Key points
- Identify the acquisition structure and which entity will remain the employer.
- Compare contracts and payroll with operations, litigation and social security records.
- Assess the requirements and effects of employer substitution before designing completion arrangements.
Identify what the transaction changes
Employment due diligence begins with understanding what is being acquired: an interest in a company, assets or an operating business unit. The analysis should identify the employing entity before and after completion, the workplaces involved and the intended continuity. The transaction's commercial label does not resolve those questions by itself.
The file should connect the proposed structure with the workforce, actual supervision, premises and existing contracts. If employee movements are contemplated, their basis and consequences need assessment before they are communicated. Corporate completion and employment implementation require coordination, even though they involve different documents and responsibilities within the transaction.
Verify obligations and potential liabilities
Review can be organised around hiring, length of service, remuneration, working time, holidays, collective relations and litigation. In each area, summary information should be compared with supporting documents and actual practice. A seller's statement or spreadsheet does not replace verification of the obligations identified in the course of review.
The social security component also requires evidence. Article 15 of the Social Security Law addresses registration, notifications, record retention and the assessment and payment of contributions. Due diligence should examine compliance and any discrepancies identified, without treating an isolated payment receipt as equivalent to a complete review. [2]
Assess employer substitution
Article 41 of the Federal Labour Law provides that employer substitution does not affect employment relationships and requires transfer of the assets comprising the business or establishment for the substitution to take effect. Merely describing a transfer of employees as substitution is therefore insufficient, and not every acquisition necessarily produces it. [1]
The same provision retains the outgoing employer's joint and several liability with the new employer for earlier obligations for six months, running from notice to the union or employees. Thereafter, the new employer remains liable. That employment-law framework must be distinguished from the requirements and liabilities arising under social security law. [1]
Turn findings into completion decisions
A useful report distinguishes confirmed facts, missing documentation and estimates dependent on assumptions. Each finding should explain the affected workforce, period, supporting material and possible operational effect. That classification assists assessment of contractual arrangements between the parties, outstanding documentation and measures requiring attention before or after completion of the transaction.
The integration plan should assign responsibility for payroll, personnel files, communications and collective obligations. Agreements between buyer and seller allocate risk between them but should not be treated as automatically extinguishing employee rights. Final review should establish whether implementation matches the structure analysed and the obligations that continue after completion.
Sources consulted
- Federal Labour Law Article 41, first to third paragraphs.
- Social Security Law Article 15, paragraphs I to III.
General information. Application to a particular matter requires assessment of its circumstances and the provisions in force.
