A Seller’s Guide to Employee Agreements

About the Episode

One of the biggest challenges of selling your business is figuring out when and how to tell your employees. Announcing too early or too late can create a lot of headaches for both you and the buyer. You’ll need to sort out big questions like: Will existing employee contracts continue, or will new ones be needed? What happens to their stock options and accrued leave? Should you ask them to sign non-competes? This episode of M&A Talk, with attorney Kyle Lawrence, dives into these crucial employee-related questions, helping you prepare for this important part of selling your business.

The impulse is to say, “We just signed an LOI. We’re three months away from closing. Let’s tell everybody that we’re doing a deal.” That is not always great advice, because a lot of people are going to say, “Hey, I don’t want to work for these people.“

Kyle Lawrence

What You’ll Learn

• Impact of Announcing a Deal Prematurely: Announcing a business sale too soon can cause problems. When employees hear the news early, they might start looking for new jobs. You should time your announcement properly to avoid unnecessary turnover.
• Employment Agreements in Asset vs. Stock Sales:  In an asset sale, new agreements are usually needed for employees, and the specifics can vary based on state laws. However, in a stock sale, the existing employee contracts typically carry over directly.
• Types of Employment Agreements: There are two primary types of employee contracts. Agreements for top leaders are crucial and typically cover pay, bonuses, and rules such as non-compete clauses. You usually can’t close the deal without these in place. For regular employees, new job offers may be extended, but this must be handled carefully. 
• How Employee Benefits are Transitioned: It’s crucial for the buyer to thoroughly understand all accrued benefits of the existing employees during due diligence – this includes things like paid time off and profit-sharing plans. You may need an ERISA attorney to deal with complex benefit plans, as mishandling them can lead to significant financial problems for the new company.
• The Validity of Non-Compete and Non-Solicitation Agreements: Non-compete agreements, which stop someone from working for a rival, are generally valid and can be transferred to the new owner. Similarly, non-solicitation agreements, which prevent employees from trying to hire away other staff or steal customers, are also enforceable. 

Topics Covered

Want More? Related Resources: 

• Alternatives to Non-Competes with Employees
• Informing & Retaining Employees When Selling a Business
• How Your Employees Can Impact the Value of Your Business

Meet Our Guest

Kyle Lawrence

Partner at Falcom Rappaport & Berkman LLP | New York, NY

For nearly 20 years, I have served as outside general counsel to companies far and wide, from start-ups to multi-national companies implementing their exist strategy and everything in between. With specific expertise in food and beverage manufacturing and distribution, construction, and digital assets, my practice has evolved along with the world throughout the course of my career. I also co-host Block & Order, a podcast focused on digital assets, web3, AI and emerging technologies in general, and the legalities impacting them.

LinkedIn: https://www.linkedin.com/in/kylelawfrb/