What happens to my employees when I sell my business?

Sellers ask this because they care about their staff. Buyers ask it because the answer carries a real cost. Both are right to ask early, because it affects the price, the structure and what has to happen before closing.

Share sale: continuity by default

The employer is the corporation, and the corporation has not changed — only its shareholders have. Employment contracts, seniority, benefits and accrued entitlements simply continue. No new contracts are needed, and no termination occurs.

Asset sale: continuity by legislation

Here the seller’s corporation stays behind and the buyer is a different legal employer, so it feels as though the clock resets. Employment standards legislation is designed to prevent exactly that outcome: where the business is sold as a going concern, service is generally deemed continuous, and the buyer inherits the accumulated entitlements. Long-tenured staff are therefore an inherited liability as well as an asset.

What this means commercially

• Buyers should quantify termination and severance exposure employee by employee during diligence
• That exposure is frequently reflected in the price or covered by an indemnity
• Where a buyer does not intend to keep everyone, who bears the cost of that is a negotiated term
• Key people are often asked to sign retention agreements as a closing condition
• Where the workforce is unionised, the collective agreement generally binds the buyer as well

When and what to tell your staff

Most sellers say nothing until the deal is near-certain, and that is usually right — an announcement that precedes a collapsed transaction does lasting damage. The exception is key people the buyer wants retained, who often have to be approached before closing so retention agreements can be signed as a condition. Sequencing those conversations, and deciding who is told what and when, is worth planning deliberately rather than improvising in the final fortnight.