Questions & Answers
Mergers and Acquisitions in Latin America:
What Every Employer Needs to Know
September 7, 2011
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Q: Is it possible to terminate labor relationship of acquired employees and rehire them with new conditions?
Enrique Mariano Stile
A: It is possible to terminate a labor relationship, pay the statutory severance and rehire the employee with new employment conditions. An option could be to keep the employment relationship and negotiate a waiver of acquired right in exchange of economic compensation.
Cynthia Muller
A: In Guatemala yes it is possible once you have pay severance for time served and labor proportional benefits.
Carolina Zuniga
A: In Chile as long as the employee consent with termination it is possible. Unilateral company termination is not allowed.
-Vilma Kutomi
A: In Brazil it is possible too, but nothing prevents the employees from claiming the recognition of a sole employment agreement, and claim possible losses in court.
Anna Jiménez
A: It is also possible in Costa Rica. The employees cannot request to be terminated, though. An employer substitution does not trigger the obligation for the employer to terminate and pay full severance.
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Q: Everyone wants information about the employees in diligence. However, privacy laws have been increasing around the globe. Please address whether privacy laws restrict the data that can be shared during diligence.
-Vilma Kutomi
A: In Brazil all information in legal labor documents related to employees can be disclosed in a due diligence; regarding medical information, cautions is necessary, since personal medical information must be dealt with privacy.
-Cynthia Muller
A: In Guatemala all information related to employees can be disclosed in a due diligence; however the personal involved in the due diligence must subscribe to a confidentiality agreement.
-Carolina Zuniga
A: In Chile the information is realised provided a proper NDA with the purchaser is signed, with the purpose of protecting personal employee data and company confidential information
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Q: What kind of risks (if there are any) should we pay attention during M&A transactions involving a company using seasonal workers (labor contracts valid for a determined or specific period of time only)?
Enrique Mariano Stile
A: In Argentina the key issue will be to verify that those seasonal employees are properly registered within the employment, tax and social security authorities.
Cynthia Muller - 11:56 AM
A: In Guatemala given that these types of labor contracts are not common in the due diligence a review of the conditions on how these relationships where documented in order to review how to proceed with them.
-Vilma Kutomi
A: In Brazil, the same as Argentina applies.
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Q: Is it possible to establish a better differentiated benefit package for key executives (respecting current conditions for the others)?
Anna Jiménez
A: In Costa Rica, the employment agreement of those temporary employees will come to an end according to what is set forth in the employment agreement; they could not claim a right to remain employed beyond the term of their agreement unless they agree.
Cynthia Muller
A: In Guatemala as already mentioned, it will depend on the contract; however it works the same as in Costa Rica.
Anna Jiménez
A: not depend on the employee's will.
Enrique Mariano Stile
A: Yes. In Argentine it is possible to establish better differentiated benefit package for key employees.
Cynthia Muller
A: Yes, in Guatemala it is possible to agree with key employees a different benefit package however the employer must review that these key employees have equal conditions.
-Vilma Kutomi
A: In Brazil, it is possible to implement a better differentiated benefit package to employees, but it is important to make a case-by-case analysis of each benefit to be granted because, depending on the benefit, if granted only to some employees, it may be considered as salary (for instance, private pension plans, or health insurance).
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Q: In relation of the second question, can you finish the labor relationships and make changes in all that concepts less than the past? Guatemala and Costa Rica
Cynthia Muller
A: In Guatemala if the case is the prior employer decides to terminate the labor relationship severance for time served and proportional labor benefits must be paid (annual bonus, Christmas bonus and pending vacations). No partial payment is possible.
Anna Jiménez
A: In Costa Rica yes. If you terminate employment agreements you can negotiate completely new employment conditions with the employees. However, those terminations would have to take place with full severance payment because the cause for termination does not depend on the employee's will.
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Q: We are in a stock purchase transaction. We move all employees into the new company. Do we have to pay severances to the acquired employees?
- Anna Jiménez
A: In Costa Rica, a merger does not trigger the employer's obligation to pay severance as long as the employee's employment rights are respected or improved. In addition, in an SPA there would not be an employer substitution taking place; the employees will probably not know about the transaction and they could not claim severance due to this SPA transaction.
- Carlos Silva
A: In Colombia it is possible to terminate a labor relationship but is necessary to pay the statutory severance and rehire the employee with new employment conditions.
-Vilma Kutomi
A: In Brazil, depending on the acquisition corporate structure, you may simply transfer the employees without paying severance, but if they are companies of different groups, nothing prevents that transferred employees may allege that their agreements should have been terminated and severance should have been paid.
-Cynthia Muller
A: In Guatemala a merger does not trigger the obligation to pay severance for time served as long as the labor rights of the employees are honored.
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Q: If we have to consolidate operations and have to terminate employees from the acquired company, which employees do we have to terminate -- the former employer's employees or the transferred employees from the new employer? In other words who are the employees to stay in case of terminations due to volume consolidations?
-Cynthia Muller
A: In Guatemala, it will depend on the structure of the operations of the new employer, since this will determine which work positions will be required in the organization. In all cases the employer or the former employerwill have to consider that in case of termination of the labor relationshipseverance for time served and proportional benefits must be paid in accordance to local law.