Selling the Business?
Read on for employment law considerations…
Assets versus Shares
If you are selling the assets of your business and you have employees, that sale may impact on their employment, triggering the need for you to consult with them about the potential sale.
By contrast, if you are selling shares in your business, there is unlikely to be any impact on employees because the purchaser of the shares buys the employees on their existing terms and conditions as part of the deal. In a sale of shares situation the employer doesn’t actually change – at least as an entity.
Asset-based sales – including the sale of stock, goodwill, rights in respect of the name of the business, licences, contracts, and so on – result in redundancies because once the sale is completed you no longer need the employees. They are surplus to your requirements.
Employee Protection Provisions
Since 1 December 2004 it has been a legal requirement for all employment agreements to contain employee protection provisions (“EPPs”). If your employees don’t even have employment agreements then you need to remedy this promptly because every employee employed after 2 October 2000 must have a written employment agreement.
EPPs are clauses in the employment agreement offering some protection to employees in change of employer situations such as sales, transfers, amalgamations, or contracting out of businesses. The level of protection depends upon what is agreed between you and your employees. However, there is a difference in protection depending on whether the employee is categorised under the Employment Relations Act 2000 (“ERA”) as “vulnerable” or “non-vulnerable”.
Vulnerable Employees
Vulnerable employees include those who work in the following areas of employment:
Cleaning services and food catering services in any place of work;
Laundry services or the education, health, or age-related residential care sector;
Orderly services for the health or age-related residential care sector; and
Caretaking services for the education sector.
Vulnerable employees are entitled under the ERA to either transfer to the purchaser on their existing terms of employment or receive redundancy compensation if they decide not to transfer.
Non-Vulnerable Employees
For non-vulnerable employees EPPs must include the process you will follow in negotiating with the prospective purchaser over the restructuring, the matters relating to the affected employees that you will negotiate with the purchaser, and the process that will be followed at the time of any restructuring to determine what, if any, redundancy entitlements are available to employees who do not transfer.
Whilst there are no minimum standards about what protection you need to provide your employees, you should keep in mind that there is a general obligation on employers to act in good faith. That duty of good faith means that if you are intending to sell your business you need to consult your employees first.
Consultation
To avoid getting into a position where an employee raises a personal grievance claim against you under the banner of unjustified action or unjustified dismissal, ensure your consultation amounts to more than merely telling employees that you have signed a sale and purchase agreement and that they might get to transfer to the new employer but you’ll let them know if it doesn’t work out.
Ideally, consultation should begin before you even sign a sale and purchase agreement. You ought to provide your employees with information on how the potential sale will affect their employment and about any discussions you have had with prospective purchasers in terms of the likelihood of offers of employment being made and the terms employment would be based upon. Give your employees an opportunity to put any views they may have about the sale to you.
Redundancy
You will need to talk to your employees about whether they have any redundancy entitlements. Because your employees will have their employment terminated due to redundancy when the sale of your business assets is finalised, you will need to pay out any redundancy compensation entitlements - unless your employment agreements do not provide for any compensation.
Some employment agreements will contain a clause providing that the employer will not have to pay redundancy compensation to employees who are offered employment with the purchaser on certain terms, normally if offered employment on no worse terms than the employee is presently employed on. This is a technical redundancy clause. To ensure there is no obligation to pay compensation a clause should be included in the sale and purchase agreement stating that the purchaser must offer employment to your employees on at least the same terms and conditions as they are currently employed.
If you don’t have a technical redundancy clause and your employment agreements provide for redundancy compensation discuss with your lawyer the possibility of requiring the purchaser to have a clause in any employment offers it presents to existing employees to the effect that if the employee does accept employment, they waive their right to redundancy compensation. This way you only need to pay redundancy compensation to those employees who are not offered employment or who choose not to transfer.