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Taking on Employees with New Business

Using a standard Business contract – considerations regarding employees when buying an existing business.

When purchasing an existing Business an important factor to take into consideration is the retention or not of the existing employees and key personnel of the business – whether you are to retain them or not !

It may be imperative for you to keep certain staff members on for the continued success of the business or on the other hand, you may have your own trained and ready to go group of staff waiting to start.

No matter which road you take, it is vitally important to ensure the Business Contract reflects your intention in this regard. The Standard REIQ Business Sale Contract (Second Edition) provides for a schedule of employees in the business. You must then notify the Seller in writing as to the employees you wish to employ and those you do not.

Under standard condition 18.3 you must then offer employment on specific terms and conditions to those employees to commence on the Settlement Date on no less favorable terms than their existing employment. This is normally understood.

What is not normally understood – If you do not offer employment on the specified terms and conditions to the Seller’s employees, then you will be responsible for any redundancy payments made to the employee by the Seller and further will need to indemnify the Seller for any other loss or claim by or relating to the redundancy of that employee – standard condition 18.5.

Furthermore, for the employees who do accept your offer of employment, the Standard Conditions state that the Seller only reimburses you (by way of adjustment at settlement) for 70% of the aggregate value of the employee’s entitlements such as sick leave, annual leave and long service leave – standard condition 18.8.

These clauses, among many others, should be seriously considered and if necessary negotiate changes with the seller prior to signing the Contract to protect your interests and ensure that you are not out of pocket unnecessarily.

As part of our service come and see the Commercial team at Hatzis Lawyers before you sign any business purchase contract so that we may advise you on issues such as this and make the appropriate changes to the Contract with our custom made special conditions or assist you with the negotiations.

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