Merger: Protection of Employees
Following our analysis of the availability of documents in the context of a merger, we address here a second, critical aspect of the process. This concerns the protection of employees affected by the corporate transformation and by the change in the identity of the employer. The existing institutional framework governing corporate transformations (Article 12 of Law 4601/2019) does not create an autonomous system of protection. Instead, it refers to the applicable provisions of labour law, which apply in cases of the transfer or merger of an undertaking.
The Merger and Employment Relationships
The legislator’s choice is substantive. A corporate transformation is not examined in isolation from the employment relationships embedded within the undertaking. On the contrary, the merger is treated as a transaction capable of changing the identity of the employer without extinguishing employees’ rights. The reference to the provisions governing a change of employer ensures continuity and predictability.
For businesses, the consequence is clear: the employment dimension of the merger must be incorporated into the planning of the transaction from the outset. It is not a matter to be addressed after completion of the corporate acts. It concerns due diligence, the formulation of the timetable, communication with personnel and the assessment of potential risks.
Change of Employer and Continuity of Contracts
Under the relevant provisions of labour legislation (Presidential Decree 62/2025), a change in the identity of the employer does not affect the application of the protective rules. Employment contracts continue with the successor employer without the need for a new agreement. The employee does not lose their length of service or the rights already accrued. This continuity covers salary terms, allowances, working hours, other statutory and agreed benefits and, more generally, employment rights.
Upon the merger, the rights and obligations arising from existing employment contracts or employment relationships are automatically transferred to the successor undertaking. The transfer takes effect on the date of the transfer and does not depend on any claim or possible consent on the part of the employees.
At the same time, the transferor undertaking remains liable for obligations arising before the successor assumed them. This liability is of particular importance when recording employment-related liabilities in the transaction file.
The preservation of terms is not limited to individual employment contracts. The successor continues to observe terms arising from collective agreements, arbitration awards, regulations or internal policies.
The real difficulty arises where the merging undertakings apply different benefit regimes. In such a case, harmonisation requires careful planning and a clear legal basis.
Prohibition of Dismissals Because of the Merger
The merger, as such, does not, of course, constitute a lawful ground for dismissal. This rule protects employees against loss of employment solely because of the corporate transformation or the change in corporate structure.
It does not, however, preclude every subsequent restructuring. Dismissals may be considered only where they are based on economic, technical or organisational reasons entailing changes in the workforce and management personnel.
The distinction has practical significance for management and advisers. It is not sufficient to state that dismissals are connected with a business need. It must be documented that the need is autonomous and does not constitute a pretextual consequence of the merger. The documentation concerns the organisational structure, overlapping positions, financial data and the measures that were previously examined.
If the transfer leads to a substantial change in working conditions to the detriment of the employee, termination is deemed to have occurred because of the employer. This protection is critical in cases involving a change in place of work, a substantial reduction in benefits or a change in duties.
It is desirable for business planning to avoid unilateral actions that may be regarded as detrimental.
Information and Consultation
The obligations to inform employees and consult with them constitute an autonomous stage of the overall procedure. The transferor and the successor are required to inform the representatives of the employees affected by the transfer.
The information concerns the date or proposed date of the transfer, the reasons for it and its consequences for employees. It also includes the measures envisaged in relation to personnel.
The information must be provided in good time and in a manner that permits meaningful understanding. A general announcement shortly before completion of the transformation is not sufficient.
Where measures changing the status of employees are envisaged, consultation is required with a view to reaching an agreement. The results of the consultation must be recorded in minutes.
If there are no employee representatives, the information must be provided in writing to all employees. This obligation is not secondary. It ensures that the company is not relieved of its information obligation simply because there is no organised employee representation.
For practical purposes, the information letter should be clear, complete and dated.
Harmonisation of Terms and Corporate Integration
Following the merger, the new or absorbing company often—and reasonably—seeks to establish a uniform remuneration and benefits policy.
This objective is understandable from a business perspective, but it does not permit the automatic reduction of vested rights. The company must distinguish between future policies and rights that have already been incorporated into employment contracts. This distinction prevents hasty solutions carrying a high level of employment-law risk.
Harmonisation may be achieved through collective arrangements, individual agreements or new policies applicable prospectively. Each option offers a different degree of flexibility and a different level of legal certainty.
In every case, the existing terms of employment must be mapped before completion of the merger. This mapping should principally include salaries, bonuses, additional benefits, working hours, remote working and pending claims.
Group insurance and pension schemes constitute a particular category. Such schemes frequently operate as a material component of the remuneration package, especially for senior executives.
Their continuation, amendment or replacement requires separate assessment before completion of the transaction. Where a change of terms is being considered, the company must take into account information, consultation and any commitments arising from previous practices.
Communication with personnel must be consistent with both the legal position and the business plan. Excessive assurances will create high—and understandable—expectations that may subsequently prove impossible to support.
Conversely, vague announcements increase uncertainty and strengthen the likelihood of reactions or departures. Achieving the correct balance requires clear information, a defined timetable and a consistent message from management: not “whispers” in corridors, vague references and messages being relayed by multiple persons.
Employment Due Diligence and Management Liability
The protection of employees has direct business value. An inadequate review of employment-related obligations may affect valuation, the exchange ratio and financing.
The due diligence file should identify outstanding salary claims, working-time issues, collective obligations and insurance schemes. It should also record pending disputes or risks of collective claims being asserted.
Management must coordinate the corporate timetable with employment-law obligations. Delays in providing information or incomplete consultation may create both legal and communication costs.
The same difficulty arises where organisational changes are announced before their impact on employment relationships has been assessed. For this reason, legal, financial and human resources functions must be coordinated and aligned.
A useful practice is to prepare a specific memorandum on employment obligations and risks before approval of the merger. The memorandum should summarise the information obligations, any differences in benefits and outstanding compliance issues.
It should also propose specific actions before—and after—completion of the corporate transformation. In this way, employee protection is transformed from a defensive obligation into a tool for smooth integration and effective utilisation of managerial and employee talent.
The same methodology also assists in negotiating the documents governing the overall transaction. Indemnity clauses, warranties and specific representations may reflect the actual employment-related risk more accurately.
The agreement is therefore not limited to general assurances of compliance. On the contrary, it connects specific obligations with clear mechanisms for allocating liability between the parties. This precision reduces subsequent disputes and facilitates corporate integration.
The protection of employees in a merger does not constitute an obstacle to the overall process. It is a prerequisite for their optimal integration following its completion.
It is important to note that, when employees’ rights are mapped in good time and managed in a timely manner, the risk of disputes—judicial or otherwise—is reduced. Trust among management personnel and employees is, reasonably, strengthened and undoubtedly constitutes a factor in the stability of the business.
A successful merger is therefore not judged only by its registration with the General Commercial Registry. It is also judged in the everyday reality of the people within the business who carry and increase its value.
But what happens with creditors? This will be addressed in our next article.
Managing Partner
Koumentakis and Associates Law Firm
Note: This article forms part of a broader series published by our Law Firm on corporate transformations. In this series, we attempt an article-by-article analysis—always from a business-oriented perspective—of the principal relevant legislation, Law 4601/2019.