Can a seller or I fire all employees when buying a small business?

February 24, 2019 11:44 AM

Thinking about buying a small retail store with about 6 employees. I want to have all new employees when the business is purchased. Any legal problems for this?

I already thought about detailed PROs & CONs of keeping the previous owners' employees. I am now sure I would need to replace all previous employees with new set of employees. For some reason, I can't not find any good information for US businesses on Google. Some says I can just purchase the assets and take over the lease (basically kill the previous business and start a new business entity at the same place with the same asset) to be not responsible for the previous employees in the original business. BUT I have to maintain the same business entity to continue certain reseller licenses. I worry mostly about legal ramification. (most of these employees are on min. wages or little over min. wages)

posted by curiousleo to Law & Government (14 answers total)

Employment law and business law in the United States both vary wildly by state. That's why over 60% of fortune 500 companies are incorporated in Delaware.
posted by SaltySalticid at 11:49 AM on February 24, 2019 [1 favorite]

If you are concerned about the legal issues, you can get a lawyer. Laws vary by jurisdiction, and sometimes with the size of the business. States and municipalities may offer additional protections to workers, so you also need information and guidance related to local laws that may apply.
posted by Little Dawn at 11:50 AM on February 24, 2019 [9 favorites]

This is a great question for your lawyer. As a soon to be small business owner you should have an existing relationship with one, specifically for questions like this, where you may be opening yourself up to a liability.
posted by furnace.heart at 11:53 AM on February 24, 2019 [6 favorites]

Have you considered the possible impact on reputation with local customers? I would personally avoid shopping at an establishment where everyone was fired when they came under new ownership unless there was corruption, or they were rehiring to offer better pay or something.
posted by crunchy potato at 1:45 PM on February 24, 2019 [59 favorites]

Best answer: This is definitely territory for a lawyer to help you with; you probably would use one anyway for the business transfer but you may need an employment lawyer for this part of it. You are correct that generally an asset purchase means you don't need to take on the employees. You mention the complication that the existing entity has reseller licenses but there is probably a way to transfer them, which would enable you go the asset purchase route. However, when buyers do asset purchases, they tend to go through the motions of asking everyone to reapply for their jobs with the new corporation. If you do that and don't hire any of them, or if you just tell them you're not hiring them, you're likely to run into a lot of negative word-of-mouth, negative social media posts, and potentially negative press. Not a good way to start out your ownership. So purely from a marketing/PR point of view, I would retain the employees and transition to your own team over time. If these are quite low-wage jobs you'd probably get the turnover soon enough anyway.
posted by beagle at 1:50 PM on February 24, 2019 [6 favorites]

My family member worked for 15 years in the upper administration of a company that was recently sold.

Almost everyone in the company got their pink slips on day of sale. Family member was laid off two months later after overseeing transition, with no severance after 15 years.

So I suppose it is legal, in that state. Good luck sleeping, though.
posted by Dashy at 1:54 PM on February 24, 2019 [41 favorites]

You’ll also lose their knowledge of the business, the ins and outs of customer flow, issues with the equipment, the systems, vendor schedules and contacts, and about a zillion other things that you won’t get out of brand-new employees. For the sake of your own transition and continuity, I’d recommend keeping them on until your new business has reached a point where you can replace them without shooting yourself in the foot.
posted by Autumnheart at 1:59 PM on February 24, 2019 [26 favorites]

Best answer: The seller? Probably not. You? It depends on what you are buying. I'm not going to shame you for wanting to do this - I can think of many minimum wage jobs in near dead-end towns which attracted an unsavory group of people who routinely stole from the company that they worked for, and misinterpreted a somewhat unique job as a license to do drugs and drink during their shift or 50' off the property, or have their friends visit that had just done so. Just remember: you have the same pool of help from which to pull new employees. So, if you are firing everyone - you'd better have help lined up with a steady source of new talent pool to fill in AND be ready to take on any additional operating expenses from said new labor. Be ready to operate your business in the city/town you are in with the reputation for just having cleaned house - that can be an absolute double edged sword - even if you are firing people for the right reasons.
posted by Nanukthedog at 2:06 PM on February 24, 2019 [3 favorites]

Best answer: So, former retail manager here. Firing your entire worker base is a great way of destroying your revenue stream early on. Your existing staff do not need to be trained, sought out or hired - those are costs. Contrary to popular mythology, retail staff do need training, especially if you're selling specialized stock, and they become more efficient with experience. In my field it was about three months from green to functional, then another three before they were capable of generating the same income as older hands.

So legalities aside, doing a fire wholesale is not going to be great for you.

I would be very wary of any seller who blames problems with the store on their staff. I have survived three rounds of business sales, and in all cases it was told to the buyer that problems with revenue stream can be traced back to staff. In one of those cases the books had been cooked, and in another they were overplaying "potential" revenue. New staff wouldn't have fixed this. If you're talking to a lawyer I'd recommend having them double check there's no funny business under the hood, as it were.

If you've already done some serious looking at the situation, and your staff are genuinely garbage, your best bet is to identify the one or two staff members who are least garbage to hold down the fort while you train and season new staff. You can't have brand new employees handling money and dealing with things like stock control, it's a great way to lose money, stock and goodwill. Seen it happen. Keep the manager and the 2IC if you can while you rehire.
posted by Jilder at 2:39 PM on February 24, 2019 [15 favorites]

Response by poster: Thank you very much for all the comments.. even the shaming ones too. I do plan to hire a lawyer. It is only a very beginning stage of the talk... and I wanted get some feedback before I officially jump in for the negotiation...

Nanukthedog... you assumed correctly... the store's employees has some problems (routinely stealing, drugs, bad services, etc)... probably not all of them... but it seems clear that majority of them are taking advantage of the current owner. I even told him about my concerns as a friend. But current owner really is too tired of it all to do much about it. I think it has a lot to do with the owner also being a manager/buyer/seller who couldn't tend the store at all hours...

Frankly, I didn't want to deal with this myself... but I agree most of you are correct, especially the optics from customers' view would be bad.

and to Dashy, sorry to hear about the situation, I think my question may have sounded a bit heartless without more details... but it is a bit different with this group of people...

I would appreciate if there are any more thoughts/advice on buying a retail business...

* The reason for buying the entity instead of asset purchase is to maintain supplier relationship... Re-establishing current supplier with new entity would mean going through reviews again and risk loosing some of key suppliers. (Some suppliers may leave to competitors during the entity change)
posted by curiousleo at 3:31 PM on February 24, 2019

Just ask a lawyer, do not ever listen to the internet on this one. It's too complicated. Labour law sometimes does apply to asset sales depending on situation and jurisdiction.
posted by lookoutbelow at 4:43 PM on February 24, 2019 [4 favorites]

Best answer: Not a lawyer or small business owner, but worked for a small company for years in a "Right to Work" State. In a RTW State, the employer can fire anyone or the employee can quit with no reason, no severance and no notice, unless the firing violates the Civil Rights Act or Americans with Disabilities Act. But one of the problems with firing anyone in the US is that they could file suit against you under either of these acts, no matter how baseless, and cost you money. For that reason and others, most employers around here will lay off an employee with a generous severance and not dispute any UI claims rather than fire them.
After consulting with a lawyer, a good strategy in your situation may be to have the current owner lay out the new conditions of employment you will be implementing. These may include pre employment and random drug testing, anti-theft systems, cameras, customer feedback. Then have them offer a severance to any employee that decides to quit before the sale goes through. If they are only making at or slightly above minimum wage, a windfall of a few thousand dollars may appeal to them, especially if it seems like they will be out of a job in a few weeks for cause with no severance. This severance would then be reimbursed by you when the sale is finalized. This may also weed out the bad employees while the possible few good employees may stay. Your lawyer should be able to suggest a number for the severance which would may sense compared to fighting even one false claim. Keep in mind, if you fire everyone outright, you may be firing good employees that have done nothing wrong, and possibly replacing them with worse employees of your own hiring.
posted by Short End Of A Wishbone at 9:11 PM on February 24, 2019 [4 favorites]

Can you work there in advance of the sale? Probably worth it to get you up to speed on the business and to be sure it's a business you really want to be in. Have the owner hire you as a manager or just do it for free. That will give you a chance to learn what current employees know/do and you can start bringing in replacement staff as normal staff starts to quit since you're such a hard ass that doesn't let them get away with stuff like the owner does.
posted by willnot at 5:21 PM on February 25, 2019 [2 favorites]

So, I don't know if my opinion is a common one but having worked minimum wage jobs as a very young person, in my experience there's going to be some of that stuff going on in almost any business hiring low wage workers. If you are paying a rate that makes someone disposable, then you draw people that don't necessarily care about your mission. I don't know what kind of business this is, but food service, stores affiliated with malls, you're going to find this stuff in all of those types of establishments.

Maybe someone else will come in and correct me, but if you're trying to take over a business where people aren't paid well, minimal or no benefits, hiring young people, then you need to accept that there's likely to be some of this.
posted by crunchy potato at 9:58 AM on February 26, 2019