Do I Have to Take On the Existing Employees When I Buy a Business?

by LegalVision

Do I Have to Take On the Existing Employees When I Buy a Business?

If you are buying a business with employees, you will need to work out whether you want to take them on. Whether you need to take on existing employees when buying a business will depend on the type of sale — either a share sale or an asset sale. This article describes the different types of business sale and what each means for your obligations to take on employees.

Share Sale — Change of Company Ownership

If you agreed to buy the entity in which the business operates (for example, an existing company), you will automatically receive the employees as well. This is a share sale. While the ownership of shares in the company changes, the company stays the same.

The buyer will then be responsible for employee entitlements, such as leave and wages. You may be able to negotiate the costs of these entitlements into the purchase price.

When buying a company, it is also important to look into whether the employees are being paid the correct wage under an award or enterprise agreement. The company is responsible for ensuring employees are paid correctly and so this is a potential liability for the purchaser.

Asset Sale — New Company, Same Business

Sometimes, purchasers choose to buy the assets of an existing business, for example, the client and supplier lists, trademarks and business name. In this case, you do not take over the existing company. Rather you can then transfer the assets to your own company.

The employees do not transfer automatically over to you in this situation. You do not need to rehire them. Instead, you will need to make the employees a new offer of employment if you want to keep them on.

If you choose not to offer employment to the existing employees, their employment is terminated as a redundancy. In this case, the business seller is liable to pay their redundancy payments.

However, if you offer the employees new employment, but they reject this offer, they will not be eligible for redundancy payments, provided that:

  • the new job would have similar terms and conditions to the old job; and
  • there would have been a transfer of employment if the employee had taken the job.

Voluntary Transfer of Employees

A buyer who decides to transfer employees from the original to the new business needs to provide notice to these employees. You need to do this before you finalise the sale of business contract.

Once the existing employees agree to the transfer, you should include a clear list of employee entitlements in the sale of business agreement. This ensures that the purchase price takes these entitlements into account. 

If taking on employees who will be undertaking the same or near same duties, then you need to recognise their prior service. For example, in terms of accrued personal leave, annual leave and long service leave. You can include these leave entitlements in the sale price adjustments before settlement.

Key Takeaways

If you buy a business that has existing employees, you will have to take them on if you purchase via a share sale. You will then be responsible for any of their entitlements, such as accrued leave. If you buy the business by way of an asset sale, you can negotiate to leave some employees behind. However, the seller will then be liable for redundancy payouts, which may increase the business purchase price.

Navigating employment issues in a business purchase can be complex and best done with the assistance of an experience lawyer. For further advice on employment issues in your business purchase, call LegalVision’s business purchase lawyers on 1300 544 755.


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