The Nova Scotia businessman was looking for advice. He was ready to retire and chose to sell his wholesale and retail business, which employs about 75 people. He needed a buyer, but he wanted the sale to turn out well for his employees, too.
“He lives and works in this very rural area of Nova Scotia, and he’s going to continue to live there,” says Tanya Sieliakus, co-owner and vice-president of consulting services at HR Pros Inc. in Halifax. So he wanted to find a buyer who will retain his staff and make the transition as painless as possible.
Entrepreneurs who are ready to sell don’t always think about their employees. “Often the people are one of the last things considered,” says Glen Grant, owner and senior consultant at HRfx Consulting Inc. in Langley, B.C.
That shouldn’t be. Both seller and buyer will benefit from thinking about employment issues from the start, says Mr. Grant, who also provides human resources advice to businesses through Small Business BC.
Here are five HR issues to consider before a sale.
The type of sale matters
A purchase can result from a sale of shares or of assets. Laws vary among provinces, but a share sale means the same company continues under new ownership, while an asset sale does not.
“On an acquisition of shares, all liabilities including employment liabilities flow through,” says Brian Thiessen, the Calgary-based national co-chair of the labour employment group at law firm Blake Cassels & Graydon LLP. That means employees keep their jobs, and their employment is legally continuous. Unless employer and employee specifically agree otherwise, vacation entitlements, sick leave, severance amounts and other factors remain as they were.
That doesn’t mean employees can’t lose their jobs, Ms. Sieliakus points out. Sometimes the seller will terminate all employees and the buyer then offers jobs to all or some of them.
In an asset sale, this terminate-and-rehire approach is the norm. The buyer isn’t legally assuming the company’s liabilities. In this case, a seller seeking to protect employees may include a clause in the sale agreement requiring the buyer to offer jobs on substantially similar terms, says Jason Beeho, partner at the employment law firm Rubin Thomlinson LLP in Toronto.
Severance is a complex issue
A seller like Ms. Sieliakus’ client might ask a buyer to offer jobs to his employees, but the seller’s interests come into it, too.
Each province determines how much notice or severance employees must get. If a seller terminates employees, they are entitled to statutory severance based on years of service. If a buyer offers jobs and employees accept, their employment is considered continuous and the seller isn’t liable for severance, Mr. Beeho says.
But if an employee refuses to take the new job, the offer can still save the seller money. Common law – in every province but Quebec, where a different civil code based on French law applies – usually entitles employees to more severance than the statutory requirement. Under common law, though, an employee who turns down a buyer’s offer of employment on substantially similar terms to his or her old job is considered not to have fulfilled a legal “duty to mitigate.” The employee is still legally entitled to the statutory severance, but not to the larger amount common law might provide.
What if employees are also owners?
Many start-ups give their employees stock or stock options. It’s a good way to give them a stake in the business’s success and to sweeten the pot when the money available for salaries is tight. But if you’re not careful, things can get tricky when you sell the business.
For instance, Mr. Thiessen says, what if an employee-shareholder objects to a sale? The way to avoid such problems is an agreement that if a set majority of shareholders agrees to sell, the rest must.
A buyer may want to acquire all of the company and not leave shares in the hands of employees. Again, Mr. Beeho says, clear terms and conditions of ownership are essential.
Documenting will make a sale go better
Ms. Sieliakus says her client’s business has well-established policies on most things – but until recently they were only recorded in the owner’s head. She has been helping the business write them down. That will make things easier for whomever buys the business, and should mean less stress and frustration for employees after the sale.
The company has also set up a formal performance management system. That way, Ms. Sieliakus says, any buyer will have real data on the employees it’s being asked to take on, and some history.
A seller may want to share information about employees with a potential buyer before a sale, Mr. Grant says, especially if the buyer is being asked to offer jobs to existing employees. That can raise privacy concerns. One way to avoid that issue, he says, is to share the data without individual names attached.
Talk about it
If a business is listed for sale, rumours usually follow. “My experience of employees,” Ms. Sieliakus says, “is in the absence of facts they will make it up – and it’s usually a worst-case scenario.”
In her client’s case, everyone knows the owner’s son has moved away. While the owner doesn’t know when or to whom he will sell, he isn’t avoiding the subject.
Such openness is usually best – although, Mr. Grant notes, it may not make sense to talk too early. If you’re merely considering the possibility of a sale, saying anything may start rumours needlessly.