As a business owner who decided to sell his business, or as an employee of a company that is being sold or undergoing the process of merger you may wonder one specific question: if business is sold what are the employees rights.
In most cases the process of selling business is usual for small and medium companies with comparatively small staff and personal relationships between the owner and the workers. And most likely employees would know about the future plans of selling business and sooner or later they would definitely wonder – “What happens when your employer sells the company?”.
On the other hand, if you are an entrepreneur and want to sell business online you may find help at Website Closers and during the process of finding the right buyer you may ask your business broker: “What happens to employees when a company is sold?”. And we prepared this small article in order to help you understand our options and obligations during and after the purchase.
If you sell a business, what happens to the staff may not be the biggest of your concerns, but it definitely should be one of the top priorities for you as a responsible employer. There are several scenarios that are possible for you and your company, and we would like to point out that this should be an important part of the negotiation process with potential buyers from the very beginning. The future transaction of buying your company, merger or acquisition can be done in two different ways which will determine the rights and obligations of you as an employer, the buyer as a future potential employer and your staff as employees of the company:
- A share sale – is the process of selling the shares by the shareholders in order to ensure the majority of the shares and as a result the control over the company as well.
- An asset sale – is the process of selling all the property of the company to another legal entity.
What happens to the employees in case of the share sale?
This type of purchase is much easier for the workers as they remain employed for the same company with the same contracts and benefits. In this case the buyer is obligated to provide all the compensations and benefits that were part of the contracts before the sale of the company. There are several categories of the quality of work process that should at least remain on the same level:
- Salaries – the annual amount should strictly remain the same.
- The obligatory salary increases (annually in most cases), if they are part of the union agreement or stated in the personal contracts of the employees.
- The union membership fees payments.
- The agreed level of payment to the pension funds, that is included in the contract or the union agreement.
- The acceptance of the collective agreement with the workers that was signed by the previous owner.
- Recognition of the work for the previous owner that may affect the possibility of promotion or salary increase as well as other forms of compensation – company shares, for example.
What happens to the employees in case of the asset sale?
In this case the original company would not exist anymore with all the obligations, contracts and agreements with workers and unions that were signed with the owner in the past. At this point there are several paths that may be taken by the new management that would influence the future of the employees.
One of the best possible outcomes is the renewal of previous agreements with the new company with acknowledgment of obligations and rights that took place beforehand. This would manifest in new contracts with each individual worker and the law protects the rights of the employees as it does not allow proposing the conditions in terms of salary, pension payments, vacations that would be worse than the same conditions in the previous company.
But sometimes there is no need for the same amount of workers or the business moves to another city or state and with these conditions employees may face staff retention after a business sale. In this case the retention payment and compensation is the responsibility of the original owner and should be paid by the original company.
This should be one of the main negotiation points in the future selling of the company – not only because you want to ensure the best future for your employees, but also, your own future and the amount of money you would have after the end of the purchase with all retention payments are made. Sometimes it is even more profitable to sell your company for the buyer who would keep all the original staff employed than to sell for the bigger amount, but after retention payments you would end up with less money for your happy retirement.
The process of selling your business may be quite stressful not only for you, but also for the people who you work with, so you should not forget about them and their interests and future as well.