Selling your business (2) – employees’ rights in case of the asset deal

Many business-owners look to sell at some point. The reasons for selling may vary but often it is the opportunity for the owner to capitalize on the years of hard work that have gone into building up the business.
 
Poland has been constantly progressing ever since the fall of the communist regime in 1989. The country successfully managed to catch up with other competitive countries in the EU and has now become a country preferred by foreign investors. Many Polish companies have grown during the last 30 year and now the Polish business-owners look for opportunities to sell their businesses.
 
There are two main transaction structures in the field of M&A: the asset deal and a share deal. Which structure is more advantageous on the sell-side or the buy-side? Which structure is more common? What does the decision ultimately depend on? All depends on the circumstances in a given case and requires in-depth analysis. Most prevalent are share deals, where the buyer acquires all (or a certain percentage) of the shares in the target company from the seller. An alternative to these are asset deals, where the acquirer purchases certain tangible and intangible assets of a company. Typically, this would include relevant operating assets of the business (working capital, equipment, production site, customer lists, patents, selected contracts, etc.).
 
What happens to employees of the sold business in the case of the asset deal?
 
Employees’ rights in the case of a transfer of the business as a going concern are defined in the Polish Labour Code. Under the law, the new employer becomes a party to the current work relations. Consequently, under the principle of a legal successor, the new employer acquires any and all rights resulting from the work relations established with the previous employer, and all obligations which the previous employer owed to the employees of the entity. This entity’s employees preserve the rights they were entitled to prior to the business transfer, and they are bound by the same duties they had toward the previous employer.
 
It is the new employer’s duty to inform the company trade unions, and in the case of their absence, the employees, about the planned transfer of the company at least thirty days before the planned transfer of the business. This information should include the planned transfer date, the reasons for the transfer, the legal, economic and social effects thereof on the employees, as well as the intended activities concerning the conditions of employment, in particular the working conditions, salary and retraining.
 
An employee of the business being transferred may terminate the employment relation with the new employer. Within two months from the transfer, the employee can file the termination letter with a seven-day notice.