Labor and Employment

Job Protections in a Merger

By Lisa Guerin, ​J.D., Boalt Hall at the University of California at Berkeley
Read your existing employment agreements—and any new agreements you are asked to sign—very carefully if your company is involved in a merger or acquisition.

Mergers and acquisitions ("M & A") or "consolidations" happen all the time in the business world. In an acquisition, one business acquires another. In a merger or consolidation, two businesses join together into one.

A business might decide to buy or join with another business for many reasons. Sometimes, businesses combine to control market share and eliminate the competition. Sometimes, one business acquires another to save money. For example, rather than breaking into a new market and figuring out how to sell something new, it might be cheaper for a company to buy a business with expertise in that area.

Ultimately, however, the driving force behind business combinations is making or saving money. As a result, the new company is usually in a better position after a merger. That's often not the case for many employees of both businesses, though. Once businesses combine, layoffs are common. The newly formed company won’t need two accounting teams, two HR departments, and two CEOs, for example. At some point, the new company will most likely pare down its workforce in order to save money and get rid of redundant employees.

Unfortunately, there’s not much most employees can do if their employer decides to lay them off following a merger or acquisition. If you have a contract, however, you may have some protection.

Review Your Existing Employment Agreements

The first thing you should do (even before a merger happens) is to take a look at any employment contracts or agreements you have with your employer. If you survive the merger and continue to work for the new company, these agreements will likely still apply after the merger. Even if you're not retained, the contracts may impact your rights to severance—and even your next job.

Here are some things to look for:

  • Termination provisions. Look through your employee handbook, any other written policies, and your employment agreement (if you have one). Do they offer protections from layoff or termination? If, for example, you have a contract saying you may be fired only for good cause or you are entitled to a certain amount of notice before losing your job, you can rely on those protections.
  • Severance pay. Does your employment agreement, handbook, or other policies address severance pay? For example, your employment contract may provide that you are entitled to a certain amount of severance pay if your employment ends during the contract term, or if you lose your job in a merger or acquisition. Or, your employee handbook may provide that all employees are entitled to one week of severance pay for every year they have served with the employer.
  • Noncompete agreements. A noncompete agreement prevents an employee from going to work for a competitor or starting a competing business for a certain period of time after the employment relationship ends. If you’ve signed this type of agreement, you should read it carefully to see whether it addresses a merger or acquisition of your company. If you believe you may be too restricted in your job search by a noncompete agreement, talk to a lawyer: If the agreement is too limited, or you work in a state that doesn’t allow noncompete agreements, you may be able to get out of the contract.

If you keep your job after the merger, you may be able to negotiate a better deal on any or all of these contracts and agreements. It all depends on how badly the new company wants to keep you. In this situation, you’ll be well served by consulting with a lawyer to figure out your options and help you negotiate the best arrangement.

Notice Requirements

If you lose your job as part of a mass layoff or plant closing, you may be entitled to notice at least 60 days in advance. The federal Worker Adjustment and Retraining Notification (WARN) Act requires certain larger employers to provide this notice, unless an exception applies. Some states have their own WARN-type laws, and a few require employers to provide pay or benefits continuation. In Hawaii, for example, employers must supplement unemployment compensation for laid off workers. To learn more, see Notice of Layoffs Under the WARN Act.

Carefully Consider New Employment Agreements

Once a merger or acquisition is in the works, you may be asked to sign new agreements. For example, your current employer might want to change your existing employment agreement to give the new employer more leeway. Your employer might also want you to sign an agreement to stay with—or to leave—the company.

Retention agreement. If your employer wants you to stay with the company, it might ask you to sign a retention agreement. Often, the company has identified certain key employees whose continued employment through the merger will make the process run more smoothly. The company will offer an incentive (often, a retention bonus) for you to stay with the company during the transition, rather than quit to move to another job.

Severance agreement. At the other end of the spectrum, your employer might want to pay you to leave the company. For example, your employer might ask you to sign a release, agreeing that you give up the right to sue the company for any issues arising out of your employment, in exchange for severance pay. This ensures that the new employer won’t face unexpected legal challenges after taking over. Some employers that have sold their companies or agreed to merge with a company that they know will lay off employees offer severance agreements to reward employees who will lose their jobs for their years of service.

If your employer, current or new, asks you to sign an agreement, you should consider running it by an attorney. Especially if the agreement gives up rights (such as the right to compete or to sue your employer), you will want to make sure you are getting your money’s worth. An attorney can help you figure out what your employer should pay you in a layoff, retention agreement, or agreement not to sue.

Questions for Your Attorney

  • What happens to the discrimination lawsuit I filed against my employer after it merges with another company?
  • I don't want to work for my old employer after a planned merger goes through. Is it better to ask for a severance package or should I wait and see if I get laid off?
  • Before a merger, my department was told that all of us would be offered jobs with the new company. Two weeks after the merger, 50% of the department was laid off, including me. Is that legal?
  • How are employee benefits affected by a merger?
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