The deal is done, a new company purchased. The first order of
business is to provide the new employees with a contract of
employment offering them their previous job on essentially the same
terms and conditions. Often, however, important issues, such as
whether an employee will receive credit for past years of service,
are not explicitly addressed in the contract. A failure to do so
may leave the purchaser company exposed to large severance payments
if it wishes to terminate any employee down the road. Provincial
Employment Standards Acts and the common law must both be
considered to determine whether an employee's past years of
service are carried forward.
Employment standards legislation protect the years of service
accumulated by an employee when a business is sold. In Ontario, for
example, the ESA states that employees will carry forward their
past years of service if they are employed by the seller within 13
weeks of the sale. In practical terms, this means that an
employee's vacation and termination entitlements under the ESA
continue as if the sale had not occurred.
The common law principles, on the other hand, apply primarily in
the context of calculating "reasonable notice" on
termination of employment. The general rule is that when a business
is acquired, there is an implied term that employees will receive
credit for years of past service.
This general rule applies unless an employer explicitly advises
employees to the contrary. For example, the new employment contract
must expressly limit the credit for past years of service that
employees will receive. While this will not have any effect on
entitlements under the Employment Standards Act, it will limit an
employer's exposure with respect to common law "reasonable
notice". It is important to note, however, that employees can
refuse to sign the new agreement and sue the vendor for wrongful
dismissal if service is not credited. As an alternative to denying
any past service, employers could include an alternative formula
for calculating severance pay in the contract.
1. Review the employee's previous contract for any limits on
severance and any significant differences in benefits or
entitlements under the proposed new contract;
2. Explicitly state the extent to which an employee's past
years of service will be carried forward in the contract of
3. Bring any important terms, especially those limiting credit
for an employee's past years of service, to the employee's
attention and provide them with an opportunity to obtain legal
When considering whether or not to limit an employee's
entitlements, a company should also consider whether there are any
indemnity provisions in the agreement of purchase and sale that
relate to the payment of severance. In situations where the
purchasing company is liable for severance, it could be an
expensive proposition if employees refuse the new contract of
employment and sue for wrongful dismissal.
The purchase of a company is also an excellent opportunity to
review the standard employment contract to ensure it is up-to-date,
reflects the priorities of the company, and takes into account any
new developments in the law.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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