The Effect of a Business Sale on an Employee in a Non-Unionized Context
What happens if my current employer is acquired by another company? Does that mean that my job was terminated? Do I automatically become an employee of the new owner? Most importantly, am I entitled to receive a financial severance package?
These are questions that employees ask all the time. As with any other employment matter, the answer will always depend on the specific facts of each case. However, the key consideration is the nature of the business sale (how the employer company was bought): Asset Purchase or Share Purchase?
In an asset purchase, the purchaser will acquires only specific assets of another business (e.g., specific divisions, equipment, building, etc.), and therefore only assume corresponding liabilities. The rest of the business remains with the selling corporation.
In a share purchase, the purchaser acquires all of the shares of the selling corporation itself and, therefore, acquires all of its assets and liabilities.
Impact of Corporate Acquisition on Employee Rights in Ontario
Generally, the rule is that if a company is acquired by a share purchase, the employer does not change, and there is no termination of the employment relationship. In fact, all that has changed are the shareholders (the people who own shares of the company), but the employer remains the same. In other words, the purchaser effectively “steps into the shoes” of the seller, and thereby inherits all employment-related liabilities.
On the other hand, in an asset purchase, the general rule under common law is a deemed termination of the employment relationship. The general premise is that employees are not “assets” that can be bought and sold. As a result, in an asset purchase, the purchaser has two options:
1. offer employment to all (or some) of the selling company’s employees in an employment contract
2. not to offer employment to the selling company’s employees
If the purchasing company chooses not to offer employment to the selling company’s employees, these employees will by deemed “terminated” from their employment under common law at the business transaction is closed. As a result, terminated employees will generally be entitled to a financial severance package from the selling company (their employer).
It is also important to note that, quite often, the purchasing company in an asset sale simply continues employing the previous employees of the selling company and business continues as normal. In such cases, because the employees have not signed a new employment contract with a termination clause, their common law right to receive reasonable notice of termination in the future remains. At that point, the employer will be obligated to provide prior working notice (or payment in lieu of notice) before terminating the employee’s job, based on the following factors:
- age
- length of employment (years of service)
- position
- salary
- education, skills, training and work experience
- availability of similar employment
- other relevant factors (disability, pregnancy etc.)
It is also important to note that, under Ontario’s, Employment Standards Act, 2000, an asset sale does not impact an employee’s basic minimum entitlements to termination pay and severance pay. In fact, employment is generally deemed to continue uninterrupted. In other words, if the sale of the business transaction constitutes a sale of a business under theEmployment Standards Act, 2000, and the purchaser decides to extend an offer of employment that is accepted by the employee, the employee’s employment is deemed (legally determined) to be continuous and uninterrupted by the sale, and the purchasing company must recognize the each employee’s tenure (years of service) with the selling company (and all prior predecessors) for the purpose of the minimum rights under the employment standards legislation. However, this continuity of employment (successor employer) rule only applies for the purpose of the legislation; it does not impact the common law analysis (discussed above).
As noted above, in an asset sale, the purchasing company does not have to make offers of employment to all (or any) of the selling company’s employees. In other words, the purchaser of assets of a company is under no legal obligation in Ontario to hire or continue employing the selling company’s employees.
This is because the termination and severance pay entitlements are the responsibility of their employer (the selling company), and asset purchasing company is free to decide who to employee based on its own needs. However, asset purchasers should always be mindful of not inadvertently discrimination against employees based on prohibited grounds under Ontario‘sHuman Rights Code. For example, the asset purchasing company (successor employer) cannot decide to offer employment to only male employees, or exclude employees currently on disability leave or pregnancy leave from receiving offers of employment, as this could constitute discrimination under human rights legislation.
In the event the asset purchaser offers employment to the selling company’s employees, it does not have to be on the same terms and conditions of employment that the employees previously enjoyed. In fact, the asset purchasing company is free to offer employment based on terms of its own choosing (or that can be negotiated).
While employers are not required to offer employment to the asset selling company’s employees, and while those same employees do not have to accept an employment offer from the purchasing company, there can be consequences. Specifically, the asset selling company is legally responsible for all severance pay liabilities arising under the Employment Standards Act, 2000, employment contract and at common law. Also, if an employee is offered employment by the purchasing company on “substantially similar” terms as the employee previously enjoyed, the selling company could argue the employee failed to “mitigation” their losses if they attempt to sue for wrongful dismissal damages. In such case, the employee may not be entitled to their full severance pay under common law, they are still entitled to their minimum statutory entitlements under the Employment Standards Act, 2000.
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