Most businesses employ staff. Without them, the business can not provide its product or service. It is therefore crucial that a Seller properly deal with the management of staff and their transition to a new owner.
Before a business is sold, a Seller will need to consider what is likely to be required of the employees of the business. It is important that the Seller identify key staff who are likely to be important in the ongoing operation of the business. The Seller will also need to consider the accrued entitlements of its current workforce and consider the best way to manage those entitlements as part of the business sale process. Ideally, the Business Sale Agreement will contemplate and set out the process for dealing with employees upon the sale of the business.
After your Business Sale Agreement has exchanged, you will need to consider the arrangements regarding your current employees. The timing and manner in which a Seller engages with its employees is crucial. Change can be stressful for employees, so it is important that the Seller communicates properly with staff to ensure they have a better understanding of their future in the business.
Both legally and commercially, it is important that the Seller work with the Purchaser in how they deal with the transferring employees. From providing up to date employee records and determine whether the Purchaser will recognise the service of your employees. Both the Business Sale Agreement and the Fair Work Act (FWA) will dictate how employees are to be treated and most importantly how and by whom they are to be paid.
From a legal standpoint, when the business is sold, the employee’s employment with the Seller comes to an end. That is their employment is terminated. If the employee is offered a new role by the Purchaser (which is accepted) the employee is a ‘transferring employee”. If no offer is made, then the employee’s role is at an end and the rules concerning redundancy may apply.
Under a Business Sale Agreement, the Purchaser will typically have the right to decide which employees it proposes to re-employ. Importantly, when looking to re-employ staff, the Purchaser should not offer employment terms worse then what is already paid to the employee.
The Purchaser will also have the right to recognise (or not) the prior service of a transferring employee. Depending on the election made will dictate how the accrued entitlements of an employee are managed. All of these matters need to be considered and likely negotiated as part of the business sale process.
Irrespective of whether the employee is transferred or not, the Seller must deal with the issue of notice. As noted previously, when the sale is completed, the Seller’s current employees will need to end their current employment and the seller will be required to provide notice of the termination of their employment.
The amount of notice that must be provided will vary depending upon the terms of the employment agreement or length of tenure (as per the FWA). Most Sellers will prefer to give written notice to employees prior to the completion of the business sale. Where an employee is not a transferring employee and no notice is given, the Seller may be liable to pay out the notice payment at completion.
As noted above, the Business Sale Agreement and/or the ‘prior service’ election of the Purchaser will dictate how the employees entitlement are treated. Typically, accrued entitlements for annual leave, long service leave and in some cases personal leave will need to be adjusted or paid at the time of completion. It is essential that the Seller actively consider and deal with this issue and in particular the treatment of personal leave. A failure to do so, could be costly for the Seller.
As also noted, an employee will not be entitled to redundancy pay if the are a transferring employee or have been offered a role with the Purchaser and reject the job offer from the Purchaser. For those employees that aren’t transferring employees, they may be entitled to redundancy payment if they cease to perform a role with the Seller after the sale of business. As with notice, the amount of the redundancy payment will vary depending upon the terms of the employment agreement, length of tenure, Modern Award provisions and the special exemptions under the FWA.
Managing the transfer and termination of employees during the sale of your business requires good communication and clarity on the entitlements of employees. If the Seller is able to balance good communication along with following the correct procedures, then the overall process will be more seamless and fruitful for Seller, Purchaser and employee.
If you would like to discuss a Business Sale & Purchase or require more information please contact: Heath Adams (Director-Lawyer), Amelia Hatton (Associate) or Shalvin Kumar (Solicitor).
Written by Shalvin Kumar.