The employment law issues of buying and selling a business

The sale or purchase of a business will invariably engender employment law implications. Vendors and purchasers must promptly tackle the pertinent issues in order to negotiate a favourable and workable agreement.

With respect to a share sale, the employer’s (company’s) identity does not change and the employees remain employed under the same terms and conditions. However, in exceptional circumstances, an employee’s contract of employment could require a specific natural or legal entity to continuously own a controlling interest in the company. If a share purchase were to materialise in such a situation, there will usually be a provision in the contract that would enable one to prematurely terminate their employment. It is therefore imperative that the purchaser reviews the employment contracts of key personnel any unwanted departures can potentially affect the value of the company’s shares.Â

Regarding an asset sale, there is a common misapprehension that the liabilities and rights of employees cannot be transferred to the purchaser. What it essentially boils down to is a question of fact, namely, whether the acquisition concerns the whole business or just individual assets. The vendor and purchaser should seek independent legal advice and familiarise themselves with the Transfer of Undertakings (Protection of Employment) Regulations before signing on the dotted line.

If the abovementioned regulations apply, any attempt to dismiss an employee because of the transfer (or because of a reason connected to the transfer), will be construed by the judiciary as being unfair. Conversely, a dismissal may be justifiable if the employer can provide an economical, technical or organisational reason that warranted a change in the workforce. Â

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