Employment Law Issues When Selling a Family Business

We all know that being part of a family business has a certain sense of obligation – obligation to the previous generations that created and developed the business, and obligation for future generations to ensure that the legacy continues.  Sometimes that obligation becomes too great and the next generation are not prepared to take on the challenge. When the time comes to sell your family business, there are a number of employment law issues that you need to be considering to ensure that the transition to the new owners allows the business to remain.

If the sale of the business is a transfer, then the Transfer of Undertakings (Protection of Employment) Regulations 2006 will kick in. Put simply, this offers some comfort for the existing employees as their service, and their terms and conditions, with the family business will simply pass to the new owners, but whilst there might be security of employment, there will be real concerns about the new owners. We all know that change is not always embraced by staff – particularly those long serving members of staff. .

One of the issues, however, comes when the communications is not handled well, because every employee is entitled to object to the transfer and if they do so, then their employment simply comes to an end.

Your business relies heavily on your employees and part of the reason why the new owners are buying your business is to persevere the continuity of staff. If some of the key members of staff were to leave the business, then that could have a negative impact on the value of the business or even whether or not the sale takes place.

We have seen a lot of purchasers try to re-negotiate on purchase price when some of the key employees decide to leave the business, so having a clear communication strategy is really important.

It might be necessary to think about ensuring that these key employees are properly incentivised. Whilst the family business is yours, the reality is that those long-serving and loyal employees will also feel a sense of ownership, so ensuring that there is some sort of loyalty bonus being paid to them on the sale of the business will go some way to ensuring that loyalty and service is being recognised.

One of the more recent ways to ensure adequate remuneration for those employees would be an Employee Ownership Trust, which in essence means that the Trust hold shares for all employees and on the same of the business the Trust then receives money for the employees from the sale price and is able to pass it onto the employees. If anyone is thinking about selling their family business and thinks this might be of interest, then contact our Corporate department.

In most cases, on the sale of a family business, there will be a period of time when continuity is maintained and the family members will retain their management status and responsibility, however this will be for a limited period only, as the new owners will want their own management team in place.

This does present an opportunity to look at how the business is structured and make some changes, but be wary of how that process is carried out. Again communication is important, but arguably more important is making sure there is a proper procedure in place and a completely fair selection criteria. It is not fair to remove the longer serving members of staff just because there is an assumption that they will be the ones most opposed to change. If that is the selection criteria, then you are in danger of facing claims of age discrimination.

Before you think about selling your business, then please contact our Family Business Unit to make sure that all relevant factors are being considered.

We look forward to welcoming you to future events as we continue to build a community of like-minded individuals passionate about family-run businesses.

Our next FBU event will take place in Edinburgh on the 23rd May 2024.

If you would like to attend please let us know by registering your interest here.