M&As: HR Professionals Can Help Ensure Successor Liability Is Considered

By David G. Epstein, SHRM-SCP December 16, 2022

​Mergers and acquisitions (M&As) are often highlighted as joyous, exciting events. Businesses announce they will be more profitable and efficient as a company's leaders, employees and local politicians attend ribbon-cutting ceremonies.

HR professionals, while protecting their organization's fiscal viability, must advocate to their C-suite counterparts the importance of equity and fairness when it comes to welcoming new staff. Compensation, benefits and good-faith bargaining are key to a productive, healthy and engaged workforce.

But there are many potential pitfalls and liabilities that human resource professionals and their C-suite business partners need to consider well before the actual M&A occurs.

One of the areas in which senior leaders should conduct extensive due diligence is successor liability—the liabilities assumed by the entity that takes control of the new company after an M&A. It is critical for the buyer to have its legal and accounting teams interview the seller and review the seller's financial statements and tax records.

Collective Bargaining Agreement

In an M&A, pay close attention to any collective bargaining agreements.

The successor company (buyer) must consider the agreement's language regarding successor clauses, which could result in increased costs and liability well into the future. An example of a successor clause could be, "The agreement shall be binding upon any and all successors and assigns of the predecessor-employer."

A successor clause may shift costs and obligations to the buyer, such as:

  • Requiring the buyer to bargain with the union.
  • Assuming tax liens and other financial obligations such as contributions to pension and welfare funds.
  • Defending against the previous owners' pending litigation under local, state and federal equal employment opportunity and nondiscrimination laws.

The successor clause, if accepted, will likely require the buyer to agree to the existing provisions of the collective bargaining agreement.

Successor Liability Strategies

Liabilities also will depend on whether the buyer purchases the assets or the stock of the seller.

If the sale is through the purchase of stocks, then the buyer company will likely be obligated to bargain with the union and accept the current terms and conditions of the existing collective bargaining agreement.

On the other hand, if the purchase is made via the transfer of assets, then it is likely that the buyer does not have to accept the current collective bargaining agreement, and generally will be able to establish its own initial terms of employment.

It is important to note, however, that future requirements to negotiate with the union may be determined by the National Labor Relations Board (NLRB) or a federal court interpreting the National Labor Relations Act. While no single factor is determinative, the NLRB will look at whether there has been substantial continuity and examine areas such as the new business entity's commonality in terms of business operations, labor force composition, working conditions, job titles, products and services, as well as supervisors, machinery and plant operations.

Be Cautious

In summary, buyer companies should be cautious when purchasing a new business. They must consider successor clauses and their impact on assuming the obligations of an existing collective bargaining agreement. Even without a unionized workplace, successor liability could result in assuming costs and liabilities for pension funds, debts and pending litigation.

HR professionals and their colleagues must review all these issues prior to giving the green light to an M&A. HR leaders are best placed to ensure these issues are also addressed.

David G. Epstein, SHRM-SCP, is director of human resources & talent strategy at Mobilization for Justice in New York City.



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