Can I name my employees in the data room?

Employee due diligence is often a critical component of any M&A process. Such due diligence can be invaluable for several reasons:

• it helps a buyer in assessing the current employee entitlements and terms and how to address these in the deal mechanics;
• it provides insight into the management structure, helping to identify key players; and
• it contributes to the ongoing planning and strategy for the business.

As discussed in our article last week there are certain exemptions under the Privacy Act 1988 (Cth) for employers when they are handling employee data. So the question is, can employers make use of this exemption when disclosing information about employees to a potential buyer during due diligence?  

OAIC Guidance

Recent decisions by the Office of the Australian Information Commissioner (OAIC) and the Fair Work Commission show that the employee records exemption will be interpreted very narrowly. In order to rely on this exemption, employers must show that there is a close connection to the employment relationship. In one case, an employer provided employees’ details to a union and paid those employees’ union membership fees without their consent. The OAIC found that this disclosure had insufficient connection with the employment relationship and that the employee exemption did not apply.  

Takeaways

Given this trend of narrow interpretation and the lack of specific guidance from the OAIC around employee information in the context of due diligence, it would be prudent for a buyer to de-identify employee information before uploading it to a data room. In most acquisitions, the identity of the specific individual employees is not particularly relevant – the focus being more on information such as the accrued entitlements, key terms of the standard employment agreement, the total number of employees and the locations they are based (for multi-site vendors). Usually, key personnel are aware and involved in the negotiation of the deal itself making it a relatively straightforward task to seek consent before disclosing their details in the data room. 

The position in relation to the employee records exemption also reinforces the importance of setting up appropriate confidentiality parameters with potential buyers by way of a non-disclosure agreement. In this way, if employee data is inadvertently disclosed, the non-disclosure agreement will operate to limit the exposure for the employer. 

At Walter Baden we regularly support our clients with all aspects of the due diligence process, from non-disclosure agreements and due diligence questionnaires to final vendor or buyer reports. If you are looking at setting up a data room and have questions about how to approach employee information, please reach out to one of our M&A specialists.