Employment Agreements and Independent Contractor Agreements

iStock_000025266005XSmall-300x183The value of a business goes beyond its hard assets and goodwill. Some businesses have longstanding employees that have invaluable knowledge of the business or of the industry generally, or who are the key people for customer relations. Many businesses do not have written employment agreements in place, with the basic employment details merely recorded in the company ledger. When purchasing a business, the buyer should ensure the seller provides all the necessary employment information on all employees, including wage/salary, years of service, benefit information, holiday entitlements, title, job description and performance reviews. A seller provides a more saleable entity if it has a proper employee file on each employee, together with a written employment contract.

For long term, high-level employees, the rights of employees, including vacation and severance entitlements, will carry forward and may be a burden on a new buyer. In a business transaction, the buy/sell agreement should allocate the responsibilities between buyer and seller to determine which party will be responsible for any notice or severance requirements which are or could become applicable should an employee be terminated. The seller is normally also expected to make representations as to the past or present union status for employees, and for any other applicable employment terms or conditions that may not be captured in a written employment agreement.

Some businesses utilize independent contractors for aspects of their business. If there are such contracts, they should be reviewed by the buyer to determine what the buyer can require of the contractor, and what the contractor’s terms of service are. If the seller is going to maintain some sort of involvement in the business post closing, the parties should ensure there is an independent contractor agreement in place to ensure both parties are fully aware of the rights and obligations between them.

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