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Buying or Selling Business? What happens to staff?

Published 01 Aug 2021

In the world of private enterprise, businesses are bought and sold all the time. While it is an exciting yet stressful time for the buyer and seller, all too often the issue of staff is overlooked until the last minute.

What is correct process really depends upon what is actually occurring technically with the sale and purchase of the business. If the company is simply continuing as is, same entity just different owners, then, by default nothing actually happens with staff. The change of ownership shouldn't affect the staff's employment, entitlements or terms & conditions at all. If anything needs to change with staff it needs to be approached with a typical change management consultation process as in any other situation.

Very often however, businesses are acquired or 'bought out' by other businesses, or business assets and intellectual property are purchased. This doesn't always mean company name changes, but this scenario does affect staff far more and there are actions the vendor and purchaser need to undertake.

Employment Agreements

The first thing to check in this case is your Employment Agreements. By law all Employment Agreements need to have what is generally referred to as an 'Employee Protection Provision' which covers what happens in this situation.

When the business entity changes, staff are actually being made technically redundant from the old company and (hopefully) offered new roles with the new firm, but there are no guarantees to that. The Employee Protection Provisions within the Employment Agreement are supposed to outline, set expectations, commitments and entitlements around the process.

If staff are being taken on by a new company and being made technically redundant by the current employer generally their entitlements are carried over and they are not entitled to redundancy notice or payment for the same, but again, check the Employment Agreements and Sales & Purchase agreement for any fine print.

If the purchasing company does not want some or all staff then the vendor is left with a redundancy situation for those staff and must approach it as such and honor redundancy notice periods and potential compensation if allowed for in the Employment Agreement.

In the absence of a set process within the Employment Agreement the following rules are generally considered fair process:

  • Hold meetings, and speak to staff concerned regarding the potential sale as soon as is reasonably possible;
  • Discussing in good faith with the purchaser whether your employees will be taken on and if so on what terms;
  • Informing staff of their options and outcomes of the various scenarios, requesting their input and feedback;
  • Responding and acting on any feedback in good faith.

Vulnerable Employees

Another point in the Employee Protection Provision is that of Vulnerable Employees. Certain industries, due to the nature of the work, are deemed to be 'vulnerable' and as such have special rights particularly so in the sale or transfer of a business, and even in the circumstances of changing a contract company for a service within these industries.

These industries include; cleaning, caretaking, food catering, some laundry services, some orderly services and now recently some security services also. These staff must be offered continuous employment in their same positions and terms with the new company. If they are surplus to requirements for the new firm then the problem of change management or redundancy becomes a problem for the new employer.

The same applies to companies winning and losing contracts in these industries also. For example, if your business wins a contract to provide catering services to another company, the outgoing catering provider's staff may opt to be employed by your firm since their employment is 'protected'. You then potentially have a change management issue to deal with.

Under law vulnerable employee's protection also has some prescribed rules to be followed as a minimum in these circumstances:

  • such staff must be given at least 20 working days notice before a restructure;
  • be given any and all relevant information at least 15 working days prior to the change;
  • staff need to tell their current employer within 10 working days of receiving the information, of their decision to transfer or not;
  • the vendor employer must send such election notices to the purchasing employer as soon as possible, at least 5 working days from the time it receives the information from the staff;

Whether or not staff are deemed vulnerable, when entering into a sale or purchase of a business in any form, do your diligence early and read the Employment Agreements in place, you will have obligations to staff, and ignoring these will only add to stresses and costs all round.