HR Due Diligence: How a Buyer Examines Employee Matters

Note: This article describes Danish employment law specifically.

Our general article on due diligence when selling a business covers the broad process. But employee matters deserve their own, deeper walkthrough — because as a buyer, you generally take over all obligations toward the employees who come with the deal, regardless of whether the seller disclosed them or not.

Why is the HR part of due diligence particularly important?

Unlike many other matters you investigate during due diligence, you can't simply opt out of employee obligations. If there are obligations you didn't discover before the takeover — a verbal pay raise, an informal severance agreement, a collective agreement no one mentioned — you're still liable for them as the new owner, because you step directly into the employment relationships.

What should a thorough HR due diligence cover?

• Full employee list: With seniority, employment type, salary and other compensation for each employee.
• Employee benefits: Company car, phone, computer, newspaper and other benefits that come with individual employment contracts.
• Severance terms: Any agreements on severance pay or special notice periods beyond the statutory minimum.
• Collective agreements and local agreements: Is the business covered by a collective bargaining agreement, and are there local supplementary agreements deviating from the standard?
• Individual employment contracts deviating from the norm: Special agreements with individual employees not reflected in a standard contract.
• Pending personnel cases: Ongoing disputes, complaints or illness cases that could develop into claims after the takeover.
• Pension obligations: Are there special pension schemes or commitments beyond the standard arrangement?

Collective agreements require special attention

If the business is covered by a collective bargaining agreement, it's crucial to identify this early — there's a specific deadline for when you, as the new owner, can opt out of the agreement if you don't want to continue it. See the full walkthrough in our article on collective agreements in a business transfer (currently in Danish).

What if the seller hasn't disclosed everything?

As the new owner, you're liable for employee obligations even if the seller hasn't fully disclosed them — which makes it extra important to ask thoroughly yourself, instead of relying only on what the seller voluntarily presents. If there's a discrepancy between what was disclosed and what you later discover, it should be handled directly through the warranties and liability limitation in the transfer agreement — not left to a subsequent dispute.

Why is this particularly important in larger deals?

The more employees, the greater the likelihood of individual special agreements, historical commitments and informal arrangements not reflected in a standard contract. For a larger business with many employees, it's therefore rarely enough to spot-check a couple of standard contracts — a systematic review of the entire workforce is typically necessary.

Frequently asked questions

Do I automatically take over informal agreements the seller made with employees?

Yes, generally you take over all rights and obligations the employee had at the time of transfer — including informal or verbal agreements, if they can be documented.

What if I discover a collective agreement I didn't know existed, after the takeover?

You have a deadline to opt out of it, but the deadline is counted from when you should have known about the agreement — not necessarily from the takeover date itself. Get it clarified as quickly as possible.

Can I claim compensation from the seller if undisclosed employee obligations surface?

It depends on what's agreed in the warranties of the transfer agreement. If a warranty was given that all matters were disclosed, and it turns out not to hold, it can trigger a damages claim — but that requires the warranty to be correctly drafted from the start.

Facing a thorough review of a business's employee matters? Read the full walkthrough of due diligence when selling a business, or book a no-obligation call.