Buying an existing franchise: check the employee transfer arrangements

Buying an established franchise outlet means joining a franchise network with an experienced team already in place. But employees are more than part of the sales pitch: their contracts, accrued rights and any outstanding claims can significantly affect the purchase. Before agreeing a price with the seller, establish who will employ them after the takeover and which obligations will pass to you.

1. First, establish exactly what you are buying

When you buy a shareholding in the company that operates the franchise outlet, the company generally remains the employer. A change of ownership does not, in itself, transfer employment contracts to another employer. However, the company also retains its existing obligations towards employees, so you must factor these into your valuation.

The position is different if your company buys an organised business unit or takes over its operations. If the transaction constitutes a legal transfer of a business, or part of a business, that retains its identity, it may trigger a change of employer under Article 75 of Slovenia’s Employment Relationships Act (ZDR-1). This assessment depends on how the business actually continues to operate, not simply on the title of the agreement.

Relevant factors may include taking over premises, equipment, employees and customers, and continuing the same business activity. None of these factors is decisive on its own in every case. Signing a new franchise agreement does not rule out the possibility that a business unit has also been transferred.

Practical step: show your lawyer the entire transaction, including arrangements with the seller, landlord and franchisor. Reviewing individual agreements separately can obscure the true nature of the takeover.

2. Understand the rules that apply in Slovenia

Slovenia has no dedicated franchising act, compulsory national franchise register or specific statutory franchise disclosure document. Franchise agreements are not governed by a dedicated statutory framework; they are subject to the general rules of Slovenia’s Obligations Code, including the principles of good faith and fair dealing, and the rules on negotiations and the performance of obligations.

Employees, meanwhile, are covered by ZDR-1, applicable collective agreements and other relevant legislation. Where the conditions for a change of employer are met, contractual and other employment rights and obligations pass to the transferee by law. A buyer therefore cannot simply decide to retain selected employees while leaving the others without their rights because of the sale.

A change of employer is not, in itself, a valid reason for dismissal. Any subsequent restructuring requires its own legal grounds and a lawful procedure.

ZDR-1 also provides for the preservation of rights under the collective agreement that bound the transferor. The transferee must generally maintain these rights for at least one year, subject to statutory exceptions. Do not, therefore, estimate labour costs solely from employment contracts or the rules applied by your current business.

3. Review the records and calculate the obligations

Before entering into a binding agreement, request a structured review of the workforce. Initially, information should be anonymised or aggregated wherever possible. Personal data should only be disclosed to the extent necessary and on an appropriate legal basis, in accordance with the General Data Protection Regulation and Slovenia’s Personal Data Protection Act (ZVOP-2).

The review should cover, in particular:

• employment contracts and amendments, length of service and contractual working hours;
• basic salaries, allowances, variable payments and other agreed benefits;
• working-time records, overtime and outstanding annual leave;
• payroll records, annual leave allowance calculations and evidence that payment obligations have been met;
• applicable collective agreements, internal policies and ongoing employment disputes;
• health and safety obligations and required training.

Ask your accountant to distinguish between the team’s regular running costs, obligations already incurred and potential disputed claims. Unused annual leave, for example, does not automatically amount to a cash debt equal to payment for every remaining day, but it may create a significant need for staff cover.

Also check how much work the current owner does. If they manage shifts, order stock and handle administration without pay, the reported staffing costs may not reflect the costs you will face.

4. Allocate risks in the sale and purchase agreement

Your agreement with the seller should specify a cut-off date for calculations, a list of disclosed liabilities and a mechanism for settling discrepancies identified after the takeover. Clear seller warranties about the accuracy of records, payment of wages and social security contributions, and disclosure of disputes are advisable.

For identified risks, you can agree a purchase price adjustment, retention of part of the payment or compensation for specified losses. Such arrangements govern the relationship between buyer and seller, but cannot deprive employees of their statutory rights. ZDR-1 also provides for joint and several liability of the transferor and transferee for certain claims.

In particular, check whether the seller will still be able to meet a claim for reimbursement once the purchase price has been paid. A contractual promise without effective security may be worth little.

5. Plan a lawful and smooth staff handover

Informing employees is not a task to leave until the final day. Article 76 of ZDR-1 requires trade unions to be informed at least 30 days before the transfer and consultation to take place at least 15 days before it. Where there is no trade union at the employer, the law provides for affected employees to be informed directly. Check the precise procedure against the circumstances of your takeover.

Your handover plan should assign responsibility for payroll, leave records, work schedules and access to personnel data. Explain clearly to employees who their employer will be and whom they can contact. Compliance with the franchise network’s standards does not replace employment law obligations.

Practical conclusion: make your final assessment of an existing franchise’s price only after reviewing its workforce. Before signing, you need a legal assessment of the transfer, verified calculations of the obligations involved and a workable staff handover plan.