Buying a franchise with employees: how to check employment liabilities

Buying an existing franchise outlet can give you access to an experienced team. However, it does not mean you can freely choose which employees to take on or on what terms. Within a franchise network, individual business owners remain separate employers, and a change of outlet operator may trigger statutory employment protections. You therefore need to check liabilities to staff before agreeing a price and signing the purchase agreement.

1. Establish whether the deal also involves a transfer of an undertaking

In Poland, a franchise agreement is an innominate contract: it is not a separately defined type of contract governed by its own comprehensive franchise legislation. The Polish Civil Code, including the principle of freedom of contract, provides the main legal framework. When taking over a workforce, however, the key provision is Article 23¹ of the Polish Labour Code, which governs the transfer of an undertaking, or part of one, to another employer.

Where this provision applies, the new employer automatically becomes a party to the existing employment relationships by operation of law. This does not depend solely on how the sale agreement is labelled or on a clause stating that the buyer is “not taking on employees”. What matters is the actual situation: what is being transferred, whether the business continues and whether the economic entity retains its identity. The importance of equipment, organisation and staff depends on the nature of the business.

Before negotiating, distinguish between three situations:

• buying the business, or an organised part of it, that runs the outlet;
• acquiring selected assets while intending to continue a similar business;
• buying shares in the company that employs the staff.

In the last case, the same company generally remains the employer. A change of ownership alone does not mean a change of employer. Employment liabilities remain with the company and affect the value of the shares you are buying.

Have the transaction structure assessed before signing a binding offer. The franchisor’s approval of the buyer does not determine the employment law consequences.

2. Check liabilities, not just the monthly payroll

Headcount and total pay figures are not enough. Ask the seller for a schedule of liabilities, together with documents that substantiate the amounts. At the initial stage, use aggregated or appropriately anonymised data; access to personal data should be justified and subject to suitable safeguards.

Your checklist should cover:

• contract types, working hours, length of service and notice periods;
• basic pay, bonuses, allowances and applicable workplace policies;
• working time records, overtime and night work;
• untaken annual leave and long-term absences;
• unpaid wages and social insurance contribution records with ZUS, Poland’s Social Insurance Institution;
• employment disputes, inspections and outstanding recommendations;
• whether medical examinations, occupational health and safety training and required qualifications are up to date.

Review civil-law service contracts (umowy zlecenia) and arrangements with self-employed contractors separately. Do not assume they transfer under the same rules as employment contracts. Also check whether the way the work is actually performed creates a risk that the arrangement could be deemed an employment relationship.

Ask for explanations of any discrepancies between rotas, working time records and payments. If the outlet has long opening hours but reports only a small workforce, establish how many shifts the seller personally covers. After the purchase, you may need an additional employee to replace that work.

3. Allocate responsibility and secure settlement arrangements

Do not assume that a clause stating “the seller will cover all previous liabilities” protects you against employee claims. An agreement between businesses cannot deprive employees of their statutory rights. Where part of an undertaking transfers, the former and new employers are jointly and severally liable for employment obligations arising before the transfer. Other transaction structures require a separate assessment of the extent of liability.

The purchase agreement should ideally specify:

• a cut-off date and the method for settling pay and benefits;
• the seller’s representations concerning arrears, disputes and the completeness of records;
• arrangements for reimbursing the cost of undisclosed liabilities;
• security for such claims, such as an agreed retention of part of the purchase price;
• the deadline for handing over personnel records and payroll data.

Untaken annual leave does not disappear when the operator changes. If employment continues, the transfer itself does not automatically trigger an obligation to make a payment in lieu of leave. The buyer should allow for future absences and the cost of cover, and agree with the seller how this liability will be reflected financially in the deal.

4. Plan staff communications and business continuity

If there are no workplace trade union organisations at either employer, both the former and new employers must inform their employees in writing of the proposed transfer at least 30 days in advance. The information must include the expected date, reasons for the transfer, its implications for employees and any proposed employment-related measures. Where trade union organisations are present, the appropriate information procedure and any negotiation requirements must be followed.

The transfer itself cannot constitute grounds for dismissal by the employer. An employee may, however, end their employment without the usual notice period within two months of the transfer, provided they give seven days’ advance notice. Taking over the workforce therefore does not guarantee that everyone will stay.

Plan the initial rotas, arrange access to the HR system and identify who will be responsible for paying staff on time. Explain to the team who their employer will be and whom they should contact with questions. Do not promise changes to employment terms before checking their legal and financial implications.

Practical takeaway: before buying an outlet, obtain an assessment of the transfer’s implications, a schedule of employment liabilities and an agreed staff handover plan. Only then should you assess whether the price genuinely reflects the value of the operating business.