Employee Matters Agreement
(Spin-off or Equity Carve-out)

Summary

This template is an employee matters agreement between a parent and a spin-off or carve-out subsidiary company regarding the assignment of employees and the allocation of responsibilities and liabilities between parent and subsidiary relating to such employees. This template includes practical guidance, drafting notes, and optional clauses. In connection with the divestiture of a business unit via a spin-off or equity carve-out, parent company and the spin-off or carve-out subsidiary, as the case may be, will enter into an employee matters agreement. The employee matters agreement provides for the assignment of employees to either parent or the subsidiary, and the allocation between parent and the subsidiary of responsibilities and liabilities relating to such employees including compensation, equity awards, benefit plans, and health and welfare plans. The assignment of employees itself is often straightforward because most employees will have worked primarily for either the parent's or subsidiary's business prior to the divestiture, and will continue to do so afterwards. Where there are employees who have responsibilities to both the parent and subsidiary, the employee matters agreement will address the assignment of such employees, whether any particular employee will continue to provide services on behalf of both parties for a transitional period following the divestiture, and how employee compensation and expenses will be addressed. If the subsidiary employees participate in parent employee benefit plans, parent and subsidiary will need to determine whether subsidiary employees should participate in new plans created by subsidiary or continue participating in parent's plans. The decision will be influenced by the structure of the divestiture transaction and the degree of parent ownership of subsidiary post-divestiture. The parties will also need to determine how to allocate any existing benefits under parent employee benefit plans in connection with the divestiture. It should be noted that if employees of either parent or subsidiary participate in bonus or similar performance-based arrangements that use performance targets of parent and subsidiary as a single entity, and the divestiture does not occur at the end of a performance year, then it may be necessary to adjust such performance targets to reflect the divestiture. The parties will need to examine and address existing employment agreements, benefit plans, incentive compensation plans, collective bargaining agreements, and similar arrangements to determine whether there are any restrictions on their ability to allocate employees and ongoing responsibility for benefit and incentive arrangements. These will typically vary significantly from transaction to transaction, and may require review by attorneys who specialize in labor law and employee benefit matters. This template assumes that the subsidiary party has been formed to hold the spin-off or carve-out business in anticipation of the divestiture transaction. If the subsidiary has been operating on a standalone basis as a separate legal entity, some of the issues addressed in this template may not be relevant since subsidiary may have already established its own benefits, compensation arrangements, and other employee matters for its employees. Click here to see recent employee matters agreements in Market Standards, the searchable database of publicly filed M&A deals from Practical Guidance that enables users to search, compare, and analyze its comprehensive database of transactions using over 150 detailed deal points to filter search results. You can customize this search to your needs by adding filters or modifying the search criteria. For more information on Market Standards, click here. For further discussion of divestitures, including equity carve-outs and spin-offs, see Divesting Assets and Businesses. For a broad collection of content related to divestiture transactions, see Divestitures of Divisions and Subsidiaries Resource Kit.