In an asset sale, you terminate every employee at closing.

An asset sale does not transfer people. The buyer takes the assets it wants and leaves your payroll behind, so employment with your company ends on the closing date and the buyer extends new offers, usually at will, to the employees it chooses. That termination sets off final-pay, vacation, health-coverage and notice duties that are yours.

What happens to my employees when I sell my business assets?

Employment in an asset sale ends at closing. The buyer purchases assets, not employment relationships, so your company terminates the employees on the closing date and the buyer rehires only those it makes an offer to and who accept. Narrow worker-retention ordinances in a few industries and cities are the exception.

The mechanics matter more than the label. Your company signs the purchase agreement. The buyer signs offer letters. Employees who accept start fresh on day one: new W-4, new handbook, new benefit enrollment, new service date unless the buyer credits prior service. The rest are simply terminated by you. Offers are at will everywhere except Montana.

Two things break that pattern. Retention laws in some states and cities, covering grocery, hotel, building-service and health-care work, make a buyer keep the existing crew for a period. And a buyer that hires most of a unionized workforce can become a successor with a bargaining duty.

Payroll reporting has its own track. As of September 2026, the IRS publishes a standard and an alternate procedure for Forms W-2 and 941 where a successor acquires substantially all the property used in a trade or business and employs the predecessor’s people in the same calendar year. Pick one before closing.

Guidance: Rev. Proc. 2004-53.

Buyers at this size often want most of the staff, because the staff is much of what they are buying. That is a tendency, not a rule. It fails the controller whose function the buyer already has, and the relatives on payroll.

Do I have to pay out accrued vacation and unused PTO at closing?

Accrued vacation payout is a question of state wage law, not of what the asset purchase agreement says. Several states treat earned vacation as wages that must be paid when employment ends, and a termination occurs at closing even when the buyer hires the same person a minute later. Other states follow your written policy.

California is the sharp version. Wages earned and unpaid at discharge are due immediately. Vested vacation is wages and cannot be forfeited, except as a collective bargaining agreement provides. If late payment is willful, a waiting-time penalty runs at the employee’s daily rate for up to 30 days.

Law: Cal. Lab. Code 201, 203, 227.3.

Illinois reaches the same place on a longer clock. Final compensation includes the monetary equivalent of earned vacation, payable at separation if possible and in no case later than the next regularly scheduled payday.

Law: 820 ILCS 115/2, 115/5.

Accrued vacation is wages in these states. Closing is a discharge. So your company owes checks dated the closing date, funded out of proceeds you have not yet received. Fund them in advance.

For multi-state employers, the deadline that governs each employee is generally the one where that employee works, not where your company is organized.

Who is responsible for COBRA after an asset sale?

COBRA responsibility in an asset sale is assigned by Treasury regulation, and it can land on the buyer. The sale is a qualifying event for covered employees whose employment was associated with the purchased assets, unless the buyer is a successor employer that employs them right after the sale, or coverage does not end.

Law: 26 C.F.R. 54.4980B-9, Q&A-6, Q&A-8.

Read that exception narrowly: hiring alone does not do it. The allocation rule works in two steps. One: while the selling group maintains a group health plan, the continuation obligation stays with the seller’s plan. Two: if the selling group ceases to provide any group health plan to any employee in connection with the sale, it shifts to the buying group’s plan, but only if the buyer is a successor employer.

Successor status has its own test. A buyer of substantial assets is not a successor employer unless it continues the business operations associated with the purchased assets without interruption or substantial change and the seller ceases to provide any group health plan to any employee in connection with the sale.

Guidance: Rev. Rul. 2003-70, applying 26 C.F.R. 54.4980B-9, Q&A-8(c).

Check coverage before allocation. Federal COBRA does not reach a plan maintained by an employer that normally employed fewer than 20 employees during the preceding calendar year, counting affiliated companies together. Below that line, a state continuation statute usually governs instead.

Now the application that catches covered owners. You keep the selling entity alive to wind down, and you keep the health plan running for yourself and your spouse for a few months. Because your group still maintains a plan, the continuation obligation for the terminated workforce has not shifted anywhere. It is yours, and a failure carries an excise tax. Stated as of September 2026.

Law: 26 U.S.C. 4980B.

I read the plan documents and the wind-down plan together before I read the employee benefits section of the purchase agreement, because the COBRA answer usually hides in what the seller intends to keep.

Keeping your own health plan alive for three convenient months can keep the whole workforce’s continuation coverage on your books. Convenience is not free.

Does the WARN Act apply when I sell my business?

The federal WARN Act reaches an employer with 100 or more employees excluding part-time employees, or with 100 or more employees who in the aggregate work at least 4,000 hours a week excluding overtime. It requires 60 days of written notice before a covered plant closing or mass layoff. Both tests matter.

Part-time, here, means averaging under 20 hours a week or employed fewer than six of the preceding twelve months. Those people drop out of the first test but count in the second, so a company with 70 full-time and 60 part-time employees can be covered. Count both ways before concluding WARN misses you.

The covered events have their own thresholds, measured over any 30-day period and excluding part-time employees: a single-site shutdown causing employment loss for 50 or more, or a mass layoff hitting at least 50 who are also at least 33 percent of the site’s active workforce, or 500 or more.

Law: 29 U.S.C. 2101; 20 C.F.R. 639.3.

The sale-of-business provision splits the duty by date. The seller owes notice for employment losses up to and including the effective date of the sale, the buyer afterward. The statute also treats the seller’s employees, other than part-time employees, as the buyer’s immediately after that date, which is why employees the buyer hires generally suffer no employment loss.

Law: 29 U.S.C. 2101(b)(1).

The statute is unforgiving of drafting games. Whichever party owed the notice is exposed. The allocation in the purchase agreement only gives one of you a contract claim against the other.

State mini-WARN statutes catch smaller companies: lower thresholds, longer notice.

Law: N.Y. Lab. Law art. 25-A, 860 et seq.; N.J. Stat. 34:21-1 et seq. These statutes get amended; confirm the current text.

Numbers decide it. A 120-employee New Jersey company whose buyer hires 60 and leaves 60 behind clears the federal single-site mass layoff test and New Jersey’s 50-employee trigger: notice plus severance. At 40 terminations, neither statute fires.

What does the asset purchase agreement actually negotiate about employees?

Employee terms in an asset purchase agreement are almost entirely negotiated, not statutory. Four questions carry the money: whether the buyer commits to offer employment at all, which employees it will not take, who funds severance and accrued paid time off, and how retention pay for key people hits the price.

Start with the commitment. A covenant that the buyer’s offers match base pay and provide benefits substantially similar in the aggregate for a stated period is standard in large transactions and uncommon in a sale this size, where most buyers commit to nothing beyond the offer letter. Ask anyway. A refusal to discuss any role is information.

The excluded employees list is second, and it should be a schedule with names on it before you sign. Every name is a severance decision and, in a payout state, a vacation check dated the closing date. Severance itself comes from your policy or contract unless a statute like New Jersey’s requires it.

Funding is the third. Three patterns are common at this size:

• The seller pays all pre-closing wages, accrued vacation and severance, and the price is set accordingly.
• The buyer assumes accrued paid time off for hired employees, and the price or working capital target drops by that balance.
• The buyer assumes nothing, and the balance sits in the closing statement as a seller cost.

Any of the three can be fair. What is not fair is an agreement where the buyer assumes accrued paid time off and gives you no price credit.

Retention is the fourth. Stay bonuses for the two or three people the buyer cannot lose come out of the price, as a seller-paid bonus at closing or a buyer-paid program with a matching price cut. Decide the amount before the buyer decides it for you. Promises you make to employees before closing are your liabilities unless the buyer expressly assumes them.

What if the purchase agreement gives employee liabilities to the buyer but state law makes me pay?

The trap is a timing mismatch. An asset purchase agreement can allocate employee liabilities to the buyer, and state wage law can still require your company to deliver final paychecks, accrued vacation included, on the closing date. You write the checks on closing day. The indemnity reimburses you later, if it works.

Look at the sequence. Closing occurs Friday. California employees are due final wages immediately, accrued vacation included, and waiting-time penalties run per day once the failure is willful. Your indemnity claim requires notice, a response period, and possibly a fight over the holdback. Payroll waits for none of it.

An indemnity is a promise to reimburse. Payroll is a deadline. Never let the second depend on the first.

The fix is boring and effective. Make employee amounts a closing-date settlement item, not an indemnity item. Pay accrued vacation and final wages through your own payroll on the closing date, funds set aside, and take the credit in the closing statement. Keep the indemnity for surprises, not arithmetic.

What should I do before I sign the letter of intent?

Three documents should exist before the letter of intent is signed: the employee census, the accrued liability number, and the offer plan. Each is cheap early and expensive under a signed exclusivity clause, because by then the buyer sets the pace and every gap in the numbers becomes a price discussion.

Build the census first. For each employee: name, work state, hire date, average weekly hours, months of service in the last year, compensation, accrued vacation hours, benefit enrollment, and any written employment or commission agreement. The hours and tenure columns let you run the WARN headcount tests honestly.

Then the accrued liability number. Accrued vacation hours times current rates, plus employer payroll taxes, plus earned but unpaid commissions. That is a real figure in your closing statement.

Then draft the offer plan: who the buyer is expected to hire, who it is not, and what severance the rest get. I ask for the paid-time-off accrual report and the work-state list before I ask who the buyer intends to keep, because the accrual report tells you what closing costs whichever way the hiring goes.

Finally, pull your state’s wage payment and mini-WARN statutes, count heads against both federal WARN thresholds, and confirm whether your plan is subject to federal COBRA at all. The positions here are stated as of September 2026. Statutes and Treasury guidance get amended, so confirm the current text before closing.

Law: 29 U.S.C. 2101 et seq.; 26 C.F.R. 54.4980B-2, Q&A-5; 54.4980B-9; Cal. Lab. Code 201, 203, 227.3; 820 ILCS 115/5.