What happens to my employees if I sell my business?

You may wonder what will happen to your employees when you sell, especially if you feel responsible for their financial wellbeing after years of job security.

We asked Eckermann Lawyers for their advice on managing your employees entitlements during the business sales process:

Do I have to tell my employees that I am planning to sell or have sold the business?

EL: There is no legal requirement to let employees know about the sale of the business prior to signing the contract of sale. However, once the business is under contract there will be practical requirements which will mean that the employees will be made aware of the sale, including due to the notice provisions which will apply to the vendor terminating employees or due to offers of employment/interviews being undertaken by the purchaser. 

Should I formally terminate all my employees, even if they will be working for the new owner?

EL: In short, yes. Whilst the process of termination may vary depending on the nature of the employment arrangement and may be addressed under the contract, generally a vendor will need to provide notice to the employee advising that the vendor will no longer be the employer from the date of settlement. However, it is important to note that termination does not affect existing employee entitlements and there are potential redundancy implications to be considered. 

Do I have to pay out all my employees annual and long service leave entitlements if they are staying with the business after the sale?

EL: There is no legal requirement to pay out all the employee’s entitlements, however, the vendor and purchaser may negotiate a practical solution which suits their situation with regard to the circumstances of the employees.  The existence of the entitlements will generally be recognised as continuous between the vendor and purchaser and an adjustment made in favour of the purchaser at settlement for that liability, which the purchaser will inherit.    

My employees have a large amount of accrued Personal (sick/carer’s) leave. Can I pay it out or does the new owner have to take it over?

EL: Unless an alternative agreement is in place, generally an employee is not able to cash out their personal (‘sick/carer’s’) leave entitlements, and those entitlements accrue from year to year. As such, personal leave (‘sick/carer’s’) is not generally adjusted between the parties; it is a liability that the purchaser takes over.

If the new owner takes over any employee liabilities, can they ask for a discount on the agreed price for the business?

EL: Typically, the accrued employee entitlements for annual leave, leave loading and long service leave (for employees who have completed at least seven years of continuous service) will be adjusted between the vendor and purchaser at the net tax effect amount (e.g. 72.5% of the accrued liability). This is typically treated as an adjustment at settlement, rather than being termed a “discount”, resulting in a reduction of the amount payable by the purchaser to the vendor at settlement.

 Once the business has changed hands, can the new owner dismiss the employees without giving a reason?

EL: The new owner will be subject to the same employment laws and will be required to take into consideration all prior entitlements and length of service of the employees if it elects to terminate any employees it has engaged from the vendor. 

If employees are transferring to the new owner, does their employment officially start when they join the new owner or is it backdated to when they commenced with the previous employer?

EL: When determining a transferring employee’s entitlement to, for example, personal/carer’s leave, parental leave, and the right to request flexible working arrangements, the purchaser must recognise the employee’s service with the vendor. This is also the case where a vendor has paid out annual leave, leave loading and long service leave entitlements to that employee.

Disclaimer- Business Sale Agreements will deal with the matters discussed in this blog in varying levels of detail, so it is advisable to obtain legal and financial advice on a case by case basis.  This blog contains general advice and is not to be treated as legal advice and the specifics of each transaction and arising issues need to be considered on their own facts.

 About Eckermann Lawyers

Eckermann Lawyers specialise in business sales, mergers and acquisitions across a variety of industries, ranging from wineries and cellar doors, hospitality groups and agricultural enterprises, to corporate entities, manufacturers and franchised businesses. Eckermann Lawyers provide South Australian businesses, property owners and investors with timely and informed property and commercial legal advice, and together with business partner Eckermann Conveyancers delivers clients with highly specialised and integrated services.

Eckermann Lawyers can be contacted on 8235 3933 or by emailing info@eckermannlawyers.com or for further information, visit www.eckermannlawyers.com.

Dale Wood Business Sales can be contacted on (08) 8334 0600 or email enquiries@dalewood.com.au for a confidential discussion on your business purchase, or sale, requirements.