What Happens to Employees after an M&A deal?
Unbeknowst to most, employment issues are an important aspect to consider when undergoing an M&A transaction. Often overlooked, this area of law is vital when deciding employee’s rights when a company is bought out. We speak about this more with Roman Kolos, a specialist in employment law.
To what extent do you engage in employment law in your daily routine and what are the most complex issues that arise with your clients?
Employment related matters are a substantial part of our firm’s business. Most M&A transactions require employment expertise, ranging from a basic identification of potential risks within the due diligence exercise, up to major pre or post completion restructurings, often involving transfer of employees, reductions-in-force, etc.
We are also often approached by our clients’ HR teams in case of any sub-standard situations or when a multidiscipline approach is required. For example, we often assist with implementation of global employment and compensation policies in local subsidiaries of multinational companies, formalisation of cross-border secondments, dealing with trade unions, resolving any sort of employment related disputes (including litigation), etc.
Commencement and termination of employees in top management is another area where clients often involve us, since such matters are usually very sensitive for the client and require a multidisciplinary approach, especially with expat management. In such cases, very often, what seems as a very straightforward arrangement may face a numerous Ukrainian regulatory obstacles, such as foreign currency control, tax related issues, work permits, and so on.
How would you say Ukrainian employment law is set apart from other European nations/EU law?
Ukrainian employment law is based on the same key principles and approaches as in in most other European countries. The key difference and actually an issue for many businesses, is that Ukrainian employment law is in many ways outdated. You should keep in mind that Ukrainian employment code dates back to 1972 and back then private business simply did not exist in Soviet Union (at least officially). Consequently, the act, regardless of its numerous amendments, still does not recognise any sophisticated corporate structures, modern corporate governance, possible cross-border employment matters, etc. Such gaps are partially addressed by corporate or tax laws, nevertheless, to deal with them from the employment law perspective often requires a lot of creativity and sub-standard approaches.
Is there specific employment legislation you would see changed in Ukraine to satisfy your clients’ needs?
Indeed, a number of changes are expected within the next couple of years. First of all, it’s a new employment code (initial draft was circulated more than year ago and is under discussion now). Hopefully the new code will close some existing gaps and will bring employment law closer to the today’s economic realities (as aforementioned). Other developments are expected in line with Ukraine’s obligations to harmonize its laws with EC Directives, within the framework of the association agreement between EU and Ukraine (fully entered into force on 01 September 2017). Certain adjustments were already introduced in such areas as antidiscrimination and equality, although, amendments in such areas as collective redundancies (EC Directive 98/95/EC), transfer of undertakings (EC Directive 2001/23/EC), and many others are still waiting for their turn.
What is the most complex employment issue you’ve worked on during M&A transactions, and what were the challenges therein?
Quite often employment related matters are not given adequate attention within M&A transactions with Ukrainian target companies, resulting in rather serious risks for the buy side, especially in such sectors as IT, banking, and other services, where employees are forming a key asset of the business. Please note that most contractual warranties or covenants of the sell-side in relation to employment matters will be hardly enforceable in Ukraine. Furthermore, Ukrainian employment law does not recognise a change of control as a due reason for any employment related adjustments in the company. Consequently, a careful analysis of any existing employment related issues and due pre-completion measures are a “must do” is these kinds of transactions.
Special attention is also required in case of post privatisation assets (covers most production facilities). Such assets are likely to bear certain employment related obligations, such as a prohibition to dismiss certain categories of employees, keep certain level of compensations, etc. Similar issues may also arise from the bargaining agreements if there are active trade unions in the company.
You’ve acted on behalf of many great firms; which of these are you most proud of and which of these would you say pushed your expertise out the most?
Usually the most challenging are employment related disputes. Such cases are usually very sensitive to the client and are highly confidential. Litigation also means that all peaceful ways of dealing with the issue are exhausted. But the biggest challenge is in manoeuvring around mistakes and deficiencies in fulfilling all formalities that either directly or indirectly caused the issue.
Another challenge, but in a more creative and positive meaning of this word, is in implementation of employment and HR standards of large multinational companies in their Ukrainian entities. Philip Morris is a good example of such a client. Such work usually requires addressing an issue from all possible angles (employment, regulatory, data-protection, foreign currency control, work of foreigners, tax, trade unions, etc.) in order to make sure that the company’s global approaches will duly work in Ukrainian realities and will not trigger any issues for the client.
With an A-class career already behind you, how did you come to build your own law firm? Where would you like to see Arslegem in another 10 years?
As of today Ukrainian legal services market is a relatively small one, but it has very good growth potential. We’ve already witnessed an investment boom of 2005-2007, caused by election of a pro-western president and declarations that the country is moving towards the civilised world. Revival of economy back then triggered an intensive growth of legal services market with many international law firms opening offices here. Unfortunately, everything ended disappointingly whereby stagnation followed. Today’s situation is different, the country is undergoing some real reforms, and although things move a bit slower than we would wish them to, it seems that the key factor that keeps the country from fast recovery is the military aggression in eastern part of Ukraine.
Such a situation creates unique opportunities for many local law firms to work with major international blue chips. And this was exactly the idea behind founding ArsLegem. Equipped with our experience, enforced by extremely good litigation practice headed by my partner – Oleksandr Petrov, and acting in full compliance with national and international professional standards in 2012 we launched our law firm.
As for the second half of your question, we anticipate that in a mid-term perspective Ukrainian economy will recover, causing a wave of revival on the legal services market. Until then our goal is to get fit and equipped to the best extent possible in order to be able to catch that wave and show our best in riding it. I believe that we will manage to develop our firm into a regional leader in our core areas and employment law (often neglected by others) is definitely one of them.
Roman Kolos
Partner
ArsLegem
5th floor, Studentska Street 5-7 B, UA – 04050, Kyiv, Ukraine
tel. +380 44 363 07 77 fax +380 44 586 98 29
r.kolos@arslegem.com
Roman Kolos is practicing Advocate and Partner of Ukrainian law firm ArsLegem. Prior to founding ArsLegem Roman was a Partner at Kyiv office of Wolf Theiss – one of the leading CEE law firms. He started his career in private practice in 2005 by joining the major Ukrainian law firm at those times – Magisters, where over two years he reached a pre-partner position, including a spell as Head of Corporate and M&A practice in the firm’s office in Moscow, in 2007. Before that, since 1999, Roman worked as an in-house lawyer and head of legal department for a number of local and multinational companies.
ArsLegem is an independent Ukrainian law firm providing litigation and counselling services in all major areas of business law. ArsLegem’s labour and employment team, headed by Roman Kolos, provides comprehensive advice and creative solutions in all matters pertaining to Ukrainian employment law and is experienced in all facets of the complex landscape of employment relations.
