In this episode of Data Room, Neil Millar, a Partner in our Corporate team is joined by Gillian Service, a Partner in our Employment team. They delve into the crucial role of employees in M&A transactions. The discussion covers why considering the people aspect is vital, the differences between asset and share sales, key considerations for both buyers and sellers, and compliance with New Zealand employment laws.
[00:33] Neil raises the question of why parties to a transaction should consider the people involved. Gillian explains the necessity of ensuring employee transition, identifying key people, and maintaining business value. She highlights that most businesses rely heavily on their people, making it essential to understand who the key employees are and ensure they transition smoothly.
[01:59] Neil and Gillian discuss the differences between share sales and asset sales. Gillian details how employment relationships are affected differently in each type of sale. In a share sale, the ownership of the entity changes but the employment relationships remain intact, whereas in an asset sale, employment ends with the vendor and starts anew with the purchaser, requiring careful planning to ensure a smooth transition.
[02:29] Neil emphasises the importance of structuring deals considering the workforce size. Gillian adds that factors such as visa holders and unionised workforces can influence how a deal is structured. She shares insights on how to manage these considerations to ensure a successful transaction.
[05:20] Gillian discusses evaluating existing arrangements and ensuring key employees transition smoothly. She explains the importance of understanding key employees’ current teams and conditions and putting in place measures to retain them. Neil adds that legal and commercial restraints can protect business interests during this process.
[06:53] Gillian highlights the importance of retaining senior management during the sale process. She explains that vendors may need to put incentives in place to keep key people engaged and ensure they support the sale process. Neil discusses the economic considerations for transaction-related bonuses and retention arrangements.
[07:23] Gillian explains the obligations towards vulnerable employees in asset sales. She describes how these employees have the right to transfer on the same terms and conditions, making it essential for purchasers to understanding these obligations. Neil compares this with similar regulations in the UK and Australia.
[08:30] Gillian discusses the legal requirements for consulting employees during asset transfers. She explains that employers must engage in good faith consultations, especially when dealing with unionised workforces. Neil highlights the challenges of maintaining confidentiality during transactions and the need for careful planning.
[10:03] Neil and Gillian discuss the differences in consultation obligations between share deals and asset transfers. Gillian explains that while share deals do not legally require consultation, it is often good practice to inform employees. In asset transfers, however, consultation is a legal requirement due to the technical termination of employment.
[12:17] Gillian explains the concept of technical redundancy and its implications in asset sales. She describes how employees may face a technical end to their employment but continue working under the same terms and conditions with the new employer. Neil discusses practical issues around notice periods and ensuring seamless employment transitions.
[14:47] Neil emphasises the importance of due diligence in assessing compliance with employment laws. Gillian outlines key areas of focus, including general compliance with the Employment Relations Act and other relevant legislation. She highlights common issues found during due diligence, such as Holidays Act compliance and worker classification.
[18:46] Gillian expands on the key areas of due diligence, focusing on general compliance with employment obligations. She discusses the frequent legislative changes in New Zealand and how they impact compliance. Neil notes that employment law is one of the most evolving areas, making it crucial to stay updated.
[19:58] Neil provides an overview of the Holidays Act issues. Gillian gives a detailed explanation of common problems, such as miscalculations in holiday pay due to variability in work hours and the complexity of translating hours into days and weeks. She also discusses upcoming legislative changes aimed at addressing these issues.
[23:03] Gillian discusses the challenges of distinguishing between employees and contractors. She explains that New Zealand employment law looks beyond contractual labels to the real nature of the relationship. Neil highlights the impact of worker classification on transactions and the importance of ensuring compliance.
[26:32] Gillian provides a high-level overview of the Holidays Act issues and their impact on payroll calculations. She explains that miscalculations often arise due to variability in work hours and the complexity of the legislation. Neil shares practical examples of compliance issues and remediation efforts.
[28:22] Neil summarises the importance of considering the people side in transactions and ensuring compliance with employment laws. Gillian provides final thoughts on ensuring smooth transitions and reducing risks.
Information in this episode is accurate as at the date of recording, 7 March 2025.
Please contact Neil Millar or Gillian Service or our M&A and Employment teams if you need legal advice and guidance on any of the topics discussed in the episode.
Please get in touch to receive an episode transcript. Please don't forget to rate, review or follow MinterEllisonRuddWatts wherever you get your podcasts.
You can also email us directly at [email protected] and sign up to receive updates via your inbox here.
