What happens to employees when a company is sold or taken over? Labor and social insurance to check in business succession and M&A

In short: Whether employees' labor contracts and social insurance/employment insurance are affected when a company is sold or taken over depends on the type of M&A transaction. In a share transfer, the company (the legal entity) does not change, so labor contracts and the coverage relationship for insurance in principle remain as they are. In a business transfer, transferring labor contracts to the transferee requires the individual consent of each employee. In a company split, the process follows procedures such as notification and objection under the Act on Succession to Labor Contracts upon Company Split. In a merger, labor contracts and working conditions are in principle succeeded comprehensively. Common to both the seller and the buyer is the "labor review (labor due diligence)": taking stock of employment contracts, work rules, Article 36 agreements, attendance, unpaid overtime, annual paid leave, social insurance, employment insurance, labor insurance, payroll, retirement benefits, and labor-management agreements before the transaction.

When considering M&A, attention tends to focus on "how much can we sell for," "tax," and "shares." At the same time, the succession of employees' labor contracts, work rules, Article 36 agreements, and social insurance/employment insurance is also a point that needs to be sorted out depending on the transaction type. First, it is essential to understand the differences between the types.

Why do labor and social insurance matter in business succession and M&A?

There are several types of M&A transactions, and the type determines what is succeeded, how employees are treated, and what notifications are required. From the perspective of a labor and social security attorney (Shakai Hoken Roumushi), three points tend to arise:

• Whether and how labor contracts are succeeded
• The succession of labor management such as work rules, Article 36 agreements, and annual paid leave
• Notifications accompanying a change of employer for social insurance, employment insurance, and labor insurance

This article first explains the differences by transaction type, then summarizes what should be reviewed before selling or buying.

How do the types differ? Share transfer, business transfer, company split, and merger

The main types of M&A can be summarized by labor contract, individual consent, treatment of the legal entity, and main labor-related points.

Type	Labor contract	Individual consent, etc.	Legal entity	Main labor-related points
Share transfer	Continues as is	Not required	The company (employer) is the same	Coverage in principle remains because the employer does not change; the focus is on grasping labor risks
Business transfer	Individually succeeded (specific succession)	Individual consent of each worker is required	Transferor and transferee are separate companies	Workers who do not consent remain with the transferor; the substantive validity of consent is questioned
Company split	Succeeded under the Act on Succession to Labor Contracts depending on main engagement, provisions of the split agreement, and objections	Notification, objection, and other procedures	Split company and successor company	Treatment differs depending on whether a worker is mainly engaged
Merger	Comprehensive succession	Not required	Disappearing company and surviving (or newly established) company	Working conditions in principle remain as they are

We look at each type in turn below.

What happens to employees and social insurance in a share transfer?

A share transfer is a method in which the shares of a company (the legal entity) are transferred from the seller to the buyer, rather than the company itself changing. The legal entity remains the same, and the company that is the employer also does not change.

Accordingly, the labor contracts between employees and the company continue as they are, and the coverage relationship for social insurance, employment insurance, and labor insurance in principle remains in place. No individual consent is required for the succession of labor contracts.

However, because the effective controller of the company changes, the buyer may check in advance whether the target company has any labor risks such as unpaid overtime, unenrolled social insurance, a missing or expired Article 36 agreement, or deficient work rules. A share transfer does not mean labor matters need not be checked.

What is required to succeed labor contracts in a business transfer?

A business transfer is a method in which part or all of a company's business is transferred from the transferor to the transferee by individually identifying assets, contracts, and so on. The succession of rights and obligations is specific succession, and labor contracts do not transfer automatically like "objects."

To have labor contracts succeed to the transferee, the consent of the transferor and transferee, plus the individual consent of each worker, is required. Only the labor contracts of workers who consent succeed to the transferee; workers who do not consent remain with the transferor.

The Ministry of Health, Labour and Welfare's "Guidelines on Matters to Be Noted by Companies When Carrying Out a Business Transfer or Merger" (the Business Transfer Guidelines) set out, from the perspective of ensuring the substantive validity of consent, such points as sufficiently explaining and consulting on the circumstances of the business transfer, the outline of the transferee, and new working conditions so that each worker can consent genuinely, and engaging in labor-management communication with a labor union representing a majority of workers.

In other words, in a business transfer, rather than a "formal consent," it is considered appropriate to obtain a genuine consent through sufficient explanation and consultation with workers. For individual handling, confirm the Business Transfer Guidelines, primary sources, and advice from specialists.

What changed in the business transfer guidelines in May 2026?

From May 25, 2026, a revision of the Business Transfer Guidelines (MHLW Notification No. 11 of Reiwa 8) applies. This is not a statutory amendment but a revision of the guidelines.

The point of the revision, in light of the creation of the enterprise value security interest and other matters, is to ensure the substantive validity of workers' consent and encourage labor-management communication regarding the succession of labor contracts in business transfers. Points such as explanation and consultation on the circumstances of the business transfer, the outline of the transferee, and new working conditions, as well as labor-management communication with a majority labor union, are set out.

Note that a statutory procedure of "notification and objection," like that for company splits, has not been newly established for business transfers. The succession of labor contracts in a business transfer remains based on the individual consent of each worker.

How does the Act on Succession to Labor Contracts work in a company split?

A company split is a method of having another company succeed to a company's business, and includes absorption-type splits and incorporation-type splits. For labor contracts in a company split, the Act on Succession to Labor Contracts upon Company Split sets out special rules.

The key points are "whether a worker is mainly engaged" and "the notification and objection procedures."

• Notification (Article 2): The split company must notify workers and labor unions of whether the split agreement contains provisions for the succession of labor contracts.
• Succession (Article 3): The labor contracts of workers who are mainly engaged in the business to be succeeded are succeeded to the successor company on the effective date of the company split, if the split agreement contains provisions to succeed them. Workers mainly engaged in a business that is not succeeded in principle remain with the split company.
• Objection (Articles 4 and 5): The direction of the objection differs depending on which worker it concerns.
  • When a worker who is mainly engaged is designated as "not succeeded" (Article 4): The worker may object that "the labor contract will not be succeeded" and seek succession.
  • When a worker who is mainly engaged in a business that is not succeeded is designated as "succeeded" (Article 5): The worker may object that "the labor contract will be succeeded" and choose to remain with the split company.
  • An objection period is set, and a period of at least 13 days must be placed after the notification date.

In other words, a company split does not mean "all workers mainly engaged are automatically succeeded." Whether a labor contract is succeeded or not is determined by (1) which business the worker is mainly engaged in, (2) whether the split agreement contains provisions for succession, and (3) whether the worker files an objection. For individual handling, confirm the contents of the split agreement and primary sources.

What happens to labor contracts and working conditions in a merger?

In both absorption-type and consolidation-type mergers, a merger is a method in which the rights and obligations of the disappearing company are comprehensively succeeded to the surviving or newly established company (Companies Act).

Labor contracts are also succeeded from the disappearing company to the surviving or newly established company through comprehensive succession. The Business Transfer Guidelines provide that, in a merger, the working conditions that are the content of labor contracts are also maintained as they are. No individual consent is required, and labor contracts and working conditions are in principle succeeded as a whole.

However, after a merger, further maintenance may still be necessary in actual labor management, such as unifying work rules and integrating payroll systems.

What notifications are required for social insurance and employment insurance, by transaction type?

When the employer or the workplace changes, notifications for social insurance (health insurance and employees' pension insurance) and employment insurance/labor insurance may be required. The notifications required differ depending not only on the transaction type but also on whether the company survives or disappears, whether the workplace survives or is newly established, and the form of succession.

• Share transfer: Because the company (employer) is the same, in principle there is no change in the coverage relationship.
• Business transfer, company split, merger: Depending on whether a company or workplace is newly established, disappears, or changes, the required notifications differ — such as new enrollment, total loss of an insured workplace, or a change in workplace relationship. In addition, when the company or insured workplace changes, the loss or acquisition of insured status may be necessary.

Because the specific types and deadlines of notifications vary by transaction type and form, be sure to confirm individually with primary sources from the Japan Pension Service and Hello Work. Note that changes of name, location, employer, etc. have deadlines such as in principle within 5 days for health insurance and employees' pension insurance, and within 10 days from the day following the change for employment insurance (these are only examples of change notifications).

For procedures when closing a company, see social insurance and labor insurance procedures and deadlines when closing a company. For procedures when establishing a company, see company establishment and enrollment procedures for social insurance and employment insurance.

How are work rules, Article 36 agreements, and annual paid leave succeeded?

Not only labor contracts but also the rules, agreements, and records that are the premise of labor management must be checked depending on the transaction type.

• Work rules: When the employer changes in a business transfer, company split, merger, etc., organize what to do with work rules under the new employer (continue the existing ones, or newly create or change them). Work rules must be created and notified at workplaces that continuously employ 10 or more workers. For details, see from how many employees are work rules mandatory.
• Article 36 agreements: Agreements on overtime and holiday work are concluded and notified for each workplace. Confirm whether a new agreement must be concluded and notified under the new employer following a change of employer or succession of business. For the mechanism of Article 36 agreements, see overtime limits are determined by Article 36 agreements.
• Annual paid leave: Handling differs by transaction type.
  • Company split: The working conditions of the succeeded labor contract are maintained, and the number of days of annual paid leave and years of service for retirement benefits, etc., are carried over from the split company (MHLW materials).
  • Merger: Through comprehensive succession, working conditions, annual paid leave, and years of service are in principle carried over in the same way.
  • Business transfer: Because this is specific succession through individual consent, it is not handled uniformly on the premise of comprehensive succession as in a company split or merger; the succession details of the labor contract and the treatment of continuous service must be confirmed individually.
  • For annual paid leave, see why the annual 5 days of paid leave cannot be taken.

What is the "labor review (labor due diligence)" to check before selling or buying?

In M&A, alongside financial, tax, and legal due diligence, "labor due diligence (labor DD)" to confirm the actual state of labor matters is important. This is not just for the buyer. The seller should also review its own labor matters before selling, rather than suddenly organizing documents after deciding to sell, so as to grasp unorganized labor risks early and reduce problems after the transaction or succession.

At minimum, we recommend reviewing the following items.

• Employment contracts: Consistency with the notification of working conditions, and handling of contract term and renewal
• Work rules: Whether created and notified, and divergence from actual operation
• Article 36 agreements: Whether concluded and notified, and the scope of limit hours
• Attendance: Accuracy of records of working hours, days off, and breaks
• Unpaid overtime, etc.: The actual state of overtime work and payment of premium wages
• Annual paid leave: Management of granting, taking, and prescription
• Social insurance: Enrollment, notification, and calculation for health insurance and employees' pension insurance
• Employment insurance: Enrollment, notification, and separation certificates, etc.
• Labor insurance: Enrollment and annual updates for workers' accident compensation insurance
• Payroll: Accuracy of calculation, payment, and deductions
• Retirement benefits: Existence of retirement benefit rules and provision status
• Labor-management agreements: Existence of labor-management agreements other than Article 36 agreements (such as variable working hours systems)

This does not assert a causal relationship such as "organizing labor matters raises the sale price," but grasping unorganized labor risks early is a confirmation task that is a premise of negotiation and stability after succession.

Ultimately, what should the seller and the buyer each confirm?

Finally, organize the confirmation items by position.

Seller:

1. Confirm the type of transaction (share transfer, business transfer, company split, merger)
2. Review labor contracts, work rules, Article 36 agreements, attendance, and insurance
3. In a business transfer, confirm the procedure of explanation and consent to each worker
4. Confirm the necessity and deadline of social insurance and employment insurance notifications (total loss, discontinuation, etc.)

Buyer:

1. Confirm the approach to succession of labor contracts by transaction type
2. Grasp unpaid overtime, unenrolled insurance, and deficient agreements through labor due diligence
3. Make a plan for maintaining work rules, Article 36 agreements, payroll, and attendance after succession
4. Confirm coverage and notifications for social insurance and employment insurance (new enrollment, changes, etc.)

What can 四葉社会保険労務士事務所 organize?

Knowing M&A news and "the differences between types" is a different job from actually reviewing your own employees, rules, attendance, and insurance. 四葉社会保険労務士事務所 values, rather than the legal judgment or brokerage of the transaction type itself, organizing "what should be confirmed and notified regarding labor and social insurance in this company." We organize the review of labor contracts, work rules, Article 36 agreements, attendance, unpaid overtime, annual paid leave, social insurance, employment insurance, labor insurance, payroll, retirement benefits, and labor-management agreements, and the notifications and maintenance after succession, in light of each company's circumstances.

Note that multiple professionals are involved in business succession and M&A. To avoid mixing up their domains, they can be organized as follows.

• Shakai Hoken Roumushi (labor and social security attorney): Procedures for labor, social insurance, employment insurance, etc., maintenance of work rules and Article 36 agreements, and labor review
• Attorney (Bengoshi): Legal judgment on contracts such as business transfer agreements, company splits, and mergers, negotiation, and dispute handling
• Judicial scrivener (Shiho Shoshi): Commercial registration
• Certified public tax accountant (Zeirishi): Tax matters such as share valuation and business succession tax systems
• M&A intermediary: Matching between sellers and buyers

四葉社会保険労務士事務所 provides guidance on the division of roles with attorneys, judicial scriveners, certified public tax accountants, and M&A intermediaries as necessary, centered on the labor and social insurance domains. The first consultation (up to 60 minutes) is free. For fees, see the fee schedule.

Frequently asked questions

Q. How do employees differ between a share transfer and a business transfer?
A. In a share transfer, the company (employer) does not change, so labor contracts and the coverage relationship for social insurance and employment insurance in principle continue as they are. In a business transfer, because it is specific succession, the individual consent of each worker is required to have a labor contract succeed to the transferee, and workers who do not consent remain with the transferor.

Q. In a business transfer, do employees necessarily move to the transferee?
A. No. Succession of a labor contract requires the individual consent of each worker. Only workers who consent succeed to the transferee, and workers who do not consent remain with the transferor. The Business Transfer Guidelines set out explanation and consultation on the circumstances of the business transfer, the outline of the transferee, and new working conditions as points to note in order to obtain a genuine consent.

Q. What is the minimum to check regarding labor before M&A?
A. The basics are to review employment contracts, work rules, Article 36 agreements, attendance, unpaid overtime, annual paid leave, social insurance, employment insurance, labor insurance, payroll, retirement benefits, and labor-management agreements, and to grasp unorganized labor risks early.

Q. When and where are social insurance and employment insurance procedures notified?
A. The required notifications and deadlines differ depending not only on the transaction type but also on whether the company or workplace survives or is newly established or disappears. Confirm individually with primary sources from the Japan Pension Service and Hello Work.

Sources

• Act on Succession to Labor Contracts upon Company Split (Act No. 103 of 2000). Provides for notification, succession, and objection regarding the succession of labor contracts in company splits
• Articles 2 (notification), 3 (succession of labor contracts of workers mainly engaged in the business to be succeeded), and 4 and 5 (objection) of the Act on Succession to Labor Contracts upon Company Split. The objection period is at least 13 days after the notification date
• Ministry of Health, Labour and Welfare "Guidelines on Matters to Be Noted by Companies When Carrying Out a Business Transfer or Merger" (Business Transfer Guidelines, MHLW Notification No. 318 of 2016). Revision applicable from May 25, 2026 (MHLW Notification No. 11 of Reiwa 8)
• Business Transfer Guidelines: A business transfer is specific succession and requires the individual consent of each worker. Explanation and consultation for genuine consent, and labor-management communication with a majority labor union. In a merger, working conditions are also maintained as they are
• MHLW materials on the Act on Succession to Labor Contracts upon Company Split: The working conditions of the succeeded labor contract are maintained, and years of service for annual paid leave, retirement benefits, etc., are carried over from the split company
• Companies Act (systems for mergers, company splits, business transfers, and share transfers; a merger is comprehensive succession)
• Health Insurance Act and Employees' Pension Insurance Act (notifications for insured workplaces; change of employer in principle within 5 days)
• Employment Insurance Act (notifications for insured workplaces; change of employer/workplace within 10 days from the day following the change)
• Japan Pension Service "various change notifications for insured workplaces" (new enrollment notification, workplace relationship change (correction) notification, notification of total loss of insured workplace)
• Hello Work "Employment Insurance Employer/Workplace Various Change Notification" and "Employment Insurance Insured Workplace Discontinuation Notification"

This article does not decide whom you should consult. Procedures for labor, social insurance, employment insurance, etc., maintenance of work rules and Article 36 agreements, and labor review are the work of a Shakai Hoken Roumushi. Legal judgment on contracts such as business transfer agreements, company splits, and mergers, negotiation, and dispute handling are the domain of attorneys; commercial registration is the domain of judicial scriveners; tax matters such as share valuation and business succession tax systems are the domain of certified public tax accountants; and matching between sellers and buyers is the domain of M&A intermediaries. For fees when consulting 四葉社会保険労務士事務所, see the fee schedule; for frequently asked questions, see the FAQ.

This article is general information. Whether the system applies and the necessity of your own procedures or individual judgments are determined by a qualified professional after a consultation, in light of the latest primary sources (Ministry of Health, Labour and Welfare, Japan Pension Service, Hello Work, e-Gov, etc.) and individual circumstances. Written by Joji Uramatsu (Shakai Hoken Roumushi, Gyoseishoshi, Registered Real Estate Transaction Specialist).