Mergers and Acquisitions: How Do They Impact Employees? [Case Study]

Kate Palmer

Kate PalmerHead of Advisory and Equality Expert at Peninsula

Friday, May 4, 2018

Merging one company with another is a technique often used to ensure company growth whilst keeping expansion costs low.

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The latest merger in the public eye is that of Britain’s second and third largest supermarkets, Asda and Sainsbury’s, which will create a combined workforce of 330,000 employees. Staff may, however, be wondering what the merger means for them?

What does TUPE mean?

Employees of merging companies can be protected under TUPE rules. The Transfer of Undertakings (Protection of Employment) Regulations 2006 apply to business transfers, usually where all or part of a business is transferred from one employer to a new employer. A business transfer can, however, also apply where there is a merger between two companies who combine to form one new business. For TUPE to apply, the employer’s identity must change, for example, staff employed by Asda will transfer to the employment of the newly-formed merger company.

How does this affect contracts?

Where TUPE applies, the contracts of employment of all employees will automatically transfer to the new merger company. Importantly, the employees have a right to transfer on their old employment terms, including pay, working hours and annual leave. This will leave the merger company with two sets of staff who work under different terms, with more variances likely for those who have been employed under different structures or are long-standing employees.

The merger company’s new employees are protected from having their terms and conditions amended because they have transferred. For example, the new employer will not be able to simply harmonize contracts to have uniform terms for all. Variations to terms can take place, however, where an economic, technical or organizational (ETO) reason applies which entails changes in the workforce, e.g. a change to numbers, location or function of the workforce.

Common ETO reasons include a business reorganization or the use of new technology. Employees will also have to agree to these changes, which may be difficult to achieve if the new terms are detrimental to them. Changes to terms that are not because of the transfer, which the new employer will have to prove is the case, can be carried out under the normal consultation and agreement process.

What does this mean for Asda and Sainsbury’s employees?

The supermarkets have publicly stated there will be no job losses as a result of the merger. In fact, transferred employees are protected against dismissals where the sole, or principal, reason for the dismissal is the transfer. Such a dismissal will be automatically unfair.

Employers can, however, rely on an ETO reason which entails changes in the workforce to dismiss staff. This will usually be the case where a normal redundancy situation arises following the transfer which results in the number of employees needing to be reduced.

The impact of a merger

As well as the legal impact on the transfer of their employment, mergers also have a knock-on effect in many different areas. For example, the culture of one business is often very different to the culture of another. When combined, employees who are accustomed to a particular way of working or attitude from their managers can find that this has changed, and not always to their liking. The values of the new employer are also likely to be slightly different as they amalgamate or update the values of the old employers.

Looking to the future

However, once the merger has taken place, there may be new opportunities for development or different training routes introduced for employees. In addition, mergers can provide employees with greater opportunities to share their development ideas or put forward future suggestions, allowing employees themselves to contribute more towards the future of the merged business.

Author: Kate Palmer CIPD BA (Hons) is the Head of Advisory at Peninsula and a member of our senior leadership team. With a specialist background in facilities management in the NHS (public and private sectors), Kate offers a wealth of employment law experience. And, with deep knowledge and long-term enthusiasm for employment law, Kate shares her expertise by writing regular columns in major publications like the Huffington Post, the Sun, HR Magazine and more.

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