Notice Period and Selling a Business Explained
Selling a business can be stressful for everyone involved, including owners, managers, and employees alike. One of the most common concerns that arises during a sale is what happens to employees and their notice or severance entitlements under Ontario law.
Employees often ask:
- What are my rights if my employer sells the business?
- Will I lose my job?
- Does my length of service carry over?
- How much notice or severance am I entitled to?
Employers, meanwhile, need clarity on who is responsible for notice and severance obligations and how to structure the transaction to manage risk.
This article explains how selling a business affects employees in Ontario, with a focus on notice periods, severance, and length of service.
📍 Not in Ontario?
If you are an employee or employer in British Columbia, the laws are different. See our BC-specific article regarding selling a business.
When a Business Is Sold, What Happens to the Employees?
The answer depends largely on how the business is sold.
In Ontario, there are two main types of transactions:
- Share sales
- Asset sales
Each has very different employment law consequences.
Share Sale vs. Asset Sale: Why the Difference Matters
Share Sale
- In a share sale, the buyer purchases the shares of the corporation that owns the business.
- The corporation itself does not change; only its ownership does.
Key employment law impact in Ontario:
- Employees generally remain employed by the same legal employer
- Employment contracts usually continue unchanged
- Length of service is preserved
- No termination occurs simply because the business was sold
In most share sales, employees do not lose their jobs and are not entitled to termination or severance pay solely due to the sale.
Asset Sale
In an asset sale, the buyer purchases some or all of the business assets (equipment, goodwill, customer lists, etc.), not the corporation itself.
Key employment law impact:
- The seller and buyer are different legal employers
- Employees of the seller are often terminated at the time of sale
- The buyer may choose to offer new employment to some or all employees
- New employment agreements may apply
This is where notice, severance, and service issues most commonly arise.
As Christopher Achkar, employment lawyer and founder of Achkar Law, explains:
“Selling a business doesn’t end employment obligations, notice and severance rights often carry through the transaction. Whether you’re an employer going through a sale or an employee facing uncertainty, getting legal advice early can prevent costly mistakes and protect your interests.”
What Are Employee Entitlements on the Sale of a Business in Ontario?
ESA Minimum Entitlements
Under the Employment Standards Act, 2000 (ESA), employees may be entitled to:
- Termination notice or salary in lieu (up to 8 weeks)
- Statutory severance pay (up to 26 weeks), if eligible
Eligibility for statutory severance requires:
- At least 5 years of service, and
- An employer payroll of $2.5 million or more, or a mass termination
Section 9 of the ESA: Continuity of Employment
Section 9 of the ESA is critical in business sales.
If the buyer hires the seller’s employees, the ESA treats their employment as continuous for statutory purposes.
This means prior service with the seller must be counted for:
- ESA termination notice
- ESA severance pay
- Vacation entitlements
- Other length-of-service-based ESA rights
💡Important:
This rule applies even though, at common law, the asset sale may still be treated as a termination.
How Much Notice to Employees When Selling a Business?
ESA Notice
ESA termination notice is based on the total length of service, including service recognized under section 9 of the ESA:
- 1 week per year of service (up to 8 weeks)
If employees are terminated by the seller as part of an asset sale and not rehired, the seller must provide ESA notice and any severance owed.
Common Law Reasonable Notice
ESA minimums are not the whole story.
If an employee’s contract does not contain a valid termination clause limiting notice to ESA minimums, the employee may be entitled to common law reasonable notice, which can be much higher.
Ontario courts consider:
- Age
- Length of service
- Position and responsibilities
- Compensation
- Availability of comparable work
In some cases, courts may consider an employee’s prior service with the seller when determining reasonable notice owed by the purchaser, especially where:
- The employee continues working seamlessly after the sale
- The purchaser benefits from the employee’s experience
- The new employment agreement recognizes prior service
What Are My Rights If My Employer Sells the Business?
For employees in Ontario, your rights depend on the structure of the transaction and what happens next:
- You may continue working without interruption (common in share sales)
- You may be terminated and rehired by the purchaser (common in asset sales)
- You may be entitled to termination pay, severance pay, or common law notice
- You may have the option or obligation to accept reasonable re-employment with the purchaser as part of your duty to mitigate
Employees should be cautious about signing new employment agreements or releases without legal advice, as these can affect notice and severance rights.
What Employers Should Be Careful About
For employers buying or selling a business in Ontario, employment liabilities are a significant risk area.
Key issues include:
- Allocating responsibility for termination and severance costs
- Ensuring ESA compliance under section 9
- Drafting clear employment offers post-sale
- Managing mitigation obligations
- Avoiding unintended common law exposure
These issues are often addressed in the purchase agreement, but mistakes can be costly.
How an Employment Lawyer Can Help
An employment lawyer can assist both sides of a business sale by:
For employers
- Assessing notice and severance exposure
- Advising on ESA compliance
- Drafting or reviewing purchase agreements
- Structuring employment offers to manage risk
For employees
- Reviewing termination packages
- Assessing ESA and common law entitlements
- Advising on mitigation obligations
- Negotiating fair compensation
In Summary
- A share sale usually does not affect employees or their length of service
- An asset sale often results in termination and re-employment
- ESA rules require recognition of prior service if employees are rehired
- Common law notice may still apply and can exceed ESA minimums
- Each situation depends on the specific facts and agreements involved
Contact Achkar Law
If you are facing the sale of a business as an employer or an employee, understanding your rights and obligations early can help avoid costly mistakes.
Achkar Law’s employment lawyers regularly advise on business sales, notice obligations, and severance entitlements in Ontario.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©