Cross-border M&A deals tend to focus on valuation, structure, and timing. Fair enough. Those are visible and measurable.
What often receives less attention, at least early on, is employee transfer risk.
And yet, in many jurisdictions, employees do not simply “move” because a deal closes. Their rights are protected by local labor laws. In some cases, those protections are strong enough to reshape the transaction itself.
If you are involved in an international acquisition, restructuring, or carve-out, understanding frameworks like TUPE and Article 23¹ is not optional. It is essential.
Let’s break this down in a way that is practical, not overly legal, and actually useful for both buyers and sellers.
Why Employee Transfers Are Complex in Cross-Border Deals
At a high level, M&A transactions transfer assets or shares.
But employees are not assets.
They come with:
- Contracts
- Rights
- Benefits
- Legal protections
And those protections vary significantly across countries.
In some jurisdictions, employees transfer automatically. In others, consent is required. In many cases, both parties carry obligations before, during, and after the transfer.
This creates a layer of complexity that can impact:
- Deal timelines
- Cost structures
- Integration plans
- Post-deal liabilities
Ignoring this early is a common mistake.
What Is TUPE?
TUPE (Transfer of Undertakings Protection of Employment) is a UK regulation that protects employees when a business or part of it is transferred.
In simple terms:
When TUPE applies, employees automatically transfer to the new employer with their existing terms intact.
That includes:
- Salary
- Benefits
- Length of service
- Employment rights
The idea is continuity.
From the employee’s perspective, the employer changes, but their job conditions do not.
What Is Article 23¹?
Article 23¹ is a provision under Polish labor law with a similar purpose.
It governs employee transfers during business transitions.
Like TUPE, it ensures:
- Automatic transfer of employees
- Preservation of employment terms
- Protection against unfair dismissal
While the principles align, the application and procedural requirements differ.
And those differences matter in cross-border transactions.
The Common Thread Across Jurisdictions
TUPE and Article 23¹ are part of a broader concept.
Many countries have laws that:
- Protect employees during business transfers
- Restrict changes to employment terms
- Impose obligations on both buyer and seller
These laws aim to prevent employees from being disadvantaged due to corporate transactions.
But for businesses, they introduce operational and legal complexity.
When Do Employee Transfer Rules Apply?
This is where nuance comes in.
Employee transfer laws typically apply when there is:
- A sale of business assets
- A transfer of operations
- Outsourcing or insourcing of services
- Mergers or restructurings
However, the exact trigger depends on the jurisdiction.
For example:
- In the UK, TUPE applies when there is a “relevant transfer”
- In EU countries, similar directives apply with local variations
Misjudging whether these rules apply can lead to serious consequences.
Key Risks Buyers and Sellers Need to Understand
Employee transfer laws are designed to protect employees. But they also create risks for both sides of a transaction.
1. Automatic Transfer of Liabilities
When employees transfer, so do certain liabilities.
This may include:
- Outstanding claims
- Unpaid benefits
- Historical employment issues
Buyers may inherit risks they did not anticipate.
2. Restrictions on Changing Terms
Post-transfer, employers often cannot:
- Reduce salaries
- Change benefits
- Alter contracts significantly
Even if changes are business-driven, they may be legally restricted.
3. Consultation Requirements
Many jurisdictions require:
- Informing employees
- Consulting with employee representatives
Failure to follow these processes can result in penalties.
And sometimes, delays in closing the deal.
4. Risk of Employee Objections
In some countries, employees have the right to:
- Object to the transfer
- Refuse to move to the new employer
This can create workforce gaps or operational uncertainty.
5. Dismissal Risks
Terminating employees around the time of transfer is heavily regulated.
Dismissals linked to the transfer may be considered unfair or invalid.
This can lead to:
- Compensation claims
- Legal disputes
The Cross-Border Challenge
Things get more complicated when multiple jurisdictions are involved.
Different countries may have:
- Different definitions of “transfer”
- Different consultation requirements
- Different timelines
- Different employee rights
For example:
- One country may require prior approval before transfer
- Another may allow automatic transfer without consent
Aligning these requirements within a single deal is not straightforward.
Due Diligence: Where Most Issues Begin
A significant portion of employee transfer risk comes down to due diligence.
But not just surface-level checks.
Buyers need to assess:
- Employment contracts
- Collective agreements
- Ongoing disputes
- Benefit structures
- Compliance with local labor laws
Skipping or rushing this stage often leads to surprises later.
Integration Planning: The Overlooked Phase
Even when the transfer is legally compliant, integration can be challenging.
Questions that often arise:
- How do we align policies across regions?
- Can we standardize benefits?
- How do we manage cultural differences?
Without a clear plan, integration becomes fragmented.
And employees feel it.
Practical Steps to Manage Employee Transfer Risk
This is where preparation makes a difference.
Start Early
Do not wait until the deal is finalized.
Assess employee transfer implications during:
- Initial planning
- Due diligence
Map Jurisdictional Requirements
Understand:
- Which laws apply
- What obligations exist
- What timelines must be followed
Engage Legal and HR Experts
Cross-border M&A requires:
- Legal expertise
- HR insight
Both are necessary to navigate complexities.
Plan Communication Carefully
Employees should not be the last to know.
Clear communication reduces:
- Uncertainty
- Resistance
- Risk of disputes
Align Business and Legal Strategy
Decisions around structure, timing, and integration should consider employee impact.
Not as an afterthought.
Common Mistakes to Avoid
Even experienced teams make these mistakes.
Assuming Rules Are Similar Across Countries
They are not. Even small differences matter.
Treating Employee Transfer as a Post-Deal Task
By then, options are limited.
Underestimating Consultation Requirements
These can delay transactions if not handled properly.
Ignoring Cultural Factors
Legal compliance is one part. Employee experience is another.
A Simpler Way to Think About It
If you are navigating cross-border M&A, keep this in mind:
- Employees are protected stakeholders
- Laws prioritize continuity
- Changes are restricted
- Processes must be followed
This is not a barrier to deals.
But it is a framework you must work within.
Final Thoughts
Employee transfer laws like TUPE and Article 23¹ are not just legal technicalities. They shape how cross-border M&A actually unfolds.
Understanding these frameworks early helps avoid delays, manage risk, and ensure smoother integration.
For buyers, it reduces exposure. For sellers, it ensures compliance and protects deal value.
At Aadmi, we work with companies navigating cross-border transactions where employee transfer rules play a critical role. At Aadmi we provide support across global employment compliance, workforce transitions, and international HR strategy, helping businesses manage these complexities with clarity and structure. The goal is not just to close the deal, but to ensure what comes after is stable and sustainable.
FAQs
1. What is TUPE in simple terms?
It is a UK regulation that protects employees during business transfers.
2. What does Article 23¹ cover?
It governs employee transfers under Polish labor law.
3. Do employees automatically transfer in all countries?
No, rules vary by jurisdiction.
4. Can employment terms be changed after transfer?
Often restricted, especially if changes are linked to the transfer.
5. Are consultation processes mandatory?
Yes, in many jurisdictions.
6. Can employees refuse to transfer?
In some countries, yes.
7. Why is employee transfer risk important in M&A?
It affects liabilities, timelines, and post-deal integration.
