“Acqui-hire” transactions, which are particularly prevalent in the context of start-up technology-related M&A transactions in the U.S., focus on acquiring a company primarily to obtain its employees and their skills, in addition to other possible assets (see our earlier post on acqui-hires). In these type of transactions, it is thought that the greatest perceived value in the target lies in its employee base or segment(s) thereof. If there is also perceived value in the intellectual property (IP) or other assets of the target company, an acquiror might purchase those assets and possibly license them back. In some cases, … Continue Reading
The distinction between employees and independent contractors is significant as it pertains to workers’ legal entitlements. Employees have an exclusive working relationship with an employer, which engages rights and obligations under applicable employment legislation and the common law. By contrast, independent contractor agreements are entered into by legal and contractual equals. As a result, independent contractors are not afforded employment law protections.
The misclassification of employees as independent contractors continues to attract considerable legal action and media attention. Recently, Ontario has seen a rise in class action lawsuits involving claimants alleging to have been misclassified by their purported employers. … Continue Reading
ITA regulation 102 requires employers to withhold tax on remuneration paid to non-resident employees who are employed in Canada. This requirement can be avoided by seeking a treaty-based waiver (regulation 102 waiver) or certification as a qualifying non-resident employer. However, often there is not sufficient time to do this before the employment is to begin, or there is a lack of awareness of the rules. Where the employer must withhold tax, should the amount be based on the non-resident employee’s Canadian income or worldwide income? Clarification from the CRA would be appreciated.
Specifically, regulation 102 imposes withholding on “any payment … Continue Reading
The typical business model has significantly expanded in recent years, and often includes an element of collecting, using, storing or modifying personal information (also known as “processing”). If you are involved in processing personal information, you may likely be considered a “processor”. As a processor, it is crucial to understand the principles for processing data as well as the rights of the individuals whose personal information you are processing.
The following are some key principles for processing personal data:
- Lawful Reason and Consent: Canadian privacy law typically requires processors to obtain consent from individuals in order to process their
In any acquisition, whether for shares or assets, employee benefits and obligations must be taken into account. One of the potentially most onerous obligations includes the provision of pension benefits to employees – this makes it all the more important for companies contemplating acquisitions to consider potential employee pension plan implications.
In a share purchase context, the buyer will typically assume all liabilities of the target company, and if the target company has a pension plan in place, this will often be included. However, if there are significant pension fund deficits, this may be one reason an asset purchase agreement … Continue Reading
Restrictive covenants are often a key mechanism by way of which the buyer of a business is able to protect the value of their purchase. Indeed, in a 2017 review of legal trends in Canadian private M&A, Thomson Reuters has reported that non-competition covenants were found in 52% of the closing conditions of share acquisition transactions.
While such covenants are common, their enforcement has remained an ongoing concern due to the strict reasonableness requirements imposed by the Supreme Court of Canada in JG Collins Insurance Agencies Ltd. v Elsley,  2 SCR 916 in order to balance the parties’ … Continue Reading
A recent decision of the Ontario Superior Court of Justice, Dussault v Imperial Oil Limited, 2018 ONSC 1168 (Dussault), provides a cautionary tale to selling parties in an M&A transaction who intend to limit liability for wrongful dismissal by negotiating for its employees’ continued employment with the buyer. The Dussault decision illustrates that even when continued employment is offered, the seller may still be liable if the employees are reasonable in failing to mitigate their damages by not accepting employment with the buyer.
As part of an asset purchase agreement between Imperial Oil Limited (Imperial… Continue Reading
Canadian provinces and territories all administer some form of a workers’ compensation system within their jurisdiction. Funded by employer-paid premiums, these no-fault insurance systems provide wage replacement and medical benefits to injured employees who relinquish their right to sue their employer for losses arising from their injuries. In Ontario, for example, the relevant legislation is the Workplace Safety and Insurance Act (WSIA).
Why is workers’ compensation relevant to M&A?
When acquiring a business, it is important to be aware of the seller’s record under the applicable workers’ compensation legislation. In Ontario, for example, when an employer sells its … Continue Reading
Parties to an asset transaction should carefully consider the implications of the proposed acquisition on existing employment arrangements, including, non-competition agreements, workers’ compensation programs, and pension plans. The provisions of the Employment Standards Act, 2000, S.O. 2000, c. 41 (ESA), the governing employment standards legislation in Ontario, should be considered when negotiating employment arrangements as the ESA can impact packages and offers made–or not made–to existing employees, and any liability that may arise for the vendor and/or purchaser.
ESA: relevant provisions
The ESA provides minimum terms and conditions of employment for the majority of employees in Ontario. The … Continue Reading
Large public companies often acquire small private start-up companies to add new capabilities to their portfolios. This strategy is particularly common in the technology sector, where established players can take their pick of a multitude of start-ups. Given the nascent nature of start-ups, start-ups typically have limited assets, often consisting of a small number of software or hardware platforms. Oftentimes, of potentially greater value to an acquirer is the start-up’s talent pool, and hence, the phenomenon of the “acqui-hire”.
The essential concept of the “acqui-hire” is an acquisition that is driven by a desire to harness the target’s key … Continue Reading
As discussed in previous posts written by my colleagues Victoria Riley and Sara Josselyn, key talent retention is an important consideration for parties to a proposed M&A transaction. The uncertainty of a potential transaction may cause key employees to seek work elsewhere, which could in turn, jeopardize the deal itself. A change-in-control (CIC) severance agreement, however, is one mechanism that can be used by companies to allay concerns and prevent key talent departures.
CIC severance offers enhanced severance to key employees upon a change-in-control. The agreement must define what would constitute a “change-in-control”. Although this definition is … Continue Reading
There has been much speculation about the tax measures to be included in the new federal government’s first budget that will be presented next week, on March 22. Of particular interest to the start-up and technology communities is whether the budget will introduce changes to the tax treatment of employee stock options. The Liberal party’s election campaign promised reform in this area, but contained few details of the proposal.
Current treatment of stock options
An employee stock option grants an employee the right to purchase shares of its employer company at a stated exercise price. Upon exercise of the option, … Continue Reading
In any M&A transaction, there are a variety of risks that are associated with human capital. Mercer has recently released a report, People Risks in M&A Transactions (the Report), based on a survey of M&A professionals. It provides an analysis of approximately 450 M&A transactions, and interviews corporate and private equity clients, investment bankers, and M&A advisors. The Report identifies a number of human capital risks that are of concern to those in the M&A sphere.
The top five issues relating to human capital identified by participants surveyed were:
- Employee retention: Retaining employees after a deal has taken
Studies reveal that 50 to 70% of M&A transactions ultimately fail to realize expected synergies and, in fact, many actually dilute shareholder value. One of the causes of M&A failures is that companies often neglect to adequately consider the psychological impact of M&A on their employees.
Will I be laid off? Will I be moved to a different position? Will I get along with my new colleagues? Like downsizing and other types of organizational change, M&A creates considerable uncertainty and has widespread psychological effects on employees in every level. A paper by People & Culture identifies the following potential psychological … Continue Reading
Jimmy’s biotech company was doing well. A deal was on the table for a massive pharma conglomerate, Massive-Pharm, to purchase his company via an asset purchase agreement. Everything was going well, that is, until Jimmy’s top sales star, Terry, leveraged the impending purchase to secure a better-paying position at Jimmy’s competitor. After Jimmy’s company lost Terry, Massive-Pharm pulled the deal.
Believe it or not, Jimmy’s situation is not an entirely uncommon one in the M&A world. Purchase agreements often contain legal clauses allowing acquiring companies to back out of deals should the target company lose key employees prior to closing. … Continue Reading
Human capital is a critical component of any merger or acquisition. High profit margins and synergistic gains cannot be realized without key talent who are able to motivate employees to achieve high levels of performance. Although there is no simple solution to retaining top performers, retention strategies should be adopted in any merger or acquisition. The most common retention award offered to executives and employees is a cash bonus, calculated as a percentage of base salary. Expressed relative to purchase price, retention budgets are quite minimal and are usually borne by the purchaser.
Conducting thorough due diligence with respect to a target company’s compensation plans, employment agreements, employee benefit plans and employee policies is an integral component in evaluating a potential merger or acquisition. For an acquiror, another significant piece of the overall picture with respect to compensation, however, is the impact of a merger or acquisition on executive compensation and the payments and benefits to be provided to executives upon a change-in-control. Below is a brief summary of what constitutes a change-in-control event and some of the benefits that executives typically receive upon a change-in-control.
Change-in-control (CIC) arrangements
This blog post was co-written with Brian Chau, an Associate in Norton Rose Fulbright’s Toronto office.
Businesses of all sizes are increasingly becoming aware of the strategic and commercial value of intellectual property (IP). Startups which are just getting off their feet; scaling businesses which are growing in both revenue and size; and mature, sophisticated ventures which have established positions in their respective markets all recognize that their IP and technology may be used for a variety of reasons, including:
- to attract investment or financing;
- to be used as collateral for debt financing;
- to obtain a
On Wednesday, September 10, 2014 to Wednesday, October 22, 2014 from 6:30 pm – 8:30 pm (US/Central), Norton Rose Fulbright will be presenting its 7th Annual Mergers & Acquisitions School for corporate, in-house legal, investment banking and private equity professionals in Houston, Texas.
This comprehensive program is designed for participants that desire to develop a thorough understanding of the M&A process and agreements from a legal perspective. Invited organizations will have the exclusive opportunity to enroll up to two professionals.
Wednesday, September 10, 2014
- Confidentiality, Non-Solicitation and Non-Circumvention Agreements • Legal Structures of Transactions – Asset Acquisitions, Stock/Equity
This blog post was written by Pamela Hofman, an Employment & Labour Associate in Norton Rose Fulbright’s Toronto office.
A number of different parties and interests are at play in any merger. Although it may not be at the forefront during merger negotiations and considerations, the acquiring company should turn its mind to the possibility of mass terminations, and the consequences flowing from them. Comparatively speaking, the Canadian employment framework is quite generous, and there is no employment at will.
Commonly, an acquiring company will identify and seek to reduce redundancies and inefficiencies in the post-merger entity. Prior to … Continue Reading
This post was contributed by Éric L’Italien, Lawyer, Norton Rose Canada
Given the shaky economy over the past couple of years and the reduced number of takeovers, mergers and acquisitions, one would have expected a decline in indirect compensation such as golden parachutes.
However, according to a recent Alvarez & Marsal study, there has been a 32% increase over the past two years in the average value of the change-in-control benefits (i.e., golden parachutes) provided to US executives. Considering that the evolution of change-in-control benefits in Canada tends to be influenced by what takes place in the United … Continue Reading
From an employment and labour perspective, buying the assets of a business may be preferable to acquiring its shares, as buying assets enables the buyer to clean house and hire new staff.
When considering the merits of an asset transaction, however, a buyer should consider the points raised below regarding the seller’s workforce, as these can significantly affect valuation.
Unlike with unionized employees, generally speaking there are no rules protecting non-unionized employees after a business is sold—a buyer can keep the seller’s employees or let them go, even if it continues the same business.
Obviously, the seller will … Continue Reading
This post was contributed by Jean Allard, Partner, Norton Rose Canada
There are many business and tax reasons for acquiring the assets of a business instead of its shares.
From an employment and labour perspective, buying a business’s assets may be preferable to acquiring its shares because the buyer can clean house and recruit new staff.
Each Canadian province has its own legislation governing collective labour relations. This legislation contains provisions defeating the principle of privity of contract and, if the asset sale has the effect of transferring the business to the buyer, requiring that the collective … Continue Reading
This post was contributed by Jean R. Allard, Partner, Norton Rose Canada
In a recent Quebec Court of Appeal decision, the court reversed a decision of all previous courts in a case regarding unfair termination for refusal to sign a non-compete agreement three years after the hiring date.
In this case, the employer, a pharmaceutical company, had recruited a chemist who lived in France.
The offer to the employee said he’d be asked to sign a non-compete agreement and a confidentiality agreement. However—and unfortunately for the employer—, only the confidentiality agreement was signed on the employee’s first day … Continue Reading