Employment/Consulting Agreements

An employment contract which is part of a business sale is usually different than in any other context in one crucial area - the identity of the employee. Often the person who is receiving the employment contract is the former owner/president of the company.

Among the key areas of negotiation are compensation including benefits, scope of duties, and term. In regard to benefits, the issue often is which of the perks the seller enjoyed as owner will he or she still have as employee. The negotiation over the term is often interesting because different buyers and sellers have different motivations. Some sellers want a long-term relationship because they find that they do not want to retire and cannot find similar jobs without leaving the area (or the non-competition area). Other former owners cannot wait to leave the company once they sell it. Assuming that the former owner has a good relationship with the employees, customers and suppliers, the buyer may want the former owner to stay on so that people do not feel that a major upheaval is occurring.

Consulting agreements can be true consulting agreements where an important former employee continues to be available for assignments. In other cases, the consulting agreement is mainly a tax strategy to avoid double taxation by direct payment to the shareholder/consultant.

In large companies with key employees who are not the owners, an employment agreement can also be important to make sure that the key employee, the chef, the sales manager, the warehouse manager or computer programmer are going to be working for the new owners after closing. This often creates an interesting condition to closing in that it is a condition that is not controlled by the seller - will the key employee agree to stay.