Your business is buying (or selling) a company – now what? Due diligence is an essential part of a successful merger or acquisition, and there are countless labor and employment issues that may come up during this process. Should due diligence reveal that the target company is not in compliance with a certain law, the parties will have to analyze the risks associated with the transaction as a result of non-compliance. Is it too costly to come into compliance now? Are the risks of litigation or government action material? Here are the top 10 labor and employment issues in M&A transactions that businesses should keep in mind during the due diligence process:
1. Misclassification of Workers
Assessment of worker misclassification is commonly at the top of the issues list for labor and employment diligence. There are two main types of misclassification: (i) misclassification of employees as exempt from overtime and minimum wage requirements under the Fair Labor Standards Act (FLSA) and state law; and (ii) misclassification of employees as independent contractors. With respect to the first, employees must meet the salary level, salary basis, and duties tests under both the FLSA and applicable state law to be properly treated as exempt. As to the second, there are a variety of tests for independent contractor status at the both the federal and state level for purposes of wage and hour, immigration, tax, unemployment compensation, workers’ compensation, benefits, and other...
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