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What Happens to Employees After an Acquisition?

A business man standing next to a question mark

If you’re an employer, an acquisition is a good thing. This means that your business gained so much revenue and popularity that another larger company sees its potential and purchases it. If you’re an employee, you may have a different mindset about acquisitions. Unlike employers, employees often do not sit back and relax when they hear about this transition. After an acquisition, employees are nervous about their job security, and rightfully so. All of these changes cause confusion and nervousness among employees, and that’s why we’re here to clear things up:

Is there a difference between an acquisition and a merger?

Some people might hear the term “merger” used during an acquisition. This is because acquisitions have a negative connotation, and employers don’t want to use that language around employees. Some employers purposely tell employees that the business is merging (as opposed to being acquired) so employees don’t get nervous about their jobs. Although used together, mergers and acquisitions are different.

A merger is when two companies join forces to create a new management structure and a joint organization. The CEOs from each company typically find benefits from each business and combine their services to create the “ultimate business”. This normally doesn’t work out because of the fact that one person may have to give up some authority; therefore, acquisitions come into play. Acquisitions do not require any merging. A larger company will purchase a smaller company, taking over management decisions, finances, and ultimately taking over the business. Ordinarily, the new business will replace existing employees.

What happens right after an acquisition?

There is usually a brief period of silence after an acquisition. Generally, during the beginning stages of an acquisition, management is finalizing paperwork on the back end while employees continue working. During this time, management will establish new processes, choose different time tracking solutions for payroll, and make financial decisions. In addition to new processes, management will regularly communicate with employees about what is going on. They may meet with employees to inform them of their options and let them know whether they need to take certain steps to ensure their job remains in tact. Ultimately, employees just have to wait and work until changes are implemented.

What happens to existing employees’ jobs after an acquisition?

An employee’s future is entirely dependent on the existing organization. Some new employers keep current staff, while some replace current staff with their own team. The truth is, employees can’t be sure about what is going to happen to their jobs. Often times, core functions such as payroll, human resources, accounting, marketing, technology, and other departments overlap. When departments overlap, you will often find employees performing the same job function. Employers do not have a need for duplicate employees; therefore, they will narrow down the team.

What actions can employees take?

As stated above, most employers will choose to get rid of redundant workers. However, it is important that employees stay hopeful during this period. The acquiring company will often sit down with current employees and discuss their job responsibilities. It’s during this time that employees should indicate what special skills they bring to the table. If they are able to set themselves apart and clearly state their contributions, there is a chance that the acquiring company will keep them on board.

Not only can employees prove themselves to the new employer, but this is also a great time to review employment agreements. Employee handbooks, contracts, and other documents may provide the employee with job protections and extra pay. Most employees have contracts with their current employers, and these agreements may also apply after an acquisition. When employees look through their contracts, here are some things to look for:

  • Severance pay: In some cases, an employer may offer an employee severance pay. For example, an employer may offer a certain amount of compensation if the employment ends during the contact term. Or, in other cases, an employer may offer a week of severance pay for every year an employee worked with the company. 
  • Termination protections: You may find this in the employee handbook or other written policies. An employer may offer an employee protection from layoffs or terminations. This means that termination can only happen with good cause. 
  • The survival clause: A survival clause is part of a contract that exists after the contact has been terminated. The survival clause dictates what happens to the employee contract and how it will be handled. There’s a chance that the survival clause may restrict the employee’s termination.

What is the termination process?

Most employees who are let go during an acquisition are put through a career transition process. The termination period can vary anywhere from 30-90 days. They will take care of terminations with procedures, guidelines, scripts, and forms. Additionally, an employer might even help employees find new employment through special employment programs so that they aren’t left without direction.

What happens to an employee’s pay and benefits?

Unless an employee is under a specific, legally binding contract, the new employer may reduce pay and benefits. This means employees may get a new time off policy with accruals, they might receive adjusted pay, may be expected to work different schedules, and may see different bonuses and other additions.

Not only will benefits and pay change, but employees will change retirement and healthcare plans as well. Employees will most likely have to change their healthcare and retirement plans to match other employees. Putting people on the same plan will help their management process. In regards to current retirement funds, employees do not have to worry. Although employees will most likely change retirement plans, the Employee Retirement Income Security Act (ERISA) will provide protections. They will ensure that employees do not lose the credit they’ve worked for.

Next Steps

If you are an employee and the business you work for gets acquired, it’s not the end of the world. The best thing to do is stay calm and review your rights, skills, and protections. It’s not guaranteed that you will be terminated, but it’s a good idea to familiarize yourself with your handbook and contracts to make sure that you understand your rights and solidify your job security. If you are ever unsure as to what is happening, try to speak with your manager or supervisor to obtain information. Transparency is a great thing to have when you’re going through this transition.

If you’re an employer, you’ll want to take this time to focus on communication with your employees. Although you may not have all the answers, assisting your employees and contributing to their peace of mind is the best you can do. Additionally, during an acquisition, employers should look back on their notes about their employees’ performances. As an employer, you can potentially help an employee prove that they deserve to stay at the company. If you can provide the employee with annual reviews, positive notes, and performance evaluations, they will have accurate documentation to support why they’re an asset to the company., for example, has an HR suite where employers can store performance reviews, commendation letters, notes, and annual reviews. This is incredibly helpful information to have when you want an overview of an employee’s progress.

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  1. LoadX
    LoadX January 23, 2020

    nice work, keep up the good work
    very nice article

  2. wella
    wella September 29, 2020

    what happen to the employee hire date after acquisition? will the employment date is the day they acquire the company? or was it from the Actual hire date?

    • Lindsay Sommers
      Lindsay Sommers September 30, 2020

      Great question! That is most likely up to your new employer. I suggest asking your manager or HR department.

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