March 31, 2021

Comparability Provisions: Treatment of Employees in M&A Agreements

Acquisition agreements often include language under which the buyer promises that the target’s will continue to receive compensation & benefits comparable to those they received before closing, at least for a specified period of time.  This Willis Towers Watson memo discusses the reasons for including comparability provisions in acquisition agreements, the key issues to consider when negotiating them, what they typically cover, as well as best practices and common mistakes. Here’s an excerpt from a section addressing employment terms:

While it would be very rare to see a deal agreement guaranteeing that the buyer will not terminate employees, in certain circumstances, such an agreement can be considered if limited in time, particularly if the business being sold is expected to provide ongoing services to the former parent business.

While how these comparability provisions are applied can become extremely complicated, there is a broad agreement that keeping legal language high-level and principles-based is more productive overall. Noted Baker McKenzie, “A guiding rule of these provisions is generally not to give the transferring employees more protections than they would have had if they had stayed with the seller.”

Similarly, many sellers will recognize that local legislation will grant protections on an individual basis; therefore, deal agreements will often be structured at the aggregate transferring population level to avoid adding unnecessary levels of complication.

The memo also highlights the fact that while a lot of effort may be devoted to negotiating post-closing employee comparability provisions, they are seldom litigated. In public company deals, there usually isn’t anybody left with standing to litigate over a buyer’s compliance with them (although cases like Dolan v. Altice, (Del. Ch.; 6/19), call that view into question).

John Jenkins