When a company is sold, it can be an exciting time for both the buyer and the seller. However, one issue that often arises during this process is what happens to employee contracts. Many employees may be concerned about their job security, pay, benefits, and other aspects of their employment agreement. In this article, we will explore the different scenarios that can occur when a company is sold and how these changes can affect employees.
Employee Contracts in an Asset Sale
An asset sale is a common type of sale where the buyer purchases specific assets of the selling company, such as equipment, property, intellectual property, or inventory. In this scenario, employee contracts are not automatically transferred to the buyer. Instead, the buyer typically has the option to hire some or all of the employees from the selling company.
1.1 The Buyer’s Obligation to Offer Employment
When the buyer decides to hire some or all of the employees, they have the obligation to offer employment on terms and conditions that are no less favorable than the employees had with the selling company. This means that the buyer must honor the existing employment contracts or provide new contracts that are at least equal in value.
1.2 Negotiating New Terms and Conditions
In some cases, the buyer may want to negotiate new terms and conditions with the employees they plan to hire. This could be related to compensation, benefits, hours of work, or other aspects of their employment. In this case, the employees have the right to accept or reject the new offer. If they reject the offer, they may be entitled to receive severance pay or other benefits under their existing contract.
1.3 Impact on Collective Bargaining Agreements
In unionized workplaces, there may be a collective bargaining agreement (CBA) between the union and the selling company that outlines the terms and conditions of employment for union members. When the selling company is sold, the CBA may still be in effect until its expiry date. The buyer must adhere to the terms of the CBA until it expires or negotiate a new agreement with the union.
Employee Contracts in a Share Sale
A share sale is another common type of sale where the buyer purchases all or most of the shares of the selling company. In this scenario, the ownership of the company changes, but the legal entity remains the same.
2.1 Continuity of Employment
In a share sale, the employee contracts are typically not affected as the legal entity remains the same. The buyer acquires the company’s assets and liabilities, including the existing employment contracts. This means that employees continue their employment under the same terms and conditions as before.
2.2 Change of Control Clauses
In some cases, the employee contracts may contain a change of control clause. This clause allows employees to terminate their contracts if there is a change in ownership or control of the company. If the buyer wants to keep these employees, they may need to negotiate new contracts that do not include this clause.
2.3 Potential for Changes to Terms and Conditions
While the employee contracts may remain the same in a share sale, there is still potential for changes to the terms and conditions of employment. For example, the new owner may decide to implement different compensation or benefits plans, or change the hours of work. In this case, the employees have the right to accept or reject the new offer.
Consultation and Notification Requirements
Regardless of whether the sale is an asset or a share sale, there are consultation and notification requirements that the seller must adhere to. These requirements are designed to give employees advance notice of the sale and provide them with an opportunity to ask questions and raise concerns.
3.1 Notification of the Sale
The seller must inform employees of the sale and how it will affect their employment. This information should be provided in writing and include details such as the anticipated date of the sale, the reasons for the sale, and how it will impact the employees.
3.2 Consultation with Employees
The seller must consult with the affected employees about the sale and how it will impact their employment. This may involve holding meetings or providing opportunities for employees to ask questions or provide feedback.
3.3 Notification to Government Agencies
In some cases, the seller may need to notify government agencies such as the labor department or tax authorities about the sale. This is often required if there will be significant changes to employment or if there are legal requirements that must be met.
Conclusion
In conclusion, when a company is sold, employee contracts can be affected in different ways depending on whether it is an asset or a share sale. In both scenarios, there are consultation and notification requirements that must be adhered to. Employees should be aware of their rights and have access to legal advice if necessary. Overall, being informed about the potential impact of a sale on their employment can help employees prepare for any changes that may occur.