What are the legal considerations for UK companies regarding employee data privacy during mergers?

11 June 2024

In the ever-evolving world of business, mergers and acquisitions (M&A) are commonplace. These transactions can significantly alter the landscape of a company, affecting everything from its financial position to its employees. A key and often overlooked aspect of this process involves the handling and transfer of employee data.

In the UK, companies must navigate a complex web of legislation, including the General Data Protection Regulation (GDPR), to ensure compliance. Mistakes can lead to substantial fines and damage to the company's reputation. This article explores the legal considerations UK companies must be aware of regarding employee data privacy during mergers.

GDPR and Data Transfer

When two companies merge or when one company acquires another, the transfer of employee data is inevitable. This process, however, is not as simple as handing over files or transferring digital records. Under the GDPR, companies must ensure that personal data is handled and transferred in a manner that respects the privacy rights of individuals.

The GDPR is a comprehensive law that sets out guidelines for the collection, processing, and transfer of personal data within the European Union. Even though the UK has left the EU, it has incorporated the GDPR into its national law. Therefore, companies operating in the UK must still adhere to the principles of the GDPR.

The key principles of the GDPR that are relevant during a merger include lawfulness, fairness, transparency, data minimisation, accuracy, storage limitation, integrity, and confidentiality. It means that the data transferred should be minimal, accurate, secure, and lawful. Those principles will guide the entire transfer process.

Legal Due Diligence during M&A

During an M&A transaction, a process known as legal due diligence is conducted. This involves a thorough investigation of the target company, including its assets, liabilities, contracts, and legal obligations.

One crucial aspect of legal due diligence is reviewing the target company's data privacy practices. The buyer must ensure that the target company has been compliant with GDPR, as any non-compliance issues could transfer to the buyer after the transaction.

It is essential to assess whether the target company has appropriate data protection measures in place. The company should have a clear privacy policy, a record of data processing activities, and contractual assurances from third-party service providers regarding data protection. The buyer must also verify that the target company has obtained valid consent from its employees for data processing activities.

Employment Law and Data Protection

Employment law intersects with data protection in various ways during an M&A transaction. For instance, under the Transfer of Undertakings (Protection of Employment) regulations (TUPE), employees of the target company automatically become employees of the buyer after the transaction.

This means that the buyer assumes responsibility for the personal data of the target company's employees. Therefore, under the GDPR, the buyer company becomes the 'data controller' and must assume all the responsibilities that come with that role, such as ensuring data accuracy and protecting the data against unauthorised access or loss.

Additionally, the buyer must inform the employees about the data transfer, the purpose of the data processing, and their rights under the GDPR, such as the right to access their data and the right to request data deletion.

Post-Merger Data Privacy Compliance

Once the merger is complete, the new entity must ensure ongoing compliance with data protection laws. This involves implementing data protection measures and keeping records of data processing activities. The company must also respond to data subject access requests (DSARs) promptly.

In case of a cross-border merger, the company must ensure compliance with data protection laws of other jurisdictions as well. This can be particularly challenging if the company is dealing with jurisdictions that have stricter data protection laws than the UK.

The company must also have procedures in place for data breach notification. Under the GDPR, companies must report certain types of data breaches to the relevant supervisory authority within 72 hours of becoming aware of the breach.

In conclusion, during M&A transactions, UK companies must navigate a complex web of data protection laws to ensure compliance. Understanding these legal considerations is crucial to minimise the risk of non-compliance and to protect the privacy rights of employees.

Employee Consent and Communication Strategy

One of the most crucial aspects of data privacy during M&A transactions is obtaining employee consent. The GDPR specifically states that the processing of personal data should be lawful, fair, and transparent. This means that companies must have a legitimate interest for the processing of personal data and must obtain explicit consent from employees for the same.

Employee consent is usually obtained through the company's privacy policy at the time of employment. However, during an M&A transaction, the privacy policy of the buyer company might be different from that of the target company. Therefore, it is crucial that the buyer company communicates any changes in the privacy policy to the employees and obtains their consent.

The buyer company should develop a robust communication strategy to explain the implications of the merger on employee data privacy. This should include details on who will be the new data controller, what kind of data will be transferred, for what purpose the data will be used, and what are the rights of employees under the GDPR.

It is essential that the communication is clear and understandable. The company should avoid legal jargon and use simple and everyday English. The communication should be made through multiple channels such as emails, meetings, and intranet postings to ensure that it reaches all employees.

The Role of Third-Party Service Providers

M&A transactions often involve multiple third parties such as financial advisors, legal consultants, and IT service providers. These third parties may have access to the personal data of the employees during the course of the transaction. Therefore, it is vital to ensure that these third parties are compliant with the GDPR.

Under the GDPR, third-party service providers are considered 'data processors'. They are allowed to process personal data only on behalf of the data controller and only for specific purposes outlined in a written contract.

Therefore, before sharing any personal data with third parties, the buyer company should review the terms and conditions of their contracts. The contracts should clearly define the scope of data processing, provide adequate security measures, and outline the rights and obligations of the data processor.

In case of any non-compliance by a third party, the buyer company may be held jointly liable. Therefore, it is crucial to conduct thorough due diligence of third-party service providers to minimise the risk of non-compliance.

In conclusion, data privacy is a critical consideration for UK companies during M&A transactions. Companies must comprehensively understand the legal obligations under the GDPR, obtain employee consent, ensure clear communication, and carefully manage third-party service providers to ensure compliance. Failing to do so can lead to substantial fines and damage to the company's reputation. Therefore, companies should strive to protect the privacy rights of employees, not just as a legal obligation but as a commitment to ethical business practices.