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Downsizing after a merger could lead to employment litigation

On Behalf of | Dec 15, 2021 | Business & Commercial Law

Successful businesses grow organically by adding new staff members or opening new facilities. When the owners or executives of a company have substantial resources, they can also expand the business through acquisitions or mergers.

Whether your company intends to buy an entire existing business or combine your operations with another company’s, you will grow significantly in a short amount of time through a merger or acquisition.

A little bit of reduction may be necessary at that time to maintain financial equilibrium and efficient business operations. Mergers and acquisitions often result in the need to eliminate redundant positions and streamline your employee roster. Unfortunately, the wrong choices when reducing your workforce might open you up to litigation brought by your former employees.

Workers may claim wrongful termination or discrimination

If your employees have contracts entitling them to severance packages, they might have grounds for a breach of contract claim if you don’t fulfill those obligations during your downsizing efforts. Even if your business didn’t sign that contract, the company you acquired or merged with did. Therefore, you will likely have an obligation to fulfill those terms.

Your company could also face litigation if former employees claim that management selected the people they let go in a discriminatory manner. Sex, race, religion, age and medical condition should not factor into which workers you retain and let go. If workers who belong to a protected category believe their personal characteristics factored into your decision, they might try to take you to court for wrongful termination or discrimination.

Understanding why your business’s growth might lead to employment litigation can lead to better decisions for your company.