Sale of Business – What Happens to Employees?

Sale of Business: What Happens to Employees?

The sale of a business raises a myriad of questions for both employers and employees. Employers often grapple with their responsibilities toward employees in such transitions, while employees naturally have concerns about the fate of their positions when their employer’s business changes hands. The outcome for both employers and employees hinges on various factors, including the type of sale, the necessity of new job offers, and the terms outlined in potential new employment agreements.

 The Nature of the Sale – Share Sales or Asset Purchase

Share Sales

When a sale of a business takes the form of a share purchase, it involves acquiring all shares of a company while keeping the company’s legal entity intact. In this scenario, the status of the employment relationship remains unchanged, and the purchaser inherits the existing employees. These employees are not considered dismissed or new employees in this context.

If the employer wishes to modify the terms of the employment contract with any employee, it must do so in a proper and legally compliant manner. Failing to do so could result in the employee being deemed constructively dismissed.

Asset Purchases

In contrast, asset purchases present a more complex situation. Unlike share purchases, in asset purchases, the purchaser is not required to hire the vendor’s employees. However, it’s essential to note that, according to section 9 of the Employment Standards Act, 2000, employment continues with the purchaser if they choose to employ the vendor’s employees. Additionally, any benefits contingent on employees’ length of service are transferred to the purchaser. Therefore, the purchaser is typically obliged to recognize the employees’ service with the vendor as continuous employment.

Courts consider several factors to determine if the purchaser is genuinely operating the vendor’s company as a “going concern.” This implies a legal acknowledgment of past services under common law. Courts generally presume that an employee’s seniority will be recognized if the employer has not provided contrary notification.

Furthermore, a new employer can explicitly recognize past services as part of a new employment contract, acknowledging the employees’ valuable skills and experience. However, employees should exercise caution when signing new contracts, as they may inadvertently forfeit certain rights.

In cases where employees are reluctant to accept a new employment agreement, they should also be mindful of their mitigation duties. Refusing to accept a new contract, especially if the terms are similar to the previous agreement, might be viewed as a failure to mitigate.

Unlike share purchases, in asset purchases, the mere offer of employment is generally considered sufficient consideration to make different terms of employment binding.

Unionized Employees

The considerations mentioned above primarily pertain to non-unionized employees and their employers. However, in unionized workplaces, a distinct set of rules applies in the context of business purchases, as outlined in the Ontario Labour Relations Act, 1995. According to this Act, a purchaser is legally bound by the vendor’s collective agreement, unless the Ontario Labour Relations Board issues a declaration to the contrary.

How an Employment Lawyer Can Assist in Business Sales

Clients, whether employers or employees, can benefit from the multifaceted assistance provided by employment lawyers during business sales.

Legal Compliance: Employment lawyers ensure compliance with employment laws, helping both employers and employees adhere to legal requirements during a business sale.

Employment Agreement Review: Lawyers review and, if necessary, negotiate employment agreements to safeguard the interests of both parties and ensure fair terms.

Transitions and Staffing Changes: Lawyers assist in strategizing and managing employee transitions, advising on staffing changes, and minimizing legal risks while maintaining efficiency.

Union Representation: In unionized workplaces, lawyers provide representation during negotiations with employee representatives, ensuring that collective agreements are respected and that rights are upheld.

Communication: Lawyers can help draft clear, sensitive, and legally compliant communications to employees, explaining their rights, job security, and any changes resulting from the business sale.

Negotiations: Lawyers facilitate negotiations, whether it’s for employment agreements, severance packages, or compensation, aiming to secure the best possible outcome for their client while adhering to legal standards.

The role of an employment lawyer is to provide legal guidance, advocate for their client’s best interests, and help navigate the complexities of employment law during a business sale, ensuring a fair and legally compliant transition for both employers and employees.

Related Reading

Sale of Assets and Termination Notice

Notice Period and Selling a Business: Explained

What Happens to Employees When a Company Goes Bankrupt

How Can an Employment Lawyer Help Your Small Business?

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