Purchase of a Business: How to Avoid Problems With Employees

    Use the time now to avoid any problems with the employees later.

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    When acquiring a running business, such as a restaurant, a hotel or another trade, one of the biggest concerns is how to avoid any possible labor problems that may come as part of the package.  In most cases, many of the employees will continue on with the operation of the business once the sale is complete.

    The first task of an informed buyer, especially when dealing with a heavy investment, would be to carry out a review of those matters within the company that may lead to labor conflicts. For example, check how the payrolls have been administered, examine each employee’s employment contracts, files and/or disciplinary actions, check that positions and responsibilities are clearly identified, etc. This will make it possible to correct any errors or deficiencies prior to the acquisition, in addition to assessing possible problems in monetary terms.

    It is equally important to review the internal policies that exist or should exist in relation to employees, and which must be preserved and accepted by those employees who will continue working with the new owner. Even when policies do exist, they often contain some form of error, lack of clarity, and sometimes even contain guidelines that the Costa Rican courts have labeled as illegal and must be corrected.

    It is also pertinent to request information and to review in detail the terminations of previous employment relationships, particularly those which occurred in the last period, including severance pay or any settlements.  Otherwise the new owner could be exposed to demands concerning former employees.

    Once the over-all review is clear, and you have been able to identify and quantify any eventual contingencies, you can then address the way in which the business will be transferred from an employer’s point of view. The law does anticipate the probability of the new employer continuing with the contracts and labor relations between employee and employer once the sale is complete. In practice, however, it is usually wiser for the buyer of a business to request the termination of employment between the current employees with the current (soon to be former) employer.  This should be done before taking control of the business, and then starting fresh with the employees needed to run the business.

    If agreed, then it is necessary to terminate the existing contract with the previous employer with full employer liability (ie, with full payments as determined by law), and a new employment contract is signed with the new owner.  This assists in avoiding any labor claims due to circumstances prior to the acquisition of the business, for the benefit of both employees and the new employer, In this way, the business can start with a new beginning on solid foundations with their employees.

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