Most owners who’ve built a business over ten or twenty years know their longest-serving employees better than some family members. They’ve been through hard years together — the slow months, the near-misses, the moments when it could have gone either way. So when it comes time to sell, the question that keeps many owners up at night isn’t “what will I get for it?” It’s “what happens to my people?”
The honest answer is: it depends on the sale structure. And the details matter quite a lot.
Share Sale vs Asset Sale: The Fork in the Road
The single biggest factor in what happens to your employees is whether you’re doing a share sale or an asset sale.
In a share sale, the legal entity doesn’t change. The buyer purchases your shares; the company continues to operate with the same ABN, the same contracts, the same employer. From your employees’ perspective, nothing changes on day one. Their employment continues uninterrupted. All their leave balances, service periods, existing contracts — all of it remains exactly as it was.
The new owner has the company, and the company’s obligations to employees come with it. This is one reason sophisticated buyers prefer asset sales — they get a clean entity without inherited risk. It’s also why sellers of businesses with large employee entitlement balances sometimes find share sales advantageous: those obligations transfer to the buyer rather than being paid out of sale proceeds.
In an asset sale, the situation is more complicated.
Transfer of Business: What the Fair Work Act Actually Says
When you sell a business through an asset sale and the buyer takes on some or all of your staff, the Fair Work Act 2009 has specific provisions about what that means. This falls under what the legislation calls a “transfer of business.”
A transfer of business occurs when four conditions are met simultaneously:
- Employment with the old employer ends
- The employee starts working for the new employer within three months
- The work they do is substantially the same
- There’s a connection between the two businesses — through a sale of assets, outsourcing, or related entities
When all four conditions are met, the employee’s service period with the old employer generally carries over to the new employer for the purpose of calculating certain entitlements — including redundancy pay if they’re later dismissed.
This matters because if a buyer takes on your ten-year employee and then makes them redundant six months later, they can’t simply argue that the employee only has six months’ service. Under the transfer of business provisions, that employee may still have ten years for redundancy purposes. That’s a material liability the buyer is inheriting.
Some buyers will try to structure their hiring to avoid this — imposing a gap, offering different roles, or restructuring teams after settlement. Others accept it as the cost of getting experienced staff. Understanding which situation you’re dealing with helps you anticipate how buyers will price the deal.
Who Pays Out Leave Entitlements?
Annual leave and long service leave are the two big ones.
In a share sale, the company carries them — which means the buyer ultimately does, because they now own the company. Expect buyers to scrutinise leave balances carefully during due diligence and adjust their offer accordingly. A business with $200,000 in accrued leave sitting on the balance sheet is not the same as one with none.
In an asset sale, the typical arrangement is that the seller pays out all accrued leave at settlement. The buyer starts clean. This is usually built into the sale contract as an adjustment to the purchase price.
Long service leave is more complicated. State legislation varies — the rules in Western Australia are different from those in New South Wales or Queensland. In some states, LSL entitlements carry over in a transfer of business scenario; in others, the seller pays them out. Your employment lawyer needs to tell you exactly what applies before you sign anything.
The practical point: if you have long-serving employees with substantial leave balances, this is a real number that reduces your net proceeds. Get someone to calculate it early — before negotiations start, not during them.
What Do You Tell Your Employees, and When?
This causes more seller anxiety than almost anything else, and there’s no single right answer — only a wrong one.
The wrong answer is telling your staff you’re selling before you have a signed, binding agreement. Sale processes fall over constantly. Due diligence fails. Financing collapses. Buyers get cold feet, find something they don’t like, or get distracted by something else. If you tell your employees you’re selling and the deal collapses, you’ve created uncertainty, damaged morale, and potentially lost key people to competitors who offered them security. You also can’t un-ring that bell.
The standard approach for a confidential sale process is to tell nobody — or a small number of trusted people who genuinely need to assist with due diligence — until you’re close to or at exchange of contracts. Some owners manage to keep it quiet until settlement. It’s uncomfortable, but it’s usually the right commercial call.
Once a deal is signed, good practice is to tell your staff promptly — before rumours spread, not after — and to be available to answer questions honestly. The message employees most need to hear is: “Your job is not immediately at risk. Here’s what I know about the buyer’s plans. Here’s what I don’t know yet.” Uncertainty is the enemy of morale. Acknowledging what you don’t know yet is better than saying nothing.
The Key Employee Problem
One of the most common ways a sale goes sideways late in the process is a key employee leaving. Buyers price their offer based on certain people staying — a head chef, a lead estimator, the developer who built the platform, the sales manager who controls half the client relationships. If that person announces they’re leaving during due diligence, you can find yourself either losing the deal or renegotiating down.
This creates a genuine tension. You can’t tell key employees you’re selling (for confidentiality reasons), but those are exactly the people buyers want assurance about.
A few ways this gets managed in practice:
Employment contracts with meaningful notice periods. If your key people are on contracts with three to six months’ notice rather than two weeks, you have some protection. Review whether your critical employees are adequately contracted before you go to market.
Retention arrangements. Some sellers agree with the buyer to establish retention bonuses for key staff, paid post-completion. The cost is often split between buyer and seller. This gives key employees a reason to stay through the transition without needing to know why.
Earn-out structures tied to staff retention. In professional services businesses — accounting firms, consultancies, agencies — buyers sometimes structure part of the purchase price as a payment contingent on key staff remaining and clients not leaving. This directly ties your proceeds to staff continuity, which focuses everyone’s mind considerably.
None of these are perfect solutions. But going to market without thinking about this is how owners get unpleasant surprises when the deal is almost done.
Can the Buyer Make Employees Redundant?
Yes. Buyers can restructure after settlement. That’s entirely within their rights as the new owner.
What they can’t do without cost is make employees redundant without paying proper entitlements under the National Employment Standards. Employees with one or more years of service are entitled to redundancy pay on a graduated scale — an employee with ten years of service is entitled to twelve weeks’ redundancy pay plus their notice period. Under a transfer of business where service carries over, a buyer making long-serving employees redundant shortly after acquisition inherits that cost. Buyers who plan to restructure factor this into their offer.
It’s also worth knowing that genuine redundancy requires the role itself to be eliminated — not just the person in it. Buyers who use “redundancy” as cover for not wanting to keep someone can expose themselves to unfair dismissal claims. This isn’t your problem post-settlement, but it does affect how buyers think about pricing the deal.
Before You Go to Market: Four Things to Sort Out
The employee question is one where preparation genuinely pays off. Before you start talking to buyers:
Run a leave liability schedule. Know exactly what you owe in annual leave and long service leave, by employee. It’s a number that affects your net proceeds, and it will absolutely come up in due diligence.
Review employment contracts. Are your key people on current, well-drafted contracts? Are notice periods adequate? Are there any unusual clauses — ownership of IP, competing provisions, restrictive post-employment obligations — that might complicate a transfer?
Identify key employee risk. Be honest with yourself about who the business actually depends on, and who might leave if they caught wind of a sale. Have a plan, even a rough one, for managing this.
Talk to an employment lawyer. Not an accountant, not a business broker. An employment lawyer who can tell you specifically how the Fair Work Act provisions apply to your situation — your structure, your state, your industry awards. The general guidance in this article can only take you so far; the specifics are what cost people money.
The employee dimension of a business sale is one where getting the basics right early saves considerable grief later. If you’re thinking seriously about selling and want to understand what the process looks like for your business, get in touch with Miro Capital — we’ll help you map out what’s involved before anything gets put in motion.