How to Inform Employees of a Company Sale?
Say it once, to everyone on the same day, and only when the deal is certain. Under Czech legislation, the legal obligation to inform arises only when the employer itself changes, and this must be done at least thirty days in advance. Everything else is a matter of timing and wording, not legal statutes. The Prague-based lawyers at ARROWS prepare both the legal aspects and the script for the announcement itself. Below is the procedure and what to avoid.
Key takeaways
First, find out if the employer is changing at all
The question "do we have to tell the employees" has two different answers depending on how the transaction is structured. The deciding factor is whether the identity of the employer changes, not what the deal is called.
If you are selling a share or stocks, the employer remains the same legal entity. The owner changes, not the party to the employment contract, and therefore no special information obligation arises. If you are selling a business, part of it, or an establishment, or if it is a merger or demerger, the rights and obligations arising from employment relationships are transferred to the acquirer and the obligation is triggered. In the case of a business purchase, this follows from Section 2175 of the Civil Code, which considers the transfer of a business to be a transfer of the employer's activity.
The practical impact is crucial: for the sale of a holding parent company, no special deadline usually applies, whereas for the sale of a single production hall with its staff, a thirty-day period applies, and if you fail to meet it, you open the door for employees to leave quickly. This assessment should be made at the beginning of the transaction, not a month before signing, as it affects the timeline of the entire deal.
Also, be aware that the transfer occurs regardless of the parties' will. It is not possible to agree in the contract that employees will not be transferred, nor can they be asked for their consent. The transfer is a consequence of the transaction, not an optional part of it.
Who can you turn to?
What the law requires and within what timeframe
Where a transfer occurs, Section 339 of the Labour Code imposes an obligation on both the current and the acquiring employer. The information must cover four points: the date of the transfer, its reasons, the legal, economic, and social consequences for employees, and the planned measures.
The procedure then differs depending on whether there is a trade union or an employees' council at the employer. If so, they must be informed at least thirty days before the transfer and the aforementioned points must be discussed with them with the aim of reaching an agreement. Discussion means actual negotiation, not just sending out a notice. If not, the employees affected by the transfer are informed directly within the same period, and no obligation to reach an agreement arises.
A penalty applies only to the first of these two situations: under Section 23 of the Labour Inspection Act, a breach of the obligation towards trade unions and employees' councils is an offence punishable by a fine of up to CZK 200,000. There is no fine for failing to inform individual employees, but the consequences are different and, in practice, more costly.
The thirty-day period cannot be shortened. It is a minimum set for the benefit of employees, and an agreement on a shorter period would be ineffective against them. The transaction timeline must therefore adapt to this, not the other way around.
The cascade: in what order to tell people
The law says what and by when. It doesn't say how. And this is where it is decided whether the company continues to function after the sale, or whether the three people on whom the operation depends will leave within two months.
The proven procedure has four waves, and the main point is that no one learns important information from anyone other than their direct supervisor. The first wave is the innermost circle: the owner, the CFO, and one or two people essential for due diligence—all under a non-disclosure agreement signed before anything is said to them. We discuss how to write such an agreement in the article Free NDA Template with a Lawyer's Commentary.
The second wave comes when the deal is practically certain, typically after the contract is signed. These are managers and key experts, i.e., the people the buyer will be asking questions and who will pass the news on. This group needs more than just an announcement: they need to know what it means for their team and must have answers to the questions they will get an hour after the news breaks.
The third wave is the entire team, and one rule applies: one announcement, one day, everyone in the same informational position. Sending out emails to different departments several hours apart is the most common mistake and reliably creates the impression that something is being hidden. Where possible, the announcement is made in person or at a joint meeting, and an email follows afterwards as a record.
The fourth wave is customers, suppliers, and the bank. They must not find out before the employees, because the information will come back to the company distorted.
What to say and what not to say in the announcement
The text of the announcement should be short, specific, and must not contain anything you cannot deliver on. Employees will remember three things from the entire message: whether they still have a job, who their boss will be, and whether their pay is changing.
The announcement should therefore include four pieces of information. Who is buying the company and why. What is changing and from when. What is not changing, especially that employment contracts, salaries, and entitlements remain in effect. And who to contact with questions, ideally a specific name and a time when they will be available.
Conversely, the announcement should not include assurances that nothing will ever change, nor promises about the future structure that depend on the buyer. A broken promise from day one will damage trust more than a cautious wording. Where you don't know, it's better to say that it hasn't been decided yet and state when it will be decided.
It is advisable to prepare two things in advance: a Q&A sheet for managers, so that everyone answers consistently, and another for employees. The manager's version should also include what to say in response to questions for which there is no answer. In practice, the ARROWS law firm prepares this together with management as part of our company sales and transaction advisory services, concurrently with the legal part, as both influence each other. If you want to prepare the script in advance, write to consultation@arws.cz.
How to retain key people
The departure of a single person can reduce a company's price more than an entire legal defect. The buyer knows this and asks about it during negotiations, which is why retaining key people is part of the transaction preparation, not a reaction to the first notice of termination.
The law gives employees two quick ways out during a transfer. Under Section 51a of the Labour Code, a duly informed employee can give notice within fifteen days of being informed, and the employment will terminate on the day preceding the transfer. If they were not informed in time, they can give notice within two months of the transfer, and the notice period is fifteen days instead of two months. In addition, Section 339a allows an employee who terminates within two months of the transfer due to a substantial deterioration of conditions to seek a court declaration of this reason and, if successful, is entitled to severance pay.
A missed announcement therefore not only creates a risk of a fine, but also gives the entire team a tool to leave within fifteen days—during the most sensitive period after the change of ownership.
In practice, retention is built on three elements. A retention bonus split into parts, typically a smaller part at signing or closing and a larger part after several months have passed since the change of ownership, to maintain motivation through the period when departure is most likely. Furthermore, an adjustment of remuneration for people who will have broader responsibilities after the transaction. And finally, non-compete and non-solicitation agreements for those whose departure to a competitor would harm the company the most; we discuss their terms in the article What is a non-compete clause in commercial relationships.
Setting up retention is also a point where the seller and buyer usually share the costs, and it should be negotiated in the transaction documentation, not after signing. We describe the context with the individual phases of the deal in the article How is a company sold? Phases of a company sale from LOI to post-closing and they are also discussed in more detail in the book on selling companies by JUDr. Jakub Dohnal.
Potential problems | How ARROWS helps (consultation@arws.cz) |
|---|---|
Incorrect assessment of the employer transfer: the company follows the label of the transaction instead of what is actually being transferred. | We will assess the deal structure and determine if and when the period starts. We will incorporate this into the transaction timeline, not just at the end. |
Missed thirty-day deadline: risk of a fine and a fifteen-day notice period for the entire affected team. | We will prepare a schedule for information and discussion. We will ensure demonstrable delivery and a record of the discussion. |
Uncontrolled information leak: people learn about the sale in the hallway or from a customer. | We will establish confidentiality for everyone involved in due diligence. We will prepare a crisis version of the announcement in case of a leak. |
Departure of key people after the announcement: the company's price decreases due to missing competencies. | We will design a retention package and its allocation between the seller and the buyer. We will add non-compete and non-solicitation agreements. |
Subsequent layoffs: organisational changes after the transaction trigger the rules on mass layoffs. | We will check if the rules apply and prepare a procedure. We will handle the overlap with the information obligation during the transfer. |
Final summary
The legal part is simple: find out if the employer is changing, and if so, inform them at least thirty days before the transfer, and also discuss it with trade unions or the employees' council. The penalty for a breach against them can be up to CZK 200,000, and a missed announcement opens up a fifteen-day notice period for employees and a path to severance pay.
The managerial part is more demanding and determines the value of the company after the sale. It involves four waves of announcements in a fixed order, one message for everyone on the same day, prepared answers for managers, and retention for key people negotiated in the transaction documentation. The ARROWS law firm prepares both simultaneously and is insured for professional liability up to a limit of CZK 350,000,000. If you are planning a sale, write to consultation@arws.cz before the talking starts.