Selling Your Business?

If you are considering selling your business you are obliged to consult with your employees first. For many business owners this seems bizarre – after all it is theirs to sell and not the decision of your employees. 

After the ordeals of 2020 and its continuing consequences, we are seeing a number of employers contemplating selling their business and some who have already sold their business before understanding their employment law obligations in relation to employees.

As an employer you have certain obligations to your employees – the chief one being your obligation to deal with your employees in good faith and that means consulting with them if any decision you make might adversely affect their employment. Employees cannot be sold in an asset sale and therefore the sale of the business, even as a going concern, results in a termination of the employee’s employment. Clearly, this would adversely affect their employment.

So, in the context of an asset sale (the sale of your business), what does consultation mean?

1. Before deciding to sell the business, you have an obligation to consult with your employees about the proposed sale.
2. For this consultation you will need to provide sufficient information for them to give meaningful feedback.
3. During the process of consultation, the employee must be advised they are entitled to have a support person or representative with them.
4. We recommend the proposal to sell the business is put in writing – we can assist you with that.
5. After you have consulted with your employees you make the decision on whether or not to sell. You do not have to agree with your employees’ feedback, however you must consider it.
6. If the decision to sell is made, you have an obligation to negotiate with the new owner for them take on your employees, on the same terms and conditions and recognising service as continuous. The new owner is under no obligation to agree to this, and your obligation only extends to endeavouring to get an agreement.
7. Irrespective of the decision of the new employer, you will need to provide notice of redundancy to your employees as per the terms of their employment agreement.

Strictly speaking, a vendor should consult with its employees about the proposal to sell its business before taking any concrete steps (including, for example, signing a sale and purchase agreement). The transaction needs to allow time for consultation and notice.  The sale and purchase agreement must comply with the vendor’s employment obligations otherwise the vendor will be in breach.  Arguably, any consultation that commences after a vendor has signed a sale and purchase agreement may be considered to have commenced too late by the Employment Relations Authority.

If you are thinking of selling your business and have any questions about your obligations to your employees, please get in touch with us.