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M&A activity sparks HR due diligence risk

M&A activity sparks HR due diligence risk

Employers are risking thousands of dollars by not being on top of due diligence, according to a workplace law expert.As organisations continue to merge in the future, employers that have not…

Employers are risking thousands of dollars by not being on top of due diligence, according to a workplace law expert.

As organisations continue to merge in the future, employers that have not examined their employees' contractual entitlements thoroughly are exposing themselves to risk.

Shana Schreier-Joffe, managing partner at Harmers Workplace Lawyers, believes that the National Employment Standard as part of the Fair Work Act makes provision for an employee's service and contractual arrangements with an old employer to be recognised by a new employer in a merger or acquisition for certain entitlements.

"However, the transfer of employment entitlements can disadvantage the acquiring business as the employee's employment contract may stipulate specific provisions that could affect the new company," she says.

Significant risks also exist for employees, particularly senior managers and executives whose years of service with their employer will not count for the purpose of determining a redundancy entitlement.

"For example, an employer may seek to make staff redundant as part of the acquisition process. However, they may not realise that some employees have certain stipulations within their contracts, such as 12 month notice periods, which must be honoured," Schreier-Joffe says.

Schreier-Joffe adds that the seller and its employees may be significantly disadvantaged by assuming employees are entitled to redundancy payments when in fact they are not.

"Unless there is an explicit company policy, contractual right, a state award or an industrial agreement providing for a severance payment, the employee will not be entitled to a severance payment if their employment terminates before 1 January 2011," she says.

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