Navigating M&A Compliance: The Critical Role of HR and Legal Collaboration

Mergers and acquisitions (M&A) are complex, high-stakes projects that require seamless coordination across multiple departments, including Legal, Finance, Operations, and, crucially, Human Resources (HR). While the primary focus of these projects often revolves around strategic alignment and financial discussions, regulatory compliance with labor laws, contractual obligations, and data protection regulations is equally vital to ensuring a successful outcome. Neglecting these aspects can lead to costly financial penalties, prolonged legal disputes, and significant delays – any of which can jeopardize the entire deal. Additionally, reputational damage may occur, ultimately undermining long-term strategic value and eroding stakeholder trust.

In this blog post, we will explore how a well-coordinated partnership between HR and legal teams can drive compliance success throughout M&A projects. We will focus on two critical phases where their collaboration is indispensable: the Due Diligence Process and the Employment Step Plan. Additionally, we will highlight how binder|consulting can help you navigate compliance challenges during your next M&A project by fostering collaboration across departments and aligning global and local teams within international organizations.

M&A projects involve numerous compliance challenges, particularly in global transactions where laws, regulations, and labor practices can vary significantly across local jurisdictions. To navigate these complexities, HR and legal teams must work closely to ensure that global guidelines are followed while local regulations are addressed. Without effective collaboration, compliance risks can go unnoticed or remain unresolved until they escalate post-transaction.

Two critical areas for ensuring a smooth and compliant business transition during mergers and acquisitions are the Due Diligence Process and the implementation of the Employment Step Plan. The Due Diligence Process requires a collaborative effort to assess risks, verify information, and ensure that the transaction aligns with the buyer’s strategic objectives. The Employment Step Plan – which operates within the broader legal framework, guiding organizations through complex regulatory and legal changes –  encompasses key activities for the employment transfer, such as employee communication, consultation with works councils, and adherence to labor laws and data privacy regulations. Both processes are essential for minimizing risks and ensuring a successful corporate restructuring. But how can HR and legal teams collaborate to effectively execute these processes?

The Due Diligence Process is a critical investigative phase in mergers, acquisitions, or partnerships. During this phase, both the divesting and receiving businesses aim to foster transparency, mitigate risks, and establish a solid foundation for a successful transaction. Typically, a central M&A project team coordinates the process and facilitates expert sessions between the parties involved. While the primary responsibility for reviewing the shared information lies with the receiving business, specialized law firms are often engaged to analyze the comprehensive data room and identify potential risks. The legal team plays a crucial role in ensuring that all relevant information is disclosed and verifying compliance with contractual and regulatory requirements. Meanwhile, HR is equally essential, as employee-related data constitutes a significant portion of the due diligence material.

Key HR-related data typically includes:

• Workforce demographics (e.g., employee headcount, roles, organizational charts, etc.)
• Compensation & benefit plans (e.g., salary structure, bonus plans, equity agreements, benefit programs, etc.)
• Employment contracts (e.g., terms of employment, non-compete agreements, confidentiality clauses, etc.)
• Union and works council agreements (e.g., collective bargaining agreements, labor relations documentations)
• Legal Risks (e.g., ongoing labor disputes, employee grievances, potential liabilities, etc.)

Taking a closer look at the collaborative effort across legal and HR functions, it is essential to also highlight the alignment between global and local HR teams, especially in multinational projects. For instance, while the legal team focuses on uncovering potential liabilities within employment contracts, global HR teams provide strategic oversight to ensure consistency with broader organizational objectives. At the same time, local HR teams – leveraging their expertise in regional labor laws, cultural nuances, and market-specific practices – play a key role in assessing whether benefit plans, compensation structures, and employment terms comply with local regulations. This collaboration ensures that employee-related liabilities – such as severance obligations, benefit harmonization costs, or compliance gaps – are thoroughly assessed and actionable strategies for mitigating risks are developed.

At binder|consulting, we can play a key role in the Due Diligence Process by assisting the divesting organization in gathering, consolidating, and presenting essential information for potential investors. However, we can also support the receiving business during the review process, particularly in scenarios such as Joint Ventures, by ensuring that relevant HR data is accurately assessed and understood. Our approach emphasizes fostering close collaboration across workstreams, such as legal and HR, and aligning global and local teams to ensure seamless collaboration. This integrated support ensures smoother transactions, minimizes risk, and facilitates informed decision-making throughout the process.

An Employment Step Plan is a structured guideline designed to lead an organization through the legal and regulatory HR requirements during complex business changes, such as a merger, acquisition, carve-out, or divestiture. It details the critical legal steps and actions necessary to ensure compliance across the entire HR transaction lifecycle, with a focus on the employment transfer. While legal teams take the lead in drafting the plan, HR’s involvement is crucial in executing many of the tasks outlined.

A typical Employment Step Plan may include:

• Entity and Registration Requirements: Gathering necessary information, drafting and filing documents for entity creation, and registering with relevant authorities and social security agencies.
• Labor Law Compliance: Reviewing employment contracts for compliance with local labor laws, managing communication with unions, and ensuring labor agreements align with regulatory requirements.
• Data Privacy and Security: Ensuring compliance with local privacy laws, collaborating with legal and IT teams on security standards, drafting data transfer agreements, and assessing data privacy regulations.
• Tax and Payroll Compliance: Registering the new entity for tax purposes, ensuring adherence to tax laws, setting up payroll processes, and ensuring accurate reporting to tax authorities.
• Vendor and Contract Management: Reviewing or renegotiating vendor contracts, addressing licensing issues, and ensuring compliance with relevant contractual obligations.
• Employee Communication and Change Management: Drafting legal notices in compliance with employee communication regulations, executing change management strategies, and ensuring transparent communication throughout the process.

In international M&A transactions, particularly within the EU, the employment transfer may require consultations with works councils or trade unions. Legal teams will establish the timeline and requirements for these consultations, while HR prepares presentations, manages employee concerns, and leads the dialogue with employee representatives. By working in tandem, legal and HR teams ensure that all legal obligations are met and that employees are kept informed and engaged throughout the process.

At binder|consulting, we specialize in implementing the Employment Step Plan by acting as a bridge between all involved stakeholders. Thereby, we not only ensure that the plan is aligned and synchronized with other workstreams, such as Finance, Accounting and Legal. We also coordinate the Employment Step Plan with Standalone preparation activities, including data transfers and migrations conducted in compliance with privacy regulations, while also aligning IT and operational requirements. In doing so, we assist with HR-IT system transitions, data migrations, and exits, while also preparing for vendor changes, such as selecting a new payroll provider when necessary. Through developing an integrated project plan, we ensure cross-functional alignment, enable smooth communication and drive a successful outcome.

A strong partnership between legal and HR teams can not only reduce the risk of non-compliance but also facilitate a smoother employee transfer and ensure that the value of the M&A deal is realized. By establishing open lines of communication and cross-functional collaboration, companies can navigate the complexities of M&A with confidence, ensuring both regulatory success and long-term business growth.

Ensuring regulatory compliance in M&A projects is no small task—this is something we at binder|consulting have experienced firsthand. However, we firmly believe that with the right mix of expertise and experience, even the most complex challenges can be managed successfully.

Our strengths include:

• Experience in large-scale, international M&A projects: We understand the nuances of cross-border transactions and know how to align local and international requirements.
• End-to-end capabilities: We offer a seamless approach to managing transaction, standalone, and post-merger integration, ensuring continuity and efficiency across all stages of your M&A journey.
• Interdisciplinary collaboration: Our consultants work closely with your HR, IT, and legal teams to ensure that no compliance requirements are overlooked.
• Strategic change management & communication: We focus on clear and transparent communication to engage employees early, foster trust, and support a smooth transition. By proactively managing change, we help retain key talent and integrate employees into a transformed company culture.
• Pragmatic solutions: We move beyond theoretical models, delivering customized, actionable solutions tailored to the unique needs of your project, and providing unwavering support throughout every step of the way.

Project Example: We recently supported a 2,500-employee organization operating across six countries through their M&A journey – guiding them from initial transaction planning to the legal carve-out of entities, preparing them for standalone readiness, and ensuring a smooth post-merger integration. Our team supported a seamless and successful transformation, enabling the organization to achieve its strategic objective with confidence.

Interested in learning more?
Find out more details on our approach and M&A services [here]. Or, contact us directly through our form—we’ll get back to you as soon as possible!