Business Law & Compliance

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Employment law issues for share acquisitions

4 Mins

Immigration

Buyers should fully understand whether there is any history of illegal employment within the seller’s organisation, not least because if found out by UK Visas & Immigration (“UKVI”), this could lead to criminal prosecutions against the seller or members of the seller’s management, as well as the imposition of fines of up to £20,000 per illegal employee in civil prosecutions, or potentially unlimited fines in criminal prosecutions, on indictment, where knowing employment of an illegal worker has occurred.

Further, UKVI guidance indicates that if a share sale results in the controlling number of shares being transferred to a new owner, the seller’s sponsor licence (if the seller has a sponsor licence) will be revoked and the new owner must apply for a new sponsor licence, unless they already have one, if they wish to continue employing any migrants that the seller employed.

Numerous other immigration requirements are triggered as a result of a share acquisition where the seller or any entity in the seller’s group possesses a sponsor licence. If the seller’s licence is revoked and the buyer does not accept responsibility for them and take the necessary steps for that to be possible, employees of the seller may have their right to live and work in the UK curtailed to 60 days.

Redundancies

Share acquisitions often lead to redundancies following completion. If a buyer proposes to make 20 or more redundancies at one establishment in a 90 day period or less, the collective redundancy scheme, provided for in the Trade Union and Labour Relations (Consolidation) Act 1992, will be triggered. The Secretary of State – currently for Business, Innovation and Skills – would also need to be notified in the prescribed way.

Obtaining suitable warranties and indemnities 

Whilst a thorough due diligence process should give a buyer a good understanding of the target, protection in the form of suitable warranties and indemnities, in the share purchase agreement, should also be obtained.

Warranties can be described as contractual statements or promises by a seller regarding a particular state of affairs or circumstances within the seller’s organisation. Breaches of warranties usually only give rise to a successful claim for damages if a buyer can show, in summary, that warranties were breached and that this resulted in a loss for the buyer. On the other hand, indemnities can be described as promises to reimburse buyers in respect of a particular type of liability on a “pound for pound” basis should the risk that is the subject of the indemnity ever crystallise, and without the need for the buyer to show any loss. Indemnities may not, unlike warranties, be subject to a requirement to mitigate loss. For this reason, indemnities are generally preferred to warranties by buyers where particular risks are indentified.

In practice, buyers’ HR teams will often be more involved once completion has occurred, but the above-mentioned information will at least provide a flavour of some of the key employment issues that should be considered prior to share acquisitions.

Edward Wanambwa is an employment and immigration partner at Russell-Cooke LLP.

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