamless transfer based on the applicable employee transfer law. Considerations may include:

• Compensation and benefits for transferring employees, including employment contracts, supplementary agreements, benefits, non-compete provisions, policies, handbooks, collective bargaining agreements, and other terms and conditions
  
  
• Transfer of contingent workers and contractors
  
  
• Individual or collective information and consultation obligations 
  
  
• Employee transfer documentation, which varies based on transfer method and jurisdiction 

Employee transfer mechanics

Employee transfers require compliance with jurisdiction-specific payroll, filing, notice, registration, and record-keeping obligations. Integration planning may also involve consideration of new-hire formalities and policy updates triggered by headcount changes. Companies are encouraged to avoid “deemed integration,” where human resources and business teams informally integrate employees or operations before corporate or tax structures are finalized, which could result in unintended legal or tax consequences.

Employment-related obligations under the transaction agreement

Transaction agreements may restrict changes to terms and conditions or employee transfers between signing and closing, provide for employee transfer mechanics and continuation periods during which employee terms and conditions may not be reduced, and condition the closing on the acceptance of offers by designated key employees. These provisions frequently shape post-closing integration activity.

Limitations on harmonization and restructuring under local law

While organizations may consider it a critical business objective to align employee terms across a combined organization, local laws often limit the extent to which terms can be changed. For example, in the European Union and United Kingdom, the Acquired Rights Directive and Transfer of Undertakings (Protection of Employment) Regulations 2006 generally require employees to retain existing terms. Moreover, some jurisdictions limit agreed-upon variations.

Employment termination frameworks also vary widely across jurisdictions. At-will employment is virtually nonexistent outside the United States, and therefore most countries have prescriptive dismissal processes which must be followed by law. In Israel, for example, any termination requires a reasonable basis and a mandatory pre-dismissal hearing process, during which the employee must be given a meaningful opportunity to respond. Other jurisdictions impose similar procedural requirements for terminations. In the context of mass layoffs, there may be additional requirements, including mandatory social plans or notifications to government authorities. In many jurisdictions, certain categories of employees are subject to enhanced protection from dismissal, including in some cases employees on protected leave or serving as works council or union representatives. 

Equity compensation considerations

Acquiring companies often inherit legacy equity incentive programs or awards following an acquisition. In this context, integration planning may involve proactively addressing compliance requirements applicable to existing equity awards, such as government filings, tax qualification maintenance, or foreign exchange controls.

Companies are also encouraged to examine how and whether to transition employees into the acquiring company’s existing global equity plans, which may involve additional securities, exchange control, labor, data privacy, and tax considerations. For example, in Israel, equity compensation is a common component of technology sector employment packages, and tax-qualified plans are frequently used. Therefore, tax treatment of options and restricted stock units may be particularly relevant where there is change of control or transfer event.

Headcount-driven considerations

Following a transaction, a merged entity's combined headcount may trigger new local obligations, such as pay transparency filings, works council formation requirements, or potential collective dismissal thresholds that neither company may have faced independently. In Israel, for example, employers with 25 or more employees must ensure adequate representation of people with disabilities, and employers with more than 100 employees must meet a three-percent workforce threshold and appoint a commissioner. Additionally, termination of ten or more employees simultaneously may trigger notification obligations to Israel’s Bureau of Employment Services. Companies are encouraged to proactively consider such headcount-driven obligations early in the integration planning process. 

Immigration-related considerations

Changes in corporate ownership or employing entities may require immigration filings or notifications, for example, for sponsored employees. Non-compliance may give rise to consequences such as fines, suspension of work authorization, or limitations on future sponsorship, depending on the jurisdiction. In Israel, employing non-Israeli citizens requires work permits and visas issued by the Ministry of Interior, and corporate restructurings may necessitate re-issuance of these documents.

Day-one integration considerations

Companies are encouraged to prepare for day-one well before closing. Considerations may include:

• Integration timelines
  
  
• Whether the acquired business will operate independently or be integrated
  
  
• Whether headcount reductions will occur
  
  
• Applicability and rollout of policies, including global codes of conduct, which may require consultation with works council or unions as well as employee notifications and consents
  
  
• Access to communication and information technology systems, which in some jurisdictions requires prior employee representative consultation
  
  
• Treatment of existing equity, bonus, and commission arrangements
  
  
• Employee communications, which may be subject to information or consultation requirements depending on the content and audience

Conclusion

Global employment considerations can play an important role in post-acquisition integrations. Early identification of legal constraints, structured coordination among local professionals, and disciplined execution of employee transfers and workforce changes could affect integration timing and execution. Addressing employment considerations as part of integration planning may provide greater visibility into potential constraints as organizations move from signing to implementation. Early attention to such matters can allow companies to be better positioned to retain key talent, achieve anticipated synergies, and realize the full strategic value of the transaction Despite the challenges, careful planning can lay the groundwork for a smooth transition and the achievement of business objectives.

DLA Piper advises on global employment considerations that could arise in cross border M&A transactions and the PAI process. For additional information on the topics discussed in this article, please contact the authors.