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Sale of Business – What Happens to Employees?

Employers often have questions regarding their obligations to employees when purchasing or selling a business. Similarly, employees are often concerned about what will happen to their positions when their employer’s business is sold. Employer obligations and employees’ positions after a sale of business depends on the nature of the sale, whether such a sale requires a new offer of employment, and what is outlined in a new employment agreement, if applicable.

 

The Nature of the Sale – Share or Asset Purchase

Share purchases involve buying all shares of a company, transferring all liabilities, but effectively maintaining the company as the same legal entity. In this case, the status of the employment relationship remains the same, and the purchaser will inherit the employees, who are not considered dismissed or new employees. If the employer wants to change the terms of the contract with the employee, they must do so properly, otherwise the employee may be deemed constructively dismissed.

An asset purchase is less straightforward. Unlike with a share purchase, the purchaser in an asset purchase need not take the vendor’s employees. However, the purchaser should note that under section 9 of the Employment Standards Act, 2000, employment continues with the purchaser if they employ the vendor’s employees, and the benefits that are contingent on the employees’ length of service are transferred to the purchaser. The purchaser would therefore presumptively be obligated to consider employees’ service with the vendor as continued employment.

Courts will look at several factors to determine whether the purchaser has acquired and continues to operate the vendor’s company as a “going concern”, supporting a legally implied recognition of past services at common law, where courts presume that an employee’s seniority is going to be recognized if the employer has not notified the employees to the contrary.

Equally, a new employer can expressly recognize past services in consideration for the employees’ valuable skills and experience within a new contract. Employees must still be mindful when signing any new contract, as they may be forfeiting more than they know. In cases where employees are reluctant to sign a new employment agreement, employees must also be mindful as to their mitigation duties. If the terms are similar enough, refusing to accept a new contract may be seen as a failure to mitigate.

Unlike share purchases, in asset purchases, the offer of employment itself is deemed to be sufficient consideration for different terms of employment to be binding.

Unionized Employees

While the above applies to non-unionized employees and their employers, unionized workplaces will have a different set of rules when it comes to business purchases, outlined under the Ontario Labour Relations Act, 1995. The Act outlines that a purchaser is bound by the vendor’s collective agreement until the Ontario Labour Relations Board declares otherwise.

Seek Effective Legal Advice

Given the many different factors to consider with respect to sale of business and liabilities, it is important to ensure you are aware of your rights and obligations.

Whether you are an employer contemplating a sale of business, or an employee concerned about a looming sale of their workplace, it is always important to seek effective legal representation to understand the rules as they apply to you. Please contact our team at Achkar Law by phone at (800) 771-7882, or email at [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support, visit our CLO program page for our strategic solutions.

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Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call (800)771-7882, or email [email protected].