Businesses considering merger or acquisition in 2014? Cross HR Law says buyer beware: HR land mines could jeopardize cash flow

Jan 22, 2014, 13:57 ET from Cross HR Law

TAMPA, Fla., Jan. 22, 2014 /PRNewswire/ -- Year after year, studies report that as many as 90% of all mergers and acquisitions fail, and there is no reason to believe the breakup rate will be any lower in 2014.

Incompatible cultures, miscalculated financial results, integration challenges, divergent visions, brand erosion and a whole host of other reasons are to blame.

However, according to Alva Cross Esq., Founder and CEO of Cross HR Law, few decision makers take the time to look at – much less analyze – a critical and oft overlooked element of the target's operations: its personnel policies, procedures and practices.

"Yes, the devil is in the details of that knotty HR stuff that no one wants to think about, especially when you're blending corporate families," says Cross, whose firm provides HR legal counsel to employers throughout Florida.

Stakes are high, so Cross advises this is no time to play ostrich. A little due diligence beforehand goes a long way to avoid being yet another M&A casualty.

"If left undiscovered until after the closing, your acquisition's poorly crafted personnel policies (or, worse yet, no policies at all), unwise employment practices and a general unfamiliarity with or disregard of employment laws could be costly balance sheet land mines as a successor employer," the attorney says.

Here are just a few HR considerations to help avoid becoming just another M&A statistic in 2014:

  • Take a look at the personnel, medical and any other files of several employees to get a snapshot of the HR process.
    • Where are the records maintained? How has access to the records?
    • Does each personnel file contain a completed employment application, IRS Form W-4, emergency contacts and other relevant information?
    • Is discipline documented? Are there performance evaluations?
    • Is there a separate medical file for each employee that contains drug test results, doctor's notes and other medical information?
    • Were I-9's completed timely and are they maintained separately from personnel files? Although a purchaser can reasonably rely on the predecessor's review of pertinent documents and completion of I-9's, the successor would ultimately be liable for incomplete or inaccurate I-9 Forms should the government decide to audit the records.
  • Were there any claims of discrimination based on race, age, national origin, disability, marital status, gender, religion, genetic information or any other basis during the past five years? If so, what is the current status or disposition?
  • Take a look at the salary or wages, length of service and PTO benefit for all employees. Have there been any wage and hour claims in the past five years? If so, what is the current status or disposition?
  • How are employees paid (on a salary basis or hourly)? Are employees properly classified as exempt vs. non-exempt? If all employees are paid a "salary," there is a chance that the vast majority are improperly classified for wage and hour purposes.
  • What documents are given to employees? Is there an employee handbook? Has it been disseminated to employees? When was it last updated?
  • Have there been audits, inquiries or investigations by any state or federal agencies (e.g., Department of Labor, Occupational Safety and Health Administration, etc.) during the past five years?
  • Is there any successor or joint employer liability under the Family and Medical Leave Act (FMLA)?
  • Going forward, what terms and conditions will apply to the newly-formed workforce? For example, how many vacation days per year? Is vacation "use it or lose it"?
  • Will all employees remain employed? Will there be layoffs? If so, what kind of notice has to be provided and when?

These are merely a few HR considerations for your M&A checklist. There are many other areas of discovery you'll need to examine, depending on the size of the newly-formed entity, whether either or both companies are unionized or government contractors, just a name a few. For advice specific to your operations, please contact an employment lawyer before you sign the purchase agreement, or better yet, during the entire due diligence process.


Alva Cross, Esq., has been providing comprehensive advice to employers throughout Florida for more than nine years. Ms. Cross was elected for inclusion in Florida Super Lawyers – Rising Stars, 2011 & 2013 and has been a Chapter Monitor for the Cumulative Supplement to the Employment Discrimination Law treatise, Fourth & Fifth Editions by Lindemann and Grossman, in 2009, 2010 and 2013. She is a 2004 graduate of Stetson University College of Law, Juris Doctor, cum laude, where she received the Florida Bar Labor and Employment Law Section Dean W. Gary Vause Award, the ABA-BNA Award of Excellence in the Study of Labor and Employment Law and completed an internship with the Equal Employment Opportunity Commission's Tampa Field Office.  Her professional activities and memberships include the Society for Human Resource Management (SHRM) and the New Tampa Chamber of Commerce. For more information, please visit or call 813-486-8544.