Terminate or Transfer Employees in a Sale of Business?

It is critical for all parties to a sale of business transaction to understand their legal rights and obligations in relation to existing employees of the business and the financial cost of termination and/or transferring of employment.

A purchaser in a sale of business has three (3) options for dealing with each employee:

1. not to offer them employment;
2. to offer employment, but without recognition of their prior service (although see below certain prior services that must be recognised); or
3. to offer employment with recognition of their prior service.

Transferring Employment

Regardless of whether the purchaser decides to recognise prior service, if an employee’s employment is transferring to the purchaser, the purchaser and the vendor will typically negotiate adjustments to the sale price based on the value of any entitlements being transferred with the employee.

Not Offering Employment

If the purchaser decides not to offer employment to an employee, or an employee decides not to accept an offer from the purchaser, the vendor will need to pay out all entitlements to that employee as if it were an ordinary redundancy. Whether the vendor can avoid paying additional redundancy pay will depend on whether the transaction meets the relevant legislative requirements.

Strict Guidelines Apply

There are strict legislative guidelines about what payments, offers and notices are required to be made by the vendor/purchaser of a sale of business to employees of the business, including certain notice periods for termination and certain terms for continued employment. It is essential that both a purchaser and vendor of a sale of business seek legal advice to make sure they satisfy their legal obligations.

How We Help

If you are buying or selling a business and have any questions about your legal rights and obligations, we offer a Free Case Evaluation for all new enquiries.