People considerations in M&A transactions: Article 1

In brief

Strong employment relationships are critical to an organisation’s success and employees are an organisation’s greatest asset.

This is the first in a series of articles providing our insights into, and practical guidance on, workplace law considerations when navigating complex transactions.

While the number of potential issues is often underestimated, or people considerations are left to the last minute, one of the most critical aspects of a merger, acquisition or restructure is the management of employment related risks. If not managed proactively, workforce issues can result in uncertainty and costly liabilities for the new employer.

We recommend close collaboration between HR professionals and employment law specialists to ensure that any employment related risks are addressed as early as possible and the post-completion integration is set up for success.

In a recent survey of over 80 HR leaders across North America, Europe, the Middle East and the Asia Pacific, only 17% of respondents reported that HR was properly included in preliminary M&A negotiations.¹   The survey also found that 65% of HR teams feel less than fully prepared to manage their M&A portfolio.²

We have set out below some of the common employment related risks in these transactions, along with steps that can be taken to mitigate those risks.

Common employment related risks

The value and attractiveness of a potential deal can be impacted by a range of employment related risks. Some examples include:

• Contractual arrangements: Outdated, grandfathered terms, verbal promises, or non-compliant or non-existent written contracts of employment, which can result in uncertainty about the terms that actually apply, impact relativities between employee cohorts and increase the potential risk of disputes and employee disengagement.
• Employee entitlements: Provision of entitlements that exceed the statutory minimum, or inadvertent errors in modern award or enterprise agreement interpretation or payroll system rules, or insufficient time and attendance record keeping, resulting in underpayments and potential penalties.
• Classification of workers: Misclassification of workers as employees or contractors, which can create exposure to future claims and potential penalties and result in unexpected higher labour costs when remediated.
• Industrial relations: Uncertainty about the historical approach, if any, to union engagement and insufficient consultation with employees and their nominated representatives when required.
• Disputes: The type and level of formal and informal employment related complaints and disputes, both external and internal, which can result in reputational damage and create financial risks, the underlying causes of which will warrant close examination and likely action.
• Work health and safety: Failure to conduct a comprehensive assessment of compliance with work health and safety laws, including any activity by a regulator.
• Workforce culture: Failure to assess potential compatibility and align workforce cultures post-completion, which can create employee dissatisfaction and impact employee retention.
• Capability: Inadequate capability, vacant key roles and poor retention strategies, requiring a recruitment drive post-completion, and high turnover and attrition rates, the drivers of which may require significant action.
• Transfer of business: Potential non-compliance with the legal framework under the Fair Work Act 2009 (Cth), including in respect of employees’ continuity of service and transfer of entitlements.

Identifying potential risks

While the approach to risk management will vary between transactions, the primary risk identification tool is a comprehensive due diligence review, with the following areas being considered in any red flag review:

• The target’s workforce composition, structure, capabilities and gaps and succession planning
• Key personnel, notice periods, post-employment restrictions and whether retention strategies are required
• Contracts and workplace policies, including the identification of any unusual terms
• Compliance with applicable industrial instruments, including classification reviews, payroll compliance sampling and the identification of any potential underpayments
• Measures in place to support a culture of compliance, including mechanisms for raising issues and history of addressing those issues
• Total rewards strategy and remuneration practices
• Employee claims, disputes and litigation
• Quantification of employee liabilities
• Workplace culture and employee engagement
• Work health and safety compliance

Payroll compliance sampling is an increasingly high priority for due diligence, particularly in labour-intensive industries³, such as construction, mining, retail, healthcare and education.

The due diligence process is invaluable in identifying those areas that must be addressed prior to completion (and in the transaction documents) and forming the basis of the immediate priorities on completion. It is crucial for employment related warranties and indemnities to be carefully considered in the context of each transaction, taking into account the key findings from the due diligence review.

Clear and comprehensive drafting can provide greater protection for both parties against any identified risks. Insurers view employment related claims as a ‘high-risk area’ in Australia and there is strong demand for warranty and indemnity insurance to help manage transaction risks.⁴ 

Key takeaways

Successful M&A deals involve proactive collaboration between HR professionals and employment law specialists with M&A expertise. In many transactions, materiality thresholds are set as dollar amounts, and while people issues (with the exception of underpayment issues) rarely meet those thresholds, they can be significant in post-completion success.

Article two in this series will address work health and safety during a time of change.

Considering workforce issues at each step of a transaction creates a solid foundation for long-term success. For further guidance on employment related issues in M&A transactions, please contact us.

1. WTW, ‘2025 M&A Barometer Survey’, May 2025, p 15 (‘WTW Survey’).

2. WTW Survey, p 14.

3. Ansarada, ‘ANZ Women in Dealmaking M&A Outlook Report 2025’, March 2025, p 30.

4. Aon, ‘2025 Transaction Solutions Global Claims Study’, July 2025, p 55.