Discover how to detect hidden labor liabilities during mergers and acquisitions in Spain. Learn what risks to watch for and how legal due diligence can protect your investment.
Introduction: Labor Risk Is the Silent Deal Killer in M&A (Mergers and Acquisitions)
In mergers and acquisitions, financial metrics often take center stage. However, one of the most overlooked and potentially damaging issues in a Spanish M&A transaction is labor liability.
Whether you’re acquiring a startup or absorbing a legacy business, employment risks — from undisclosed severance obligations to misclassified workers — can significantly affect deal value and post-close stability.
At Suarez de Vivero, we help international corporations navigate Spanish labor law with precision. In this article, we explain how to identify and mitigate hidden employment liabilities before you close the deal.
Why Labor Due Diligence Matters in Spain
Spanish labor laws are strict, protective of employees, and often non-negotiable. Even if labor issues are not discovered during a deal, liability can transfer to the buyer under Spain’s successor liability laws.
Common Labor Liabilities in M&A:
- Misclassified contractors or freelancers
- Unpaid social security or tax obligations
- Hidden severance liabilities
- Unregistered collective bargaining agreements (CBAs)
- Pending litigation with employees or unions
Failure to detect these issues can result in millions in unexpected costs, strained employee relations, and regulatory penalties.
Key Areas to Examine During Labor Due Diligence
1. Employee Contracts and Classifications
Verify that all workers are properly classified under Spanish labor law. Misclassification is a major risk area, especially in tech, logistics, and gig economy sectors.
2. Compensation and Benefits
Review salary structures, variable compensation, bonus schemes, and non-salary perks. Check for disparities with Spanish legal standards or sector-wide agreements.
3. Social Security and Tax Contributions
Analyze whether the target company has fully paid employer contributions to Seguridad Social. Missed or late payments could become your burden post-acquisition.
4. Litigation and Union Activity
Scrutinize open labor disputes, ongoing union negotiations, or historical claims. Even minor cases can lead to significant reputational and financial risk.
5. Collective Agreements (Convenios Colectivos)
Many Spanish industries are governed by CBAs. Failing to identify or apply them correctly can create legal exposure around working hours, pay, and terminations.
Red Flags to Watch For in a Spanish M&A Deal
- High use of temporary or subcontracted workers
- Lack of written contracts or outdated agreements
- Poor documentation of working hours, overtime, or vacation balances
- Discrepancies between HR records and payroll reports
- Previous acquisitions with incomplete labor integrations
At Suarez de Vivero, we specialize in cross-border M&A due diligence for labor law. Our team conducts deep audits, interviews key stakeholders, and evaluates contracts and liabilities under both Spanish and EU regulations.
How Labor Liabilities Transfer in Spain
Spain applies successor liability under Article 44 of the Workers’ Statute. This means that if a company changes hands through a merger, acquisition, or asset deal, the buyer assumes the seller’s labor obligations.
Even in asset-only deals, Spanish courts may determine that labor liabilities transfer if the business retains its core activity, staff, or operational model.
Legal Strategies to Minimize Risk
- Conduct thorough due diligence on all employment relationships and HR processes
- Include detailed labor representations and warranties in the Sales and Purchase Agreement (SPA)
- Use indemnity clauses for contingent liabilities
- Implement post-closing compliance plans to correct legacy issues
- Partner with local legal experts who understand union dynamics and enforcement practices
Why Choose Suarez de Vivero for Labor Due Diligence in Spain
- Over 40 years advising global corporations on Spanish employment law
- Specialists in cross-border M&A, restructurings, and labor negotiations
- In-depth knowledge of sector-specific CBAs, union risks, and Spanish HR compliance
- Seamless coordination with corporate counsel and tax advisors
Labor Risks Are Manageable If You Know Where to Look
When entering the Spanish market via M&A, labor due diligence is not optional. It is a strategic necessity. By identifying hidden liabilities early, you protect your investment, secure workforce stability, and avoid surprises that could derail your long-term success.
Contact Suarez de Vivero today to ensure your next acquisition in Spain is legally sound, labor-compliant, and ready for growth.