Employment contracts

The relationship between a business owner and its employees is governed by a contract. These contracts may be partly or entirely:

• • written;
• • oral; or
• • implied.

It is important for a purchaser to check the records of the business relating to the employees, including the original employment contracts, and any subsequent variations. This process should also include requiring records showing:

• • details of the employee;
• • duties;
• • salary and benefits;
• • accrued entitlements;
• • any applicable industrial instruments, such as awards, determinations or agreements; and
• • any contracts of employment, including any variations.

Transferring employees

A contract of employment is a contract of personal service, which means that it cannot be assigned, novated or "transferred" from a vendor to a purchaser. The employee is always free to decide for whom they want to work.

Sale of shares

A business acquisition will either take place by way of a purchase of shares or a purchase of assets.

Technically, transferring shares in the employer company does not require the employee’s consent because there is no change to the legal identity of the employer. However, from a practical point of view, an employee can choose to terminate their contract of employment at any time. Accordingly, the employee must be persuaded to work under the control of the new business owner.

In a sale of assets, the purchaser will need to offer employment to any of the vendor’s employees it wishes to retain. Any employees who are not required by the purchaser (or who decline an offer of employment) will remain employed by the vendor, who will need to decide about their ongoing employment. If the vendor has no remaining work for the employees to perform, usually it will be necessary to terminate their employment on the ground of redundancy.

Contractors

Both workers and business owners often claim that the workers are contractors, not employees.

Employees believe it may give them tax benefits while employers believe that it avoids employment-related laws, such as the Fair Work Act 2009 (Cth).

On a purchase of business, the purchaser must be sure that those described as contractors are not disguised employees. If they are, then all of the laws relating to employees will apply. These include benefits such as long service leave, accrued while working for the vendor, passing through to burden the purchaser.

Key employees

If there are any staff whose services are vital to the business, the purchaser should ensure that the contract for purchase of business is conditional upon securing their services. Also, particular attention should be paid to the restraint provisions in their contracts and the enforceability of those restraints, should they leave the business.

See Employee contracts.