Selling Your Business As A Going Concern – What Does The Law Say?

Selling Your Business As A Going Concern – What Does The Law Say?
March 13, 2019 Chante Hobbs

When contemplating the selling of your business, the Labour Relations Act (LRA) had made provision for this transaction.

If a business is sold, the responsibilities that were associated with the previous owner are transferred to the new employer as is. The contracts of employment in relation to the employees are transferred to the new employer, including any dismissal action of the previous employer.

The transfer of the employees’ contracts does not mean that the conditions of their previous employees may change. The conditions must be the same or more favourable to the employee to avoid dispute.

Companies who fall under bargaining councils need to comply with the relevant conditions associated with the council, in terms of the sale and mutual agreement that may take place. Thus, the conditions are associated with the agreements in terms of said councils.

The old employer undertakes to disclose all relevant information pertaining to the employees, this includes inter alia leave pay accrued, severance pay and other payments accrued, which have not been paid to the employees. A written agreement needs to be concluded in order to facilitate the process.

For a period of 12 months after the transfer, the previous employer and the current employer are jointly and severally liable for costs associated with any employee who becomes entitled to payment relating to labour dispute and/or award associated therewith. This is also applicable in cases where conditions of employment which had arisen prior to transfer.

In light of the above information, it is pertinent for a seller to be aware of any risk and liability associated with the sale of their business and should thus consult with their legal advisor to ensure that the sale takes place in accordance with that which is contemplated in terms of the LRA.

ABOUT THE AUTHOR

Tamara Jooste is an Admitted Attorney of the High Court, who joined SEESA in 2015. She obtained her Bachelor of Laws at the University of Fort Hare in 2012 and is in the process of obtaining her Masters in Labour Law at Nelson Mandela University. She has experience in Civil Law, Estate Law, and Labour Law.

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