Employee Matters Agreement Template

In plain language: Identifies the employer entities on each side of the transaction, references the parent agreement (e.g., separation agreement or purchase agreement), and states the purpose of the Employee Matters Agreement.

Common mistake: Failing to cross-reference the governing transaction document precisely. If the parent agreement is amended, an undefined reference creates ambiguity about which version controls employee obligations.

In plain language: Defines which employees transfer to the new entity, which remain with the original employer, and the date on which employment formally moves — typically the closing date.

Common mistake: Using job titles instead of named individuals on Schedule A. Roles change between signing and closing, and a title-only list creates disputes about who actually transferred.

In plain language: States Transferee's obligation to offer employment to each Transferred Employee, the terms of the offer (at-will or otherwise), and the consequences if an employee declines.

Common mistake: Omitting what happens when an employee declines the offer. Without this clause, a declination can trigger severance obligations from the Transferor that neither party anticipated.

In plain language: Requires Transferee to maintain each Transferred Employee's base salary, bonus targets, and commission structures for a defined period after closing.

Common mistake: Limiting compensation continuity to base salary only. Transferred employees whose variable compensation is reduced post-closing may have constructive dismissal claims, particularly in Canada and the UK.

In plain language: Allocates responsibility for health, dental, vision, retirement, and other employee benefit plans — including which plans are assumed, which are replaced, and how coverage gaps are bridged at closing.

Common mistake: No provision for bridging coverage between the old plan's termination and the new plan's effective date. Even a one-day gap in health coverage can trigger HIPAA and ACA liability.

In plain language: Specifies how unvested stock options, restricted stock units, and other equity grants are handled at closing — whether they are accelerated, assumed by Transferee, substituted, or cashed out.

Common mistake: Failing to address equity awards at all and leaving them to the parent equity plan documents. Plan documents rarely contemplate spin-offs cleanly, creating conflicting obligations between plan administrator, Transferor, and Transferee.

In plain language: Allocates financial responsibility for severance payments, notice obligations, and related costs between Transferor and Transferee based on when a termination occurs relative to the closing date.

Common mistake: No carve-out for WARN Act liability triggered by a combination of pre-closing Transferor layoffs and post-closing Transferee workforce reductions. Courts aggregate headcount across both periods, which can impose WARN liability on either party unexpectedly.

In plain language: Restricts each party from recruiting or hiring the other's employees for a defined period after closing, protecting workforce stability on both sides of the transaction.

Common mistake: Setting the non-solicitation period shorter than the integration period. If key employees are poached before integration is complete, the operational damage can exceed the transaction value captured.

In plain language: Assigns responsibility for employment law compliance obligations triggered by the transaction, including WARN Act notices, COBRA administration, and applicable local equivalents.

Common mistake: Assigning WARN responsibility to one party in isolation without a headcount-aggregation mechanism. The 50-employee threshold under the federal WARN Act looks at total affected headcount across a 90-day window, not just each party's own actions.

In plain language: Each party agrees to indemnify the other for employment-related claims and liabilities that arise from actions or omissions during its period of responsibility — before or after the closing date.

Common mistake: No cap or basket on indemnification exposure in the Employee Matters Agreement when the parent agreement has one. Plaintiffs' counsel targets the subsidiary document if it contains broader indemnification language.

An Employee Matters Agreement is a binding contract used in corporate transactions — mergers, acquisitions, spin-offs, and divestitures — to govern how employees are transferred, which party is responsible for compensation and benefits, how equity awards are treated, and how employment-related liabilities are allocated between the parties. It typically operates as a companion document to the main purchase or separation agreement and controls all workforce-related obligations at and after closing.

An Employee Matters Agreement is typically required whenever a corporate transaction results in employees moving from one legal entity to another. This includes spin-offs, carve-outs, asset sales involving an identified workforce, and full mergers where the surviving entity assumes employment obligations. Without one, the parties have no written agreement on severance liability, benefits continuation, or equity treatment — gaps that routinely generate post-closing disputes and litigation.

A standard employment contract governs the relationship between a single employer and a single employee. An Employee Matters Agreement is a business-to-business contract between two corporate entities — Transferor and Transferee — that governs how an entire workforce is handled in the context of a corporate transaction. It does not replace individual employment contracts; it sits above them and allocates obligations between the entities.

Under a standard Employee Matters Agreement, Transferee assumes responsibility for all severance and termination obligations arising on or after the closing date. Transferor remains responsible for any obligations that accrued before closing, including any terminations initiated pre-closing. The agreement should include specific language addressing the WARN Act aggregation issue, where pre-closing and post-closing headcount reductions by both parties are counted together toward the 50-employee threshold.

Unvested equity awards — stock options, RSUs, performance shares — held by transferred employees at the time of closing can be handled in one of three ways: assumed by Transferee and converted into equivalent awards of Transferee equity, accelerated and settled in cash at the transaction price, or substituted under a new equity plan established by Transferee. The chosen treatment must be documented in the Employee Matters Agreement and confirmed to be consistent with the terms of the original equity plan documents.

Yes. The Employee Matters Agreement should explicitly assign responsibility for WARN Act compliance — and its international equivalents — between the parties. Under the US federal WARN Act, employers with 100 or more employees must provide 60 days' advance written notice before mass layoffs or plant closings affecting 50 or more workers. The agreement must address how pre-closing and post-closing workforce reductions by each party are aggregated for threshold purposes, since courts look at the combined impact across a 90-day window.

An Employee Matters Agreement can technically stand alone, but it is almost always executed as a companion to a separation agreement, purchase agreement, or merger agreement. When it references a parent document, the indemnification caps, governing law, dispute resolution, and closing conditions in that parent document typically control. An Employee Matters Agreement executed without a parent document should include its own complete governing law, dispute resolution, and limitation-of-liability provisions.

If the Employee Matters Agreement includes a standard declination clause, an employee who refuses a substantially equivalent offer of employment from Transferee is treated as having voluntarily resigned from Transferor, with no severance entitlement. Without this clause, a refused offer can be characterized as a constructive dismissal or involuntary termination, triggering Transferor's severance obligations unexpectedly. The offer must be genuinely equivalent in compensation and location for the clause to hold.

For any transaction involving more than a handful of employees or material equity awards, engaging employment and M&A counsel is strongly recommended. Employee Matters Agreements intersect with federal and state employment law, ERISA benefit plan rules, equity plan documents, WARN Act obligations, and transaction-level indemnification structures — getting any one of these wrong can generate liability that exceeds the value captured in the deal. A template provides a solid structural foundation, but legal review is essential before execution.