How does a collective bargaining agreement affect investment decisions?
ENTRANCE
In company acquisition, merger, or investment processes, due diligence should assess a company's workforce structure not only through salary and seniority data, but also through the level of unionization among workers and the applicable collective bargaining agreements (CBAs).
Collective bargaining agreements regulate not only workers' wages but also a wide range of rights and obligations, from working hours and benefits to termination procedures and social assistance. Therefore, from an investor's perspective, the content of an existing or ongoing collective bargaining agreement directly impacts future fixed costs, legal risks, and industrial peace.
This article will detail how collective bargaining agreements should be analyzed from an investor's perspective, the legal implications of union obligations, implementation risks (with a case study), and preventative measures.
1. What is a Collective Bargaining Agreement? Basic Legal Framework
According to Law No. 6356 on Trade Unions and Collective Bargaining Agreements:
A collective bargaining agreement is between an authorized trade union and the employer or employers' association, covering the workers employed at the workplace:
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Fee,
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Social rights,
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Working conditions,
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Disciplinary order,
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It is a private law contract containing regulatory provisions regarding matters such as termination terms
From an investor's perspective, a collective bargaining agreement (CBA) is:
"A set of binding obligations that will inevitably have to be fulfilled in the future."
2. Why is a Collective Bargaining Agreement Review Necessary in the Due Diligence Process?
A company's personnel expenses and organizational structure are largely shaped by collective bargaining agreements. Therefore:
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Ongoing or near-term collective bargaining agreements
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Current social rights obligations
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Arrangements such as bonuses, premiums, fuel allowances, holiday assistance, marriage assistance, etc
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Job security provisions and union protection
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History of collective labor disputes such as strike bans or strike threats
This reveals hidden costs and sustainability risks for the investor.
3. Risky Aspects of the Collective Bargaining Agreement from an Investor's Perspective
a. Financial Obligations
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If salary increases are determined automatically, it can create a burden on top of inflation.
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Practices such as paying workers a bonus equivalent to four months' salary annually increase fixed costs.
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Certain social welfare programs (e.g., fuel subsidies, education grants) can complicate a company's financial planning.
b. Obstacles to Termination
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It is more difficult to terminate the employment of workers who are covered by "union protection" through a collective bargaining agreement.
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Arbitrary dismissals can result in significant compensation costs.
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The collective bargaining agreement may introduce specific procedures for disciplinary actions (preliminary defense, union notification, minutes, etc.).
c. Risk of Renegotiation
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When the current collective bargaining agreement expires, negotiations for a new agreement can turn into a collective labor dispute.
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These actions can disrupt industrial peace, such as work slowdowns or threats of strikes.
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If an employer's investment strategy changes (for example, towards digitalization or outsourcing), they may face union resistance.
4. Case Study: L Metal Inc. and Pre-Acquisition Collective Bargaining Agreement Review
Situation:
A foreign-owned investment fund is interested in acquiring L Metal A.Ş. The company has 450 employees, 370 of whom are members of the Turkish Metal Workers' Union (Türk Metal Sendikası), and a collective bargaining agreement covering the period 2023-2025 is in effect.
According to the collective bargaining agreement:
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All workers will receive a bonus equivalent to four months' salary per year
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Fuel assistance: 5,000 TL net annually
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Educational assistance for each child: 3,000 TL annually
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Special protections for the union representative in the reinstatement process
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Salary increases: CPI + 5 points
Analysis:
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Labor costs are trending upwards of 20% in real terms.
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Bonuses increase payroll expenses by 33%.
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The plan to reduce staff after the investment is not being implemented due to union obstacles.
Conclusion:
Anticipating that these obligations would continue for another 3 years, the investor revised the purchase offer by discounting the valuation by $2.7 million.
5. Collective Bargaining Agreement Duration, Validity and Amendment Possibilities
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Collective bargaining agreements can be concluded for a maximum period of 3 years (6356/34).
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The terms of expired collective bargaining agreements will continue to be applied until a new collective bargaining agreement is reached.
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The employer does not have the right to unilaterally terminate the collective bargaining agreement.
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If the company changes hands, the collective bargaining agreement binds the new employer. (business transfer rule)
Therefore, an investor cannot think, "we will define these rights from scratch when we take over." A collective bargaining agreement is like a chain of commitments attached to the company.
6. Questions to Ask Regarding Collective Bargaining Agreements for Investors
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Does the company have a collective bargaining agreement in effect?
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With which union was the contract signed, and for how many years?
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What is the contract's expiration date and the schedule for subsequent negotiations?
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Are the terms of the collective bargaining agreement binding on the employer, or are there any exceptions?
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What is the annual amount of bonuses, social benefits, and fringe benefits?
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Are there any specific provisions regarding job security?
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What is the number and level of authority of union representatives?
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Have there been any strikes or collective disputes in the past?
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Are the terms of the collective bargaining agreement consistent with the company's growth strategy?
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As the new employer, do we have the option to amend the collective bargaining agreement?
7. Recommendations for Collective Bargaining Agreement Reporting
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The full text of the collective bargaining agreement should be analyzed, and a table should be created based on each clause.
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The monetary equivalent of annual rights and obligations should be calculated.
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The negotiation process and union relations should be summarized in writing.
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Past disputes and court records with the union should be examined.
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The union affiliation of personnel in critical positions should be analyzed.
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The company's growth and transformation plans should be compared with the alignment of the collective bargaining agreement.
8. Conclusion: Is Collective Bargaining Agreement (CBA) a Risk Indicator in the Eyes of Investors?
Collective bargaining agreements, while guaranteeing job security and social peace, also represent cost and flexibility limits for investors. Therefore, investment decisions in a company with a collective bargaining agreement should be made considering not only financial but also organizational and legal obligations.
Valuation studies conducted without a detailed analysis of the collective bargaining agreement content during the due diligence process may lead to significant investment losses, cash flow disruptions, or labor conflicts in the future.
Gamze Akbulut, Law Faculty Student
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