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What happens to employees when a company is sold? Are employees automatically transferred to the new owner, or are they terminated? Do the same rules apply in the case of a share deal and an asset deal?
These are all reasonable and predictable questions that potential buyers and sellers might ask. In this article, we will attempt to clarify these questions from the perspective of Turkish law. Let’s start with the definition of a share deal and an asset deal, as the answers to these questions will differ depending on the type of deal. Then we will continue by explaining the different rules that apply to a share deal and asset deal, respectively.
What is a share deal?
In a share deal, the shares representing a company’s share capital are transferred from their holders, who may be individuals or legal entities, to third parties, who may also be individuals or legal entities. While the legal entity of the company remains constant, a shift in ownership occurs. In simpler terms, control of the company moves from the former owners to the new ones. The primary change involves the company’s shareholders.
What is an asset deal?
For the purposes of this article, an asset deal pertains to the sale of tangible or intangible assets associated with a company’s business, collectively referred to as the “business”, to a third party. The legal entity and its owner remain unchanged, but the company no longer retains ownership of the business.
What happens to the employees?
Share deal:
Since the legal entity of the company does not change in the case of a share deal, the contracts to which it is a party continue, in principle, to be binding on the company and the contracting party. Provided that such contracts do not contain a clause stating that the contract is terminated in the event of a change of ownership of the company, a so-called “change of control clause”, a share deal does not lead to the termination of valid contracts.
Employment contracts between the company and the employees are no different from other contracts of the company from this point of view. However, it’s essential to recognise that Turkish Labour Law provides additional safeguards for employees, which cannot be bypassed through employment contracts. The rule is that a change in the ownership of the company is not a valid ground for terminating an employment contract.
Furthermore, if the new owners are planning to make material changes to the working conditions of certain employees, they must notify the affected employees in writing and obtain their consent, in accordance with Turkish Labour Law.
Asset deal:
In the case of an asset deal, the employment contracts existing at the time of the transfer are automatically transferred to the new owner, along with all rights and obligations. The employment contracts remain valid, but the identity of the employer changes. This means that all employee rights, including seniority, are calculated from the date the employee started working for the previous employer and not from the date the business was transferred. Furthermore, in the case of a business transfer, both the seller and the buyer share joint liability for debts that predate the transfer and become due at the time of the transfer. However, the seller’s liability for these obligations is limited to two years from the transfer date.
As in the case of a share deal, the change of ownership of the business through an asset deal is not a valid ground for the termination of an employment contract.
However, similar to a share deal, if the new owners want to make material changes to the working conditions of the employees, they must inform the affected employees in writing and obtain their consent. Otherwise, employees may have the right to terminate their contracts.
How can the employment contracts be terminated?
Settlement Agreements:
There is no doubt that neither a share deal nor an asset deal, on their own, constitute valid grounds for employment contract termination. So, what would happen if the new owner wanted to terminate the contracts of some employees? In such cases, we recommend concluding settlement agreements between the employer and the employee to terminate the employment contract on mutually agreed terms.
If certain conditions are not met, the employee can challenge the validity of the settlement agreement. For example, it is very important that the employee receives a reasonable benefit from signing the settlement agreement. A reasonable benefit implies that there is an additional benefit in addition to what the employee is entitled to.
The procedures for proposing and negotiating settlement agreements affect the validity of such agreements; therefore, necessitating legal supervision throughout the process.
