If a business is sold, is the new owner obligated to honor existing contracts?

UPDATED: Aug 22, 2011

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If a business is sold, is the new owner obligated to honor existing contracts?

I am set to graduate in 6 months. A new school took over, the original owner still works there but doesn’t own it. I was not offered a new contract with the new owners but they are making new rules that are not in my existing contract. For instance, we must be at school by 9:05 a. or we are not allowed to attend for that day. In my contract with the old owner it says we have until 9:15 am. Also, we were allowed to take a leave of absence no more than 90 days and it doesn’t count against your hours. The new rules are that we can no longer take a leave of absence. Is it legal?

Asked on August 22, 2011 Michigan


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

The main issue is *how* was the company purchased. There are two ways to buy a business, with different consequences.

If the actual business structure was bought--the corporation ("inc.") or the limited liability company ("LLC"), even if the name was later changed, the buyer is still subject to all contracts then in force; that's because he/she/it bought the entity which is subject to the contracts.

On the other hand, if the new owner did not buy the business structure, but rather bought the assets--the property, the accounts receivable, the agreements with students, the name, the intellectual property, etc.--he/she/it is only subject to those contracts which were specifically taken over by the new owner--which probably will not include employee contracts.

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