2018 LABOR AND EMPLOYMENT COUNSEL EXCLUSIVE

OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. 13-1

WHAT DILIGENCE IS DUE?

CONSIDERATIONS AND CALAMITIES

Alisha Cieslak – Gordon Food Service

Kevin J. Kinney – Ogletree Deakins (Milwaukee)

Diana J. Nehro – Ogletree Deakins (New York City/Boston)

Stephanie A. Smithey – Ogletree Deakins (Indianapolis)

LABOR AND EMPLOYMENT DUE DILIGENCE CHECKLIST

I. Analyze Deal Structure

A. Understand the structure of the deal – stock acquisition, asset purchase, merger, etc.

B. Determine the desired scope of labor and employment due diligence

C. Understand any planned changes to the business or operations following the deal

D. Determine the materiality threshold

E. Determine how the buyer or corporate team wants the results of the due diligence communicated –written report; oral updates, etc. {Note: if only oral updates are requested, make sure to take thorough notes to memorialize the conversations}

F. Determine whether you are to coordinate the due diligence review with any third-party consultants, CPA firms, investment bankers, private equity firms, etc.

II. Gather Information

A. Determine what information about the target is available publicly

B. Request any background material available – management presentation or confidential information memo

C. Request org charts of acquiring company, acquired company, and any proposed post-consolidation org chart

D. Prepare and/or update the due diligence request list to the target.

1. Human resources policies and practices

2. Personnel records

3. Individual employment agreements

4. Employee terminations

5. Unions and collective bargaining

6. Independent contractors

7. Labor and employment litigation

8. Administrative investigations, audits and proceedings

9. Benefits programs and plans

10. Immigration

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III. Determine Compliance

A. FLSA and applicable state wage and hour law – minimum wage, overtime, recordkeeping, etc.

B. Worker classifications – exempt/non-exempt, employee/independent contractor, intern/volunteer

C. Federal and state laws prohibiting discrimination, harassment or retaliation

D. Employee policies and handbooks – EEO, NLRA, FLSA, FMLA, USERRA, and state law

E. Affirmative Action Plans

F. Collective bargaining obligations

G. Workplace safety

H. Immigration law requirements

I. Benefit plans

J. WARN Act

K. Payroll tax returns

IV. Identify Any Impediments to the Transaction

A. Any financial impediments

1. Bet-the-company litigation

2. Significant wage and hour collective action

3. Significant withdrawal liability from a multiemployer pension plan

4. Significant exposure to retiree medical liabilities

B. Any contractual impediments

1. Successorship provisions in collective bargaining agreements

2. Neutrality provisions in collective bargaining agreements

3. Uncompetitive wage provisions or guarantees in collective bargaining agreements

V. Evaluate Existing Liabilities

A. Pending or threatened labor and employment litigation

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1. Government actions – EEOC, DOL, OSHA, etc.

2. Class or collective actions

3. Individual lawsuits

B. Latent wage and hour liabilities

C. Latent liabilities for discrimination, harassment or retaliation

D. Internal claims, grievances, audits, and investigations

E. Potential claims/investigations/audits pending in government agencies – EEOC, OSHA, DOL, DOJ OSC, DOJ IER, ICE, NLRB, OFCCP, and any state law counterparts

F. Pending union grievances or arbitrations

G. Labor activity – union campaigns, strikes, boycotts, unfair labor practice complaints, etc.

H. Funding of benefits plans

I. Retiree medical obligations

J. Change in control and other severance obligations

K. Ongoing judgments or consent decrees

L. Workers compensation claims

M. Payroll tax obligations

VI. Evaluate Post-Transaction Costs and Risks

A. Benefit plans

1. Defined benefit

2. Multiemployer pension

3. Defined contribution

4. Nonqualified deferred compensation

5. Equity and incentive compensation

6. Welfare and fringe benefits

7. Group insurance

8. Major medical or comprehensive medical expense plans

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9. Retiree medical

10. Travel/accident insurance

B. Union issues and collective bargaining agreements

1. Restrictions or limitations on management rights

2. Successorship obligations

3. Notice and bargaining obligations

4. Neutrality obligations

5. Benefits obligations

6. Severance obligations

7. Job and wage guarantees

C. Individual employment agreements

1. Bonus conditions – Change in Control provisions

2. Accrued leave payouts

3. Golden parachutes and stock options plans

4. Retention/consulting agreements

5. Restrictive covenants – non-disclosure, non-competition, non-solicitation

D. Planned changes to the workforce

1. Collective bargaining restrictions or limitations

2. Impact on worker demographics

3. Severance obligations

E. Consent decrees and other injunctive relief

1. Limitations on hiring, termination and placement

2. Disability-related injunctions

3. Remedial orders in NLRB cases

VII. Prepare Due Diligence Memorandum

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EMPLOYEE BENEFITS DUE DILIGENCE CHECKLIST

This checklist is intended to be a useful tool to help the buyer company identify potential issues and liabilities associated with the target company’s benefit plans so that those issues and liabilities can be effectively managed, minimized or eliminated. However, each acquisition is unique and will require an individualized assessment. This checklist is a starting point and guide in conducting such an assessment.

I. Types of Retirement Plans. Please indicate whether the target sponsors or has ever sponsored any of the following types of plans. If there is more than one of a type, please indicate how many and the names of each. Please provide this information for the entity being acquired and all related entities before the transaction. If the plan is terminated, please so indicate and advise whether all assets have been distributed.

❑ Defined Benefit Pension Plan

❑ Profit Sharing Plan

❑ Stock Bonus Plan

❑ Money Purchase Pension Plan

❑ Target Benefit Plan

❑ 401(k) Plan

❑ Employee Stock Ownership Plan (ESOP)

❑ Cash Balance Plan

❑ 403(b) Plan ❑ Other _______

II. Types of Health and Welfare Benefit Plans. Please indicate whether the target maintains any of the following types of plans. If there is more than one of a type, please indicate how many and the names of each. Please provide this information for the entity being acquired and all

❑ Medical Plan ❑ Dental Plan ❑ Group Life Insurance

❑ Long-Term Disability

❑ Short-Term Disability ❑ Additional Life Insurance

❑ Section 125 Plan ❑ Medical Spending Account

❑ Dependent Care Account

❑ Pretax medical premium feature

❑ Other flexible benefit features (identify benefits included)

❑ Vacation ❑ HRA Other ____

Do any unrelated entities participate in any health and welfare plans?

❑ No ❑ Yes (identify all participating entities)

Are any welfare plans funded by a trust? ❑ No ❑ Yes

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III. Executive and Deferred Compensation Plans. Please indicate whether the target company provides any incentive or deferred compensation plans for its executive, including nonqualified deferred compensation plans, incentive stock option plans, nonqualified stop option plans, or other top-hat plans. Please also provide information about any bonus or severance pay programs.

IV. Retiree Benefits. Does the target company provide health or welfare benefits to retired employees? If so, please attach a list of the types of benefits provided, and attach a copy of the FAS 106 report for the most recent year.

V. Responsible Parties. Please provide the names of the persons at the target company who are responsible for (a) retirement plan matters, (b) health and welfare plan matters, and (c) executive compensation issues, as follows:

A. Trustee for each plan (if any)

B. Fundholder for each plan

C. Insurer for each benefit (if any)

D. Third-party administrator for each plan (if any)

E. Investment advisor for each plan (if any)

F. Administrative Committee members for each plan (if any)

G. Actuary (for defined benefit and retiree health plans only)

H. Plan auditor (for plans with more than 100 participants)

I. Whoever performs the annual nondiscrimination testing

J. Claims administrator

VI. Plan Documentation. Please provide a copy of the following for all of the target’s retirement and health and welfare plans:

A. Plan document currently in effect and all amendments to the document

B. IRS favorable determination letters (or, if prototype or volume submitter plan, IRS opinion or notification letter issued to prototype sponsor) for qualified plans

C. Resolutions of the Board of Directors adopting the plan and the amendments

D. Summary plan descriptions and summaries of material modification (also called SPD supplements)

E. Participant loan program (if any)

F. Qualified domestic relations order procedure (if any)

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G. Qualified child medical support order procedure (if any)

H. Third-party administrator service contracts

I. Fundholder contracts or custodial agreements

J. Trust agreements, including rabbi trusts for executive compensation plans (if any)

K. Investment policy statement (if any)

L. Engagement agreements and fee disclosures from all service providers to the plan

M. Insurance contracts (if any)

VII. Fiduciary Duties. Please provide copies of the following for all of the target’s retirement and health and welfare plans (except where otherwise indicated:

A. Committee governance documents (if any)

B. Minutes or other records of meetings of the plan committee or other fiduciaries for the past three years

C. Minutes or other records of meetings of those responsible for plan investments for the past three years

D. Investment policy statement (if any)

E. All service contracts with service providers to the target’s plans, as well as any and all fee disclosure documents provided by such providers as required under ERISA Section 408(b)(2)

F. Copy of correspondence with service providers who failed to provide 403(b) disclosures, and any DOL reports regarding such failures

G. Fidelity bond for any plan (if any)

H. Fiduciary insurance policy in relation to any plan (if any)

VIII. Reporting and Disclosure. Please provide a copy of the following for all of the target company’s retirement and health and welfare plans for the last three completed plan years:

A. Form 5500 and attachments

B. Audited financial statements (if 100 or more participants)

C. Schedule SB (for single employer and multiple employer plans) or MB (for multiemployer plans and for money purchase or target benefit pension plans for which a waiver of minimum funding is being amortized) and actuarial report (if defined benefit plan)

D. Sample participant benefit statement

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E. For retirement plans, copies of the most recent annual and the last four quarterly participant disclosures required under the regulations to Labor Regulation Section 2550.404(a)-5

F. Summary annual report

G. Annual funding notice (if defined benefit plan)

H. Copy of any blackout notices provided to participants and/or executives

IX. Nondiscrimination Testing for the Retirement Plans. Please provide the following for each plan:

A. If the plan is a 401(k) plan, a copy of actual deferral percentage (ADP) and actual contribution percentage (ACP) testing for most recent plan year and documentation of any correction undertaken for the year

B. If the plans use the “qualified separate lines of business” (QSLOB) rules to meet nondiscrimination—

C. Form 5310A filed with IRS to advise that QSLOBs are in use

D. Description of the various QSLOBs

E. Coverage testing (Code Section 410(b)) for QSLOBs

F. Top-heavy testing for the most recent year

G. Any available testing under Code Section 410(b), 401(a)(4), or 415

H. Any other nondiscrimination testing done for the plan(s) for the most recent plan year

I. If the plan is a safe harbor 401(k) plan, a copy of annual notice to participants for current year and prior two years

X. Nondiscrimination Testing for Health and Welfare Plans. Please provide a copy of the nondiscrimination testing for the most recent year for all health and welfare plans.

XI. Distributions and Loans from Retirement Plans. Please provide the following for each plan:

A. Copy of forms provided to participant for completion when a distribution is requested

B. Copy of forms provided to participants for completion when a loan is requested

C. Copy of loan documentation, including promissory note, spousal consent (if applicable), and amortization schedule

D. Have any loans been deemed to be distributions in the past five years? If so, have Forms 1099-R been filed?

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E. Have any annuities been purchased by the Plan for distribution to participants in the past five years?

F. How is the interest rate on loans determined?

G. Copy of contract for the provision of automatic rollovers to an IRA for terminated participants with benefits of less than $5,000

XII. ESOPs

A. If there is an ESOP, is it leveraged? If so, please provide a copy of all loan, note, and guarantee documents.

B. If the acquisition was intended to qualify under Code Section 1042, when was it done?

C. If a Code Section 1042 transaction, list all 25-percent shareholders and their family members who have worked for the employer since the ESOP was formed

D. Copy of all independent appraisals for the last three years (unless publicly traded)

E. Legal opinions rendered in connection with original ESOP transaction or otherwise

F. If the employer maintains other tax-qualified plans, Code Section 415testing for the plans on a combined basis

G. If the target company is an S corporation, copy of analyses under Code Section 409(p) for prior three years

XIII. Health and Welfare Administration. Please provide copies of the form used for each of the following purposes for each plan:

A. Enrollment form

B. Claims form

C. HIPAA notice

D. HIPAA privacy policy

E. Copy of agreement with business associates to avoid disclosure of private health information

F. COBRA notice procedures

G. If self-funded —

1. Calculation of liability for incurred but not reported claims

2. Claim lag report for most recent 24 months

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XIV. Other

A. Please provide the target company’s employee handbook or employee manual.

B. Are there any lawsuits pending or threatened against the plan, the plan fiduciaries, the trustee, or the target company in relation to any plans or benefits? If so, please advise.

C. Are there any claims pending or threatened against the plan that could lead to litigation?

D. Are there contributions that are accrued and unpaid at this time? Please list.

E. Have there been any prohibited transactions in the last six years?

F. Have there been any PBGC reportable events in the last six years? Were they reported?

G. Have all PBGC premiums been paid when due?

H. Please provide all correspondence with federal or state governments regarding any plans during the past four years, not including the initial Form 5500 filing for each year and favorable determination letter requests.

I. Have any representations been made to participants regarding benefits or vesting in the event that the target company is acquired?

J. Have any promises or representations been made to participants or former participants regarding any benefits or other payments that are to continue past employment?

K. Does the target company have any union employees? If so, does it contribute to any multiemployer plans? If so, please provide name of plan, collective bargaining agreement, and any other documentation of the benefits and other provisions of this plan.

L. Does the target company lease employees?

M. Does the target company use independent contractors? If so, provide number of such individuals used in each of the last three years.

N. Are there entities that provide at least 50 percent of their services to the target company?

O. Does the target or any related company use the services of a professional employer organization (PEO)?

P. Does the target or any related company participate in a multiple employer plan?

Q. Have any claims for benefits been denied in the past five years that exceed $10,000 either individually or in total?

R. Have any representations been made to employees about their entitlement to health benefits in the future or upon change of corporate ownership?

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S. Do any of the target’s executives receive special payments under an employment agreement on change in control or sale of the company? If so, please provide copies of the employment agreements.

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International Due Diligence: India

Most critical requests from target:

A. Headcount with detail (in priority order):

1. Original hire date

2. Total compensation (ideally compensation breakdown including base and allowances)

3. If not included on headcount, agency workers and contractors

4. Immigration status

B. Sample employment contract and pay stub for rank-and-file employee

C. Sample executive employment contract and pay stub

D. Sample independent contractor agreement (if applicable)

E. Sample expatriate documentation (include “local contract,” home country contract, assignment letter, and intercompany agreement)

F. Sample standalone IP agreements or restrictive covenants

G. List of HR vendors and services contracts with each

The biggest India-specific issues to watch out for in diligence:

• 5+ year employee end-of-service-gratuity – employees with 5+ years’ service are entitled to a payout on termination for any reason, which is on top of notice + severance pay and can be up to US$15,000 per employee.

• Stamping – to be admissible in court, documents have to be stamped by local government office (this will be obvious on document), then signed with wet signature. Unstamped employment contracts are not a major issue, but independent contractor agreements and releases may present a bigger problem.

• Agencies - agencies are often used as employers of record in India; service contracts are often poorly drafted, as are the staffing agency’s employment contracts and releases for staffing agency employees following termination. Recruiters and employers-of-record often place penalty clauses in contracts.

• Tax authorities broadly investigate and strictly enforce corporate tax rules against foreign companies, and often an issue comes to their attention through an employee dispute.

• Multiple statutes and regulations, creating uncertainty and complexity as to minimum benefits and termination entitlements. Most important are Industrial Disputes Act (which applies regardless of union status), and state-specific Shops and Establishments Act

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• Compensation Breakdown – compensation is usually carved out to include multiple allowances such as the “dearness” (cost-of-living) allowance. Many of these are optional, but by default count as salary for calculating benefits unless properly contracted around. Allowances cause significant payroll confusion and miscalculation of costs.

•• “Workman” Confusion – many entitlements apply only to “workmen,” but the definition of “workman” is unclear. For cost purposes, assume all employees are “workmen” unless a highly-paid executive (not just a line supervisor). For classification purposes, avoid employee-facing admissions that white-collar/ professional employees count as a “workman.”

I. Detailed Diligence Questionnaire (India-specific notes in parentheses, key India-unique items bolded)

A. Profile of workforce

1. Total headcount? (Certain mass dismissal requirements may apply over 100; end-of-service gratuity applies to companies with more than 10 employees; mandatory bonus requirements may apply to companies with more than 20 employees)

2. How many “workmen”? (“Workman” loosely corresponds to employees who perform core functions as opposed to administrative or supervisory functions. By default, count everyone as a “workman” except obvious executives—internally, note how many employees hold primarily administrative duties, and how many employees hold supervisory duties and earn over INR10,000 = approx. US$ XXX)

3. Average tenure? (Benefits are calculated based on length of service)

a. How many over 1 year? (Enhanced dismissal protections after a year of service)

b. How many over 5 years? (“End-of-service gratuity” kicks in if the employer has 10 or more employees, those with at least 5 years of continuous service are entitled to approximately 15 days’ pay (based on the most recent pay amount) per year of service, which is capped at an amount set per state.)

4. Average salary? (Some benefits apply only to employees earning under INR21,000=approx. US$325 per month; and some to employees earning under INR10,000=approx. US$155 per month.)

5. Expatriates versus locals? (No major expatriate-related issues, except that contracts and benefits are usually much more complicated. In India, the main implication of complicated expatriate relationships is tax risks)

6. Location within India? (Employee rights vary between states)

a. Multiple establishments in different states? (If so, above headcount numbers may be aggregated depending on specific circumstances)

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b. Remote work from different states? (If state where work is performed has greater benefits than state where payrolled, employee can claim greater entitlements)

7. Agency/vendor use?

a. Is vendor serving as payroll provider, recruiter, employer of record, visa sponsor, or multiple of these functions?

b. Does agency provide those services for all employees or a portion of employees?

c. If employer of record, are employees performing core functions? (This is prohibited, but widely violated)

d. Local or “global” vendor? (Even if global vendor, local subcontractors often behave as “local” companies)

e. Fair markup? (Depends on nature of services and number of employees, but markup is often inflated)

f. Services agreement in place? (If not, red flag; if so, look for draconian no-hire or liquidated damages clauses)

8. Independent Contractors

a. Location – any independent contractor agreements between India target and contractor outside of India? (Cross-border independent contractors can be high-risk given India’s stringent tax enforcement)

b. Structure

c. Agreements in place

d. Registered as business?

e. Stamped? (See description of stamping under #3 below – stamping is more important for potentially-misclassified contractors)

f. Proper classification (Courts in India find misclassification especially where the company is responsible for payment of regular wages, exercises direct control and supervision over the individual, or subjects the individual to disciplinary policies and actions the same or similar to regular employees)

g. Appropriate withholding at source/allocation of risk by contract? (Withholding requirements for true contractors do exist, depending on the nature of services provided, but many companies decide not to withhold and allocate the risk to the contractor in the contract)

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II. Recruiting and Hiring Practices

A. Applications (Not heavily regulated)

1. Electronic? (Certifications in electronic applications may not bind individual applicants)

B. Background check protocol (Not heavily regulated, but results are often unreliable)

1. Use of vendor?

2. Consent to background check? (Employers should generally obtain consent from candidates before conducting background checks if the information sought is personal or sensitive)

C. Offer letter practices

1. Separate from written contracts? (If not, treat offer letter as “written contract”)

2. Explicitly states that employment contract will supersede?

3. Benefits appropriately caveated? Look for language such as “company’s discretion” and “subject to terms and conditions of plans as in force from time to time.”

III. Employment Contracts (Except Executive-Level Employees)

A. In writing? (Not statutorily required, but strongly recommended)

B. No local language requirement

C. Properly formalized?

1. Employee signed?

2. Which entity is executing (Confirm local entity and not corporate parent)

3. Company representative authorized?

4. “Stamped”? (“Stamping” by the local authority is required for any document to be admissible in court. Ideally, employment contracts are stamped, but employers frequently skip this step for rank-and-file employees and it is not a major concern)

D. Probationary/training periods observed (Requirements vary by state, but all employees should be subject to probationary periods)

E. Compensation/ benefits clauses well-drafted? (Any severance / notice clauses should be inclusive of statutory requirements; discretionary incentives should expressly note discretion, and state that they are not included in calculation of other benefits; plan-conditioned benefits should expressly state that they are subject to plans)

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F. Minimum legal/statutory benefits being provided, confirm no reduction of benefits or other material t/c of employment post-transaction, if so, obtain employee consent

G. Right to suspend pending investigation? (Employers must reserve this right in contract, or may not unilaterally suspend)

H. Expatriate contracts? Identify any anomalous contracts and multijurisdictional relationships

IV. Executive (Managing Director-Level) Agreements and Corporate Authority

A. Benefits offered, will they be continued

B. Being terminated?

1. Change-of-control benefits?

C. Corporate directors – how changing? (Is authority joint or several, is a POA necessary to delegate responsibilities to individuals at the parent – e.g., Finance, Sr. Management, HR)

D. Powers/authorities of directors/officers (Directors are elected by the shareholders and are the highest authority in the management of the company, and govern the organization by establishing broad policies and objectives. In contrast, officers are appointed by the directors to oversee day-to-day operations of the company.)

E. Residency/nationality of officers (No nationality requirements, but one local director is required)

F. Who has authority to bind the company?

1. Nonresident directors?

2. Who will have that authority going forward? (Ensure there is no gap in authority to bind, and that all corporate documents are formalized)

V. Compensation and Benefits

A. Are compensation/benefit packages compliant and/or overly generous? (See below for some examples of minimums and market practice, which also varies by state. Most companies offer the minimums or slightly above for “workmen”/rank-and-file employees, and are more generous for executive-level employees)

B. Variable Compensation

1. Sales incentives, discretionary bonuses – are these subject to well-drafted plans and appropriately caveated?

2. Equity awards – how many employees receiving? Are securities registered or subject to an exemption?

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3. Required annual bonus (In companies with 20 or more employees, the Payment of Bonus Act of 1965 mandates a minimum annual bonus of 8.33% of annual wages for employees earning up to INR21,000 per month and have worked in the company for at least 30 days during the year, which must be paid even if a business is making no profit or running losses. The maximum bonus allowed under the law is 20%, and the percentage the employer applies must be the same for all eligible staff.)

C. Allowances (An allowance is a payment given to the employee by the employer in addition to base salary. Most employers provide compensation categorized into base salary and applicable allowances. This is because India tax rules are different for individuals earning income from salary and individuals having other types of income (e.g., allowances), and the latter is subject to certain tax benefits.)

1. House rent allowance (housing accommodation)

2. Conveyance allowance (commutation expense)

3. Medical allowance (medical expenses)

4. Dearness allowance (cost of living adjustment)

5. Special allowance (catch-all or miscellaneous expenses)

D. Leaves

1. Annual vacation (Vacation time varies from state to state and from industry to industry. Generally, “workmen” are entitled to a minimum of 10-21 days of annual leave. Market practice is 10-21 days for “workmen” and at least 21-30 days for executives. Use of combined PTO, required forfeiture, “unlimited” policies may not be compliant)

2. Sick leave (Sick leave is usually paid, and varies by state and industry. 7-15 days is standard, and where the law is silent, contractual terms will govern).

3. Maternity leave (Minimum entitlements vary by state and by company size – generally, 26 weeks for the first 2 children, 12 weeks for each additional child)

E. Public holidays (There are 3 national holidays and between 4 to 10 festival holidays depending on the state.)

F. What supplemental benefit plans exist? (Most supplemental plans are above-market, though many foreign-headquartered companies offer them).

G. “Unwritten benefits” (Benefits that have not been documented anywhere are common in India, and should be asked about; transaction document should be drafted with attention to this)

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VI. Payroll (See Also “Hiring Practices”)

A. Compensation, payments, benefits and administration (Employers are required to pay wages at least monthly. Wages may be paid in cash or by check or direct deposit into an employee’s bank account.)

B. Allowance breakdown (These are often numerous and complicated; cross-check pay stub allowances with contracts)

C. Local team’s practice of providing non-standard contractual benefits (compensation, promises, additional benefits)

D. Holiday pay and sick pay entitlements being paid appropriately (Annual leave and sick leave varies from state to state and from industry to industry but it is generally paid.)

E. Social-insurance contributions appropriately made and calculated (Eligible employees (i.e., establishments having 20 or more employees and employees earning up to INR21,000 monthly) are entitled to Employee State Insurance Act contributions made by their employer. Employers are required to contribute 4.75% of their employee’s wages and employees must contribute an amount equal to 1.75% of their wages. Eligible employees (i.e., establishments having 20 or more employees and employees earning up to INR15,000 monthly) are also entitled to monthly contributions to the Provident Fund by the employer. Employer and employee both contribute 12% of wages.)

F. Income taxes withheld, remitted, reported

VII. Wage and Working Hours

A. Minimum wage (There is no national minimum wage; instead, minimum wage is set and varies by state and/or industry)

B. Working hours (Working hours not uniformly legislated. Rather, they are industry specific such as the Factories Act, or state specific governed by local Shops and Establishments Acts. That said, the typical work week is Monday through Friday, 9:30am to 5:30pm, with a half-day on Saturday.)

C. Overtime (Workmen are generally entitled to double pay for hours worked in excess of a normal work day; hours over 9 per day or 48 per week are generally considered overtime hours. The maximum number of overtime hours a workman can be required to work is 50 hours in a quarter. There are no limitations for overtime work allowed, and no requirement to pay overtime to non-workmen—best practice to specify that non-workmen are not entitled to overtime pay.)

D. Meals and rest breaks (One weekly day off, usually Sunday. Meal or rest breaks of ½ an hour to 1 hour are required for employees working a continuous period of at least five hours. Employees must have at least 12 hours free between shifts.)

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VIII. Policies and Procedures

A. Identify major substantive differences between buyer policies and target policies, particularly regarding benefits or disciplinary regulations

1. Are most policies global, local, both?

B. Policies referenced in contracts? (Best practice – refer to company policies as implemented from time to time, but not “incorporated” into contract)

C. Sexual harassment policy? Complaint committee established? (Under recent law, companies are required to implement a specific protocol for handling women’s sexual harassment complaints, including establishing an independent committee)

D. Performance management – written performance reviews?

E. Misconduct procedures (Formal “charge sheet” required when disciplining – look for this in files)

IX. Collective Bargaining (if applicable)

A. Reviewing agreements for compliance

B. Who is employee representative?

C. Relationship with trade unions

X. Workplace Safety and Health

A. Statutory requirements (Measures for safety and health including cleanliness, proper disposal of waste, proper ventilation, temperature control and enclosure of dangerous machinery are required of employers)

B. Policies and procedures

C. Accident/injury/illness logs

D. Drug/alcohol use (Employers can bar use as a condition of employment)

E. Employee surveillance/monitoring (Legal if required to protect the employer’s legitimate business interests and the practice is outlined in a company policy/employment contract)

XI. Office Closures Compliance

A. Notice periods/procedures in place/followed (The closure of part of or the entirety of a place of business has some extra requirements, on top of employee notice - e.g., government notice, application for closure - that are set forth in the Industrial Disputes Act or state-specific Shops and Establishment Act.)

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XII. Terminations/Severance

A. Releases: Terminations should be accompanied by releases. Check previous releases to make sure they are on file, stamped, and that released parties definition is appropriate (often an issue in staffing agency releases)

B. Severance?

1. Minimums paid? (“Retrenchment” pay is required by statute - the amount owed varies by state but, generally, retrenchment pay to a workman who has been in continuous service for at least one year is calculated at a rate equal to 15 days of the employee’s average pay for every year of continuous service or any part in excess of 6 months. The rules vary when it the termination involves an employee of a factory, mine, and plantation that employed more than 100 employees.)

2. Severance plan?

C. Gratuity (Under the Payment of Gratuity Act of 1972, if the employer has 10 or more employees, those with at least 5 years of continuous service are entitled to approximately 15 days’ pay - based on the most recent pay amount - per year of service, which is capped at an amount set per state.)

1. Does company impose the gratuity caps? (Total gratuity cap is usually INR1,000,000 – approx. US$15,520 – but if company has paid out in excess of the gratuity cap, this may create a precedent making it difficult to apply caps going forward)

XIII. Post-Transaction Communications, Integration

A. 21-day (or 42-day) notice period required before term changes for “workmen.” If employees do not consent to term changes, they must be paid notice and severance.

B. Developing integration strategy to incorporate both company culture and local cultural sensitivity, and to ensure trust and confidence of local workforce, particularly with respect to modifications.

C. To ensure this, any communications regarding potential modifications to benefits or responsibilities should include language that these changes are “under consideration, pending consultation with appropriate parties.” (Employers are required to provide 21 or 42 days’ notice - and attain consent thereof - to workmen, depending on the state in which the company is located, before implementing new terms or material changes to terms of employment, including wages, allowances, and hours of work.)

XIV. Restrictive Covenants/IP

A. Noncompetes? (Post-termination non-competes are void, but often used in executive contracts as deterrent.)

B. Nonsolicits? (Non-solicitation clauses may be enforced if reasonable.)

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C. IP? Detailed IP protections? Return of company property on termination?

1. Are employees making IP?

2. Patent reward program in place?

3. Contractors involved in creation of IP?

4. Check IT policies, training of IT personnel to make sure that IP is protected using as many mechanical controls as possible.

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What Diligence Is Due? Considerations and Calamities

Presented by

Alisha Cieslak (Gordon Food Service), Kevin J. Kinney (Milwaukee), Diana J. Nehro (New York City/Boston), and Stephanie A. Smithey (Indianapolis)

Agenda

Pre-Diligence Preparation

Commencing the Due Diligence Process

Identifying and Evaluating Deal Breakers

2

Pre-Diligence Preparation

Pre-Diligence Preparation

Evaluating the Potential Opportunity

Cultural Fit

Employee Base

Leadership Style

Turnover

Engagement

Union Environment

3

Commencing the Due Diligence Process

Formal Due Diligence Process

Diversity of workforce

Immigration/I-9 compliance

Emphasis on temporary and contract workers

Leadership continuity

Talent retention

Executive or other employee agreements

4

Global Labor and Employment Diligence Concerns

Profile of Workforce

Recruiting and Hiring Practices

Employment Contracts and Restrictive Covenants

Executive Agreements and Corporate Authority

Compensation and Benefits

Wage and Working Hours

Policies and Procedures

Collective Bargaining

Workplace Safety

Restructuring: Layoffs and Terminations

Profile of Workforce

Headcount– Dismissal protocols and requirements triggered?

Average Salary – Employment Legislation Triggered?– U.S. – Title VII/ADA/ADEA

– Australia – $145,000 for unfair dismissal

Agency/Vendor Use– EU – Restrictions

Independent Contractors– Why engaged?

– Misclassification risks?

5

Recruiting and Hiring Practices

Applications– U.S. application for global employees

Background checks– Criminal/civil/credit/drug testing

Offer letters practices– Separate from written contracts?

– Explicitly state that employment contract supersedes?

Employment Contracts and Restrictive Covenants

Outside of U.S. at-will nonexistent– Separate from/in addition to employment contract

In writing?– Proper execution– Proper entity

Intellectual Property Assignment– Does target actually own IP?

• Argentina

Non-Competes/Nonsolicitation– Enforceable?

• Pay to play – Brazil, Asia Pac, EU• Violates constitution/public policy – Mexico, India

6

Executive Agreements and Corporate Authority

Executive Employment Agreements

Deferred Compensation, Equity, and Other Commitments

Change of Control Benefits

Powers of Attorney

Residency/Citizenship of Officers

Authorization to Bind Company

Compensation and Benefits

Plan documents, not just summaries

Pension funding status

Known administrative errors

409A compliance

Retiree medical commitments

Multiemployer plan obligations

7

Wage and Working Hours

FLSA– Compliance with federal and nonconforming state laws

• SOL for continuing violations

Minimum wage requirements Working hours – global concerns

– Does contract inadvertently reduce statutory maximum?

Overtime– Applicable exemptions

Meal and rest breaks

Policies and Procedures

Substantive difference between buyer and seller policies Referenced in employment contracts?

– Explicit consent

Sexual Harassment Policy– India– #MeToo claims

Performance Management Work Rules

– Required to be filed with authorities• Asia Pac• Lat Am

8

Workplace Safety

Existing policies meet or exceed federal and state requirements

Required reports, timely and accurate

Industry standards and norms

Drug testing policies

Collective Bargaining

U.S. Collective Bargaining Agreements– Stock v. asset purchase– Successor obligations imposed by contract– Severance triggers– Benefit plan continuation obligations

Multiemployer Pension Obligations Works Councils

– Employee threshold– Consulted on policy changes, systems changes,

restructuring, individual employment terminations

Trade Unions

9

Restructuring: Layoffs and Terminations

U.S. Considerations – Collectively bargain obligations– Compliance with Company policies– Compliance with ADEA/OWBPA– Compliance with WARN requirements– Retirement Plans – Partial Plan Terminations

Cross-Border Considerations– Stock vs. asset purchase – TUPE – Transfers of Undertaking Principles and Other Rules– Consultation requirements– Notice and severance requirements

Identifying and Evaluating Deal-Breakers

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Pitfalls vs. Deal-Breakers

Amount of litigation and charges

Nature of litigation and charges

I-9 compliance

Union environment

Multiemployer pension obligations

Retiree health insurance obligations

Labor and Employment Pitfalls and Deal-Breakers

Collective bargaining agreements

– Term

– Wage structure

– Benefit costs

– Work rules

– Multiemployer plan obligations

– Payroll system integration

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Global Pitfalls and Deal-Breakers

Misclassified contractors

Data privacy/GDPR

FCPA violations

Unenforceable IP assignments

Expatriates

– Immigration/payroll tax violations

– Payroll tax violations

Benefit Plan Pitfalls

401(k) plan loans and forfeitures

Uncorrected correcting plan failures

Partial plan termination

Mid-year benefits transitions, crediting

COBRA obligations

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Material Benefits Issues – Potential Deal-Breakers

Pension withdrawal liability

Unfunded pension/PBGC liabilities

Retiree medical commitments and liability

409A failures

Unresolved ACA penalties

What Diligence Is Due? Considerations and Calamities

Presented by

Alisha Cieslak (Gordon Food Service), Kevin J. Kinney (Milwaukee), Diana J. Nehro (New York City/Boston), and Stephanie A. Smithey (Indianapolis)