Sale of Business: What Rights Do Employees Have?

by | Mar 14, 2023 | Employment Law | 0 comments

To a business owner, the sale of their business can be the well-deserved payout of a life’s worth of blood, sweat and tears. For the employees and their families, however, even assurances of job security may not be enough to relieve feelings of uncertainty and worry during the transition. And without any commitments during the process, the sale of a business may result in employees of the selling company becoming unemployed.

While such an impactful event is out of your hands, knowing your rights and available recourses can help alleviate some of the stress related to the unknown and help you protect yourself and prepare for the next chapter of your life. If your company was sold or is up for sale, speak to a Canadian employment lawyer to know your rights and entitlements as an employee during the sale of a business.

Disclaimer: The information in this article and everywhere else on this website is for general information only and is not intended to provide legal advice. No lawyer-client relationship is created by accessing or otherwise using Ertl Lawyers’ website or communicating with a lawyer or a staff member. If you need legal advice, contact Ertl Lawyers. We’re more than happy to speak with you.

What Happens to the Employees When a Company is Sold in Canada?

Before exploring possible outcomes for employees when the company they work for is sold, there is one scenario where it’s basically business as usual after the company is sold.

Legally, if a business is acquired through the purchase of shares, the buyer is now just the new owner of shares in the corporation, which is still the employer. In other words, a change in the ownership of a corporation’s shares is not considered a change in the employer’s identity. This means that the employment agreements between the employer and the employees are still in place, and they maintain the same rights and employee entitlements after the sale of the business. When a buyer acquires shares of a company, they are responsible for all of the business’s liabilities and obligations, including those related to employment agreements.

The same is not true, however, when the purchaser is buying all or part of the selling company’s assets. The buyer can choose to rehire all, some, or none of the present employees. In these situations, the seller is responsible for notifying the employees of the sale of the business and is financially liable for ending the employment contracts. Accordingly, when a firm is sold via an asset acquisition, the seller will frequently negotiate with the buyer to have the workers retained or to share part of the liabilities associated with the terminations.

Rights & Employee Entitlements on the Sale of a Business in Ontario

There are three basic scenarios that typically play out after a business is sold to a new owner: they may choose to continue employing the seller’s staff under the same terms and conditions as contained in the previous employment contracts, the buyer can offer the company’s current workers employment subject to a new and different employment contract, or they may decide not to employ the business’s current staff.

 A woman interviewing for a job

What are My Rights & Entitlements After the Sale of a Business if the New Owner Does Not Offer Me Employment?

If the sale of your employer’s company results in the loss of your job, it is usually treated as a dismissal without cause, which means that you are entitled to adequate notice of termination and possible severance pay as well.

The Employment Standards Act (ESA) requires that when an employee who has been continuously employed for at least 3 months is terminated without cause, they are entitled to written notice of termination or termination pay in lieu of notice. The ESA provides a minimum of one week’s notice for every completed year of service as a working notice period up to a maximum of 8 weeks, or pay at the employee’s regular wages if less notice (or no notice) is given before the termination.

According to the ESA, a termination without cause also entitles the employee to severance pay if they were employed for at least 5 years and they were either: (only one of the following situations must apply)

  • Dismissed or no longer employed by the employer, even if the dismissal is due to employer bankruptcy.
  • Laid off for more than 35 weeks in a period of 52 consecutive weeks.
  • Constructively dismissed by the employer and resigned within a reasonable amount of time. (see the section “Rights & Employee Entitlements After the Sale of a Business if the Purchaser Offers Employment Under New Terms” for an explanation of constructive dismissal.)
  • Laid off because the entire business was closing permanently, or the employee gave two weeks’ notice and resigned after receiving notice of the impending layoff before the notice period ended.

However, for the employee to be eligible for severance pay, their employer must either:

  • Have a global payroll of at least $2.5 million; or
  • Have severed the employment of (or laid off) 50 or more employees in a six-month period because all or part of the business permanently closed.

The ESA entitles eligible employees to one week’s pay as severance for every year worked up to a 26-week maximum.

A Note About Notice Periods and Severance Pay

These notice periods and severance pay entitlements are the minimums allowed by the ESA. For them to apply as terms of your employment, your employment contract must clearly specify that at termination, you are only entitled to the minimum ESA requirements of notice and severance pay.

However, if you do not have an employment contract, your contract does not have a clause covering termination entitlements, or your contract’s termination clause isn’t legally enforceable because it provides less than the ESA minimums or because it isn’t clearly written and is confusing or ambiguous, then you may be entitled to a notice period and severance pay according to the common law – rulings made by judges regarding employee entitlements in a termination without cause.

These entitlements are usually significantly larger than the ESA minimums and are based on how long it would take the employee in their specific circumstances to find a comparable job. Many factors are considered in common law notice periods and severance pay entitlements, some of which include:

  • Age of the employee and their personal circumstances.
  • Length of service, their role and their expertise.
  • The economic climate and the availability of similar work.

Because common law entitlements are usually much more generous than the minimum ESA standards, you should always check with an employment lawyer if you are dismissed to see if these entitlements can apply in your case.

 A man looking for work in a newspaperJobs Not Regulated By the ESA

Your employment contract or union agreement may provide more than the ESA minimums, in which case those amounts become your minimum entitlements. Also note that some professions are exempt from certain ESA minimum requirements and have special rules. They apply to industries such as hospitality, manufacturing and emergency services.

On a related note, employees working in federally-regulated industries, including radio and television broadcasting, banking and national and international transportation, are subject to the rules in the Canada Labour Code.

Rights & Employee Entitlements After the Sale of a Business if the Purchaser Offers Employment Under New Terms

When a purchaser chooses to keep the employees, they will often seek to change at least some of the employment terms in a new contract. One of the most crucial stipulations to be wary of is one that seeks to “reset” an employee’s length of service at the start of the new contract.

If an employee remains with the new owner after the sale of a business, one of their key entitlements is the right to have the employment viewed as being continuous. This means that their time working for the previous business owner must be included in entitlement calculations of employment terms such as vacation, termination notice, and severance pay, and it can have a considerable impact on the size of those entitlements.

If the new owner/employer offers you an employment contract with a clause that does not recognize your previous length of service or makes other fundamental changes to your role, such as a significant reduction in your wages, hours or responsibilities, you may be entitled to turn down the offer of employment and still receive a severance package. Otherwise, if the changes are minor and the employment terms are similar to your previous employment contract, you may lose the right to a severance package if you refuse the job.

There is also the possibility that your employment entitlements at the sale of the business remain relatively the same, but your new employer makes fundamental changes to those entitlements or the employment terms unilaterally (without consulting you) after the fact. Those types of changes to your employment contract, whether by a new or existing employer, can be considered a constructive dismissal which would entitle you to your full severance if you decide to quit.

Always consult an employment lawyer to review a new contract of employment, discuss changes in your employment, and anytime you are faced with an employment decision. It’s their job to look out for your best interests and advise you as to how the terms and conditions of an employment contract might adversely affect you presently and moving forward.

David Ertl Lawyer
About Andrea Allin
Andrea is a part of the Ertl Lawyers team and has focused on employment and disability matters for over a decade.


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