Proposed Employment Law Changes Will Raise the Stakes for M&A Due Diligence

There are a host of employment law changes expected to be adopted by the Democratic Congress and the Biden administration that, when implemented, will increase the level of effort required by buyers in M&A transactions.

As outlined by my partners in a recent Client Alert, the Congressional majority is expected to adopt significant changes in employment laws, including:

• The Paycheck Fairness Act - Making it harder for employers to justify paying women less than men
• Pregnant Workers Fairness Act - Requiring employers to offer increased accommodations for employees whose abilities are limited by pregnancy, childbirth or a related condition
• Equality Act - Prohibiting employment discrimination on the basis of sexual orientation and gender identify
• EEOC Investigations - Increased funding for EEOC investigations
• Family and Medical Leave - Increasing mandatory paid family and medial leave to 12 weeks
• Age Discrimination - Lowering the standard of proof required in age discrimination cases to make it easier for employees to sue
• Be Heard Act - Extending prohibitions against employment discrimination to all employers (regardless of business size) and expanding the scope to cover workers who are currently excluded (such as independent contractors, volunteers, interns and trainees)
• OSHA Investigations - Increasing funding for OSHA investigations and enforcement
• Mandatory Arbitration Claims - Prohibiting employers from imposing mandatory arbitration provisions in employee contracts to prohibit employee class actions
• Independent Contractor "ABC" Test - Adopting the California "ABC" test to make it more difficult for employers to utilize independent contractors in lieu of employees and increasing penalties for misclassified workers

Only time will tell if the Biden administration will succeed in changing the law to include some or all of these provisions.  If the law changes, however, M&A attorneys and others involved in due diligence efforts will need to modify their approach to take these increased risks into account.

Some of these proposed changes would require significant changes in employer procedures, documents and policies.  In that context a robust due diligence review would need to examine a target company's onboarding procedures, HRIS resources, exit procedures and documentation to ensure that the target had successfully implement changes in the law.