Employee buyout

An employee buyout, also known as a worker buyout or a worker takeover, refers to a restructuring process in which employees buy a majority or total ownership stake in their own company and, in effect, become the owners. These buyouts generally serve to avoid the loss of jobs arising from financial distress.

Depending on the national legal framework, employees involved in an employee buyout may first need to form a new entity in order to meet the legal requirements for buying all or part of the original business. In simpler employee buyouts, the new entity can be a transitory employee association (generally seeking new investors) or employees can form a new legal entity, usually a workers’ cooperative. Rather than face the uncertainty of unemployment, workers in many EU countries opted for this strategy to bolster their company’s economic activity during the financial crisis of 2007–2008. Evidence also shows that high union membership tends to facilitate such processes.

Directive 2004/25/EC regulates takeover bids, but does not lay down details regarding situations in which the offeror is comprised of the offeree company employees. More recently, the proposal for a framework directive on insolvency (COM (2016) 723 final) seeks to enhance the right of workers to be consulted and vote on plans in restructuring processes, but does not directly address employee buyout in cases of restructuring and insolvency plans.

• EUR-Lex: Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids , 21 April 2004
• EUR-Lex: Proposal for a Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU , 22 November 2016

The European Trade Union Confederation (ETUC), while not viewing employee buyout strategies as a solution for insolvency situations, had asked the legislators to ensure that workers would be the preferential creditors in the restructuring and insolvency procedure. BusinessEurope, on the other hand, wished to promote the idea of a second chance – as opposed to an employee buyout – for cases in which an enterprise’s failure was not due to fraudulent or grossly negligent behaviour.

See also: insolvency ; restructuring ; takeover of companies.