The Sale of a Business: What Does it Mean for the Employment Relationship?

You’ve decided to sell the business. What does this mean for your employees and their future with the enterprise?

A change in employer can bring with it a host of uncertainties for workers. But it can also have unexpected legal implications for the (soon-to-be) former owner. From an employment law perspective, selling a business is more complex than you might imagine. The issues and options vary depending on the vendor and purchaser’s needs and intentions, as well as the existing terms and conditions of the employees’ employment.

Mindful of that complexity, this blog post considers the topic of selling a business at a high level, identifying three key employment law issues to consider before you sign on the bottom line:

  1. Shares or assets? You can structure the sale of your business in one of two main ways –through a share sale or an asset sale. The option you choose will have implications for your staff’s employment status since, in some cases, the sale will result in an automatic termination of your workers’ employment. (It may also have tax and other financial repercussions, but those are beyond the scope of this post.)
  2. What do your contracts say? It is imperative that you read and understand the terms of any existing written employee contracts. For example, some contracts contain a “change of control” clause stipulating that the employee’s employment ends (either automatically or at the option of one or the other party) within a certain period following a share sale.
  3. What are the purchaser’s plans? The new owner’s intentions regarding existing employees can have significant financial implications for the selling employer. Does the buyer intend to recognize the employees’ past years of service for the purposes of calculating their severance in the future? If not, has he or she made this clear to the employees? If the new employer is explicit with your staff that they will not receive credit going forward for their years of service with you, the employees have the option of declining to work for the new owner and seeking severance from you.

When it comes to selling a business, there are a number of employment law hurdles to be aware of and cross. This is one situation where it is particularly important that all parties – buyer, seller AND employee – obtain the advice of an employment lawyer to ensure that everyone is clear on their employment rights and obligations.

Are you selling your business? Contact us!

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