Buying a Franchise in Venezuela: Reviewing Employment Liabilities

Buying an existing franchise allows you to join a franchise network with an established team. However, it may also expose you to employment liabilities that predate the purchase. Before valuing the business, establish who employs each worker, which obligations remain outstanding and how the transaction will affect continuity of employment. Carry out this review with an employment lawyer and an accountant who are independent of the seller.

1. Define what you are buying and who the employer is

Acquiring shares in the franchisee company is not the same as buying its assets or taking over the running of the outlet. This distinction determines how risks should be assessed, although changing the operator’s name does not, in itself, remove employment obligations.

If you buy shares, the employing company remains the same: its employment liabilities stay within the business you acquire. If you buy assets and continue trading with the existing staff, you must assess whether this constitutes a substitution of employer under Venezuela’s Organic Law on Labour and Workers (Ley Orgánica del Trabajo, los Trabajadores y las Trabajadoras, or LOTTT). This legal mechanism can preserve employment relationships and create liabilities for both the former and the new employer.

Request a written description of the transaction identifying:

• The selling company, the buying company and the registered employer.
• The assets and contracts to be transferred.
• The employees who will stay and their current terms and conditions.
• The planned date for taking over management and payroll.

The franchisor’s approval to transfer the outlet does not establish that the seller has met its obligations to employees. These are separate checks.

2. Build a verifiable set of employment records

Request a complete staff list and cross-check the details against contracts, payslips, accounting records and proof of payment. Include people working under fee-based service agreements: the label on a document does not, by itself, determine whether an employment relationship exists.

For each person, check their actual start date, role, working hours, pay, commissions, leave taken, statutory profit-sharing payments (utilidades) and statutory employment benefits (prestaciones sociales). Also check overtime, night work and rest days where applicable. Any discrepancies between payments made and the records require a documented explanation.

The review should also cover:

• Contributions and obligations to the Venezuelan Social Security Institute and other relevant bodies.
• Deposits, guarantees and calculations relating to statutory employment benefits.
• Claims, proceedings before labour inspectorates and pending litigation.
• Workplace accidents, occupational illnesses and health and safety prevention records.
• Collective agreements or customary benefits that affect staffing costs.

Request supporting documents for the relevant periods, taking account of employees’ length of service and the obligations under review, rather than just the latest payroll. A recent payment record does not prove that all historical employment obligations have been met.

Share the information through restricted access. For the initial assessment, files can be identified by codes to limit the circulation of unnecessary personal data.

3. Reflect the findings in the price and contractual safeguards

The review report should distinguish between verified debts, calculation discrepancies and contingent liabilities. Do not treat a disputed claim as an established debt, but do not dismiss it simply because no judgment has yet been issued.

Prepare a table showing each item, the period concerned, the available documentation, the estimated amount where this can be calculated, and who is responsible for resolving it. If records are missing, state that limitation explicitly rather than assuming nothing is owed.

Use this assessment to negotiate specific measures:

• Documented settlement of specified obligations before completion.
• A price adjustment for identified debts.
• Retention of part of the purchase price as security, with clear release conditions.
• Seller representations about the completeness of payroll records and the absence of undisclosed claims.
• A contractual indemnity for pre-existing obligations that emerge later.

These agreements allocate risks between buyer and seller; they do not remove employees’ rights. Nor do they guarantee that the seller will have the resources to meet a claim. Assess how effective the security will be and how any claim will need to be documented.

Do not accept resignation followed by re-employment as an automatic solution. Its validity and its effects on continuity of employment and employment rights must be reviewed.

4. Apply Venezuela’s legal framework before completion

Venezuela has no comprehensive franchise-specific law. The commercial relationship is governed primarily by the contract, the Civil Code and the Commercial Code, alongside other applicable rules. This contractual freedom does not allow mandatory employment protections to be overridden.

The LOTTT, social security rules and the Organic Law on Prevention, Working Conditions and the Working Environment (Ley Orgánica de Prevención, Condiciones y Medio Ambiente de Trabajo, or LOPCYMAT) are central to this review. The latter also requires workplace health and safety to be examined, not just outstanding payments.

Before completion, instruct your lawyer to check the consequences of the chosen transaction structure, any required notifications and responsibility for pre-existing obligations. Agree who will retain the employment records and how payments will continue without interruption.

Practical conclusion: do not agree the final price for an operating franchise without a documented employment due diligence review. First identify the obligations; then negotiate how they will be settled, any price adjustment and the contractual safeguards.