When you buy or sell a business there is a lot to think about. Sometimes what is overlooked is a proper consideration of what happens to the employees affected by the sale.
Is the sale an asset sale or a share sale?
One of the first things to think about is whether you are dealing with an asset sale, or a share sale:
- Asset sale –Where the tangible assets (equipment, stock and plant) and the intangible assets (goodwill and intellectual property) of a company are transferred to a new separate one.
- Share sale – Where the sale is of the shares in the company that operates the business, rather than the sale of the business assets.
What is the difference ?
Asset Sale
The employment relationships between the vendor company and their employees will terminate on the settlement date. If the Employees enter into new agreements with the purchaser on substantially the same terms as they had with the vendor, we call this ‘technical redundancy’, and employment agreements will often include a clause saying that there is no redundancy compensation payable in this situation.
The vendor still has to give proper notice to employees that the employment relationship is ending with them and pay the employees their accrued entitlements (such as holiday pay) up to the settlement date. It is then up to the purchaser to enter into new employment relationships with the employees should they chose to do so.
All employment agreements must contain an ‘employee protection provision’ under s 69OJ of Employment Relations Act 2000 (the Act). These clauses support a fair process for the employees when a business is being sold. This must include the process the vendor will follow in negotiating with the purchaser andan obligation on the vendor to encourage the purchaser to offer all affected employees employment on the same terms and conditions..
Ultimately the decision on whether employees will be offered employment on the same terms and conditions, if at all, lies with the purchaser.
Vulnerable employees provisions
The law protects Vulnerable employees which include cleaners, catering staff, security guards, laundry workers, orderly workers in health or residential care, and workers providing caretaking services to schools or other education sector organisations.
Under the Act, these vulnerable employees can elect to transfer to a new employer rather than their employment ending. If an employee elects to transfer but is going to be made redundant by the purchaser, they are entitled to bargain for redundancy compensation (even if it isn’t available in their employment agreement with the vendor ).
Share Sale
All the rights, obligations and liabilities of the vendor company remain unaffected.. For employees this means that their employment relationship has not ended and it is business as usual.
Takeaway
It is important to stop and consider what will happen to the employees in a business when it is sold, both the Vendor and Purchaser have obligations to consider and mistakes can end up costly. If you want advice on the sale or purchase of a business get in touch with the team at PRLaw.
