Don’t be dazzled by the figures or the brand when buying a business. People (both contractors and employees) are the most important asset.
Do your due diligence before agreeing to take on any of the seller’s employees. Look at existing employment agreements, position descriptions, pay rates and records of disciplinary action and leave of employees. If there aren’t any records, ask why. You don’t want to be taking on someone else’s problem employees. It will not be easy to rid yourself of them once you employ them. You should know that:
- If there is simply a change in ownership of the employing company, then employment continues as if there’s been no change.
- You don’t have to take on a seller’s employees. But if you do, then you are usually contractually obligated under standard business contract conditions to offer those employees “comparable” terms of employment. If the employees accept your offer, all their entitlements transfer to the new employer and their previous service is recognised under the standard business contract. These standard business contractor provisions can be varied by agreement.
- Any contract is subject to the Fair Work Act which provides that a buyer can elect not to recognise an employee’s prior service for unfair dismissal, annual leave and redundancy purposes. But this written election must be given to an employee before the new employment starts. If this isn’t done, then the election has no force.
- The Fair Work Act also says that a buyer must recognise an employee’s whole period of service for personal leave, parental leave, statutory minimum notice and long service leave purposes. This cannot be varied by contract.
- An employee’s existing employment agreement may continue in force if a buyer doesn’t put a new one in place. It can then be much more difficult to change an employee’s duties and introduce new provisions such as post employment restraints.
- If a buyer elects not to recognise certain entitlements, the employee may be able to look to the seller to pay at least their accrued annual leave and redundancy pay and may have other entitlements. A buyer may be liable in damages to the seller under the contract if the standard condition remains in force.
- Whilst the same contractual and statutory obligations do not exist for contractors, you should be wary of taking on sole trader contractors who may later claim they are in fact employees.
Business buyers should get legal advice about the employment and contracting implications of a transaction before signing a contract. We can help with advice about legal choices, conducting due diligence and preparing new employment/contractor agreements.