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Merger and Acquisition in Azerbaijan: Key Employment Issues to Consider
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As companies navigate the complexities of merger and acquisition deals in Azerbaijan, it is crucial that they pay close attention to employment agreements. Failure to do so can lead to legal and financial headaches for new owners.
Registration of Changes in Employment Agreements
The Azerbaijani government’s e-gov portal requires companies to register changes to employment agreements. However, many companies fail to update the portal, leaving new owners exposed to potential legal issues. To avoid adverse outcomes, acquirers must ensure that all necessary changes are registered promptly.
Key Takeaways:
- Registration of changes in employment agreements is mandatory
- Failure to register can lead to legal and financial risks
- Acquirers must ensure timely registration to avoid potential issues
Misclassification of Employees as Independent Contractors
The Law on Amendments to the Labor Code of Azerbaijan (effective May 8, 2021) has introduced stricter regulations regarding employee misclassification. Acquirers must conduct a thorough review of target companies’ employees and independent contractors, assessing whether they meet the requirements outlined in Article 7.2-3 of the Labor Code.
Key Takeaways:
- Stricter regulations on employee misclassification have been implemented
- Acquirers must conduct a thorough review of employees and independent contractors
- Failure to comply with regulations can result in legal consequences
Paid Leave-Offs and Vacation Pay
Paid leave-offs are another critical employment issue that new owners must address. Failure to make timely payments for unused vacation time or incorrectly calculating vacation pay can result in administrative penalties. Acquirers must ensure that all statutory payments have been made to employees.
Key Takeaways:
- Paid leave-offs and vacation pay are important employment issues
- Failure to make timely payments or incorrectly calculate vacation pay can result in administrative penalties
- Acquirers must ensure all statutory payments have been made
Compensation and Benefit Plans
A comprehensive due diligence report should include a detailed review of target companies’ compensation and incentive/bonus plans. New owners must also verify whether such plans include obligations for leave-offs or other employee benefits.
Key Takeaways:
- A thorough review of compensation and benefit plans is necessary
- Acquirers must verify whether plans include obligations for leave-offs or other employee benefits
- Failure to comply with regulations can result in legal consequences
Labor Safety and Occupational Health and Safety
Acquirers must ensure that all existing policies regarding occupational health and safety comply with local legislative requirements. Failure to do so can result in administrative and criminal sanctions.
Key Takeaways:
- Compliance with local legislative requirements is essential for labor safety and occupational health and safety
- Failure to comply can result in administrative and criminal sanctions
- Acquirers must ensure existing policies comply with regulations
Immigration Considerations for Foreign Employees
Changes in ownership may affect foreign employees, who may require new work permits or temporary residence permits. Acquirers must evaluate the number of foreign employees, their positions, and the type of documents they hold to avoid potential administrative sanctions.
Key Takeaways:
- Changes in ownership can impact foreign employees’ work permits and temporary residence permits
- Acquirers must evaluate the number of foreign employees and their documentation
- Failure to comply with regulations can result in administrative sanctions
Legal Considerations of Employee Dismissal and Transfer
New owners must carefully review employment agreements and adherence to procedural requirements. While Article 63.2 of the Labor Code allows for termination of employment agreements with certain employees, acquirers should request and analyze personal files to determine whether to keep or dismiss employees.
Key Takeaways:
- A thorough review of employment agreements is necessary
- Acquirers must ensure compliance with procedural requirements
- Failure to comply can result in legal consequences
Labor Disputes and Claims Against the Target Company
Acquirers must review existing claims raised by target company employees, including active litigation and complaints sent to the Ministry of Labor and Social Protection. Failure to address these issues can lead to legal and financial consequences.
Key Takeaways:
- Acquirers must review existing claims against the target company
- Failure to address these issues can result in legal and financial consequences
- A thorough review is necessary to avoid potential risks
In conclusion, conducting a thorough legal due diligence is crucial for acquirers in Azerbaijan’s M&A market. The results of this due diligence can significantly impact the purchase price and terms of the deal. Companies must prioritize employment agreements and ensure that all necessary changes are registered promptly to avoid potential legal and financial risks.
Authors: Shabnam Sadigova, Senior Associate; Royal Ibrahimov, Associate GRATA International Azerbaijan