When to tell your staff you’ve sold
One thing a seller must do in the lead up to the sale of their business is to tell their staff that their business has been sold.
There may be staff who have been with the business since the beginning, and close relationships are likely to have formed. Regardless of the circumstances, there is no denying that telling staff that your “time is up” and a new employer will be taking over the reins is never easy.
So, when is the best time to tell your staff you’ve sold?
A sale of business results in all staff being terminated by the seller with effect from close of business on the day before the settlement date. All staff must be given prior notice of termination and either required to work out the notice period or paid in lieu of notice, or a combination of both. The notice periods required to be given to the staff members vary depending on the terms of the each staff member’s individual employment contract or, in the absence of a contract, their period of service.
Employers should review their staff members’ contracts to check if there is a required notice period or whether the notice periods prescribed by law apply. If the notice period in a contract is less than the notice period required by law, the period required by law must be given.
As the notice periods may vary between staff members, it may be that some staff members are given more notice than what would otherwise be required. This is because it is almost impossible to stagger the issue of notices to different staff members. Once one person knows, the news is out.
Sellers need to carefully consider when to give notice of termination to their staff. If sellers want their staff to work out their notice periods rather than paying staff in lieu of notice, that may mean telling the staff about the sale of the business before the contract is unconditional.
The risk of providing staff with notice of termination before the contract is unconditional is that either the contract may not be completed (ie. it may be terminated) or settlement may be delayed.
Often when staff members are notified of termination of their employment, they become distressed, disengaged and may look for alternative employment. This can be disruptive to the seller and the day to day operation of the business. To minimise the risk of staff members reacting negatively to the news that the business is being sold, the seller can delay giving notice until there is greater certainty of settlement. However, if there is not enough time between giving notice and the settlement date for the staff members to work out the notice period, staff members will need to be paid in lieu of notice. If giving notice is left until close to settlement, there is also a risk the staff member’s will find out about the sale from a person other than the seller. That’s never an ideal situation.
In short, the answer to the question is not easy. Employers who are selling their business should calculate the notice periods required to be given to staff and weigh up the benefit of having staff work out the notice period against the risk of staff becoming distressed or disengaged and the cost of making payment in lieu of notice.
Sellers should also consider whether the buyer wants to interview the staff prior to settlement. If so, the staff should be fully aware of the sale before being asked to meet with their potential new employer.
This article is intended to be for general information only. It does not constitute legal advice nor does it establish a relationship of client and lawyer. Specific circumstances or changes in law may vary the accuracy or applicability of the information published. We recommend seeking specific legal advice particular to your circumstances before taking any action, or refraining from taking any action, on any issue dealt with in this article.