Social aspects of cross-border mergers
Luxembourg's financial sector is experiencing some big changes. Not only are there regulatory changes to banking secrecy, but established players are leaving while new banks, such as the China Construction Bank, are arriving.
International mergers are likely to be part of the corporate landscape for some time to come. So, would you know your rights if your Luxembourg employer merged and absorbed with another company incorporated in the European Union?
Benoit Marechal, Senior Associate of Baker & McKenzie Luxembourg answered questions about the social issues created from international mergers.
To what extent should employees be involved by their employer pre-merger?
The employees or the employees' representatives from both companies must be informed about the merger in due time. While Luxembourg law does not define a minimum period for the information to be provided, in practice, five weeks before the effective transfer should be considered a minimum.
The position of the employees on the proposed merger must be annexed to the board merger report, if the employees’ representative position is received in time by the board. The board has the obligation to make the report available to shareholders and employees' representatives no later than one month before the date of the general meeting of shareholders convened to resolve on the approval of merger. The Luxembourg notary involved in the corporate actions for the merger will check that this information has indeed been given to the employees' representatives.
In case one or more of the merging companies applies a co-management system (e.g. the German Mitbestimmung), or if Luxembourg law imposes the use of a co-management structure (e.g. if the total headcount post-merger in a public limited company exceeds 1,000), negotiations should take place between the employees representatives in order to organise the co-management at the level of the absorbing company. The negotiation process is laid out in detail in the Luxembourg Labour Code.
Are employees guaranteed the same employment rights?
Yes! The transfer does not change the rights and obligations of the transferred employees, in particular with respect to remuneration, paid leave, termination rules, work schedule, workplace and company car, if they have one. It should be remembered that these employees cannot claim an adjustment of their rights to those of the employees of the absorbing (Luxembourg) company.
The applicable collective bargaining agreement will remain in full force and bind the absorbing company until it expires, but he employees of the absorbing (Luxembourg) company are not entitled to seek an adjustment of their rights to those of the employees transferred from the foreign company.
The above does not prevent the employer from changing certain work conditions of the employees of the foreign company in the future.
What is the overall timing required for a cross-border merger with a company incorporated in another Member State of the European Union?
The overall timing for the legal completion of a merger involving employees - notwithstanding other legal and financial factors - from the first meeting of the board, until completion, is likely to be at least four to five months. This timing heavily depends on the commitment of the board, and the willingness of the employees, shareholders, and other stakeholders to complete the merger.
Obviously the integration of the employees of the absorbed company, and related change of work conditions would be implemented in the weeks and months following the legal effectiveness of the merger.