Dutch Employment and Works Council Issues Compared with US M&A

Why employee processes can become part of the Dutch M&A critical path

For a US buyer of a Dutch business, employment law can affect the transaction timetable before it affects the SPA warranties.

The first questions I ask are practical. Does the target have a works council? Is the deal a share acquisition or an asset transfer? Are the Dutch SER Merger Code rules relevant? Does management intend to announce a restructuring immediately after closing?

Those answers determine whether employee consultation and communication can run in parallel with the transaction or need to be built into the signing and closing sequence.

For US deal teams, this is worth checking before a timetable is committed to the client. UK counsel will recognise some of the transfer-of-undertaking concepts, although the Dutch works council and merger consultation process has its own statutory structure.

This article forms part of my Dutch Deal Practice in a US and UK Context series.

A Dutch works council can have a formal role in the deal

Under article 25 of the Dutch Works Councils Act, a works council can have an advisory right in relation to a proposed transfer of control over the business and various other significant corporate decisions.

Timing is central to that process.

The advice must be requested at a stage at which it can still have a material influence on the proposed decision. The works council receives information on the reasons for the proposal, its expected consequences for employees and the measures contemplated in response.

That requirement needs to be reconciled with the M&A process.

If the company has already made an unconditional and irreversible decision before requesting advice, the consultation risks becoming a formality rather than the statutory process it is meant to be.

I therefore want to understand the intended signing mechanics early.

Depending on the transaction, the documentation and board process may need to preserve sufficient room for the works council advice before the relevant decision is finally implemented.

If the final decision does not follow the works council’s advice, Dutch law can also require a one-month suspension before implementation unless the works council waives that period. The works council has a statutory route to challenge qualifying decisions before the Enterprise Chamber of the Amsterdam Court of Appeal.

Those points can affect deal certainty. They should not first appear on the closing checklist.

The SER Merger Code is a separate workstream

International buyers sometimes assume that checking the works council position completes the Dutch employee-consultation analysis.

There may also be a separate process under the Dutch SER Merger Code.

Where the Merger Code applies, relevant trade unions must be informed about the proposed transaction before agreement on the merger or acquisition is reached, at a stage when their views can still influence the transaction and its terms. The proposed transaction is also notified to the SER.

The scope of the Merger Code has its own criteria and exceptions, so I check applicability separately rather than infer it from the existence of a works council.

The communication sequence matters as well. The Merger Code contains rules around informing trade unions before certain public announcements about the proposed transaction.

For a confidential US-led process, that needs to be integrated with the NDA, press strategy, employee communications and the intended signing announcement.

I would map that sequence before the parties settle the external communications plan.

A share deal and an asset deal produce different employee consequences

The transaction structure is particularly important for employee transfer.

In a share acquisition, the shares in the Dutch employer change hands. The employing company normally remains the same legal entity and its employment contracts remain in place with that entity.

An asset deal requires a different analysis.

Dutch law implements the European transfer-of-undertaking regime. Where a qualifying economic entity transfers and retains its identity, the rights and obligations under the employment relationships transfer to the acquirer by operation of law.

That means the asset purchase agreement does not necessarily determine which employees move with the transferred business.

If a US buyer wants only certain operations, contracts and employees, I would test the proposed perimeter against the transfer-of-undertaking rules before treating the employee schedule as an agreed selection.

This point can influence price, liabilities, integration planning and the choice between an asset and share transaction.

The existing ViottaLaw article on Employee Transfer in Dutch Asset Deals covers that analysis in more detail.

Employment diligence should identify execution issues

For the employment diligence workstream, I am less interested in producing a long inventory of standard employment terms than in identifying matters that change the transaction.

Depending on the target, I would look at:

• works council and employee-representation arrangements;
• applicable collective labor agreements;
• pensions;
• key management contracts;
• material bonus and incentive arrangements;
• employee equity;
• change-of-control or transaction bonuses;
• material disputes and long-term sickness;
• contractor and self-employed structures; and
• planned reorganizations.

The relative importance depends on the investment case.

For a professional-services business, retention and restrictive covenants may dominate. For a labor-intensive target, collective terms, pensions and employee representation may be more significant. For a technology company, key employee IP and incentive arrangements may require more attention.

The report to lead counsel should make that prioritization visible.

Employee communications need their own timetable

US deal processes are often kept within a small group until signing is imminent.

A Dutch employee process can require information to be shared earlier with a works council or trade unions.

That does not mean transaction confidentiality disappears.

It does mean that counsel should plan who needs to receive what information, when confidentiality applies, which documents can be shared and how the employee communication is coordinated with signing and public announcement.

I have seen this work much better where the communications sequence is treated as a transaction workstream rather than left to HR after the SPA is substantially agreed.

It is particularly relevant where the buyer plans an immediate integration or restructuring. That plan may itself be relevant to the information given during consultation and to the employee consequences described in the transaction process.

Do not promise a closing date before the Dutch process is mapped

When international lead counsel asks me to join a Dutch acquisition, one of my early tasks is to identify which local processes can affect the main timetable.

For employment matters, I want to know whether a works council advice procedure is required, whether the SER Merger Code applies, whether an asset transaction triggers employee transfer and which communications must take place before signing or closing.

Those conclusions should then appear in the main transaction documents.

A required consultation can affect the signing structure or become a condition precedent. Employee-transfer consequences may affect the asset perimeter and liability provisions. A restructuring plan can affect the works council process and post-closing covenants.

That is more useful to lead counsel than a stand-alone Dutch employment memo delivered after the transaction timetable has already been fixed.

For the wider signing-to-closing process, see Signing and Closing in Dutch M&A Transactions.

Practical conclusion

US buyers should put the Dutch employee process on the transaction timetable at the same time as due diligence, regulatory approvals and financing.

I would establish the works council position, SER Merger Code applicability and transaction structure at the outset. That determines which consultation, information and employee-transfer rules have to be reflected in the transaction process.

Once those points are known, they can be incorporated into the SPA, board process, communications plan and closing agenda rather than dealt with as a late employment-law exception.

FAQ

Does a Dutch works council have to approve an acquisition?

The statutory role is generally an advisory one, not a shareholder-style approval right. The advice process can nevertheless affect when and how the relevant corporate decision is taken and implemented.

Can an SPA be signed before the works council process is complete?

That depends on the transaction structure and the decision involved. The consultation must take place while the works council can still materially influence the proposed decision, so the signing mechanics should be reviewed before a binding commitment is made.

Do employees automatically transfer in a Dutch asset deal?

They can. If the statutory transfer-of-undertaking requirements are met, employment rights and obligations transfer by operation of law.

Does a Dutch share sale automatically trigger transfer-of-undertaking rules?

Normally not merely because the shares change hands. The employer remains the same Dutch legal entity.

Is the SER Merger Code the same as the works council process?

No. They are separate regimes with different scope and procedures and should be checked separately.

About Dirk de Waard

Dirk de Waard is a Dutch corporate and M&A lawyer, a dual Dutch-US national and partner at Venture Lawyers in Amsterdam.

He works alongside US and UK lead counsel on Dutch acquisitions and can coordinate the Dutch corporate transaction workstream with specialist employment counsel where required. His role includes identifying employee consultation issues that affect transaction structure, SPA conditions, corporate approvals, signing and closing.

Dutch employment and works council issues in M&A

If you are advising on or acquiring a Dutch business and need to assess works council, employee consultation or transaction-timing issues, contact Dirk at dirk.dewaard@viottalaw.com. He can coordinate these Dutch workstreams with the wider M&A process and ensure that they are reflected in the SPA, corporate approvals, communications plan and closing timetable.