Buyers should conduct a thorough investigation of all key aspects of a business before deciding whether to buy it and if so for what price, and employee matters are a key consideration. Sellers must be prepared to provide adequate information in response to these requests otherwise they may lose a potential buyer, however there are many issues they must consider when preparing a response. This article examines some of the key considerations both parties must manage during the due diligence process.

Buyers

Buyers should conduct a thorough investigation about all key aspects of the business, including the following employee matters:

1. Employee head count, duties and responsibilities, and entitlement balances (e.g. wages, accrued leave).

2. Whether you wish to offer employment to any employees.

3. The terms of any existing employment contracts and enterprise agreements.

4. If key staff decide to leave instead of continuing to work at the business after you buy it, how will you manage any potential risks, liabilities, and loss of customers and goodwill?

5. Employee challenges and liabilities that you may assume on completion of the sale (e.g. disputes, claims, workplace culture issues, workplace risk and safety hazards, staff shortages, skills shortages, poor management practices). 

It is prudent and standard practice for a buyer to engage a lawyer and accountant to assist in this process. Your lawyer can help you identify what information and documents need to be considered and will advise you about the legal and risk issues you need to consider before deciding to buy.  

If you do decide to make offers of employment to the seller’s employees your lawyer can also help you issue appropriate offers of employment, negotiate appropriate terms in the business sale contract to support that transfer, and to allow for any appropriate adjustments to account for any employee entitlements. 

Sellers

The buyer will ask you to provide information and documents about your employees, and the above will be key considerations. If the buyer is acting in reliance on anything you say or produce, they will likely seek warranties and indemnities should the information or documents be incorrect or incomplete. You will need to carefully consider any requests for information and documents from the buyer and how to respond, including having regard for any laws which limit your ability to respond (e.g. privacy legislation).

Sellers will retain their legal obligations as employer to their staff in the lead up to the sale, so it is important to ensure that any offers of transfer of employment to the new buyer, terminations, performance management, and other employment issues be managed in full compliance with all employment law obligations.

It is prudent and standard practice for a seller to engage a lawyer and accountant to assist in this process. Your lawyer can help you produce appropriate information and documents in response to requests from the buyer and advise you on how to meet your employer obligations throughout the process. 

Are you buying or selling?

Buying a business is a significant investment. Selling a business is a significant opportunity to realise gains from the investment you have made. The due diligence stage is complex and demanding, and the legal and strategic significance of managing requests may not be apparent unless you have an experienced corporate lawyer in your corner. To find out more about how we can help you, call us on 02 9199 4563.

 This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you.  Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.