Employee Rights in Ontario on Sale of Business

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This lecture broadly explains employee rights when businesses undergo sale/acquisition. This lecture is also helpful for businesses in understanding their obligations in the process of purchase/sale, so they could make informed decisions.

This lecture is taught by Amer Mushtaq, LL.B., M. Engineering , B.Sc. (Hons.), who is the Principal and Founder of Formative LLP.   Through his YouTube channel, YouCounsel, Amer shares practical advice from his years of legal experience to help anyone access justice and achieve their goals.  Subscribe today to learn more.


Show Notes:


Lecture Slides:

Welcome to YouCounsel.

Today, we will talk about employee rights, when an employer is going through a transition—being acquired by another company, selling their business—what happens to the employees’ rights? This lecture is also helpful for businesses that are selling their business or acquiring new business—to understand what could be the employee rights that may be affected.

Please note that this lecture is not legal advice. If you have any specific questions regarding your issues you should contact a lawyer or a paralegal or the law society of Ontario for a referral.

The sale of business can happen in 2 ways, one is called share purchase and the second is called asset purchase. The term sale is defined quite broadly in the Employment Standards Act. It could be the sale of the business, it could be the leasing of the business, in some circumstances even sub-contracting may be considered a sale for the purposes of Employment Standards Act. It is generally the disposition of business, from one owner to another in some way.  It doesn’t have to be from company to company. It could be from company to an individual owner.  There are multiple variations. But the sale or purchase of the business can happen in 2 ways. Share purchase and asset purchase. We’ll talk about both and then we’ll talk about a third category called common employer. We’ll explain what kind of employers are considered common employer and what are the implications for employees in that.

Let’s talk about Share Purchase. Share purchase, obviously means that a company, one person or entity acquires the shares of another company. It could be all of the shares, could be some of the shares, but essentially it’s a share in that business. What happens in that case—there is no change for the employees because the company, the corporation remains the same. If there are any changes that need to be brought, if the new owner wants to make the changes to the terms of employees employment, then there has to be something called Fresh consideration. A fresh consideration means there has to be some give and take between the employer and the employee for the change of the employment structure to take place. For example, if the new owner wants to reduce the salary of an employee, then they have to give something in return. For example, more vacation or a bonus or something like that. But whatever the change may be, it does require a fresh consideration otherwise the change will not be enforced.

Now let’s talk about Asset Purchase. In asset purchase, essentially, one company is acquiring certain assets, maybe all assets—but certain assets of another company. For example,

 if the seller is a manufacturing facility and they have multiple lines.  The purchaser is buying only one product, one line, then that is the asset that the purchaser is acquiring. When the purchaser buys the assets, then the purchaser may offer employment to the employees of the seller or may not.  If it offers employment, it could be on the same terms as the employee was employed at the seller or could be on different terms. If the offer is made, then an employee has two choices, either to accept the offer or to refuse the offer. If the employee rejects the offer, indicates that it does not want to work for that employer, then, that will trigger determination rights for that employee and the seller company will be responsible for paying all of the termination rights for that employee.

On the other hand, if the employee accepts the offer of employment by the purchaser (by the new employer), then this will be a new contract that will take effect. Whatever the terms in those contracts are, those will be the terms for the future relationship—except for this—there are certain rights from the seller that continue to be enforced for that particular employee.  What are those rights? These are important ones: employment with the seller will be deemed employment with the purchaser, for calculating employees length of service or period of employment. For example, if the employee had worked for the seller for 10 years, then based on Employment Standards Act, this particular section, those 10 years will be considered 10 years with the purchaser, as if the employee was working for the purchaser for the last 10 years.  

Why is this important? Because this helps with so many Employment Standards Act rights that are dependent upon the length of your service. For example, vacation. If you have a longer service you may be entitled to more vacation. You have to get your vacation after you have completed one year—that is how it starts. Then pregnancy leave rights are dependent upon the length of your service, parental leave rights, critically ill child care leave, terminations rights, as we know, the longer your services the more termination pay you get.  Similarly, severance pay rights are dependent on the length of service. What the legislature has done is ensuring that employees are not affected in some ways, at least, not all of the ways, but in some ways because of the sale of a business certain rights remain intact. Once the employee accepts the offer of employment with the purchaser, these rights are automatically followed through whether they are indicated in the contract or not they are given and they will remain in force.

There is one exception to this and that is if there is more than 13 weeks of gap between employment between the seller and the purchaser. If your last day of work with the seller was ‘X’ and then you get hired by the purchaser after 13 weeks (after more than 13 weeks), then these rights are not available.  Then your employment will be considered fresh employment/new employment and you will not have any rights coming from the seller.

There is a third category of this transition which is called common employer. Essentially, in this situation there are two ways to consider this. Common employer happens when an employer is structuring his businesses to get some tax advantages.  For example, it’s one employer, one company but it has created 3 or 4 different companies to have some tax advantages of how they structure their business. But, essentially, all of them are doing related business. In Employment Standards Act the section that deals with this, that considers related activities or business between all of those employers. If they are related, if their businesses are related, activities are related then they will be treated as one employer with respect to the employment law obligation.

Similarly, in common law it is called the doctrine of common employer and in that case the test that the court applies is called degree of legal commonality between employers. What the court considers is whether the employers have same offices, whether they have similar management structure, whether they have same website, whether they have same suppliers, same H.R. staff, same accounting staff, things like that—to figure out whether these businesses have commonality between them.  If they do, then the rights and obligations of the employees are given to all of the employers together. It’s considered one employer. All of these employers, if there are more than one, they will be considered jointly and severally liable to the employee for the employment law obligations.

This helps in so many ways because a lot of times you will see that one employer changes its corporate entities, now it’s a different name, now the company is changing to a different company, but the essence of the business, essence of their operations is the same.  The employees are essentially doing the same work in the same circumstances and what not.  In those cases, what is ensured is that the employees rights are not affected.

Hopefully this gives you a broader understanding of your rights if you are an employee and your company or businesses are going through some transitions or have gone through some transition so you can understand what your rights are. These are also important for businesses which are selling their business to another company or purchasing someone’s businesses, to understand that their employment law obligations that they may have not thought about and that are enforced regardless of what their contractual agreement may be between the purchaser and the seller.

This is a very broad explanation of the sale of business.  There are many complications involved in this process but hopefully this gives you an overview of the rights of an employee in the scenario.

Thank-you for watching.

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