Wednesday, March 01, 2017

Employment Issues Still a Major Issue During Mergers, Consolidations and Acquisitions

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Marcell Sihombing, Nanda Narendra Putra


Hukumonline Training: Details on the LEgal Aspects of Company Mergers, Acquisitions and Consolidations. Photo by: NNP.


A recent event entitled “The 2017 Hukumonline Training Event: Details on the Legal Aspects of Company Mergers, Acquisitions and Consolidations” which took place on Tuesday, 28 February 2017, once again thrust employment issues into the spotlight. Indeed, the general conclusion of the event was that any plans to implement these so-called “corporate actions” must be supported by a proper and thorough understanding of matters pertaining to employment relationships, so as to prevent the rise of other potential issues in the future.
During his address at the event, Tjahyono Firmansyah, a Partner at the Ivan Almaida Baely & Firmansyah (IAB&F) law firm, admitted that employment issues were always likely to arise whenever plans for mergers, consolidations, acquisitions, acquisitions or demergers were implemented. Mr. Firmansyah further asserted that under the provisions set out under Law No. 13 of 2003 on Employment (“Employment Law”), any transfer of ownership of a company as a result of corporate action did not automatically lead to the termination of existing employment agreements and contracts.
Zulfikar Wahyu Hidayat, a Senior Associate at the IAB&F law firm expressed a similar opinion to that of Mr. Firmansyah. During his address, Mr. Hidayat pointed out that any transfer of ownership should take various interests into consideration, including the interests of employees. This principle is also stipulated under both Article 126 of Law No. 40 of 2007 on Limited-Liability Companies and Article 61 (2) of the Employment Law.
“The point is that any transfer of ownership does not terminate an [employment] agreement,” Mr. Hidayat asserted.
Indeed, several important consequences may result from the execution of any merger, consolidation or acquisition. Firstly, employees should retain their employment. Secondly, employees may decide to resign their employment. And finally, companies may terminate the employment of any employees who are not willing to continue working for them.
These three possibilities reflect the implementation of Article 163 of the Employment Law. Implicitly speaking, the stipulation of Article 163 enables both employees and employers to terminate their employment. However, said provision cannot be implemented directly, due to the fact that a certain level of diligence is necessary as regards the implementation of Article 163 (1) and (2).
For example, the technical implementation of any termination of employment, as set out under Article 163 of the Employment Law, refers to the stipulations which are set out in Article 151 (2-3) of the Employment Law. Thus, any termination must be first be discussed via a bipartite mechanism, and this mechanism should address the reasons for any termination, as well as determine what rights and obligations are applicable, and so forth.
It is important to note that such a bipartite mechanism is also applicable to any employment which is terminated as a result of corporate action (i.e. a merger, acquisition or consolidation). However, companies may only terminate employment as a result of corporate action for certain reasons, including downsizing, rotation or adjustments being made to the required employee qualifications and competency standards according to decisions of the management. In other words, no act of termination should be based upon favoritism.
Conversely, employees may only terminate their employment as a result of organizational restructuring or downsizing, or if any rotation or alteration process results in major changes being made to any employment requirements, employee rights and obligations, or other similar matters when compared with their previous employment contracts or company regulations. Thus, if no such changes are made, then employees have no right to declare their unwillingness to continue working for any company which has engaged in a corporate action.
Mr. Hidayat also shared his experience with the event’s participants as regards this matter. According to Mr. Hidayat, employers should properly inform their employees if they are planning to carry out any corporate action. However, employees can be notified of any such plans in a strategic way. Indeed, Mr. Hidayat asserted that withholding such information until official acknowledgement of any such corporate action plan has been secured, so as to prevent any drop in employee performance, was ultimately permissible.

Objection by Workers

Meanwhile, Christofer Chandra, an Associate at the IAB&F law firm, pointed out that employees have the chance to file objections in relation to any corporate action which is undertaken by the company employing them. Indeed, according to Chandra, employees have a significant role to play as regards such action and can make a stand when their company makes its initial official announcement of impending corporate action.
In the final analysis, employees or other third parties may file objections within 14 days of any official announcement date and cannot file any further objections once this timeframe has expired. Any such objections will obstruct the implementation of any corporate action and must be addressed before the corporate action in question can be allowed to proceed.
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