We have previously written about some of the changes that the introduction of client directed funding in the United Kingdom forced not for profit organisations in the disability services sector to make. One such change was the increasing frequency of mergers between not for profits. Mergers are a key part of achieving the client coverage and economies of scale that are necessary for survival in a competitive market.
It seems that Australian not for profit organisations in the disability services sector are increasingly feeling the urge to merge.
For example, the Western Advocate has reported that the Bathurst Disability Advocacy Service was acquired by Disability Advocacy New South Wales.
Similarly, the Canberra Times reported that Marymead, a children’s not for profit organisation, acquired Autism Asbergers ACT. The shift to client directed funding was cited as the predominant motivating factor behind both transactions.
Human resources and employment law issues should be at the forefront of the mind of any board member at a not for profit organisation that is considering a merger. In our experience, two human resources issues are critical.
Finding the Right Fit
Not for profit organisation that are interested in merging with each other need to consider whether they have compatible cultures and values. This consideration needs to extend beyond a comparison of the objects and charitable purposes of each organisation.
Diligent not for profit organisations will consider whether the executive management teams of both organisations will be able to work together in the expanded business. If they cannot, the enlarged organisation may soon find itself spending money to dismiss existing executive employees and hire new executive employees.
A good way to consider whether the executive employment teams are compatible is to review the policies and procedures that each team implements and the performance indicators against which each team is measured.
Human Resources Due Diligence
Before undertaking a merger, disability service providers on both sides of the transaction should ensure that the other party does not owe any outstanding entitlements to employees, such as unpaid wages or superannuation contributions.
This is particularly important in share purchase transactions, in which the merger is effected by one organisation acquiring all or a majority of the shares in the other organisation. An organisation that conducts a share purchase without first investigating the claims that employees may have against the target organisation may find themselves with a significant liability once the transaction is completed.
Equally, target organisations should be mindful that there are circumstances in which the Fair Work Act 2009 obliges employers who will cease to exist as part of a merger to pay out the accrued entitlements of employees who are being transferred to a new employer.
Contact JFM Law on (02) 9199 8597 for a no obligation chat. If you would rather get in contact through email, send your question through or by email at wehelp@jfmlaw.com.au.
The information contained in this post is current at the date of editing – 3 October 2024.