Managing Employees During a Business Divorce

During a business divorce, managing your business’s employees may become an issue. Many businesses rely on the hard work of their employees to continue operating. Depending on the status of your business, keeping employees happy might be important. Or you might be wondering how to let some employees go during the divorce. During your business divorce, consider the following questions regarding your employees.

Can You Keep Employees or Do You Need to Let Them Go?

One important consideration during a business divorce is whether you can keep employees. You may want to keep loyal or long-time employees on board while the divorce goes through. However, that may not be possible depending on your circumstances. For example, if your business is having a cash flow problem or is facing bankruptcy, you may have to let employees go. Unfortunately, this also may have the effect of reducing productivity or morale. The timing of when you announce the divorce (discussed below) is a key factor when you need to let people go.

Moreover, make sure you follow local, state, and federal employment laws regarding termination of employees or contractors. For instance, there are laws about employee rights during mass layoffs in some states. Consult with a business divorce lawyer to learn which employment laws or contract laws apply to your business.

Additionally, if you plan to sell the business, some buyers may be willing to keep key employees in their positions. However, you may not have a guarantee that the new owners will retain employees for long (especially if they are in an at-will employment state). Consider whether employee retention is important for your business. You may have a stronger bargaining position when negotiating a sale if you forgo retention. Because retention is a difficult issue that can be emotional, you should discuss it at length with your business divorce lawyer.

When Will You Tell Employees About the Business Divorce?

Consider carefully the timing of when you notify employees about the business divorce. Telling employees as late as possible might be for the best. You also may want to think about how you convey the message. You might decide to frame the business divorce as a mutual decision to end the business. Or you might describe it in a positive light as an acquisition by another business that will help you grow.

For many employees, the news of a business breaking up or being sold can be a catalyst to job hunt. You may find that shortly after you share the news, many employees decide to leave. If you want to retain key employees, you might consider bonuses or other incentives for staying on.

Before you share the news of the business divorce, review any contracts your business has with its employees. For example, you may have signed noncompetes, nondisclosure agreements, confidentiality agreements, or independent contract agreements. You and your business lawyer should be very familiar with the contents of those agreements in case employees leave. You may have an argument that an employee has breached the terms of a contract.

What If You Are an Employee of the Business?

If you are both an owner and an employee of the business getting a divorce, keep in mind how the divorce will affect your status. You may have important personal financial reasons for keeping the business running – because otherwise, you might lose your job. As an owner of the business, however, you may realize that keeping the business running is not in your company’s best interests. In this situation, it is particularly important to go over your unique situation with an experienced business divorce lawyer. He or she can review your case to determine the possible ways you could move forward.

Business Divorce Questions? Call Us

Henke & Williams, LLP’s lawyers handle business divorces for clients in the Houston area. We work hard to provide a customized experience for each business divorce client, because every business is different. If you are facing a business break up, contact us for legal advice. To set up a consultation, call 713-940-4500 or use our convenient Contact Form.

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