Buying an existing franchise: check your employment obligations

Buying an existing franchise outlet often means starting with an experienced team. That is a valuable asset within a franchise network, but it also brings obligations that may not be immediately apparent from the sale price. Employment contracts, accrued leave entitlements and ongoing return-to-work arrangements may become your responsibility. Before you buy, establish which employment obligations will transfer and agree in writing how you and the seller will allocate the risks.

1. First establish whether employees transfer automatically

When buying a business, you cannot always choose which employees to retain. Dutch transfer of undertaking rules, set out in Article 7:662 and subsequent articles of the Dutch Civil Code, may mean that employees transfer automatically to the new employer, with their existing rights and obligations intact.

The key question is whether an economic entity is being transferred while retaining its identity. Relevant factors may include its activities, equipment, customer base and the transfer of staff. Continuing at the same premises, under the same franchise concept and carrying out the same work may point towards this, but the assessment depends on all the circumstances.

Distinguish between two types of purchase:

• Asset purchase: you buy assets such as equipment, stock and business operations. A transfer of undertaking may occur even if there is no agreement about employees.
• Share purchase: you buy shares in the company operating the outlet. The employer generally remains the same legal entity, and its existing employment obligations remain within that company.

A new franchise agreement, or an agreement to buy the business ‘without staff’, does not override employees’ statutory rights. Have an employment lawyer assess the acquisition structure first. The transfer itself is not a valid reason for dismissal.

2. Review the team without breaching privacy rules

Ask the seller for staffing information for your due diligence. Start with an anonymised overview and seek advice on which personal data can lawfully and necessarily be shared later. The General Data Protection Regulation (GDPR, known as the AVG in the Netherlands) continues to apply during a business acquisition.

For each role or anonymised employee, ask for details of:

• contract type, agreed working hours and employment start date;
• salary, fixed allowances, bonus arrangements and other employment terms;
• accrued annual leave, holiday allowance and time off in lieu;
• the applicable collective labour agreement (CAO) and pension scheme;
• fixed-term contracts, on-call arrangements and regular overtime;
• ongoing employment disputes and any agreed termination arrangements.

Also investigate sickness absence and return-to-work obligations, but do not request diagnoses or medical records. Have any necessary information assessed through a carefully designed process. A confidentiality agreement does not, in itself, give you an unrestricted right to receive personal data.

Cross-check the overview against payroll records, contracts and actual staff rotas. Does anyone regularly work more hours than their contract states? Have individual allowances been agreed verbally? Such discrepancies warrant further investigation. Do not approach employees about their records without involving the seller; agree on communication and confidentiality arrangements first.

3. Calculate the full cost of being an employer

Gross monthly pay tells only part of the story. Ask your accountant or payroll adviser to prepare a breakdown of total employment costs, including holiday allowance, employer social insurance contributions, pension contributions and any applicable allowances. Include cover for staff on leave, training and any compulsory franchise training.

Check separately that all wages and pension contributions are up to date. Special rules and exceptions apply to pensions in a transfer of undertaking. Do not assume, without checking, that the existing scheme will continue unchanged or that you will be free to choose a new one. Compulsory membership of an industry-wide pension fund may also be relevant.

Long-term sickness absence requires particular attention. Obligations to continue paying wages and support employees’ return to work may continue after the acquisition. Check which insurance provides cover, whether that cover will remain in place through the transaction and which obligations are uninsured. Do not automatically treat an existing policy as guaranteed protection in your calculations.

Also establish how much work the seller personally carries out in the business. Their hours may not appear in the payroll records. If you do not take on those duties yourself, you will need additional staff. This helps you avoid finding that an apparently affordable team does not provide enough cover in practice.

4. Put risk allocation and handover arrangements in writing

The Netherlands has had a Franchise Act (Wet franchise) since 2021, incorporated into Book 7 of the Dutch Civil Code. Among other things, it governs pre-contractual disclosure by the franchisor and the prospective franchisee’s duty to investigate. However, this protection does not replace employment due diligence on the outlet you are buying. Information from the franchisor and information from the selling employer serve different purposes.

Ensure the purchase agreement records which staffing information has been provided, how accrued entitlements will be accounted for financially, and how you and the seller will allocate the risk of undisclosed arrears or disputes. Warranties and indemnities can strengthen your position against the seller, but they do not limit employees’ statutory rights against their employer.

Before the handover, arrange payroll administration, occupational health services, pension administration and any required employee consultation procedures. Agree who will inform the team and when. A clear explanation of who their employer will be, whom to contact and what their employment terms are will help maintain trust within the franchise network.

Practical conclusion: do not just assess the outlet you are buying; investigate the employer responsibilities that come with it. Before signing, have your employment lawyer and financial adviser jointly review the staff list, total employment costs and contractual allocation of legal risks.