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Today, more and more companies choose mergers and acquisitions to achieve their win-win goal. The behavior of both parties to the merger and acquisition enterprise seems to be just market behavior, but it is inevitable that the fundamental interests of the company’s employees are involved. If these problems are not properly resolved, it will inevitably lead to large-scale labor disputes, which not only has a negative effect on the development of the enterprise, but may also affect the society’s stability and economic development. Therefore, the protection of labor rights and interests in enterprise mergers and acquisitions must be taken seriously and actively resolved. This article only takes the issue of labor contract inheritance in enterprise mergers and acquisitions as a perspective, and talks about how to protect the legitimate rights and interests of laborers in enterprise mergers and acquisitions to the greatest extent.

 I. The protection of labor rights in enterprise mergers and acquisitions

1Concept and Connotation

In our country, an enterprise generally refers to an economic organization that is established in accordance with the law, aims at making profits, and independently assumes civil liabilities, and engages in production or service activities. However, our country's current legislation does not clearly stipulate the term "mergers and acquisitions". Generally speaking, corporate mergers and acquisitions refer to corporate mergers and acquisitions. Analyzed from the legal form, the main difference between mergers and acquisitions is whether the subject qualification of the target company is eliminated. The final result of the merger is that two or more legal persons merge into one legal person, and the final result of the acquisition does not change the number of legal persons, but only changes the ownership of the target company’s property rights or the ownership of the management rights. But there are similarities between the two: mergers and acquisitions often have the same goals, and they are both to control the target company. It can be said that acquisition is an important way and means of merger, and merger is an extreme form of acquisition. [1] To sum up, corporate mergers and acquisitions refer to the behavior of advantageous companies to gain control of other companies by means of property rights transactions in order to strengthen their own economic strength and expand their business scale.

Workers’ rights and interests refer to citizens with statutory labor rights and labor capacity, for the purpose of obtaining labor remuneration, the general term for various rights and interests that are generated in the labor process or are closely related to labor, including laborers’ rights and interests,individual rights and collective rights of workers. At this stage, the supply of the labor market in our country exceeds demand, leading to a situation of "strong capital and weak labor" in labor relations. In the process of enterprise mergers and acquisitions, in order to maximize the interests of the company, the parties to the merger will generally sacrifice the relevant rights and interests of the workers. Once the rights and interests of the workers are damaged, it will inevitably affect their basic material living conditions. Therefore, the protection of labor rights in the process of enterprise mergers and acquisitions requires necessary attention.

2Theoretical Basis

The constitution of our country clearly stipulates the labor rights of citizens, and the importance of labor rights as the basic rights of citizens is self-evident. Enterprise mergers and acquisitions are free transactions of commercial entities and should follow the basic principles of autonomy of will. However, due to the natural disadvantaged position of workers, the social law attributes of the "Labor Law", and the guidance of the principle of preferential protection of the interests of disadvantaged groups, mergers and acquisitions should follow the basic principles of autonomy of will, and should subject to relevant laws and regulations.

At the same time, in recent years, the theory of corporate social responsibility has been increasingly valued by the civil and commercial law circles, and corporate social responsibility has become one of the responsibilities that enterprises must perform. As a collection of stakeholders, including shareholders, creditors, employees, consumers, and even the government and community residents, formed through the conclusion of contracts, the existence and development of the enterprise will inevitably affect other stakeholders. Therefore, the relationship between shareholders must be considered, including the interests of other interested parties. Among them, workers are one of the most important stakeholders of an enterprise. Workers establish labor relations with the enterprise, the business activities of the enterprise depend on the labor of the workers. The quality and loyalty of the workers directly affect the market competitiveness of the enterprise. The two are consistent in their fundamental interests. Enterprises provide workers with a healthy and safe working environment and fully protect their legal rights and interests. This not only increases the interests of enterprises and workers, but also enhances social welfare. Therefore, enterprises should take social interests instead of shareholders' interests as their biggest goal. Protecting the legitimate rights and interests of workers is an objective requirement of specific socio-economic and social conditions. Protecting the rights and interests of workers in corporate mergers and acquisitions is important ways of reflecting for enterprises to undertake social responsibilities. [2]

II. The Inheritance System of Labor Contract in Enterprise Mergers and Acquisitions

1System Status

The inheritance of labor contracts in enterprise mergers and acquisitions means that the unexpired labor contracts signed by the target company and its original employees are completely inherited by the acquiring company, and the labor contract continues to exist and is an effective system. [3] In fact, in enterprise mergers and acquisitions, no matter what form of merger and acquisition is adopted, changes in human resources between the merged company and the merged company will inevitably occur, and so the issue of labor contract inheritance. The inheritance of labor contracts in enterprise mergers and acquisitions is mainly manifested in that the merged company continues to perform the original labor contract as the successor of the merged company. China’s current legislative system does not have specific laws and regulations on the inheritance of labor contracts, but there are relevant provisions in the "General Principles of Civil Law", "Contract Law", and "Company Law". Article 34 of the "Labor Contract Law" stipulates: "In the event of a merger or division of an employer, the original labor contract will continue to be valid, and the labor contract will continue to be performed by the employer that inherits its rights and obligations." This article the principle of the inheritance of the labor contract system that stipulates, the inheritance system of the labor contract still needs to be continuously improved.

2Institutional Flaws

The statutory general inheritance stipulated by the "Labor Contract Law" and related laws does reduce the various problems caused by enterprise mergers and acquisitions to laborers and protect the legitimate rights and interests of laborers to a certain extent. However, a comprehensive analysis of the status quo of our country’s legislation on the statutory general inheritance of labor contracts shows that the provisions of our country’s labor law on the statutory general inheritance of labor contracts in enterprise mergers and acquisitions are too simple and general, lacking specific guidance, corresponding procedures and legal liability provisions. Specifically, the author believes that the labor contract inheritance system in my country's enterprise mergers and acquisitions has the following defects:

First, the provisions of general inheritance virtually deprive both parties of the labor relationship of their right to choose. Article 34 of the "Labor Contract Law" stipulates: "In the event of a merger or division of an employer, the original labor contract shall continue to be valid, and the labor contract shall continue to be performed by the employer that inherits its rights and obligations." The law adopts a generalization. The method of inheritance is intended to protect the rights and interests of workers to the greatest extent, but it deprives workers and enterprises of the right to choose other methods independently, and does not take into account the protection of workers' independent personality. As a subject with independent personality, laborers are fundamentally different from material capital, and laborers have the rights to express their will. The labor behavior has a subordinate nature. Laborers are personally dependent on employers. For laborers, different companies have different working environments and corporate cultures. If in the case of corporate mergers and acquisitions, the laborers’ service targets are forced to change. If not giving them the right to choose,this may protect the rights and interests of workers to a certain extent, but this deprivation of the right to choose may also restrict other legitimate rights and interests of workers.

If the employee refuses to accept the transfer agreed by the company, he/she is likely to be dismissed as a result, that is, the company can "significantly change the objective conditions on which the labor contract was concluded, resulting in the failure to perform the labor contract. The labor contract can be unilaterally terminated on the grounds of reaching an agreement on changing the content of the labor contract; and if the laborer reluctantly accepts the transfer agreed by the company, it is likely that the original position will be changed because the original position has not been transferred, also facing the risk of dismissal. This kind of regulation not only restricts the right of workers to choose new jobs based on their own development and other considerations, but also compulsorily requires companies to accept pre-merger workers, which will inevitably affect the effect of corporate mergers and acquisitions.

Second, the distribution of legal responsibilities is not clear enough. The "Labor Contract Law" does not clearly stipulate the legal obligations and legal responsibilities that companies should perform before and after mergers and acquisitions, which makes the companies frequently deduct wages, bonuses and other welfare benefits of employees during mergers and acquisitions. Taking workers’ wages and year-end bonuses as examples, some companies’ wages are paid at the end of the month and year-end bonuses or at the end of the year. If the companies undergo mergers and acquisitions during this period, the labor relationship will be transferred to the new company and the labor relationship with the pre-merger company will be eliminated, then the unpaid wages and year-end bonuses will not be able to be recovered.

Third, the operability of legal provisions is weak. The above also mentioned that the provisions of Article 34 of the Labor Contract Law lack operability. This provision only stipulates that when an employer merges and splits, it should adopt a statutory general inheritance method to deal with labor relations, and does not clearly stipulate the various situations of the enterprise during mergers and acquisitions. At the same time, because Article 34 of the "Labor Contract Law" only provides for the inheritance of the "labor contract", this automatically excludes the inheritance of the "factual labor relationship" in the literal interpretation. According to the "Labor Contract Law", labor relations are established from the date of employment. Those workers who have a factual labor relationship with the company and those who have signed a labor contract with the company also have a labor relationship with the company and should be protected by law. In corporate mergers and acquisitions, due to the lack of legislative nature of the Labor Contract Law, the protection of the rights and interests of workers who have not signed labor contracts is in a blank state. These are all urgent issues that are not provided for in the labor law but need to be resolved urgently by the law.

3Making System Perfect

The above-mentioned author has explained the defects of statutory general inheritance. Next, the author will put forward his own suggestions on the improvement of the system, hoping to improve the current legislative gap.

First, to implement different labor contract inheritance measures according to the different ways and types of enterprises' own mergers and acquisitions. According to the principle provisions of Article 34 of the "Labor Contract Law", for typical corporate mergers and acquisitions, general measures such as inheriting the labor contract and extending the length of service can be adopted; If the labor contract can’t be automatically transferred, the enterprise must negotiate with the laborer to properly handle the issue of labor contract inheritance and economic compensation.

Second, to continue to refine the substantive and procedural provisions related to contract inheritance, including the issue of the statute of limitations of the inheritance of the labor contract, the obligations when the labor contract is inherited, the obligation to notify the laborer in advance, and the laborer's right to raise objections, etc. These issues actually involve laws in different fields, and it is difficult to adjust them only by labor law. They must rely on the joint action of other relevant laws, regulations, and systems such as company law and civil law to be able to truly function and achieve the purpose of protecting workers.

Finally, it clearly stipulates the special issue of labor contract inheritance. Among the above, the transfer of factual labor relations is not covered by Article 34 of the Labor Contract Law. Therefore, the "Labor Contract Law" should clarify the definition of factual labor relations, and inherit them in accordance with the method of labor contract inheritance. In the case of enterprise mergers and acquisitions, if the actual labor relationship is to be transferred, a written labor contract should be concluded; before the merger, the compensation that has been arrears due to the failure to sign the labor contract should also be paid by the original enterprise, otherwise the merger will not be allowed. At the same time, special provisions should also be made for collective labor contracts. The subjects of the signing of collective labor contracts are enterprises and labor unions. In the event of mergers and acquisitions of enterprises, multiple collective contracts coexist in one enterprise, and the inheritance of collective contracts is difficult to operate. This problem can be solved if the differential clauses in the collective contract of the acquired company are transformed into the individual labor contract clauses of the worker, and the same clauses are directly absorbed by the original collective contract of the acquiring company. [5]

References

[1] Wu Xiaoqiu, editor in chief: "Principles of Corporate Mergers and Acquisitions", Renmin University of China Press, 2001 edition, p30.

 [2] Lin Shujie: "Protection of Employees' Rights and Interests in the country's Corporate Mergers and Acquisitions", published in "The Rule of Law Forum", 2008, No.19.

[3] Sun Jingxin and Yang Qing: "Protection of Workers' Rights and Interests in Company Mergers and Acquisitions", in Journal of China Institute of Labor Relations, No. 3, 2009.

[4] Xie Fei: "On the Protection of Workers' Rights and Interests in Enterprise Mergers and Acquisitions", in "Journal of Soochow University" No.9, 2012,

[5] Zhou Jianhuang: "On the Legal Protection of the Rights and Interests of Laborers in my country's Enterprise Mergers and Acquisitions", in "Journal of Xiangtan University" No.10,2014.

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Statement:

This article was originally created by the lawyers of JAVY Law Firm. It only represents the author's own views and should not be regarded as a formal legal opinion or suggestion issued by JAVY Law Firm or her lawyers. If you need to reprint or quote any contents in this article, please indicate the source.