Canada and the U.S. enjoy a high degree of economic integration, and integrating business across their border makes sense for many SMEs. For any operation heading towards a merger, acquisition or divestment, entrepreneurs tend to maintain a laser-like focus on the deal itself. However, especially when deals occur across several jurisdictions, there is a mountain of operational and compliance details to plan for, particularly in human resources.
If you will be acquiring U.S. employees, problems can arise when you assume that youcan implement Canada employment practices seamlessly in the U.S. When Canadian corporations acquire employees in the U.K. or France, they usually know they will be encountering a whole new set of labour laws. But there is something about the U.S.’s proximity and the ease of that border crossing (at least in the past) that makes Canadian executives assume that operating in the U.S. is just like entering another Canadian province.
Perhaps the most significant mistake you can make is assuming that your cost benefits
The time to complete the due diligence to understand these liabilities is before the negotiation phase of an acquisition, as the inherent liabilities may not be appropriately disclosed on a balance sheet. You may have to interview employees to better address your future workforce plans and what sort of liabilities those plans could create. Someone should be charged with quantifying those liabilities so they can be negotiated over. Even if you’re simply opening a small new office south of the border, you must thoroughly study and plan for your personnel costs.
Review the acquired company’s original employment contracts. It may prove shortsighted to assume that contracts drawn up by a U.S. entity are compliant under local law. In addition to federal laws, each state has its own laws protecting employee rights. Employment relationships in the U.S. are often rightly described as an “at-will,” meaning that the employer or employee may terminate the relationship at any time without cause. However, foreign investors unfamiliar with operating inside the U.S. should know that there are exceptions to this rule, and ignorance of those exceptions can cause employers financial and reputational damage. An employer may not, for example, violate discrimination laws when terminating an employee.
As with any Canadian acquisition of a foreign entity, you must ensure that paid time-off policies for foreign employees comply with local laws. It is often good business practice to comply with local customs in this area as well. The U.S. does not mandate paid time off, but employers typically offer some form of paid time off, including vacation and sick time, and those provisions can be generous. Canada executives considering a merger should beware of substantially cutting these benefits held by any inherited employees, lest employee morale problems arise.
There is a lot to keep track of, and it is best to be proactive. To complete the task, we recommend that companies heading towards a merger or acquisition create an HR audit to map out compliance needs of the new entity. The audit will help you keep track of what has already been negotiated and what will need to be implemented after the deal. This is a complex process that most companies need help completing.
As a final note, remember that in managing so many compliance details, it is easy to lose sight of the question of workforce compatibility, something that even the most thorough audit cannot detect. The culture clash between the management of German automaker Daimler AG and U.S. competitor Chrysler was unanticipated by senior executives and famously contributed to the failure of DaimlerChrysler. Workplace differences across cultures remain real in 2014, even small firms.
Tom Gardner is the Canadian country manager for Radius, a provider of international business software and services. Its technology and services help organizations capitalize on global growth opportunities by simplifying the management and control of international expansion and operations.
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