A purchaser of a new business often keeps on existing employees
who have the knowledge to help the buyer operate the business
efficiently. Purchasers are happy to pay and award these employees
for their services since the purchase of the business; however,
buyers often fail to realize that their obligations to employees
may extend to periods prior to the acquisition. This,
unfortunately, can lead to headaches and financial liability,
especially in cases where employees have been with the business for
many years. As a purchaser, you should be aware of Section 97 of
the Employment Standards Act (the
"ESA") and its effects on the purchase
transaction. In particular, Section 97 of the ESA provides
[i]f all or part of a business or a substantial part of the
entire assets of a business is disposed of, the employment of an
employee of the business is deemed, for the purposes of this Act,
to be continuous and uninterrupted by the disposition.
So, what exactly does continuous mean? An employee who was
working for the vendor at the time of acquisition will be deemed to
be continuously employed and the buyer will assume the liabilities
associated with that employee. In contrast, if the employee is
terminated by the vendor just prior to the closing date of the
acquisition, then the employee will not be continuously employed
and the vendor will assume the liabilities associated with that
What liabilities are we talking about? A prospective purchaser
of a business should be aware of the consequences of Section 97 of
the ESA listed below, which are not exhaustive. Of course,
if the employees of the business are terminated prior to the
purchaser acquiring the business, the consequences do not
Wages. The purchaser
is responsible for all outstanding wages owed to an employee.
Employees are entitled to statutory holidays based on employment
with both the vendor and the purchaser.
Employees are entitled to vacation time and vacation pay as of
their employment start date when the business was owned by the
vendor. The purchaser assumes the liability for any accrued
vacation pay owing to an employee if such pay has not been paid by
Benefit Plans. The
benefit plans become a condition of employment with the purchaser
and must be continued as a condition of employment.
Employees on Leave.
Employees on leave, whether paid or unpaid, are still considered
employees of the business.
Purchased Assets Subject to
Lien. If any wages are owing to employees, the purchaser
buys the assets with a lien attached to them.
Notice. The purchaser is responsible for ESA
severance and notice obligations for employees to their original
start date with the business and, in the absence of an enforceable
employment agreement limiting severance and notice to the
ESA minimums, for common law severance, which could be
significant for long term employees. Keep in mind that severance
obligations only arise if an employee is terminated without cause.
Accordingly, a purchaser should factor in the cost of severance for
any employees that it anticipates letting go of following the
closing of the transaction.
The purchase and sale of a business is a complex process.
Purchasers should seek the help of qualified advisors who can help
purchasers avoid surprises after they have taken over the business.
Qualified advisors can assist in structuring the transaction so
that the vendor is responsible for severance costs associated with
the purchase of a business.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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.
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