A merger or acquisition is usually dominated by strategy, financing and competition law considerations. Yet there is also an important social dimension: the involvement of employees and their representative organisations. The SER Merger Code 2015 (SER-Fusiegedragsregels 2015) — also known as the Merger Code — requires merging parties to inform trade unions in good time about a proposed merger and to give them the opportunity to form a view on it.
The Code is not intended to assess the economic merits of a merger or to block it, but to ensure that employee representatives can exert influence before the merger becomes final. For directors, M&A advisers, HR professionals and works councils, it is therefore important to determine at an early stage of the transaction process whether the Merger Code applies.
What is the SER Merger Code?
The SER Merger Code is not a formal statute, but a form of self-regulation established within the Social and Economic Council (SER). For that reason, it is also referred to as quasi-legislation.
The core purpose of the Code is to protect the interests of persons working at undertakings involved in a merger. The Merger Code does not determine whether a merger is desirable or economically sound, but does require that trade unions be informed fully and in good time and be given the opportunity to make their views known before agreement on the merger is reached.
A breach of the Code is not a criminal offence, but non-compliance can nevertheless cause significant reputational damage: the Disputes Committee for the Merger Code (Geschillencommissie Fusiegedragsregels) can establish a breach and make its ruling public.
When does the Code apply?
The Merger Code applies when four conditions are met:
- The undertaking concerned forms part of the business community (bedrijfsleven).
- There is a merger within the meaning of the Merger Code.
- One or more employees’ associations are involved at at least one of the merging parties.
- At least 50 people are, in principle, employed in the Netherlands at the undertaking concerned or the group of undertakings.
The concept of ‘business community’ is interpreted broadly: it covers not only commercial undertakings, but also certain non-profit organisations, government organisations and professionals, where they operate on the market in a businesslike manner and at their own expense and risk. Examples include healthcare organisations, housing associations, educational institutions, cultural institutions and professionals such as accountants, lawyers, architects and consulting engineers.
The threshold of 50 employees may be lowered under a collective labour agreement (cao). Raising this threshold is not permitted.
What constitutes a merger?
Under the Merger Code, a merger occurs when control over an undertaking, or part of it, passes permanently into other hands. A temporary change of control falls outside this concept.
The Code may apply to, among other things:
- a business merger, for example a transfer of assets and liabilities;
- a legal merger;
- a legal demerger or split-off;
- the acquisition or transfer of shares in a private or public limited company;
- a change of control based on statutory or contractual powers;
- the formation of, or merger between, partnerships into which an undertaking is contributed.
Since 2015, a rebuttable presumption of control applies to share transfers involving, among other things:
- the acquisition of more than 50% of the voting rights;
- the acquisition of more than 50% of the shares;
- the power to appoint more than half of the management board or the supervisory body.
This presumption is rebuttable. The decisive question remains whether there is, in fact, a permanent transfer of control.
Which mergers are excluded?
The Merger Code does not apply to a number of specifically defined situations.
Internal group mergers
An internal merger in which all parties involved belong to the same group of undertakings falls outside the Code.
Change of control resulting from special legal consequences
Certain changes of control resulting from matrimonial property law, administration (bewind), a testamentary disposition, guardianship or a declaration of bankruptcy are also excluded. This exception does not automatically apply, however, where a receiver or administrator subsequently decides to transfer an undertaking. In that case, the Merger Code may still apply.
De minimis mergers
A merger falls outside the Code where, as a rule, fewer than ten people are employed at the undertaking or undertakings over which control passes.
No relevant Dutch consequences
Finally, mergers fall outside the Merger Code where no material consequences can reasonably be expected for persons working in the Netherlands. In cross-border transactions, it must therefore be assessed whether the transaction falls within the Dutch legal sphere. Relevant factors include the scale of the Dutch activities, the sector, market overlap, and the consequences for persons working in the Netherlands.
The duty to inform and consult
The principal obligation is that merging parties inform and consult the trade unions concerned in good time. ‘In good time’ means that the trade unions are informed before agreement on the merger has been reached: the trade unions’ opinion must still be capable of genuinely influencing the conclusion or the terms of the transaction. Informing them afterwards is, in principle, too late, even where the merger has otherwise been carefully prepared.
What information must merging parties provide?
Merging parties must inform the trade unions about:
- the motives for the merger;
- the intended policy measures;
- the expected social, economic and legal consequences;
- the measures envisaged in response to those consequences.
The trade unions must then be given the opportunity to give their opinion from the perspective of employees’ interests. During the consultation, the following topics may, among others, be addressed:
- the grounds for the merger;
- measures to limit adverse consequences;
- the timing and manner in which staff will be informed;
- further reporting on the merger;
- additional information reasonably required to form an opinion.
A trade union may request additional information, but that information must relate to the merger and be relevant to forming an opinion.
Public statements
Before a merging party makes a public statement about the preparation or conclusion of a merger, for example a press release, the trade unions concerned must first be informed of its content. This advance notice gives the trade unions the opportunity to raise any questions before the information is made public.
The SER Secretariat
In addition to the trade unions, the SER Secretariat must also be informed, at the same time as the notification to the trade unions. The SER Secretariat has, among other things, a signalling and supporting role: it can forward notifications received to the trade unions concerned, request additional information, and monitor media coverage of proposed mergers. A notification can be made digitally, by post, or in English.
Which trade unions must be informed?
Not every trade union automatically qualifies as an ’employees’ association’ within the meaning of the Merger Code. This is, in any event, the case where a trade union, in relation to the undertaking concerned:
- has nominated candidates for the works council, of whom at least one has been elected;
- regularly negotiates on pay and terms of employment; or
- has, in the two years preceding the merger, regularly and visibly acted as a representative of members’ interests vis-à-vis the undertaking.
Where a collective labour agreement (cao) applies at a merging party, the parties to that agreement automatically qualify as employees’ associations concerned. Trade union confederations such as FNV, CNV and VCP are umbrella organisations: they do not automatically qualify as an employees’ association within the meaning of the Merger Code merely by virtue of that role.
Force majeure
Only in the event of force majeure may the timeliness requirement be departed from. It must involve highly urgent circumstances beyond the control of the merging parties. An impending bankruptcy does not automatically amount to force majeure; the circumstances must be assessed on their specific merits.
Where force majeure is accepted, the merging parties must:
- make an explicit reservation regarding the trade union opinion still to be obtained;
- inform the trade unions immediately after agreement has been reached;
- still consult on the merger and its consequences.
A successful invocation of force majeure therefore does not release merging parties from the duty to inform and consult. It merely postpones the moment at which that duty must be fulfilled.
Complaints and sanctions
The Disputes Committee for the Merger Code handles disputes concerning compliance with the Code. Both trade unions and merging parties may file a complaint. A complaint must be submitted in writing and must include, among other things:
- the names and addresses of the parties concerned;
- a description of the dispute;
- the decision sought.
The time limit for filing a complaint is, in principle, one month after the merger has been publicly announced or has gone ahead. Where no public announcement has been made, the time limit begins to run from the moment the trade union could otherwise reasonably have become aware of the outcome.
On receipt, the chair first assesses admissibility. If a request is declared inadmissible, the applicant may object within fourteen days. If a complaint is admissible, the other party is, in principle, given one month to respond in writing. A public hearing may then take place, after which the Committee issues its ruling.
The Committee can find that a merging party or trade union has failed to comply, or has not properly complied, with one or more provisions, and may further qualify the breach as serious or seriously culpable. No appeal lies against the ruling; the ruling is, in principle, published on the SER website.
The Committee cannot impose a fine and has no power to suspend or block a merger. Publication of a ruling is therefore the principal sanction and source of pressure.
In addition to the complaints procedure, a mediation scheme exists. Any party to an existing or threatened dispute may request mediation, including during an ongoing complaints procedure. In that case, the procedural time limits are suspended. If mediation is successful, the complaint is withdrawn.
Relationship to other merger oversight
The SER Merger Code operates alongside statutory notification and approval procedures. Depending on the sector and the nature of the transaction, the following authorities, among others, may play a role:
- the Netherlands Authority for the Financial Markets (AFM);
- the Netherlands Authority for Consumers and Markets (ACM);
- the Dutch Healthcare Authority (NZa);
- the Committee on Consolidation Test in Education (CFTO).
A notification to the SER Secretariat does not replace any other statutory notification obligation. A merger may therefore fall under the Merger Code and, at the same time, under the oversight of, for example, the Netherlands Authority for Consumers and Markets or the Dutch Healthcare Authority.
What changed in 2015?
The 2015 revision introduced three significant changes.
Broader scope
The scope was extended to include, among others, non-profit organisations, government organisations and professionals. This extension reflects the increasing independence, privatisation and businesslike organisation of sectors that were previously less readily covered by the Code.
A different control criterion
The presumption of control in share transfers was amended. Under the previous rules, holding more than 50% of the shares gave rise to an irrebuttable presumption; since 2015, this presumption is rebuttable. This brings the test more closely into line with the actual control relationships within an undertaking.
Modernised terminology
The terminology was updated: reference is now made to ‘persons working in the undertaking’, in line with the terminology of the Works Councils Act (Wet op de ondernemingsraden). In addition, greater attention is paid to the relationship between the trade union opinion and the works council’s right of advice.
Practical checklist for merging parties
Careful preparation begins with a timely assessment of whether the Merger Code applies. The following points are relevant in that regard:
- Assess at an early stage whether the transaction involves a permanent change of control.
- Check whether the undertakings concerned fall within the broad concept of ‘business community’.
- Determine which trade unions qualify as employees’ associations.
- Inform the trade unions before agreement on the merger is reached.
- Inform the trade unions before any public statements are made.
- Notify the merger to the SER Secretariat at the same time.
- Separately assess whether force majeure may apply.
- Take into account the works council’s advisory process.
- Check any notification and approval obligations owed to other regulators.
- Carefully document the information and consultation process.
It is advisable to take compliance with the Merger Code into account in a letter of intent or term sheet. A condition precedent relating to completion of the required information and consultation process may also be included.
Conclusion
The SER Merger Code 2015 forms an important part of Dutch merger practice. Although the Code is not a formal statute and does not provide for fines or a merger ban, it requires merging parties to carry out a careful and timely process of informing and consulting the trade unions concerned.
The greatest risks lie in a late notification, incomplete provision of information, or skipping the consultation altogether. Non-compliance can lead to a public ruling by the Disputes Committee for the Merger Code and, as a result, to reputational damage.
For directors, M&A advisers, HR professionals and works councils, it is therefore essential to assess the applicability of the Merger Code at the very start of the transaction process and to carefully document the consultation with trade unions.
Frequently asked questions
What is the SER Merger Code?
The SER Merger Code (the Merger Code) is a form of self-regulation established within the Social and Economic Council (SER). It protects employees’ interests in a merger by requiring merging parties to inform and consult the trade unions concerned fully and in good time, before agreement on the merger is reached.
When does the SER Merger Code apply?
The Code applies when four conditions are met: the undertaking forms part of the business community, there is a merger within the meaning of the Code, one or more employees’ associations are involved at at least one merging party, and at least 50 people are, in principle, employed in the Netherlands.
What counts as a merger under the Merger Code?
A merger occurs when control over an undertaking, or part of it, passes permanently into other hands. This includes a business merger, a legal merger or demerger, a share transfer, or a change of control based on statutory or contractual powers. A temporary change of control falls outside the concept.
Which trade unions must be informed?
The employees’ associations involved with the undertaking must be informed, for example because they have nominated elected works council candidates, regularly negotiate terms of employment, or have visibly acted as members’ representatives in the past two years. Parties to an applicable collective labour agreement (cao) automatically qualify.
What happens in the event of non-compliance?
On a complaint by a trade union or merging party, the Disputes Committee for the Merger Code can establish a breach and qualify it as serious. It cannot impose a fine or block a merger, but its ruling is published on the SER website. Reputational damage is therefore the main risk.
