Selling Your Business? Your Employment Obligations Start Earlier Than You Think

Most business owners spend months negotiating the sale of their business.

They talk to accountants.

They talk to brokers.

They talk to lawyers.

What often gets overlooked is this: Employment law obligations can arise before the ink is dry on the Sale and Purchase Agreement.

A recent Employment Relations Authority decision serves as an important reminder. In Kennett v Polygon GY Developments Ltd [2026] NZERA 405, the employer signed a conditional Sale and Purchase Agreement to sell its business before consulting with an employee whose employment would ultimately end because of the sale.

The Authority held that, once the employer signed the agreement, it had effectively made the decision to sell. Although the agreement remained conditional, those conditions were largely matters for the purchaser and franchisor to satisfy. If they were met, the employer was committed to completing the sale.

That mattered because the Employment Relations Act requires employers who are proposing to make a decision that may adversely affect an employee's continued employment to provide relevant information and a genuine opportunity for the employee to comment before the decision is made.

The Authority also highlighted an important point about confidentiality. The Employment Relations Act recognises that, in some circumstances, an employer does not have to disclose confidential information where maintaining that confidentiality is genuinely necessary. However, in this case the employer never relied on that exception. As a result, the Authority did not decide whether confidentiality would have justified delaying consultation. Instead, it observed that an employer relying on that exception would need to explain why confidentiality was necessary and demonstrate that a fair and reasonable employer could have reached that conclusion.

It's also worth noting that the consultation issue wasn't the employer's only problem. The Authority found there were a number of procedural and substantive failures, including dismissing the employee before it was certain the sale would proceed, failing to properly consider redeployment, failing to provide contractual notice, and failing to provide relevant information during the consultation process.

The takeaway isn't that every proposed business sale must always be disclosed to employees before a Sale and Purchase Agreement is signed. Rather, it's a reminder that employment law needs to be part of the transaction planning from the outset.

If you're selling a business, it's worth asking:

• Will the sale affect employees' ongoing employment?
• When is the "decision" actually being made?
• Is consultation required before the Sale and Purchase Agreement is signed?
• If confidentiality is essential, can that be properly justified?
• Have redeployment obligations been considered?
• Does the employment agreement impose additional obligations?

Too often, employment issues are treated as something to deal with after the commercial documents have been signed. By then, it may already be too late.

Planning to buy or sell a business?

Don't treat the employment issues as an afterthought. The commercial and employment law aspects of a business sale go hand in hand, and advice obtained early can save significant time, cost and stress later.

At RWA, we can guide you through both sides of the transaction, ensuring your business sale is structured with your commercial objectives and employment obligations in mind.