When purchasing a business, it’s common for buyers to want current employees to stay working in the business. Most standard form contracts for the sale of business in Australia set out the process for dealing with terminating or transferring employees. Below, we answer how you can transfer employees after selling your business as well as what both vendors and purchasers should be mindful of during the process.
Offer of Employment
The vendor will usually provide the buyer with a list of the business’ employees along with the sale of business contract. It’s not a legal requirement to retain all the staff after the business is sold, and the purchaser must have sufficient time to make the employees an offer after settlement (typically 14 days). The purchaser must then make an offer of employment on terms and conditions no less favourable to the employee than their current terms of employment with the vendor. Ensure that the terms of employment are in writing and comply with any applicable award.
When transferring employees, the biggest issue is determining employee entitlements. Most contracts for the sale of business have provisions setting out this process. For example, section 34 of the Standard NSW Contract for Sale of Business contains how to calculate entitlements. This clause requires the vendor provide the purchaser details of the employee entitlements, including:
- Whether or not the vendor has paid out these entitlements; or
- Whether the buyer will be responsible the entitlements after completion (e.g. long service leave).
If the purchaser transfers employees over who have been working in the business for over five years, they will need to adjust for any accrued long service leave the business owes the employee. Often this is done by reducing the balance of the purchase price the purchaser is required to pay, to factor in the amount the purchaser must pay for the employees’ long-service leave.
Another entitlement to address is annual leave. Practically, the vendor usually pays out the employee’s leave entitlements on completion so that the employee starts without any accrued leave. A contract may require, however, that the purchaser to accept the leave entitlements provided there is a sufficient adjustment made to the balance of the purchase price on completion.
If the purchaser does not wish to take on any of the current employees, or only some but not others, then the vendor will need to terminate their employment before completion. The vendor is then solely responsible for paying out any entitlements relating to annual leave, long service leave, and redundancy pay. The contract also typically includes an indemnity clause regarding termination. This provision requires the vendor to indemnify (compensate) the purchaser against any loss or claim against the buyer if the claim or loss relates to the period before completion.
Transferring employees is an important aspect to consider when purchasing a business. Existing employees can be valuable in continuing the operation of the business and help maintain the business’ goodwill and existing customers. If you are purchasing a business, it’s critical that you obtain details of the employees you wish to take on soon after signing the contract. Importantly, speak to an accountant regarding calculating the employee entitlements and the adjustment of the purchase price.
If you have any questions or need assistance transferring or terminating employees, get in touch with our business purchase lawyers on 1300 544 755.