What Happens to Employees When You Buy a Restaurant in Atlanta? The Staff Retention Question
- Jimmy Carey
- 3 days ago
- 17 min read
Disclaimer: This article is general information for restaurant buyers/sellers in Atlanta/Georgia and is not legal, tax, or HR advice. Always confirm your facts with a Georgia employment attorney, CPA, and payroll provider before acting.
When you're considering buying an existing restaurant in Atlanta, most of your attention naturally focuses on the numbers—sales figures, equipment value, lease terms, and profit margins. But there's a critical human element that many first-time buyers overlook until they're deep into due diligence: what happens to the staff?
The employee question isn't just about continuity or customer service. It's about legal liability, operational readiness, wage obligations, immigration compliance, and whether you're inheriting a trained team or a lawsuit waiting to happen. As Atlanta's Premier Restaurant Broker, I've watched buyers walk into their first day of ownership only to discover half the kitchen staff didn't show up, the previous owner misclassified workers as independent contractors, or that wage violations existed for months before the sale.
Understanding what happens to employees when you buy a restaurant requires knowing the difference between asset sales and stock sales, how Georgia's at-will employment laws affect your obligations, what liabilities transfer with the business, and when keeping the existing team makes strategic sense versus starting fresh. In this comprehensive guide, we'll walk through the employment realities buyers face, the legal frameworks that govern worker retention, and the practical decisions that determine whether your new restaurant opens smoothly or descends into chaos on day one.
What happens to employees when you buy a restaurant?
Asset Sales vs. Stock Sales
Most restaurant transactions in Atlanta are structured as asset sales, not stock sales. This distinction fundamentally changes what happens to employees when ownership transfers.
In an asset sale, the buyer purchases specific assets—equipment, inventory, recipes, the lease assignment, and goodwill—but does not automatically inherit employees. Legally, employees work for the selling entity, and when that entity ceases operations, their employment ends. The buyer can choose to offer employment to some, all, or none of the existing staff. There's no automatic transfer of employment relationships, no obligation to honor existing wages or benefits, and no assumption of prior employment liabilities like unpaid overtime or discrimination claims.
In a stock sale, the buyer purchases the actual business entity (the corporation or LLC), which means the business continues as the same legal employer. All existing employees remain employed, all employment contracts stay in force, and all prior employment liabilities transfer to the new owner. Stock sales are rare in restaurant transactions—they typically only occur in franchise transfers or when the buyer specifically wants to assume all existing obligations.
Understanding this difference is crucial because most buyers in Atlanta are engaging in asset sales, which means you have significant flexibility in staffing decisions but also the responsibility to make those decisions carefully and legally. The preparation process for sellers, which we covered in our restaurant sale preparation guide, includes documenting employment practices so buyers can assess what they're stepping into.
Georgia's At-Will Employment Framework
Georgia is an at-will employment state, which gives both employers and employees substantial freedom to terminate the employment relationship. Under at-will employment, either party can end the relationship at any time, for any legal reason, or no reason at all—with or without notice.
For restaurant buyers, this means you're not legally required to retain existing staff when you purchase the business through an asset sale. You can offer employment to whomever you choose, under whatever terms you negotiate. However, at-will employment doesn't mean you can terminate or refuse to hire employees for illegal reasons—discrimination based on race, color, religion, sex, national origin, age (40+), disability, or genetic information violates federal law under Title VII, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA). Always consult & confirm your facts with a Georgia employment attorney, CPA, and payroll provider before acting.
Practical application: Many buyers choose to offer employment to existing staff to maintain operational continuity, preserve institutional knowledge, and retain customer relationships. But you should structure these offers as new employment relationships with your company, complete with new hire paperwork, signed acknowledgment of at-will status, and clear documentation that this is not a continuation of previous employment.
Some sellers or key employees may have written employment contracts that include specific notice periods, severance provisions, or non-compete clauses. These contracts bind the selling entity but do not automatically transfer to you as the buyer in an asset sale.
However, if you want to retain a general manager or chef with specialized knowledge, you may need to negotiate new terms that honor some aspects of their previous arrangement.
The Independent Contractor Misclassification Problem
One of the most common employment issues buyers inherit in restaurant transactions is worker misclassification—specifically, employers treating employees as independent contractors (1099 workers) to avoid payroll taxes, workers' compensation insurance, and overtime obligations.
Why 1099 classification is problematic in restaurants: The Internal Revenue Service (IRS), the U.S. Department of Labor (DOL), and Georgia's Department of Labor have strict standards for determining whether a worker is an employee or an independent contractor. These standards focus on the degree of control the business exercises over the worker, the worker's opportunity for profit or loss, the permanency of the relationship, and whether the work performed is integral to the business.
In restaurant operations, most workers fail these tests for independent contractor status. If you control when cooks show up, what they prepare, how they prepare it, and provide the tools and workspace, they're employees—not contractors. The IRS uses a multi-factor test outlined in IRS Revenue Ruling 87-41 and further clarified in IRS Publication 15-A (Employer's Supplemental Tax Guide), which evaluates:
Behavioral control: Does the business direct how work is performed?
Financial control: Does the worker have unreimbursed expenses, opportunity for profit/loss, or make services available to other businesses?
Relationship type: Are there written contracts, employee benefits, permanency expectations, and is the work a key aspect of the business?
The U.S. Department of Labor applies the Economic Reality Test under the Fair Labor Standards Act (FLSA), which similarly examines whether the worker is economically dependent on the employer or truly in business for themselves. You can find detailed guidance in the DOL's Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act (FLSA).
Why this matters to buyers: If the seller Misclassified Employees as 1099 contractors, you inherit operational risk even in an asset sale. Workers can file wage claims for unpaid overtime (contractors aren't entitled to overtime, but misclassified employees are), the IRS can assess back payroll taxes, and state agencies can pursue workers' compensation violations. While you don't automatically assume these liabilities in an asset sale, you may face practical consequences—workers threatening to walk off the job, disrupted operations during transition, or the need to immediately reclassify and adjust wages to cover newly required payroll taxes. Always consult & confirm your facts with a Georgia employment attorney, CPA, and payroll provider.
Due diligence question: Ask the seller for payroll records, 1099 forms issued, and documentation of any independent contractor relationships. If you discover widespread misclassification, factor the cost of proper reclassification into your offer or require the seller to remedy the situation before closing.
Key Employee Retention Strategies During Ownership Transitions
Buying a restaurant without retaining key staff is like buying a car without an engine—it might look good, but it won't run.
The kitchen manager who knows every recipe, the head server who remembers regulars' names, the bar manager who controls inventory—these people represent institutional knowledge that takes months or years to rebuild.
1. Identify who matters most before closing
During due diligence, spend time in the operation. Watch who actually runs the kitchen during the rush, who handles customer complaints, who trains new hires, and who the owner calls when problems arise. These are your critical retention targets—not necessarily the people with the fanciest titles.
For buyers evaluating whether to purchase an existing restaurant versus building from scratch, which we explored in our comprehensive buyer's guide, employee quality often determines whether the transition succeeds. A strong, stable team can justify paying a premium for the business; a dysfunctional or depleted staff suggests you're better off starting fresh.
2. Offer retention bonuses or transition agreements
For key employees—especially general managers, executive chefs, or kitchen managers—consider offering retention bonuses payable after 30, 60, or 90 days of continued employment under your ownership. This creates immediate financial incentive to stay through the transition and gives you time to evaluate whether they fit your long-term vision.
Structure these as new agreements with your entity, not as assumptions of prior obligations. Include at-will employment language and clarify that the bonus is contingent on satisfactory performance and continued employment through the specified date.
3. Communicate early and transparently
Uncertainty drives turnover. If employees don't know what's happening, they'll start looking for other jobs the moment they hear rumors of a sale. Once you have a signed purchase agreement (and with the seller's permission), meet with key staff to introduce yourself, share your vision for the restaurant, and address their concerns about job security.
Be honest about your plans. If you're keeping the concept, tell them. If you're changing the menu, explain why and how their roles might evolve. If you don't know yet, say that—but commit to making decisions quickly and keeping them informed.
4. Honor existing wages and schedules initially, then optimize
Even though you're not legally required to maintain existing compensation levels or schedules in an asset sale, drastic immediate changes trigger turnover. Consider keeping wages and schedules stable for the first 30-60 days while you assess performance and operational needs, then make adjustments based on merit and business requirements.
If you discover the previous owner was paying below-market wages, consider modest raises for top performers as a retention tool. If you find wages are inflated compared to productivity, address it individually and constructively rather than with across-the-board cuts that tank morale.
5. Reset expectations around policies and procedures
Your new restaurant operates under your policies, not the previous owner's informal arrangements. Issue an employee handbook (even a simple one), require signed acknowledgment, and establish clear expectations around attendance, dress code, phone use, and workplace conduct.
Many sellers ran operations casually—family meal might have been informal, breaks might have been unscheduled, and employees might have been accustomed to taking home leftovers. You can continue some of these practices if they fit your culture, but establish them as company policies you control, not inherited entitlements.
Wage and Hour Compliance Issues Buyers Inherit
Even in asset sales where employment liabilities theoretically don't transfer, practical realities can force your hand. If the previous owner failed to pay overtime properly, misclassified employees as exempt when they should have been hourly, or violated minimum wage requirements, you may face claims from employees who now work for you.
Common Wage Violations in Restaurant Sales
Always consult & confirm your facts with a Georgia employment attorney, CPA, and payroll provider before acting.
Unpaid overtime: The FLSA requires overtime pay (1.5x regular rate) for non-exempt employees who work over 40 hours in a workweek. Many restaurant owners mistakenly believe salaried employees are automatically exempt from overtime. They're not. To qualify for exemption under the executive, administrative, or professional exemptions, employees must meet both salary basis tests (currently $684/week or $35,568/year) and duties tests that require significant discretion, management responsibility, or specialized knowledge.
Most line cooks, servers, bartenders, and even shift supervisors are non-exempt and must receive overtime. If the seller failed to pay overtime and employees continue working for you, they may file claims spanning back two years (or three years for willful violations) under federal law.
Tip credit violations: Georgia allows employers to take a tip credit against minimum wage for tipped employees, paying $2.13/hour as long as tips bring total compensation to at least $7.25/hour. But many employers violate tip credit rules by requiring excessive side work, pooling tips with managers, or failing to make up the difference when tips fall short.
The DOL's "80/20 rule" (now codified in updated regulations) limits tip-producing work. If a tipped employee spends more than 20% of their time on non-tipped duties (like extensive prep work or cleaning), the employer must pay full minimum wage for that time. Due diligence should include reviewing how the seller handled tip pooling, side work assignments, and minimum wage make-up pay.
Off-the-clock work: Requiring employees to arrive early to set up, stay late to close, or perform prep work without recording time constitutes wage theft. If employees tell you during transition meetings that the previous owner expected them to "clock out and finish closing," you've uncovered a compliance problem that puts you at risk if workers continue these practices under your ownership.
Georgia-Specific Wage Requirements
Georgia's minimum wage is $5.15/hour, but this only applies to employers not covered by the FLSA. Since the FLSA covers virtually all restaurants (any business with $500,000+ in annual revenue or engaging in interstate commerce), the federal minimum wage of $7.25/hour applies.
Georgia does not require meal or rest breaks for adult employees, but if you provide them, breaks under 20 minutes must be paid. Meal breaks of 30+ minutes can be unpaid if employees are completely relieved of duties.
Georgia law requires employers to pay employees all wages due at least semi-monthly, with no more than 15 days between paydays. Final paychecks for terminated or resigning employees must be paid by the next regular payday.
Action step for buyers: Request at least 12 months of payroll records during due diligence, including time cards, payroll journals, and tip reporting documentation. Look for red flags like suspiciously consistent hours (suggesting manual adjustments rather than actual time worked), salaried employees earning below overtime thresholds, or irregular pay cycles. If you find violations, require the seller to remedy them before closing or adjust your purchase price to account for potential liability.
Immigration Status Verification and I-9 Requirements
Every restaurant employer must verify that employees are authorized to work in the United States by completing Form I-9 within three days of hire. The Immigration Reform and Control Act (IRCA) makes it illegal to knowingly hire unauthorized workers and requires employers to examine documentation proving identity and work authorization.
What Transfers in Restaurant Sales
In an asset sale, I-9 forms do not transfer to the buyer because they're records of the selling entity's compliance, not the employees' ongoing authorization. You must complete new I-9 forms for every employee you hire from the previous operation, even if they worked there for years.
Do not accept the seller's I-9 forms as evidence of work authorization. You must personally examine original documents (or copies in remote verification situations) and complete new I-9s with your company information.
Common I-9 Mistakes That Create Liability
Accepting expired documents: List A documents (like passports or permanent resident cards) have expiration dates. If an employee presents an expired document, you cannot accept it—even if it was valid when the previous owner hired them. The employee must present unexpired documentation.
Failing to re-verify expiring work authorizations: If you hire an employee whose work authorization has an expiration date (like an Employment Authorization Document for DACA recipients or certain visa holders), you must re-verify before that date. Set up a tickler system to track expiring authorizations.
Discriminating based on citizenship status: While you must verify work authorization, you cannot refuse to hire someone based on citizenship status as long as they're authorized to work. Requiring specific documents (like demanding a green card instead of accepting other List A or List B/C combinations) constitutes discrimination under IRCA's anti-discrimination provisions.
Inconsistent I-9 practices: Immigration and Customs Enforcement (ICE) audits look for patterns suggesting discrimination or non-compliance. If you consistently accept certain documents from some employees but demand additional documentation from others (particularly based on perceived national origin or accent), you create legal exposure.
In a restaurant purchase, you don’t buy a staff—you buy a chance to keep the people who make the place work.
ICE Audits and Enforcement
ICE periodically audits restaurant employers, particularly in markets with high immigrant populations. Atlanta's restaurant industry employs significant numbers of immigrant workers, making compliance essential. An I-9 audit typically begins with a Notice of Inspection (NOI) requiring you to produce all I-9 forms within three business days.
Violations carry significant penalties: $272 to $2,701 per form for paperwork violations (missing I-9s, incomplete sections, failing to re-verify), and $627 to $6,274 per unauthorized worker for substantive violations (knowingly hiring or continuing to employ unauthorized workers). Repeat violators face higher penalties and potential criminal prosecution.
Due diligence consideration: Ask the seller if they've ever been audited by ICE or received a Notice of Inspection. Request to see their I-9 forms to assess how carefully they've maintained compliance. If you discover widespread problems—missing forms, obvious document fraud, or patterns suggesting knowing employment of unauthorized workers—it's a major red flag about the business's operational culture and your potential risk if you retain the workforce.
For detailed I-9 guidance, consult USCIS Form I-9 Central and the DHS M-274 Handbook for Employers (Guidance for Completing Form I-9).
When to Keep the Existing Team vs. Starting Fresh
The decision to retain existing staff isn't purely legal or financial—it's strategic.
Here's how to evaluate whether keeping the team makes sense for your specific situation.
Keep the existing team when:
The restaurant has strong brand identity tied to specific people. If customers come for the chef's signature dishes, the bartender's cocktails, or the owner's hospitality, you're buying more than assets—you're buying relationships. Losing key people in these situations can crater sales during transition.
You lack restaurant experience in this market or segment. If you're a first-time restaurant owner or you're entering a new segment (say, buying a sushi restaurant when you've only run Italian concepts), experienced staff can teach you the operation while you learn the business. Trying to staff and train a complete team from scratch while learning a new concept is a recipe for failure.
The business is profitable and operationally sound. If the seller is exiting for personal reasons (retirement, relocation, health) rather than operational failures, keeping the team that built that success makes sense. Why fix what isn't broken?
The lease or location depends on continuity. Some landlords include conditions in lease assignments requiring the buyer to maintain similar operations for a specified period. If you're inheriting obligations to maintain service levels or operating hours, you need staff who know the routines.
You're paying for Goodwill. If part of your purchase price compensates the seller for customer relationships, brand reputation, and operational systems, you're implicitly paying for the team that delivers those intangibles. Firing everyone undermines the value you just bought.
Start fresh when:
The business is failing due to operational problems. If you're buying a distressed restaurant at a discount because of poor service, quality issues, or toxic workplace culture, the existing staff may be part of the problem. Inheriting a dysfunctional culture is harder to fix than building a new one.
You're changing the concept entirely. If you're buying the location and equipment but converting from a steakhouse to a vegan cafe, the existing team's skills and expectations won't align with your vision. A clean break avoids confusion and allows you to hire for the culture and capabilities you actually need.
You discover significant compliance violations. If due diligence reveals that the seller systematically violated wage laws, misclassified workers, or ignored safety regulations, the existing staff may have learned bad habits or harbor resentments that will complicate your efforts to operate legally and professionally.
The seller's family ran the operation informally. Some restaurants function as extended family businesses where employees have personal relationships with the owner, informal arrangements around compensation or duties, and expectations that don't translate to professional management. Trying to impose structure on these relationships often fails—starting fresh with clear employment terms is cleaner.
You have an experienced team ready to implement your vision. If you're an established restaurateur with trusted managers and staff ready to transfer from your other locations, you don't need to retain unknown employees. Bringing your proven team eliminates uncertainty and accelerates implementation of your standards.
The hybrid approach: Selective retention
Most successful transitions involve selective retention—keeping 30-60% of existing staff, particularly in positions requiring less specialized knowledge (dishwashers, bussers, some line cooks) or where specific individuals demonstrate exceptional competence, then bringing in key hires for management and specialized positions.
This approach maintains operational continuity and preserves customer familiarity while allowing you to shape culture and performance through strategic hiring. It's often the smartest middle ground, especially for buyers with some restaurant experience but not deep knowledge of this specific operation.
Frequently Asked Questions
Q: Am I legally required to keep existing employees when I buy a restaurant in Atlanta?
A: No, not in an asset sale. Georgia's at-will employment laws and the structure of asset purchases mean you can choose which employees to offer jobs to, if any. However, you cannot discriminate based on protected characteristics (race, religion, age 40+, disability, etc.). In a stock sale, employees automatically continue as the business entity remains the same employer.
Q: Can employees file wage claims against me for unpaid overtime that occurred under the previous owner?
A: In an asset sale, you generally don't assume prior employment liabilities. However, if employees continue working for you and later file claims, they may argue a "successor employer" theory or practical continuity. Consult an employment attorney during due diligence if you discover wage violations, and consider requiring the seller to settle outstanding claims before closing.
Q: How long do I have to complete I-9 forms for employees I retain from the previous owner?
A: You must complete new I-9 forms within three business days of their first day of work for your company. Even if they worked for the previous owner for years, they're new hires for your business. Do not rely on the seller's I-9 forms—complete your own and examine documents personally.
Q: Can I reduce wages for employees I retain if I think the previous owner overpaid them?
A: Yes, you can set any wage structure you want (as long as it meets minimum wage and overtime requirements) because you're offering new employment, not continuing existing contracts. However, immediate wage cuts often trigger turnover. Consider maintaining wages initially, then making performance-based adjustments after 30-60 days once you've assessed individual contributions.
Q: What happens if an employee's work authorization expires after I buy the restaurant?
A: You must re-verify work authorization before the expiration date. Set up tracking systems for any employees with temporary work authorizations (EADs, certain visa categories). If they cannot provide updated authorization, you cannot legally continue employing them. This is your responsibility as the current employer, regardless of what the previous owner did or didn't track.
Q: Should I tell employees about the sale before it closes?
A: This depends on timing and the seller's preference. Most sellers wait until the purchase agreement is signed before announcing to staff, as earlier disclosure can trigger turnover or operational disruptions if the deal falls through. Once you have a firm agreement, coordinated communication (ideally with you present to introduce yourself) helps retention. Never announce unilaterally without the seller's consent before closing.
Q: Do I inherit workers' compensation claims if an employee was injured under the previous owner?
A: Generally no, in an asset sale. Workers' compensation claims are obligations of the employer at the time of injury, which was the selling entity. However, Georgia law requires continuous workers' comp coverage for all employees. Ensure you have a policy in place before your first day of ownership, and confirm the seller maintained coverage through closing to avoid gaps.
Q: Can I require existing employees to sign non-compete agreements when I hire them?
A: Yes, you can condition new employment offers on signing non-compete or non-solicitation agreements, as long as they're reasonable in scope, duration, and geographic area. Georgia law enforces reasonable non-competes. However, demanding non-competes for hourly line cooks or servers is unlikely to be enforceable and may discourage acceptance of your employment offers. Focus on key management personnel and positions with access to proprietary information.
Legal Disclaimer:
This article provides general information about employment matters in restaurant transactions and should not be construed as legal advice. Employment law, labor regulations, immigration compliance, and business transactions involve complex legal considerations that vary by jurisdiction and individual circumstances.
Readers should consult with qualified legal counsel, employment law attorneys, and tax professionals before making any decisions regarding restaurant purchases, employee retention, classification of workers, or employment practices.
About the Broker
With over 37 years of restaurant industry experience, Jimmy Carey has owned and operated five successful restaurants, including the acclaimed Jimmy'z Kitchen in Miami and Atlanta. This first-hand expertise as both a former chef and restaurant owner makes him Atlanta's Premier Restaurant Broker, uniquely positioned to understand the operational realities and human dynamics that determine whether restaurant transitions succeed or fail.
Jimmy understands that buying a restaurant isn't just a financial transaction—it's inheriting a team, a culture, and relationships that took years to build. His guidance helps buyers navigate employment decisions, compliance requirements, and retention strategies that other brokers overlook because they've never actually run a kitchen during a Friday night rush or managed staff through an ownership change.
Stay connected with Jimmy through Instagram, Facebook, and LinkedIn for daily market insights, new listings, and practical advice on restaurant operations and transactions. Subscribe to his YouTube channel for in-depth discussions on employment issues, lease negotiations, and valuation strategies, and follow him on X/Twitter for real-time updates on Atlanta's restaurant market.
Read reviews from satisfied clients on his Google Business Profile, where buyers and sellers share their experiences with Jimmy's hands-on approach to navigating complex transactions. If you're ready to buy or sell a restaurant and want guidance that goes beyond paperwork to address the real operational challenges of transition, visit Sell My Restaurant Atlanta for a confidential consultation and market analysis.
Learn more about Jimmy's credentials through his IBBA and GABB professional profiles, or explore his full range of services at Jimmy Carey Commercial Real Estate.
Atlanta's Premier Restaurant Broker
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