Business Purchase and Sale: Considering Employees
One of the most important parts of a business is the people doing the day-to-day work. When looking into purchasing a business, it’s important to identify and understand the needs and rights of key employees, review existing employment agreements, and consider any employment related successor liability issues that may come up as part of the transaction. We’re continuing our series on the Purchase and Sale of a Business by highlighting important employee related considerations when purchasing a business.
Identifying (and Locking Up) Key Employees
Does the business you’re purchasing rely heavily on a few key employees? Especially for service-based businesses that rely heavily on relationships, these key employees can be one of the most valuable assets for the business. Making sure you take time to identify the key employees in the company, and discuss how to make sure those key employees stay with the company after you’ve purchased it, is an important step towards positioning the company for success. It’s important to consider how to incentivize these key employees to stay with you through the transition and for (at least) a period of time after the purchase.
Reviewing Existing Agreements with Employees
Especially if you plan to take on the company’s existing employees, it’s important to review any existing employment agreements that the company entered into with its employees. While there may be room to negotiate and update these terms, there may be reasons you’d want to simply take over the existing agreements instead. Regardless of how you choose to approach discussing terms of employment with the existing employees, the first step will be to collect and review the existing employment agreements to make sure you are aware of any existing employee related rights or obligations that may affect the purchase and sale of the business. For example, are there any non-compete agreements in place that restrict an employees ability to work for a competitor if you do not choose to extend that employee’s employment (and will those terms continue regardless of the way you structure the purchase)?
Employee Related Successor Liability and Union Issues
Does the company you are purchasing have union employees? Will you be responsible for the company’s existing employee benefit plan? Are there any outstanding employment claims that you may be responsible for resolving? These are just a few of the questions you’ll want to answer when reviewing a company’s current employment obligations to determine your successor liability risk after the purchase of the business closes. One area in particular that can result in potentially significant successor liability is related to collectively bargained agreements with unions. These CBAs often include successor liability clauses that detail the successor employer’s on-going obligations under the CBA.
In addition to union-related issues, there can be additional employer obligations that pass on with the business and can become the buyer’s responsibility (especially if they are not specifically accounted for in the purchase and sale documents). These can include employer taxes, employee benefits, wage claims, and other employment claims. Even in situations where the buyer has specifically disclaimed any liability related to employment claims, courts can impose successor liability on the buyer in certain situations.
Employee related issues in the purchase and sale of a business are one of the major items to plan for when purchasing or selling a business. Keep in mind that every purchase and sale of a business is different, and you should specifically consider the employment related issues particular to your purchase or sale.
If you enjoyed this post, please check out the rest of our series on the Purchase and Sale of a Business. If you’d like to learn more about important considerations when buying or selling a business, please feel free to contact us.