Works council consultation
M&A / Merger ModelThe obligation in much of continental Europe to inform and consult employee representatives before taking a binding decision to sell a business.
Also written: employee consultation
In several European jurisdictions, employee representative bodies must be informed about a proposed transaction and given a real opportunity to express a view before the seller commits itself. It is an information and opinion right. The council does not choose the buyer and cannot veto the sale, though it can litigate over whether the process was properly followed, which is enough to delay a completion.
The design consequence is about the moment of commitment rather than the outcome. Because a seller must not present consultation with a decision already taken, French processes are commonly structured so that the buyer grants a put option and the seller exercises it after consultation has run, rather than signing an agreement and treating consultation as a condition.
The obligation is not uniform across Europe and should not be described as if it were. Dutch works councils have a formal advice right on a change of control. French consultation obligations bite hardest on the timetable. German works council rights attach more to operational changes such as restructurings than to a change of shareholder, though the economic committee is entitled to information. Asset deals additionally engage employee transfer rules that share deals do not.
Two practical effects in a live process. Confidentiality has a hard limit, since a group of employee representatives learns about the deal before the market does, which is a genuine leak risk in a competitive auction. And the timetable acquires a step that cannot be shortened by adding advisers, which is the most common reason a US drafted timetable for a European deal is wrong.
Worked example
Illustrative. A French subsidiary is being sold in a competitive process and binding offers are due in March.
Rather than signing with the winner, the seller takes a put option from the buyer, then opens consultation with the employee representative body.
Only once consultation has run does the seller exercise the option and bind itself. The economics were settled in March, the commitment was not, and a US timetable that assumed signing in March would have been wrong by weeks or months.