Kanzlei fuer Arbeitsrecht Schweier
Due Diligence – Employment law examination in case of acquisitions

Employment law often plays an important or even decisive part when preparing acquisitions. Purchasers want to be certain about their future obligations vis-à-vis the employees of the “target object” (the purchase of which they are interested in).

Therefore, with regard to legal matters, investors entrust lawyers with checking if “there are any corpses in the target’s cellar”.

A review team generally consists of one or several lawyers who specialize in corporate law and/or mergers and acquisitions, of tax advisers and/or auditors, and possibly additional specialized consultants (please also see Network). Calling in a certified labor law expert, who is experienced in this field, is common practice. The team members check their respective topic. The findings are described and summarized in a comprehensive report.

Due Diligence Report – Employment Law

Depending on the client‘s request, I can draft the report in German or English.This report provides for the topics, which are relevant to the examination
  • how the employment conditions are regulated (e.g. unusually extended notice periods, claims for a severance pay etc.),
  • whether the employer is bound by collective bargaining agreements,
  • which shop agreements (Betriebsvereinbarungen) were entered into,
  • which pension obligations there are,
  • whether the state authorities objected to the deduction and payment of income tax and social security contributions,
  • whether employees were falsely passed off as freelancers etc.

Also the structure of the acquisition is important. Thus, in case of a share deal, e.g. arrears of social security contributions payable by the company will stay with the company the shares of which are acquired, whereas such claims are not transferred to the purchaser, the new owner of the business, in case of an asset deal.

Depending on the findings of the Due Diligence Review, risks can be „captured“ or at least minimized by structuring the provisions of the purchase agreement correspondingly (e.g. by providing for specific guarantees of the seller).

Kristina Schweier is experienced in conducting Due Diligence Reviews from an employment law perspective. Please see Projects.