What Happens To My Employees When I Sell My Business?

When you sell your business, one of the biggest questions is what will happen to your employees. This depends on a number of things, such as whether the purchaser is a ‘non-associated entity’ and the nature of your staff’s employment. 

You’ll need to officially let your employees go when you sell your business. From there, they can choose to either accept or reject the offer of new employment with the buyers of your business. Either way, you’ll need to formally terminate their employment with you. 

Terminating Employment

During a transfer of business, there are a few things to go over before you officially terminate your staff’s employment with you. Some of these steps will require you to speak with the new employer, so it’s important to understand what’s required of you. 

Step 1: Written Notice 

Before you let them go, you need to give your employee written notice of their termination of employment. The minimum notice period usually depends on how long they’ve been employed by you.

Generally, the notice should include:

• The reason you’re terminating their employment (so, in this situation, you’d talk about the business being sold to a new employer)
• The date their employment ends
• The notice period
• Whether the employee will be paid in lieu of notice

Step 2: Statutory Redundancy Pay

You might need to pay your employees some form of compensation for losing their job, or their redundancy payment.

A lump-sum paid to an employee because of termination of employment is known as Statutory Redundancy Pay, and may include payments for: 

• Unused sick leave or unused rostered days off
• Payments in lieu of notice
• Gratuity 
• Loss of job compensation
• Redundancy 
• Early retirement schemes (that exceed the tax-free limit)
• Market value of transfer of property

You can calculate redundancy pay using this tool.

Terminating an employee isn’t always easy, so we’ve got a team of lawyers ready to chat if you ever need help. 

Will Your Employees Be Working For The Buyer Of Your Business? 

So, what happens if your employees do accept the offer of new employment and decide to work for the buyer of your business? You’ll need to have the below points sorted.  

Documents To Give To The New Employer

Before your employee starts working for their new employer, you need to provide all the relevant documentation to the buyer of your business. 

• Up to date employee records: You’ll need to give the new employer your employees’ records, such as their name, nature of their employment (e.g. part time) and their commencement date.
• Notice of termination: As we mentioned before, you still need to terminate employees’ employment with you. This means you’ll need to provide notice in writing of this termination, as well as any necessary payments.

The payments you’ll need to make depends on the new employer, as they can choose to recognise or not recognise the employee’s service with you for some entitlements. 

Pay Entitlements When Transferring Employment 

Generally, the employee’s service with the old employer counts as service with the new employer for the purpose of pay entitlements, unless the new employer decides not to recognise it.  

If this is the case, the old employer is obligated to pay the employees certain accrued entitlements, such as redundancy or annual leave. We’ll talk more about this shortly. 

It’s important to note that, if you already gave your employee their entitlements, this service isn’t counted again with the new employer. 

If you’re a new employer and you’re not too sure about how these entitlements will transfer, don’t stress too much—we’ll cover your obligations shortly. 

What Does The New Employer Need To Do?

If you’re the new employer, your obligations will look a little different. You also have a variety of choices, so you can control what these responsibilities will look like. 

If you’re the new employer and you are not an associated entity, you have a few options. You can choose to not offer the existing employees employment at all, which means they’ll be terminated through redundancy with their old employer rather than transferring. 

If you do offer employment, you can choose to either:

• Recognise service with the old employer
• Not recognise service with the old employer regarding some forms of entitlements

Next Steps

Managing your employees during a transfer of business comes with many obligations, but it doesn’t have to be difficult or stressful. Feel free to contact our friendly team of lawyers who are ready to help you with your next steps. 

We can be reached for a free consultation on 08081347754 or at [email protected].

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