Labour law changes: impact of EU Directive on M&A procedures

On 15 May 2024, amendments to the Labour Code of Ukraine came into effect aiming to regulate the rights and obligations of parties in labour relations during a change of control over business. The Ukrainian parliament adopted such amendments to align Ukrainian legislation with EU Directive 2001/23/EC, dated 12 March 2001.

Definition of the “transfer of a business entity”

For matters related to labour relations, the transfer of a business entity includes:

• change of ownership of the employer company;
• reorganisation of the employer company (merger, acquisition, transformation, division, or spin-off);
• change of the owner and/or user of the assets (their part) that form the organised group of resources used by the employer, while preserving the type of economic activity (“Transfer”).

Consequences of the Transfer

Upon the Transfer, the employment relationship continues with no changes.

The legal status and functions of trade unions or authorised representatives of employees are maintained and performed under the same terms as before the Transfer.

Consultations with employees regarding the Transfer

Currently, at least ten business days before the Transfer, both the transferor and the transferee must notify the trade union (an authorised representative of employees) or staff themselves about:

• the date or approximate date of the Transfer;
• reasons for the Transfer;
• legal, economic, or social implications of the Transfer for the employees; and
• any measures planned for the employees upon the Transfer.

In turn, the trade union or employees’ authorised representatives may initiate consultations with the seller and/or the purchaser within five business days of receiving the notice on Transfer concerning the reasons for the Transfer and its consequences for the employees. The consultations are to be held within five business days of their initiation. Based on the results of the consultations, a minutes or another document is issued.

The absence of such consultations does not affect the Transfer.

Importantly, employees must be notified of changes in their essential working terms caused by the Transfer at least two months in advance.

The changes introduced by the implementation of the Directive aim to ensure better protection of employee rights in the event of a change of the business owner and facilitate a transparent process of transferring ownership to the employer. However, the ambiguous wording of the new provisions may complicate the process of completing M&A transactions, creating potential risks for the business and its officials.

For more detailed advice on structuring labour relations for M&A transactions, please contact AVELLUM partners – Mykola Stetsenko, Yuriy Nechayev, and Andriy Romanchuk.