Whether you are an employee on the buyer or target side of a merger and acquisition, one word that likely comes to mind is uncertainty. Any merger & acquisition will come with some form of change potentially drastically affecting the employees. You may be fearful that you will lose your job and benefits, and this is a valid fear to have. Following a merger and acquisition, there will be short- and long-term consequences. One of the first repercussions is likely to be layoffs. In fact, only some of these transactions will cause little to no disruption, while the vast majority will cause a shake-up. Reach out to speak with an employment lawyer if you have further concerns about your employer’s merger or acquisition.
Employees affected by mergers and acquisitions may face job loss, changes in leadership, revised benefits, and cultural shifts. Redundant roles often lead to layoffs, primarily at the target company. Survivors may experience new roles, different teams, altered healthcare plans, and uncertainty regarding stock options or retirement benefits.
This article will serve as a brief overview of what happens to employees during mergers and acquisitions. First, let’s take a look at some terms to know.
Key Highlights – Mergers & Acquisitions and Employee Impact
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Uncertainty & Job Security: Employees on both the buyer and target sides often face uncertainty, with layoffs being a common short-term consequence after a merger or acquisition.
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Difference Between Merger & Acquisition:
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Merger: Two companies combine to form a new entity with new stock.
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Acquisition: One company fully absorbs another; the target company ceases to exist.
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Primary Impact – Job Loss: Redundant roles, especially in the target company, often result in layoffs, affecting executives and managers first.
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Post-Merger Adjustments: Remaining employees face new leadership, altered roles, and reorganized teams under the merged structure.
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Changes to Benefits: Employees may see modifications in healthcare, retirement plans, and 401(k) policies as the new company consolidates benefit structures.
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Cultural Clashes: Integration of different work cultures and communication styles often causes friction and adaptation challenges.
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Stock Options & Shares:
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Unvested RSUs are typically forfeited.
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Vested shares may be converted or paid out by the acquiring company.
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Emotional & Organizational Effects: Anxiety, reduced morale, voluntary resignations, and performance dips are common after major corporate transitions.
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Employee Rights: Employees have limited protection against layoffs but should review contracts carefully and seek legal advice before signing any new agreements (especially non-competes).
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Legal Assistance: Consulting an employment lawyer helps employees understand their rights, review documents, and navigate the transition confidently.
What Is a Merger & Acquisition?
The terms “merger” and “acquisition” are often used as one phrase to describe when two entities come together. However, the two words have slightly different meanings.
A merger is a combination of two companies into one. Although not always, a merger frequently involves two companies comparable in size, profits, and earning capability. In a merger, the stocks of both companies are dissolved, and new stocks are issued under the new combined company.
An acquisition, on the other hand, occurs when one company acquires or takes over another. The acquiring company wholly takes over the target company. The target company no longer exists because the acquirer essentially absorbs it. Unlike in a merger, the stock shares of the acquiring company continue to exist. However, the target company shares no longer trade.
Mergers and Acquisitions’ Impact on Employees
The impact of a merger and acquisition on employees can extend beyond the immediately apparent consequences. There are several ways in which employees may be affected, but the number one way is job loss.
Mergers and acquisitions’ impact on employees is almost inevitable, especially if you are a part of the target company. It is common in M&A transactions for job positions to be redundant, which almost always means there will be layoffs. While it is not always the case, the employees to be laid off, at least at first, are usually those of the target company.
Typically, the most vulnerable jobs are those of the targeted company’s CEO, CFO, senior executives, and managers. These positions are often given severance packages with their departure.
You Survived the Layoffs, Now What?
After the immediate transition, the new company’s employees, whether initially from the acquiring or target company, will need to adjust to likely changes. The effects on employees during mergers and acquisitions can exceed what you might imagine.
Change in Personnel
Getting accustomed to new leadership, such as a new CEO and CFO, is just the tip of the iceberg. Personnel changes include shifting roles, assuming new roles, and absorbing work previously handled by departing co-workers. Employees must adjust to new team members, co-workers, leadership, etc.
Changes to Benefits
After a merger & acquisition, employees will likely see changes to their healthcare and retirement benefits. Because two companies became one, there is no need or financial sense for two separate healthcare and retirement packages.
This may be especially concerning to the target company’s employees and bring up concerns regarding the benefits they previously had. For instance, employees with pensions or 401k benefits may be unsure about how to protect their investments.
Culture Changes and Clashes
With any merger and acquisition, there may be a culture shock or an adjustment period to cultural changes within the new company. While this is probably not intentional, each company is unique and has its way of operating, communication style, and overall atmosphere. It can be challenging to adjust, especially for the targeted company employees, to the new culture. It can often feel like fitting a square peg into a round hole.
Changes to Stock Options & Shares
Being laid off with unvested RSUs means you lose the right to receive company shares in the future. The unvested RSUs are typically forfeited and returned to your employer.
If an employee has vested shares, the acquirer can pay out the shares or substitute the old shares for shares in the new company.
If a merger or acquisition results from a stock purchase, and employees are absorbed by the new entity, existing employment forms may remain valid unless policy, benefits, nondisclosure agreements, job duties, or pay undergo substantive changes.
Other Unforseen Effects
Other consequences of a merger and acquisition, which can affect both the employees and the company as a whole, are increased anxiety levels, which may lead to lower performance levels, employee unrest, voluntary resignations, tensions within the company, and more.
When a company buys another company, what happens to the employees?
Mergers and acquisitions often lead to significant employee changes, including potential job loss, role adjustments, and altered benefits like health care or retirement plans. Workers may also face new work settings, leadership changes, and cultural conflicts.
Employee Rights During a Merger & Acquisition
Unfortunately, there is little an employee can do to protect themselves from a layoff during a merger & acquisition. However, keeping yourself updated and familiarized with your contract is essential to being prepared. This way, you better understand what to expect should you find yourself on the wrong side of a merger and acquisition.
If you find yourself one of the unfortunate individuals, you may face some uphill battles, critical choices, and difficult decisions ahead.
During an M&A, reviewing any document presented to you is imperative. It is always best to have an attorney review any document you are asked to sign before signing it. It is common to face non-compete agreements during a transition, which can impede your ability to earn a living. Contact a lawyer to discuss your options and devise a plan.
Are You Worried About a Possible Merger & Acquisition?
Sometimes there is only a little notice to employees about an upcoming transaction. However, if you are worried about a potential takeover and concerned about your rights and options, contact our experienced attorneys at Smithey Law. We have dedicated our practice to labor and employment law and have the knowledge, resources, and skill to assist you through this challenging process. Call us to schedule a consultation.
FAQs
What happens to employees when a company is acquired in Maryland?
When a company is acquired, employees may keep their jobs, move into new roles, face benefit changes, or be laid off if the new company eliminates overlapping positions. In Maryland, the outcome often depends on the type of transaction, the employee’s contract, the size of the layoff, and whether the employer must provide advance notice under state or federal layoff rules.
Can Maryland employees be laid off after a merger or acquisition?
Yes. A merger or acquisition does not automatically protect employees from layoffs. Employers often reduce duplicate roles after a deal, especially in management, administration, operations, HR, finance, and other overlapping departments. However, layoffs still cannot be based on illegal discrimination, retaliation, or another unlawful reason.
Does a Maryland employer have to give notice before layoffs after a merger?
Sometimes. Maryland’s Economic Stabilization Act can require 60 days’ notice when an employer with 50 or more employees has a covered reduction in operations. The trigger generally depends on the number or percentage of employees affected over a three-month period. Federal WARN rules may also apply to larger employers with 100 or more employees and certain plant closings or mass layoffs.
What happens to my benefits after a merger or acquisition?
Benefits may stay the same for a short time, change after the transition, or move into the acquiring company’s benefit plan. Employees should review health insurance, retirement plans, PTO, bonuses, commissions, stock options, and severance terms carefully. A small change in plan language can affect what an employee keeps, loses, or must act on before a deadline.
Do I have to sign a new employment agreement after a merger?
You should not sign a new employment agreement without reading it carefully. A new agreement may include changes to pay, job duties, dispute resolution, confidentiality, severance, non-solicitation, or non-compete terms. Maryland law also limits certain non-compete provisions, including restrictions affecting employees who earn equal to or less than 150% of the state minimum wage.
What happens to stock options or RSUs after a company is sold?
Stock options, RSUs, and equity awards depend heavily on the plan documents and deal terms. Vested shares may be paid out, converted, or replaced with new equity. Unvested equity may accelerate, continue under a new plan, or be forfeited. Employees should review the equity agreement before making assumptions.
Can I negotiate severance after a merger or acquisition?
Yes, some employees may be able to negotiate severance, especially if they are asked to sign a release of claims, non-compete, non-solicitation, confidentiality clause, or transition agreement. Severance terms may also be stronger for employees with contracts, executive roles, commission disputes, bonus claims, discrimination concerns, or long service histories.
When should I contact an employment lawyer during a merger or acquisition?
You should consider speaking with an employment lawyer before signing a severance agreement, release, non-compete, new employment agreement, or equity-related document. It is also wise to get advice if you were laid off without notice, pressured to resign, demoted, denied benefits, or treated differently after the transition.
