News & Insight

Staff Contracts – Should I Review Them Prior To Selling my Business?

Always review and negotiate staff contracts before selling a business!

Many small and medium sized businesses (SME’s) do not have proper written contracts in place for their employees. Therefore, if you are looking to sell a business, always make sure you have negotiated staff contracts well before the date of completion to avoid any delays.

We have seen first-hand the impact on the business sale process when staff contracts have not been properly negotiated prior to completion:

In a genuine error of judgement, the Vendor of a business decided to redraft the contracts of employment, which created much longer notice periods for staff. The Vendor had wrongly thought that the Buyer would appreciate longer notice periods as a way of protecting the Buyer by preventing staff from leaving the business. However, in fact, the Buyer wanted exactly the opposite as this gave them an increased contingent liability if they wanted to let any of the employees go. This led to the Vendor having to make an agreement with the Buyer to subsidise any increased redundancy costs for a period after completion.

Watch out for ‘Custom and Practice’ contracts!

‘Custom and Practice’ contracts relate to any unwritten rules of employment and implied terms that do not appear in the form of an employment contract. Any form of ‘unwritten contract’ can cause major issues later down the line. As a Vendor, you should document all contractual requirements with employees as soon as possible to reduce any risk of delay with your sale.

Ideally, staff contracts should be agreed prior to the legal phase commencing. Clear, pre-agreed staff contracts will help to ensure a smooth staff handover process and will minimise any disruption to day-to-day operations.

If you are looking to sell or buy a business, and you need help with staff contracts, please call 01455 244444.

Please note that any information provided in this article cannot be considered as tax or legal advice. Always consult a solicitor for legal advice, or a specialist adviser for surveys and reports.