Employment warranties, disclosure and indemnities—share purchases
Employment warranties, disclosure and indemnities—share purchases

The following Employment practice note provides comprehensive and up to date legal information covering:

  • Employment warranties, disclosure and indemnities—share purchases
  • Relationship between due diligence, warranties, disclosure and indemnities
  • Warranties—general
  • Drafting employment warranties
  • Bargaining position of the parties
  • Split exchange and completion
  • Limitations on warranties
  • Procedure for claims
  • Parties
  • Matters covered by warranties
  • More...

On the acquisition of the entire issued share capital of an employer company (share purchase), while there will be a change in the shareholder(s) of the company, the contractual relationship between employee and employer will be unaffected; the share purchase itself does not give rise to a change of employer or any change to the contract of employment.

This contrasts with the position on an asset purchase, where TUPE 2006 operates to transfer the contracts of relevant employees to the buyer. TUPE 2006 also provides specific protection for employees in relation to variation of terms and dismissal, imposes obligations to inform and consult and requires the seller to provide certain employee liability information to the buyer—see TUPE and asset purchases—overview. No such specific protections or information and consultation obligations arise on a share purchase.

Relationship between due diligence, warranties, disclosure and indemnities

The starting point for a buyer in any share purchase transaction is the maxim caveat emptor (let the buyer beware). Since the seller is under no duty to disclose to the buyer any defects in, or liabilities of, the target, the buyer will always need to conduct its own investigations. It will therefore instruct advisers to conduct due diligence on commercial, tax, financial and legal matters (including employment), and to prepare due diligence reports to highlight material issues arising from their review exercise.

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