Employment Matters
What are Employment Matters? In this section, the Seller provides information regarding its responsibilities to employees and compliance with various employment-related laws. It is part of the Representations and Warranties of the Seller section.
The Representations and Warranties of Seller portion of the Agreement is used to save the Buyer time and money. Rather than require the Buyer to go through third parties to find certain information, the Seller provides the information and must reimburse the Buyer for any Losses it suffers if the information is false or misleading.
The Middle Ground: In the Employment Matters representation and the related Disclosure Schedules, the Seller provides the name and other employment-related information for all employees, independent contractors, and consultants of the Business. The Seller then represents that:
(1) All compensation has been paid to those employees, contractors, and consultants, and there are no related ongoing financial commitments except for those listed in the Disclosure Schedules;
(2) It is not bound by any collective bargaining agreement or other contract with a labor union and that no such union or group of employees has sought to organize for the purpose of collective bargaining (again, exceptions are provided via the Disclosure Schedules);
(3) It has no duty to bargain with any union, and its employees have not been involved in any concerted refusals to work;
(4) The Business complies with all applicable employment laws and no employment-related claims are pending or, to the Seller’s knowledge, have been threatened or filed against the Business;
(5) It has complied with the WARN Act and has no plans to undertake any action that would trigger the WARN Act provisions (if the WARN Act is applicable to the Business); and
(6) It complies with all regulations required of government contractors and it has not been the subject of an investigation, audit, or enforcement action by any Governmental Authority in connection with a Government Contract.
Purpose: These representations and disclosures give the Buyer a good sense of its employment-related risk and allow it to shift some of its risk to the Seller (namely, the risk stemming from one of the situations outlined above). This information also helps set the Buyer’s expectations in terms of overall employee-related costs and the level of formality required when addressing compensation issues with employees.
Buyer Preference: The Buyer wants this section to be expansive, with no knowledge qualifiers or time restrictions for the disclosures and representations. Additionally, if the Seller is in fact a government contractor, the Buyer will want to include representations that speak to the Business’s compliance with government-mandated employment requirements.
Seller Preference: It’s quite likely that not every representation listed here will apply to the Business (e.g. it is not a government contractor or the WARN Act does not apply). At a minimum, the Seller wants to exclude those inapplicable representations. The Seller also wants to cap the time periods to make certain disclosures, such as the disclosures relating to union organizing activity, as a way to keep transaction costs under control and limit the risk from an immaterial misrepresentation. The Seller can also limit its risk by including materiality or knowledge qualifiers when appropriate.
Differences in a Stock Sale Transaction Structure: None.
