What about my staff?

Depending on the structure of your sales agreement when selling your business the relationship with the staff should be treated differently.

Broadly spoken there are two ways in which most medium to small businesses are sold:

1. Membership/Shareholding

The owner who holds the membership/shares in the CC/Pty Ltd will sell to the buyer his interest in the business. The buyer will then be the new member/shareholder of the business. When this happens there should be no change in any of the agreements that the business entered into and this includes the employment contracts of the staff members. (Do take note that most landlords, banks, suppliers and other credit providers as well as franchisors require personal surety from the member/shareholder of a CC/Pty Ltd.)

In dealing with the staff the CC/Pty Ltd will still be liable towards the staff members with regard to their employment contracts. The staff member’s contract is not dependent on the change of membership/shareholding.

2. Sale as a Going Concern

In this scenario the buyer will take over the assets, the name and the goodwill of the business as a going concern. In other words he will be buying it out of the CC/Pty Ltd. With the staff contracts in the name of the CC/Pty Ltd it has been questioned many a times if the new owner would be responsible towards the existing staff members in terms of their employment contracts.

The Labour Relations Act 66 of 1995 has clarified this situation to the following: In terms of Section 197-Transfer of Contract of Employment – it is clearly stipulated that “If a business is transferred in the circumstances…( as mentioned above ).., all the rights and obligations between the old employer and each employee at the time of transfer continue in force as if they were rights and obligations between the new employer and each employee; and anything done before the transfer by/or in relation to the old employer will be considered to have been done by/or in relation to the new employer”.

Whichever way you structure your deal it is important to know that the buyer will take over the staff. If you receive an offer for the business that tries to maneuver around this crucial aspect you would be best advised to consult a labour consultant.

In preparing your business for sale ask your broker for advice on how to present your staff members. Do remember that buyers are reluctant to take over staff members that do not add any value to the business.