When a business is sold, employers must balance their legal duty to employees with the practical realities of making a sale. The Employment Relations Act 2000 (ERA) requires employers to keep employees informed about any changes that could impact their jobs and to give them an opportunity to share their thoughts and provide feedback before decisions are finalised. However, this requirement can be challenging when a business sale is involved.

Why This Matters

Selling a business is a complex process and almost always affects employees, because their jobs with the current employer typically end when the sale is completed. The law requires employers to discuss these potential changes with employees before making final decisions. However, sharing sale details too early can be risky for business owners, because it involves sensitive commercial information.

Common Approaches

1. After-Sale Consultation: Many businesses wait until a sale agreement is signed before discussing the impact with employees. This allows employers to protect confidential business details but does not fully meet the legal requirement for early consultation.
    
2. Conditional Sale Agreements: Some businesses use conditional sale agreements, meaning the sale only goes through once certain conditions are met. This allows time to consult employees before the sale is finalised; although, it may not fully satisfy the ERA’s requirements.

Protecting Confidential Information

Employers are allowed to withhold certain confidential details from employees if sharing them would harm the business. However, they must have a valid reason for keeping information private. Confidential information, in this case, refers to details shared under an expectation of secrecy.

Finding the Right Balance

Balancing transparency with business interests is challenging. While employers must act in good faith by informing and consulting employees, they also need to protect the business. Exploring different approaches, such as conditional sale agreements, can help businesses navigate this tricky situation while staying as compliant as possible with employment laws.

Recent Case Law

The above issues have been addressed by the Employment Court in 2024 inBirthing Centre Limited v Matas. The Court of Appeal subsequently declined the appeal against the findings brought by the Birthing Centre Limited. The case involved the acquisition of a private birthing centre by the MidCentral District Health Board (“MDHB”). The transaction resulted in the vendor closing its centre, terminating the employment of all midwives, with the MDHB offering them new employment. The MDHB requested that the employees not be informed of the negotiations due to confidentiality reasons and the terms of the agreement were only announced after the transaction was finalised. Although the affected employees were consulted about some terms and conditions of employment with MDHB, the termination and transfer of their employment was effectively concluded by the time they were notified.

Several employees raised personal grievances for unjustified dismissal and breaches of good faith alleging they were not adequately consulted. The key focus of the arguments before the Employment Court were whether the threshold had been met allowing the vendor to withhold details of the sale until completion on the grounds that it was commercially sensitive. The Employment Court held that the vendor had failed to meet its obligations and concluded“a fair and reasonable employer could in the circumstances have considered options for exploring whether it could maintain the integrity of [its] commercial position as well as the DHB’s commercial position, while informing its employees of the proposal in a confidential way”.

The Employment Court further held that the vendor had failed to:

• consider whether providing information to the union was viable on an embargoed basis;
• direct employees not to share information during the consultation process;
• include as a condition of sale that staff be consulted on a confidential basis and their view sought before the sale agreement became unconditional. 

Conclusion

It is necessary to take into account basic employee rights when selling a business. Although it may be important to protect commercially sensitive information, employers need to look at ways to ensure that employees are kept informed about potential decisions which will affect their employment. A business will need objective evidence to justify maintaining confidentiality of information, including evidence of unreasonable prejudice to their commercial position which would occur if they did share information with employees prior to finalising a sale.

If you have any questions or seek advice or assistance, please do not hesitate to contact Brett Vautier or Stephanie Harris.