Thursday, June 8, 2023

The labor liability when a company is sold

When the owner(s) of a running business decide to sell it to other investors, calculations are established to determine what that productive unit is worth. On one side is material value, which are the movable and real estate assets that can be quantified in material terms.

On the other hand, there is what is known as the market value, which is the position that the company can have in the preference of the public, both in the goods it produces, as well as in what it sells, or the services it offers, according to with the case.

Once the sale value of the company is established, a fundamental cost is taken into account: the labor liability. That is, the amount of money required to evict all the personnel who work in the company, paying them their accumulated labor benefits (notice, proportions of vacations and double salary, severance and bonus).

Typically, when a business is sold, the seller collects the amount of the organization’s value plus what is required to “liquidate” all personnel. In this way, the buyer receives the company with all the active personnel, but starting from scratch, with which they can rehire them or send them home, at no cost, because the seller, at the time of the transaction, already gave them their services. .

To give an example; suppose that a company is going to be sold for 1,000 million pesos, but the liquidation of its personnel (employees) requires an amount of 100 million pesos, then the buyer pays 1,100 million, that is, the value of the company plus the liabilities labor.

Now, is that good for employees? Yes, because everyone receives benefits from him. But no, because then you are already partially unrelated. Then, the new acquirer has the option of rehiring you in the same position with the same salary or sending you home. They may also rehire you in the same position, but offer you a lower salary and eliminate certain collateral benefits that the previous owner may have paid you.

Another thing could be that the buyer acquires the company with all the labor liabilities, with which he would pay the value of 1,000 million pesos and would leave all the personnel in their same positions with accumulated labor rights, as if there had been no change of owner. .

However, the foregoing is very unlikely, because everyone who acquires a going concern wants to have the labor liability free to be able to carry out any reinventory without incurring risks of demand or labor disputes. Simply remove the number of employees you want, if applicable, or keep them under the same conditions or with variations in benefits, starting from scratch, with which you have a margin of 90 days (three months) to make changes without compromise benefits.

The issue is relevant because the change of owner in a company in progress always fills the employees with uncertainty. In fact, the first thing is that they are all “partially” unemployed, because by paying their job benefits the new owner can send them home that same day or keep them until confirmed, which is a time of concern for all the staff.

For some employees it is convenient, especially those who have many years of work with accumulated benefits that, upon receiving them, can take the money to start a business or invest it, either in the financial sector or in any other acquisition that generates profitability or comfort.

The point is that for others it means being unemployed or having to accept a rehire with a reduced salary, for being a “new” employee, after having been laid off.

In any case, it is a normal operation that occurs in the cases of sales of companies in progress and that is covered by the legal regulations in force in the Dominican Republic, although there are cases in which the new acquirer buys the company to dissolve it and sends all the employees home, while the seller, who collected the labor liability, did not comply with the staff settlement, which causes legal conflicts that end up in court. In the Dominican Republic there are several cases in process.


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