During any business acquisition, lawyers routinely advise clients on the relevant legal, tax, and business considerations. However, too often this advice excludes timely, comprehensive thought about the employees affected by the transaction. This oversight can be costly.
Early in any negotiation, vendors and purchasers need to be aware of the costs of employee entitlements and which party will be responsible for those costs. Such costs may include termination pay and severance. However, calculating these costs and how they may be borne by the vendor or purchaser can depend on complicated interactions between statute, contract, and common law. In addition, there are other liabilities that may be more costly to the transaction—or even fatal—such as whether key employees are bound by enforceable non-solicitation and non-competition clauses. No one wants to buy a business (or sell one subject to a large performance-related holdback) only to have all the key employees quit, solicit the business’ customers, and start a competing business. In this series, we will review critical considerations and employment law related risks and liabilities that arise in the context of buying or selling a business. Part 1 of this series focuses on asset transactions.