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TECHWORKPLACE
by Jeffrey L. Berger, Esq.
Jeffrey L. Berger
specializes in management-side employment and business law, and related litigation in
Washington, D.C., and nationally. Questions and comments on the TECHWORKPLACE are
encouraged. Other articles are available at www.bergerlaborlaw.com.
WHEN THE DEALIN’S
DONE:
WORKFORCE INTEGRATION PLAN IS KEY TO UNLOCKING M&A VALUE
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The New American Dream: a series of well-orchestrated
mergers and acquisitions increases your company's market share and revenue enough to go
public. You cash out your employee stock options, move to Aspen, and start another
company.
Unfortunately, the M&A road to riches is not always that smooth. It
is often littered with obstacles created by inattention to workforce and organizational
integration issues. A landmark $1.5 million discrimination settlement last year by Core
States Financial Corporation is a case in point. Core States, a federal contractor, grew
rapidly through eleven acquisitions over seven years. Its many new operations had
disparate salary structures. Following an affirmative action plan audit by the Office of
Federal Contract Compliance Programs ("OFCCP"), Core States was accused of pay
discrimination against 142 female and minority employees who were paid less than their
white male counterparts. Besides $1.2 million in back pay, Core States had to pay $334,115
in wage adjustments. It was also forced to analyze all male/female and minority/non-
minority salary grades and achieve OFCCP compliance by correcting discrepancies.
The recent flurry of M&A activity in the high tech and government
services marketplace is being fueled by the desire to gain market leverage through
consolidation. Once the deal is done, however, management must face the daunting task of
mating previously distinct, or even competing, organizations with different structures and
cultures. How successful the resulting entity will be in achieving anticipated
efficiencies and promised synergies often depends on aligning workforce integration with
the purpose of the transaction. For example, in approaching compensation and benefit
issues, the employer must look to the underlying vision that drove the deal. If the
acquired business is viewed as a strategic fit with the existing organization, swift
integration of pay and benefit systems should likely follow. On the other hand, if the
acquired business will be operated independently as a short term investment, the need for
such integration to meet employment law and compliance audits requirements may be limited.
Nonetheless, the more interaction there is among employees in similar jobs who are treated
differently for such things as overtime or pension eligibility, the greater likelihood of
lower morale, higher turnover, and employer liability.
Where retention of employees is a component of value in an M&A deal,
management must systematically address the disruption and uncertainty experienced by
employees. Even with the best efforts at keeping plans secret, it is difficult to quell
the pre-merger rumor mill once the "suits" - lawyers, accountants, and
investment bankers - descend to conduct due diligence. While employee uncertainty after
the merger can open opportunity for positive change, it is fertile ground for
misunderstandings, defections, and employment law claims, especially where layoff rumors
become reality. Thus, the new employer must be ready to hit the ground running with an
effective program and management team to communicate its plans and vision to the acquired
workforce. New employees will want to know about such things as compensation, benefits,
sales plans, policies and procedures, and management structure. Although a transition
period is to be expected, how it is handled will be employees' first and often lasting
impression of management. Communication, based upon the goals of the acquisition and the
culture of the acquired workforce is critical to transform management's vision for the new
company into reality.
© 1999 Jeffrey Berger
REPRINTED FROM:
TECHGAZETTE - May 1999, Vol. 2, No. 5
The Berger Law Firm, P.C. 1825 Eye St. N.W., Suite 400, Washington, D.C.
20006.
Phone: (202) 861-1361 Fax: (202) 861-1362
Legal advice is case specific and is not intended to be provided by this article.
The Berger Law Firm, P.C. may not be held responsible for any consequences
that may arise in connection with the use of or reliance on the information provided.
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