Historically, it was well established at common law that the
sale of a business severed the employment relationship between the
business that was being sold and the employee. The rationale behind
this common law principle was the protection of an individual's
autonomy. The courts rejected the idea that workers could be bought
and sold. However, while the intent of the courts was to protect
the rights of individual employees, the doctrine also exposed
workers to potentially prejudicial consequences. For example, if a
worker is subsequently dismissed by the purchasing company, the
common law does not recognize that employee's service under the
original employer for the purpose of calculating reasonable notice.
These concerns prompted a strong legislative reaction in Ontario
and around Canada.
In Ontario, there are provisions in the Employment Standards Act, 2000
("ESA" or the "Act") that protect employees
notwithstanding the traditional common law approach to the
severance of the employment relationship in a sale of business
context. Most importantly for these purposes, section 9 of
the ESA states that when a business is purchased "as a
going concern", the employment of the employee shall be
"deemed not to have been terminated or severed for the
purposes of [the] Act and his or her employment with the seller
shall be deemed to have been employment with the purchases for the
purpose of any subsequent calculation of the employee's length
or period of employment."
Employers, especially when purchasing businesses, should be
aware of this statutory regime that recognizes prior service for
the purposes of the Act. There is also authority that indicates, in
specific circumstances, that courts have imported the rationale
behind provisions like section 9 of the ESA into their common law
analysis and held, at common law, that continuous service should be
recognized notwithstanding the sale of a business. In light of the
statutory and jurisprudential protection afforded to employees of
businesses sold as a going concern, a prudent employer should
carefully consider the employment implications of purchasing a new
business. For example, specific attention should be paid to the
documents and language used if employees are hired by the
purchasing business. Employers cannot contract out of statutory
regimes but is possible that exposure to significant common law
notice periods can be minimized if the appropriate steps are
Written with the assistance of Andrew Nicholl, articling
Norton Rose Fulbright Canada LLP
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