Businesses are bought and sold all the time. From small 'mom and pop' shops through to multi-national operations. If your workplace is (or has been) sold, it is important to understand how this may affect your rights as an employee.
We often work for individuals who have been let go from a workplace that has been operated by more than one business owner during their tenure. Your severance entitlements can be significantly impacted by the way the business changed hands, and how the vendor and purchaser dealt with liability for employee severance.
A business can change hands in one of two ways:
- An employer that is set up as a corporation can sell its shares to a new person, who will assume ownership; or
- An employer can sell its assets to a new purchaser.
If you work for a business that changes ownership through a sales of shares, you seamlessly become an employee of the new owner. This is true regardless of whether you are a unionized or non-unionized employee. In a share purchase, the key fact is that your employer does not actually change - just who owns the employer.
On the other hand, if the change in ownership is through an asset sale (for example, a person buys a hotel property), your employment will end on the date that the sale is finalized. The reason for this is that the purchaser has bought the assets from the vendor, but as individuals are not commodities that can be bought and sold, your employment ends.
At this time, the vendor becomes liable to provide severance, unless the parties reach an alternate agreement as a term of the sale. For example, the purchaser may agree to offer continued employment to all staff. If a purchaser does this they are deemed to assume liability for your full severance entitlement (should you be fired at a later point in time) unless they expressly advise you that they will not recognize your service with the prior owner.
The courts have provided some guidelines to help protect employees and ensure fairness should they be dismissed, and become entitled to severance. Namely: a purchaser is presumed to become liable for an employee's total years of service (including with the former owner), unless it expressly tells the employees that it will not assume this liability.
In Sorel v. Tomenson Saunders Whitehead Ltd. the British Columbia Court of Appeal provided a helpful summary of the law in this regard:
- When a purchaser acquires a business as a going concern, there is an implied term in the contract of employment between it and those employees continuing in the service of the business, that the employees will be given credit for years past service with the vendor for purposes of such incidents of employment as salaries, bonuses and notice of termination.
- This implied term may be negated by an express term to the contrary. In other words, the purchasing employer may, at his option, advise the employees that he does not intend to give them credit for past services to the vendor. If this is done, the employees have the option of entering into the new contract of employment on these terms or of declining to work for the purchasing company and suing the vendor for wrongful dismissal and damages in lieu of notice.
- Where the new employer does not advise the employees that he is unwilling to contract on the basis that the employees have credit for past years of service, the employer is deemed to have contracted with the employees on the basis that the employees will be given such credit.
Finally, the context in which a change of business occurs can also significantly impact employee severance entitlement. For example, if the vendor is insolvent, is subject to creditor protection proceedings or the purchaser only buys a portion of the existing assets. A recent case, Carpenter v. Brains II, Canada Inc., dealt with some of these complicating factors. If these issues may apply to your situation, seek legal advice from an employment lawyer.
Employees: Key Takeaway
- If you learn you are being let go at the time that a business changes hands, do not sign a termination offer, until you have it reviewed by an employment lawyer to ensure fair severance.
- If you learn that the business you work for is changing hands, try to find out whether your employment will either seamlessly continue, or if you are to be offered continued employment by the purchaser.
- If you are to be offered continued employment, do not sign any new employment contract until you have had it reviewed. Failing to take this step may considerably impact your employment rights, including those to severance.
- If the purchaser approaches you with any written document that seeks to relieve it from liability for severance for the years you worked with the former owner, do not sign this document without first reviewing carefully with an employment lawyer to fully understand the implications.
Employers: Key Takeaway
- If you act as either a vendor or a purchaser in an asset sale, ensure that you consider how existing staff will be treated: will they be offered continued employment?
- If so, formalize this fact in writing and expressly communicate to the employees, requiring their written acknowledgement, which party will assume liability for severance upon termination.
- Address liability as between the parties upfront to avoid unnecessary cost and dispute after that fact.
Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to employees and employers in Ottawa and across Ontario.
To discuss this issue further, please contact our office: firstname.lastname@example.org or 613-238-4430.