When it comes to corporate mergers and acquisitions (M&A), most people tend to think of shareholder resolutions, tax structures, or regulatory reviews. However, in practice, the handling of labor rights is often the most overlooked yet most dispute-prone aspect. Articles 15 to 17 of the Business Mergers and Acquisitions Act already provide clear rules regarding pensions, retention procedures, and severance obligations. The legislative purpose is to prevent companies from using “organizational restructuring” as a way to dilute or evade their obligations to employees. In reality, some companies believed they were only rearranging equity and assets, but because of a lack of transparency in handling pension accounts or incomplete retention notices, they faced protests from employees. These examples remind us: M&A is not just about boards and shareholders—poor handling of labor rights can directly derail the integration process.

Article 15 of the M&A Act: Pension Funds and Severance Settlement

“When a company merges, the labor pension reserve contributed by the dissolved company shall be used first to pay pensions to employees not retained or refusing retention, and then to pay severance. Any remaining balance must be fully transferred to the labor pension reserve account of the surviving or newly established company.
When a company acquires assets or undergoes a split transferring all or part of its business, the contributed labor pension reserve shall also first be used to pay pensions and severance for employees not retained or refusing retention. The remaining amount must then be transferred to the transferee company's pension account in proportion to the length of service of employees under the Labor Standards Act system.
Before such transfer, the reserve must meet the required statutory threshold for suspending contributions. If all employees under the Labor Standards Act pension system are transferred, then the remaining balance must be fully moved to the transferee company's account.”

In short, when a merger or split occurs, the originally contributed pension funds must first settle the retirement and severance obligations for employees who are not retained. Only the remainder may be transferred to the new or surviving company.
Put simply, the pension fund is legally protected and will not vanish just because of a name change or restructuring. For employees, this is a final safeguard; for companies, it is a reminder that pensions are not a pot of money to reshuffle during M&A.

Article 16 of the M&A Act: Retention Procedures and Seniority

“The surviving, new, or transferee company shall notify retained employees in writing of the agreed labor conditions at least 30 days before the reference date of the merger. Employees must respond in writing within 10 days; failure to respond shall be deemed consent.
The length of service accrued before the merger must be recognized by the new employer.”

This means the new company must notify employees 30 days before the merger date, and employees have 10 days to reply. Silence equals consent. Most importantly, the new employer must fully recognize prior seniority.
This prevents companies from resetting employees' years of service through restructuring, protecting pensions, severance pay, and annual leave rights. For HR departments, this is one of the most critical messages to communicate clearly during M&A.

Article 17 of the M&A Act: Severance and Compensation for Non-Retained Employees

“Employees not retained or refusing retention during an M&A shall have their contracts terminated by the pre-merger employer, who must give statutory advance notice or pay wages in lieu of notice, as well as pay pensions or severance according to law.
‘Refusal of retention’ includes situations where employees initially consent but later withdraw before the merger date for personal reasons.”

Thus, employees not retained or choosing not to be retained must have their contracts legally terminated by the pre-merger employer, including notice or payment in lieu, plus pensions or severance. The rule clearly allocates responsibilities: the old employer handles the exit process, while the new company focuses on integration.

M&A is a full-scale battle, not only on financial reports or regulatory approvals but also on whether employee morale can be stabilized and labor-management trust preserved. Articles 15 to 17 of the Business Mergers and Acquisitions Act provide a clear framework, but the true challenge lies in whether companies will proactively communicate and disclose transparently, so employees trust that their rights will not be sacrificed.

For companies, properly handling labor relations is not only about legal compliance—it is also the key to increasing M&A success rates and strengthening brand trust.

Reference：Business Mergers and Acquisitions Act

>Consult Now