Employment issues in M&A transactions should be considered separately for share deals (involving changes in partners or shareholders), and for asset deals (involving an enterprise, an organised part of an enterprise or other assets), which result in
a change of the employer by operation of law.
Share deals generally do not affect the employer’s duties to the employees or the employment relationship in force between them, and do not entail the necessity to take additional actions with respect to employees.
If the employer joins a new capital group, however, that may make it necessary to carry out changes in the operations of the employer, the level of employment, or the organisation of the work in order to adapt them to the needs of the group or the rules in force within the group. Such measures may require notification and consultation with the works council (if appointed).
Under the Employee Notification and Consultation Act of 7 April 2006, the employer is required to provide the works council with information concerning the current situation of the employer: the employer’s business and economic situation, the state and structure of employment, and actions planned for the future, i.e. anticipated changes in the employer’s business and economic situation, changes in employment, measures intended to maintain the level of employment, and actions that may cause significant changes in the organisation of the work or the terms of employment. The employer is required to provide information to the works council on its own initiative of anticipated changes or intended actions, and at any time upon written request of the works council. If the works council and the employer have not specifically agreed on the procedures for information and consultation, it is assumed by analogy to regulations concerning transfer of the employment establishment that 30 days’ advance notice to the works council concerning planned changes is sufficient.
Apart from the duties to provide information to the works council, in matters directly affecting emploees, i.e. issues related to employment, terms of employment, and maintaining the level of employment, and actions that may cause significant changes in the organisation of the work, the employer is required to consult with the works council. Share deals are rarely consulted with the works council, however, because the transaction documents hardly ever cover issues that require consultation. In practice, changes that require consultation typically happen after the share deal is over.
The consultation obligation is a duty to make best efforts—not to achieve a result. The employer is required to make every effort to reach agreement with the works council through dialogue and an exchange of views, but the parties are not required to agree on a common position on the matter. The purpose of consultations is for the employer to hear out the position of the employees’ representatives and if possible reflect their position in its plans. As with the informational duties, the regulations do not provide a fixed timeframe in which consultations must be conducted, but only indicate that consultations should be conducted in a time, form and scope enabling the employer to act on the matters subject to consultation. This means that consultations should be conducted far enough in advance that the employer has an opportunity to modify its plans to reflect matters agreed on during the consultation process. In other words, changes should be consulted with the works council before implementation, not after the fact.
If as a result of a share deal any actions are to be taken that require notification and consultation with the works council, the transaction documents should include a statement by the seller concerning its compliance with these requirements.
Failure to comply with the requirement to notify and consult with the works council does not affect the transaction as such, but may subject the employer (as a rule, the management board) to punishment with probation or a fine.
Under Polish employment law, an asset deal generally results in passage of the establishment (or part of the establishment) to a new employer.
Under Labour Code Art. 231, passage of an establishment (or part of an establishment) results by operation of law in the new employer’s assumption of the rights and obligations of the former employer in relation to the acquired employees. Succession in employment relationships occurs automatically, regardless of the intentions of the employees or the opinions expressed by the employee representatives or any actions they may take with respect to transfer of the establishment.
Transfer of an establishment (or part of an establishment) may occur as a result of various legal events, including sale, conclusion or termination of a tenancy agreement, separation of the new establishment from the employer’s organisational structure, conversion of a cooperative establishment into a separate cooperative, or—in certain circumstances—agreements transferring tasks and functions (e.g. outsourcing agreements).
1. Notice to employees/trade unions
Transfer of an establishment (or part of an establishment) entails a requirement to notify the trade unions operating at both the former and new employers, or if there are no trade unions, the employees. The notice should specify the anticipated date of the transfer and the reasons, as well as the legal, economic and social effects of the transfer for the employees, including the intended actions concerning the conditions of employment, pay, retraining and the like. If there is a change in the date of the transfer, the employer is required to notify the trade unions (or employees) of the new date. Notice of the planned transfer should be provided at least 30 days prior to the anticipated date of the transfer.
If the former or new employer does not intend to make any changes in the conditions of employment in connection with the transfer, once the requirement to notify the trade unions under Art. 261 of the Trade Unions Act of 23 May 1991 has been fulfilled, the employer has no further obligations to the establishment (or inter-establishment) trade unions in connection with transfer of the establishment.
However, if the employer does intend to make such changes, it is required to consult them with the establishment (or inter-establishment) trade unions. In this situation, consultations are obligatory if the planned changes are connected with the transfer of the establishment. Planned changes in the conditions of employment unrelated to the transfer of the establishment do not constitute grounds for commencing consultations under the procedure provided in Trade Unions Act Art. 261.
The purpose of the consultations with the establishment (or inter-establishment) trade unions is to reach a collective agreement providing the rules for carrying out changes in the conditions of employment. This procedure is provided only for employers where establishment (or inter-establishment) trade unions are in operation. Staff at other employers are deprived of the opportunity of exerting an influence over the planned changes in the conditions of their employment, as the law does not provide for consulting them and reaching an agreement on such changes.
The agreement should be concluded within 30 days after the employer informs the establishment (or inter-establishment) trade unions of the planned actions. This period is only a guideline, and if it takes longer to reach agreement that will not affect the validity of the agreement.
The employer’s failure to follow the procedure for consulting the transfer of the establishment with the establishment (or inter-establishment) trade unions does not invalidate the transfer to the new employer or its assumption of the employees. However, the individuals who were required to inform and consult with the trade unions due to the positions they hold are subject to sanctions in the form of a fine or probation.
Apart from notification of the employees or trade unions concerning the planned transfer of the establishment (or part of the establishment), as in the case of a share deal, employers may be required to inform and consult with the works council, if the transfer may affect matters that are subject to informing and consulting with the works council.
If as a result of an asset deal there will be a transfer of the employment establishment (or part of the establishment), it is reasonable to regulate in the transaction documents the scope of shared liability of the employers for claims of employees and obtain
a statement by the seller concerning performance of the foregoing obligations under Labour Code Art. 231 or Trade Unions Act Art. 261 and the Employee Notification and Consultation Act.
2. Employers’ liability to employees
The former and new employers are jointly and severally liable for obligations arising under the employment relationship prior to transfer of part of the employment establishment to the new employer. There are no specific regulations concerning joint and several liability of the former and new employers in the event of transfer of the entire establishment. It is accepted in the case law and the literature that an employer taking over an entire employment establishment is liable to the employees for new obligations as well as those arising prior to the transfer. However, this does not exclude the liability of the former employer for obligations arising prior to the transfer, under the principle of in solidum liability.
3. Work and pay conditions under internal regulations
Employees’ entitlements arising out of their employment with the given employer are based not only on each employee’s employment contract. Employees also have entitlements provided in the work rules, pay rules and collective agreements. Transfer of the employment establishment to a new employer under Labour Code Art. 231 does not, as a rule, result in the new employer’s assumption of these internal regulations. Nonetheless, the employees will retain the entitlements they held thereunder up to the date of the transfer, generally until the terms of their employment are amended in this respect.
Enterprise collective bargaining agreement
Under Labour Code Art. 2418 §1, for one year following transfer of the employment establishment, the new employer is required to comply with the provisions of a collective bargaining agreement with respect to the assumed employees who were covered by the agreement at the time of the transfer. The new employer does not become a party to the collective bargaining agreement, but is bound by its terms.
The new employer may apply more favourable terms to the employees covered by the collective bargaining agreement than those arising under the existing arrangement.
When a year has passed following the transfer, the new employer is no longer required to comply with the collective bargaining agreement. However, the individual employment relationships established by the provisions of the agreement remain in force until amended by a modifying notice or agreement.