We have an unresolved wage dispute with a former contractor, and the prospective buyer is attempting to use it to demand a fifteen percent general indemnity escrow on our entire purchase price. How do we contain this single issue without letting it contaminate our baseline deal terms?

Question

Tyler Smith · Accepted Answer

Buyers instinctively use isolated operational vulnerabilities to extract broad financial concessions across the entire transaction. A localized contractor dispute or regulatory audit should never be permitted to justify an inflated general indemnity holdback or a downward multiple adjustment.

To contain this liability and protect your cash at close, isolate the exposure into a fenced, special indemnity escrow.

First, calculate the maximum realistic financial exposure of the dispute. Bring in specialized labor counsel to deliver an objective loss estimate, including potential statutory damages and legal defense costs.

Second, propose a specific, capped special indemnity escrow that holds only the calculated dispute amount. This segregated escrow functions entirely outside your general representations and warranties indemnity. Set strict parameters around this special fund:
- The funds are held by an independent third-party escrow agent, not retained directly by the buyer.
- The escrow agreement includes a hard expiration date, releasing all remaining funds automatically back to you upon settlement, court dismissal, or the lapse of the statute of limitations.
- You retain full control over legal defense strategy and settlement approval to prevent the buyer from rolling over and settling at your expense.

Third, keep the general indemnity escrow at standard market rates, typically under one percent if using Reps and Warranties insurance, or five to eight percent without it.

By isolating the problem into an airtight financial container, you remove the buyer's excuse to discount your core valuation multiple or tie up your broader transaction proceeds.