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In a changing social landscape, PE firms should conduct corporate culture due diligence while also ensuring the implementation of robust complaints procedures.

By David Berman, Sarah Gadd, Joe Farrell, Nell Perks, David Walker, Tom Evans, and Catherine Campbell

As global businesses react to the pandemic and social movements, PE firms should remain watchful for whistleblowing issues involving both portfolio and target companies. We anticipate a significant increase in the number of employees asserting whistleblower status — a development that may prove costly to address, even if claims are without merit.

There is now more to blow the whistle about, including new workplace health and safety issues arising from COVID-19, misuse of government furlough schemes, and events highlighted by movements like #BLM and #MeToo. This is in addition to long-standing whistleblower issues, such as accounting irregularities, anticompetitive behaviour, and bribery and corruption. Further, in an economic environment where redundancies are increasing and the new jobs market is depressed, employees are more likely to resist termination.

By Catherine Drinnan and Shaun Thompson

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This year has seen a significant number of business failures, particularly on the high street, as businesses have struggled in the face of market fragility and Brexit uncertainty. When a UK portfolio company is underperforming, the presence of a defined benefit pension (DB) plan with a large deficit can be a significant problem. Companies with large pension deficits require contributions that affect cash flow and make exiting more difficult when the time comes to sell.

If a business slips into distressed territory, however, there are mechanisms whereby a company can divest itself of a DB scheme. As companies respond to Brexit and challenging conditions in some sectors, we believe that 2019 will see more of these types of arrangements. In our view, PE deal teams should consider how to respond if portfolio companies are at risk. While the mechanisms can be effective in allowing a company to continue trading (in some form), PE owners should note a number of important factors before deciding to attempt this.

By Catherine Drinnan, Shaun Thompson, Richard Butterwick, Terry Charalambous, and Catherine Campbell

This year has seen a significant number of business failures, particularly on the high street, as businesses have struggled in the face of market fragility and Brexit uncertainty. When a UK company is underperforming, the presence of a defined benefit pension (DB) plan with a large deficit can be a significant problem. Companies with large pension deficits require contributions that affect cash flow and make exiting more difficult when the time comes to sell.

If a business slips into distressed territory, however, there are mechanisms whereby a company can divest itself of a DB scheme. As companies respond to Brexit and challenging conditions in some sectors, we believe that 2019 will see more of these types of arrangements. In our view, corporates and M&A deal teams should consider how to respond if companies are at risk. While the mechanisms can be effective in allowing a company to continue trading (in some form), corporates should note a number of important factors before deciding to attempt this.

By Stuart Alford QC, Daniel Smith and Clare Nida

The English Court of Appeal provides further guidance, approving ENRC, on when litigation privilege will not apply to information gathering materials.

The English Court of Appeal (Criminal Division) has ruled that litigation privilege does not apply to a statement an employee makes to his employer’s solicitors as part of their investigation into a death in the workplace. The court’s ruling in R (for and on behalf of the Health and Safety Executive) v Paul Jukes [2018] EWCA Crim 176 is the third judgment on litigation privilege in just nine months.

By Matthias Rubner, Denis Criton, Olivia Rauch-Ravise and Bénédicte Bremond

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President Macron recently unveiled employment and tax reforms to increase France’s appeal for deal makers. While France ranks highly as an investment destination for private equity firms, complex and inflexible French employment laws have been perceived as a hindrance — perpetuating the belief that France can be an unfriendly jurisdiction for businesses and investors. In our view, these reforms — which focus on employee termination, collective bargaining, and employee consultative bodies — will make doing business in France easier and, coupled with proposed tax reforms, should facilitate an even stronger French dealmaking environment.

France ranks just 31st in the World Bank’s 2017 Ease of Doing Business index — the Macron reforms aim to improve this.

Collective Bargaining and Employee Termination – Developments and Implications for Private Equity

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Rules on collective bargaining agreements, a key feature of the French labour market, are changing. Previously, French companies could not change employment terms with workers if such changes were less favourable to employees than the rules set by industry-level agreements. Under the reforms, employers can now agree to company-level deals with unions that will supersede industry-level rules. This allows PE owners more flexibility to tailor agreements that better align with their actual business needs.

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By Sarah Gadd and Katie Campbell

Companies operating in the “gig economy”, using a largely self-employed workforce, have enjoyed enormous growth in recent years and have made popular M&A targets. In the UK, these companies have come into conflict with long-established employment law. In our view, current laws are not fully equipped to deal with staffing models in which staff and companies alike seek more flexibility than the traditional “masterservant” employment relationship affords. For M&A deals in which business models operate on the basis that a significant proportion of the workforce is selfemployed, acquirers should consider the real nature of the working relationship to assess the risk of staff being reclassified as workers or employees. Reclassification is not only an issue in the newer gig economy sector but also in industries operating a self-employed model, particularly if small, independent businesses become part of larger corporate entities.

By Oliver Browne and Daniel Smith

Following Three Rivers (No 5) [2003] EWCA Civ 474, the High Court has held that notes of interviews of employees, prepared as part of certain internal investigations by a bank’s solicitors, for the purpose of enabling the bank to seek and receive legal advice are not protected by legal advice privilege. Central to the ruling was the finding that relevant employees did not fall within the definition of the “client” for legal advice privilege purposes. The Court also confirmed that English privilege rules should be applied in cases before the English court so that, even though the interview notes were likely to have been privileged as a matter of US law, they were not privileged in English proceedings.

The decision follows the recent judgment in Astex Therapeutics Ltd v Astrazeneca AB [2016] EWHC 2759 (Ch) in which Chief Master Marsh held that certain employees were not part of the “client” for legal advice privilege purposes, but with only a brief analysis on the point. In the present decision, Mr Justice Hildyard considered the question in much greater detail.