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employment

Selling a business: What happens to the employees?

Key Takeaway

When a New Zealand business is sold, employees' job continuity depends on their status. 'Vulnerable employees' in specific services have a right to transfer to the new employer or choose redundancy. Other employees' jobs do not automatically transfer and may be made redundant. All employers must act in good faith and consult with affected staff.

Selling a Business: What Happens to Employees?

When a business in New Zealand is sold, the impact on its employees depends on several factors, including the type of business, the nature of the employee's role, and the terms of the sale. New Zealand law, primarily the Employment Relations Act 2000, outlines the rights and obligations of employers and employees in such situations.

General Principles of Employment Continuity

Generally, an employment agreement is a contract between a specific employer and an employee. When a business is sold, particularly as a going concern, there is no automatic transfer of employment from the old employer to the new employer, unless specific legal provisions apply or it is agreed upon by all parties [Source: Employment Relations Act 2000, general principles]. The overarching duty of good faith applies to all employment relationship matters, including business sales and restructures [Source: Employment Relations Act 2000, s 4].

Vulnerable Employees

New Zealand law provides specific protections for certain employees deemed 'vulnerable employees' when their employer sells the business or restructures services. A vulnerable employee is an employee whose work is in a specified service that is being restructured, such as cleaning, catering, caretaking, laundry, or security services [Source: Employment Relations Act 2000, s 69A].

If an employee is classified as vulnerable, they have a legal right to choose between:

  • Electing to transfer to the new employer: If they choose this option, they generally transfer on terms and conditions that are the same as, or substantially similar to, those of their employment with the old employer [Source: Employment Relations Act 2000, s 69B, s 69F]. The new employer must offer employment on these terms.
  • Electing to be made redundant: If they choose this option, their employment with the old employer is terminated, and they become entitled to any redundancy compensation or other entitlements specified in their employment agreement [Source: Employment Relations Act 2000, s 69B].

Both the old and new employers have obligations regarding vulnerable employees. The old employer must provide detailed information about the employees to the new employer [Source: Employment Relations Act 2000, s 69D]. The new employer must consider offering employment to all vulnerable employees and engage in a consultation process, providing information about the new employment terms [Source: Employment Relations Act 2000, s 69E].

Non-Vulnerable Employees

For employees who are not classified as vulnerable, their employment does not automatically transfer when a business is sold. The old employer may choose to terminate their employment due to redundancy. In such cases, the new employer is not legally obliged to offer them employment, although they may choose to do so, typically under new terms and conditions.

Any redundancy process for non-vulnerable employees must be conducted in good faith, which includes genuine consultation about the proposed changes and their potential impact [Source: Employment Relations Act 2000, s 4(1A)(c)].

The Duty of Good Faith

The duty of good faith is a fundamental principle in New Zealand employment law. It requires all parties to an employment relationship (employers, employees, and unions) to be active and constructive in their relationship [Source: Employment Relations Act 2000, s 4(1A)]. In the context of a business sale, this duty means an employer must:

  • Be responsive and communicative.
  • Not mislead or deceive.
  • Provide employees with information relevant to their continued employment.
  • Provide employees with an opportunity to comment on information and proposals relating to their continued employment [Source: Employment Relations Act 2000, s 4(1A)(c)].

This duty applies to all employees, vulnerable or not, when decisions are being made that could affect their jobs.

Redundancy

If an employee's position is made redundant as a result of a business sale, certain obligations apply. Redundancy pay (a payment made to an employee whose job is eliminated) is not a statutory entitlement in New Zealand unless it is specifically included in the employee's individual employment agreement or a collective agreement. However, employers must provide appropriate notice of termination [Source: Employment Relations Act 2000, s 68]. Additionally, any accrued but untaken annual leave must be paid out upon termination of employment [Source: Holidays Act 2003, s 26], as must any accrued public holiday entitlements [Source: Holidays Act 2003, s 50].

When to Seek Independent Legal Advice

Individuals seeking to understand their specific rights and obligations regarding employment issues during a business sale should consult with a qualified legal professional. The Ministry of Business, Innovation and Employment (MBIE) provides general information on employment standards. Community Law Centres across New Zealand offer free legal advice for those who qualify. Both employers and employees involved in a business sale or restructuring process are encouraged to seek independent legal advice to ensure compliance with the law and to protect their interests.

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