Why this matters more than it used to
In a tight New Zealand labour market, the team is often the most valuable asset in a business sale. Mishandled, the staff transition is also the fastest way to destroy that value — losing key people in the first 90 days after settlement, triggering personal grievances, or inheriting hidden holiday pay liabilities that surface months later.
This article walks through how employee transfer works in the two structures NZ business sales take (share sale and asset sale), the special rules for certain industries under Part 6A of the Employment Relations Act, and the practical playbook for getting it right.
Share sale: employment continues automatically
In a share sale, employees stay with the same legal entity — only the shareholders change. There is no transfer event. Employment agreements, length of service, holiday balances, sick leave entitlements all continue uninterrupted. The new owner inherits everything, including any unresolved performance issues or grievances.
What this means practically:
- No new employment agreements are required at settlement.
- Holiday pay liability sits inside the company; the buyer effectively pays for it via the working capital adjustment (which is why getting holiday pay right matters — see below).
- Restraint of trade clauses with the existing employer remain binding on staff.
- Any pre-existing personal grievance, ERA matter, or Holidays Act remediation passes to the new owner.
Asset sale: a transfer event, with choices to make
In an asset sale, the buyer is not contractually obliged to take on the staff in most industries. They typically choose to, because the staff are part of why they bought the business. The buyer offers new employment from settlement date; the vendor terminates the existing employment.
The mechanics:
- The vendor must run a fair process under the Employment Relations Act — usually a consultation around the proposed sale, the opportunity for staff to respond, and clear written communication of next steps.
- Staff who are offered employment by the buyer on the same or substantially similar terms typically have no claim for redundancy from the vendor (subject to the wording of their existing agreement).
- Staff who are not offered employment by the buyer may be entitled to redundancy compensation from the vendor, depending on what their employment agreement says.
- Staff who decline an offer that is on substantially similar terms generally lose redundancy entitlements; staff who decline a materially worse offer may retain them.
This is one of the highest-risk areas in any NZ asset sale and absolutely belongs with an employment lawyer, not a generalist.
Part 6A: the specified categories that get extra protection
Part 6A of the Employment Relations Act gives "vulnerable employees" in specified categories the legal right to transfer to the new employer on their existing terms, including length of service, when the business changes hands. The current specified categories are essentially cleaning, food catering, caretaking, orderly and laundry services for the education, health, age care and similar sectors.
If your business is in scope:
- Staff transfer automatically on their existing terms; the buyer cannot decline.
- Length of service, holiday balances, sick leave — all transfer.
- The vendor is required to notify the buyer of all relevant employee information within set timeframes.
- The vendor and buyer share liability for any pre-transfer entitlements that aren't properly disclosed.
This catches many vendors by surprise, particularly in cleaning and catering. If your business is in any of these categories, raise it early with both the buyer and your lawyer.
Holiday Pay: the liability everyone gets wrong
The Holidays Act 2003 is notoriously difficult to interpret and almost every NZ SME has some level of historical underpayment risk, especially around:
- The correct calculation of "average weekly earnings" for annual leave.
- Public holiday calculations for staff with variable hours.
- Bonuses, commissions and allowances treated as discretionary when they shouldn't be.
- Annual leave taken in advance and the related calculations.
Buyers and their lawyers now routinely ask for a Holidays Act compliance review as part of due diligence. If you cannot demonstrate that your payroll system handles the Act correctly, expect either a price reduction, an indemnity, or a hold-back of part of the price for a defined period.
The fix: get a payroll specialist to run a Holidays Act remediation review before going to market. Either you fix the historical exposure, or you disclose it accurately and negotiate the price knowing the number — both far better than discovering it during DD.
Restructuring close to a sale
A common temptation is to restructure or trim the team in the months leading up to a sale to make the financials more attractive. This is fraught:
- Any restructure must follow a genuine ERA-compliant process, including consultation and meaningful consideration of feedback.
- A restructure clearly executed to make the business more attractive for sale, with weak business justification, is vulnerable to personal grievance claims.
- The cost of grievances, even unsuccessful ones, can outweigh the EBITDA improvement.
If headcount genuinely needs to change, do it well in advance, with proper process, and document the commercial reasons in real time.
The handover communications playbook
How and when staff find out about the sale shapes whether they stay engaged. A workable approach:
- No leaks during the campaign. Restrict knowledge to a handful of people and use a blind teaser and NDAs (see our confidentiality article).
- Conditional offer signed. Tell senior leaders under NDA; engage them in transition planning.
- Conditions satisfied, settlement imminent. Joint communication with the buyer to the full team, in person where possible, with clear answers on continuity of employment, role, location, pay and culture.
- Settlement day. New owner present, available for questions, with a 90-day plan to share.
The two failure modes are telling staff too early (creating months of uncertainty and resignations) and telling them too late (creating a sense of betrayal). The sweet spot is conditional-offer-signed for leaders, settlement-imminent for the rest.
What this means for you
If you have staff and you are within twelve months of selling:
- Commission a Holidays Act review. Don't wait for DD to find the number.
- Confirm with your lawyer whether Part 6A applies to any part of your operation.
- Identify who you would tell, when, and rehearse the message.
- Resolve any live employment issues before going to market — they don't get easier under buyer scrutiny.
General information only — employment law decisions need an employment lawyer; this article is a starting framework, not legal advice.