Buying or selling a business in Australia involves significant employment law obligations. Whether structured as a share sale or asset sale, both buyers and sellers must carefully consider their responsibilities to employees. Overlooking these can lead to legal disputes, unexpected liabilities, or non-compliance with the Fair Work Act 2009 (Cth) and relevant modern awards or enterprise agreements.
This guide, written by our employment and M&A lawyers, outlines the key employment law considerations during a business acquisition, helping ensure a smooth transition and legal compliance.
Key Takeaways
Sellers must manage terminations, redundancies, and transition obligations
Buyers should conduct detailed employment due diligence
The sale structure (share vs asset sale) affects employment contracts and entitlements
Accurate employment records are essential to prevent legal disputes
Consultation with employees is required under employment law
Employment responsibilities should be clearly outlined in the sale agreement
Types of Business Sales and Employment Impacts
1. Share Sale: Continuity of Employment
In a share sale, the buyer purchases the company’s shares. The legal entity (and employee relationships) remain unchanged.
Implications for Sellers:
Employees remain employed under existing contracts
Entitlements like annual leave and long service leave are transferred
Employees may need to be notified of the ownership change
Awards and agreements continue to apply
Must comply with the Fair Work Act 2009 (Cth)
Implications for Buyers:
Inherit all employee obligations and liabilities
Must assess accrued entitlements and workplace disputes
Consider reviewing and updating employment policies
Maintain compliance with industrial instruments and HR legislation
2. Asset Sale: Employee Termination and Rehire
In an asset sale, only selected assets (and sometimes contracts) are transferred. Employees are not automatically included and must be rehired by the buyer.
Implications for Sellers:
May need to terminate employees not transferring
Responsible for final entitlements and redundancy payments
Must consult employees where redundancies are likely
Provide service history if agreed with the buyer
Implications for Buyers:
Flexibility to select which employees to rehire
Must issue new employment contracts
Decide whether to recognise prior service for leave or entitlements
Should avoid creating breaks in service to maintain continuity
If you’re unsure about how to structure the purchase price, our article on Buying a Business: Fixed, Earn-Out, or Deferred Price? explains the pros and cons of each option.
Employment Due Diligence for Buyers
Thorough due diligence helps buyers avoid inheriting unexpected employment liabilities.
Key Due Diligence Steps
Review all employment contracts: including termination clauses, non-compete terms, and notice periods
Assess accrued entitlements: annual leave, long service leave, superannuation, bonuses
Check legal compliance: enterprise agreements, modern awards, Fair Work compliance
Identify absences: parental leave, workers’ compensation, long-term sick leave
Investigate disputes: past or current employment-related claims
Request HR records: payroll, performance reviews, variation agreements, and consultations
Before entering negotiations, make sure you’re familiar with all legal steps by reading our Legal Guide to Selling a Business in Australia.
Transition Planning: Managing the Changeover
Proper planning is critical for staff retention and business continuity.
Practical Tips for Businesses
Develop clear onboarding processes
Communicate transparently with staff throughout the process
Support organisational culture and staff morale
Document decisions and employee communications
Share Sale vs Asset Sale: Quick Comparison
| Scenario | Share Sale | Asset Sale |
|---|---|---|
| Employee Continuity | Employees remain employed | Employees may be terminated and rehired |
| Entitlements | Transfer to the buyer | Paid out by seller; buyer may recognise them |
| Redundancy | Rare | Common for non-transferring employees |
| Consultation Required | Usually limited | Required if redundancies occur |
Avoid costly missteps during a purchase by reviewing our list of the Common Mistakes in Business Acquisition and How to Avoid Them.
Frequently Asked Questions (FAQs)
Are new employment contracts required after buying a business?
Asset sale: Yes, new contracts are generally required.
Share sale: No, but updates may be made after consultation.
What are common causes of employment disputes in business acquisitions?
- Misunderstandings over entitlements
- Discrepancies in contract terms
- Lack of communication during transition
How are employee entitlements handled in an asset sale?
Seller must pay final entitlements unless agreed otherwise, while the Buyer may choose to recognise prior service for future leave.
Do modern awards or enterprise agreements continue after a business sale?
Yes, these generally continue to apply after both asset and share sales if the business remains similar in nature. Buyers must review applicable awards during due diligence .
What happens to redundancy entitlements in an asset sale?
When employees are not offered ongoing employment or if their new role is significantly different. Even if rehired, redundancy may be payable if the new role is substantially different.
