What Happens to Employees During Mergers and Acquisitions?

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What Happens to Employees During Mergers and AcquisitionsWhether 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.

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. 

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

A company acquisition can raise even more questions for employees who hold stock options. When you are initially hired or offered stock options, they come with a vesting schedule detailing when you have the right to purchase those shares. If an employee holds stock options, those shares are not vested or owned, so the acquiring company can cancel those options or accelerate vesting schedules. Because there is no guarantee of what the acquiring company will do, there can be a lot of uncertainty surrounding stock options during an M&A.  

If an employee has vested shares, the acquirer can pay out the shares or substitute the old shares for shares in the new company.

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. 

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.

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Joyce Smithey, a seasoned employment and labor law attorney, has over 22 years of experience representing both employers and employees in Maryland and D.C. Her practice, rooted in a deep understanding of employment law, spans administrative hearings to federal litigation. Joyce's approach is comprehensive, focusing on protecting client interests while ensuring legal compliance. A Harvard graduate, her career began in Fortune 500 companies, transitioning to law after a degree from Boston University School of Law. Joyce's expertise is recognized by numerous awards, including Maryland’s Top 100 Women. At Smithey Law Group LLC, which she founded in 2018, Joyce continues to champion employment rights, drawing on her rich background in law and business.

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