How to Inform Employees of a Company Sale?
When selling a company, you are not always required to inform your employees; a special obligation arises when employment relationships are transferred to a new employer, but not during a standard sale of an ownership interest or shares. If such a transfer occurs, this communication must be prepared at least 30 days in advance and properly timed for employees or their representatives. In this article, you will learn when this obligation arises, what to communicate to employees, and how to mitigate the risk of penalties, terminations, and the loss of key people.
Key takeaways
What Matters is the Transfer of the Employer, Not the 'Share Deal' or 'Asset Deal' Label
The answer to whether you are legally required to inform employees about the sale of a company does not depend on what the transaction is called, but on whether there is a transfer of rights and obligations from employment relationships to a new employer under Section 338 of the Czech Labour Code. If the owner is only selling a business share or company stock, a typical share deal, the employer as a legal entity does not change, and no transfer occurs.
Conversely, a transfer occurs in a broader range of transactions than just what is commonly referred to as an asset deal – typically in the purchase or lease of an enterprise or part of it, in a merger, demerger, or transfer of assets to a shareholder. Under Section 2175(2) of the Czech Civil Code (Act No. 89/2012 Coll.), the purchase of an enterprise is considered a direct transfer of the employer's activities, thus triggering the information and consultation duty under Section 339 of the Czech Labour Code.
In practice, this means that a similar-looking transaction may or may not give rise to the obligation under Section 339 – depending on what exactly is being transferred and how the transaction is structured. The sale of a holding company's parent company will generally be a share deal with no direct impact on the employers of the subsidiary companies. However, the sale of a specific enterprise, establishment, or its organisational unit usually means a transfer of the employer.
Even with a share deal, however, the employer is not entirely without obligations – the general duties to inform and consult on the company's economic situation and planned organisational changes under Sections 279, 280, and 287 of the Czech Labour Code apply regardless of the legal form of the sale. The lawyers at the Prague-based ARROWS law firm will assess the specific transaction structure and tell you whether and from when the special information duty under Section 339 applies to you – if you are also dealing with the sale of the company itself, take a look at our specialisation in company sales and transaction advisory.
Who can you turn to?
When the legal duty to inform employees arises
The duty to inform and consult upon the transfer of rights and obligations is regulated by Section 339 of the Czech Labour Code and distinguishes between two different regimes, depending on whether a trade union or an employee council operates at the employer's workplace.
If a trade union or employee council is present, both the current and the acquiring employer must inform them at least 30 days before the transfer about the proposed date of the transfer, its reasons, and the impact on employees, and consult with them to reach an agreement – meaning to conduct real negotiations on the proposed measures, not just send a notification.
If there is no trade union or employee council at the employer's workplace, the obligation does not disappear, it is merely simplified. The employer must, within the same 30-day period, directly inform the employees who will be directly affected by the transfer – however, in this case, the law does not explicitly require consultation to reach an agreement, only the provision of information. This is a common situation in small and medium-sized enterprises, where trade unions are usually not present.
The thirty-day period is a legal minimum, not a recommended standard, and failure to comply has real consequences. If an employer fails to fulfil its obligation towards a trade union or employee council under Section 339(1), it constitutes an offence under Section 23 of Act No. 251/2005 Coll., on Labour Inspection, for which the State Labour Inspection Office may impose a fine of up to CZK 200,000.
What are the risks if you underestimate communication or miss the deadline
Non-compliance with Section 339 of the Czech Labour Code has three types of consequences: an administrative penalty from the labour inspectorate, an impact on the notice period under Section 51a, and the risk of a claim for severance pay under Section 339a. All three are worth knowing before you plan your employee communication.
For breaching the information and consultation duty towards a trade union or employee council under Section 339(1), the employer faces an offence under Section 23 of the Labour Inspection Act (Act No. 251/2005 Coll.) with a fine of up to CZK 200,000. However, this penalty applies exclusively to a breach towards trade unions or the employee council under subsection 1, not to informing employees directly under subsection 2.
The second consequence directly affects employees. If the employer fails to meet the information duty under Section 339 at least 30 days before the transfer, an employee may give notice of termination for this reason under Section 51a of the Czech Labour Code – and if they do so within two months of the transfer, their employment will end with a shortened 15-day notice period instead of the usual two months.
Even a duly informed employee who does not wish to continue with the new employer may, under Section 51a(1) of the Czech Labour Code, give notice of termination due to the transfer within 15 days of being informed – their employment will then end on the day before the transfer, i.e., earlier than the standard notice period would allow.
Furthermore, Section 339a of the Czech Labour Code applies specifically within two months after the transfer. If an employee's working conditions substantially worsen in connection with the transfer and they therefore terminate their employment by notice or agreement within two months of the transfer, they can seek a court declaration of this reason – and if successful, they are entitled to severance pay under Section 67(1) of the Czech Labour Code, i.e., one to three average monthly earnings depending on the length of their employment.
If the transaction also leads to organisational changes and redundancies exceeding the statutory number of employees, a separate obligation to consult on collective redundancies under Sections 62 to 64 of the Czech Labour Code may arise.
Practical procedure: how to prepare employee communication
The legal minimum under Section 339 is only part of the task. Equally important is the order and manner in which individuals in the company learn about the sale – and this applies even where the law does not impose a specific deadline, typically in a share deal.
A proven approach is to first ensure the confidentiality of everyone who learns about the transaction during due diligence by means of a non-disclosure agreement (NDA), and only then prepare a unified narrative for the company's management, key employees, and finally the entire team. Inconsistent or gradually leaked information is often worse for the company than a single, clearly formulated announcement, even if it comes later.
For data transferred to the buyer during due diligence, personal data protection under GDPR (Regulation (EU) 2016/679 of the European Parliament and of the Council) and trade secret protection under Section 504 of the Czech Civil Code (Act No. 89/2012 Coll.) also play a role. The scope of personal data in due diligence is therefore limited to the necessary minimum – anonymised or aggregated overviews and sample documents are standard, while access to specific identifiable data of key employees is assessed based on the legal title and the phase of the transaction, not on a single general rule about timing.
Preparation also often includes a so-called retention package for key employees, i.e., an offer that gives them a reason to stay with the company even after a change of owner or employer.
Potential problems | How ARROWS helps (consultation@arws.cz) |
|---|---|
Incorrect assessment of whether a transfer of employer is occurring: share deals, asset deals, mergers, and enterprise purchases have different legal regimes for informing employees. | We will assess the specific transaction structure and tell you whether and from when the duty under Section 339 of the Czech Labour Code applies to you. |
Missed or merely formal 30-day deadline: risks a fine of up to CZK 200,000 from the labour inspectorate and the risk of terminations under Sections 51a and 339a. | We will prepare a schedule for informing and consulting with trade unions, the employee council, or directly with employees. |
Premature leak of information about the sale: can jeopardise the negotiating position and the transaction itself. | We will set up NDAs and internal confidentiality rules for everyone involved in due diligence. |
Departure of key employees after the announcement: risk of a shortened notice period under Section 51a and entitlement to severance pay under Section 339a. | We will design a retention package and the wording of the communication to reduce the risk of premature terminations. |
Subsequent collective redundancies: the transaction may also trigger a separate obligation under Sections 62 to 64 of the Czech Labour Code. | We will check whether the rules on collective redundancies apply to you and help you comply with them. |
Final summary
The sale of a company always interests employees, but the law does not require the same procedure in every situation. The special information and consultation duty under Section 339 of the Czech Labour Code arises only where there is a transfer of rights and obligations to a new employer, and at least 30 days in advance; for the mere sale of a business share or stock, this specific duty does not arise, but the general information duties under Sections 279 and 280 still apply.
Failure to meet the thirty-day deadline is not just a formal shortcoming. Towards a trade union or employee council, it carries the risk of a fine of up to CZK 200,000 from the labour inspectorate; moreover, under Section 51a, employees gain the right to a shortened notice period, and under Section 339a, potentially a claim to severance pay if their working conditions substantially worsen in connection with the transfer.
If you do not want to risk an administrative fine, a dispute over severance pay, the departure of key people, or an unnecessarily complicated process, it makes sense to set up employee communication in advance and with a lawyer on hand, not when the first rumour of a sale appears in the hallway. Contact the lawyers at the Prague-based ARROWS law firm at consultation@arws.cz, we will be happy to help you.