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Asset transactions are critical milestones for businesses, often involving intricate employment considerations that can significantly influence costs, compliance and employee morale. Whether you are acquiring or divesting assets, understanding the legal and practical implications of employment transitions is essential for a seamless process.
Davies partners Stephanie Pasternyk and Shari Cohen recently presented a talk for the Canadian Association of Counsel to Employees (CACE) on asset transactions, including practical strategies and an employment law toolkit.
The following are some of the key takeaways from their session:
Structuring the Deal: Share Sale vs Asset Sale
The structure of your transaction dictates how employment relationships are managed:
Share Sale: Employment relationships continue uninterrupted, with all liabilities transferring to the buyer. While this minimizes disruption, thorough due diligence is essential to evaluate inherited liabilities.
Asset Sale: Employment does not automatically transfer. Employees must accept new offers from the purchaser, and prior service is often recognized for statutory entitlements. This requires careful planning to manage transitions and allocate liabilities effectively.
Jurisdictional Nuances: Québec vs Common Law Provinces
Employment laws vary significantly across jurisdictions, impacting how transitions are handled:
Québec: Employment continuity is automatic under public order provisions (e.g., s. 2097 CCQ). Employers cannot selectively retain employees, and terms must remain consistent. Termination without just cause can result in reinstatement, as demonstrated in cases like Massé c. Structures Yamaska Inc.
Common Law Provinces: Employment does not transfer automatically. Employees must accept offers from the purchaser, and prior service is generally recognized for statutory entitlements like notice and severance. Significant changes in terms can lead to constructive dismissal claims.
Managing Costs and Risks
To minimize liabilities and ensure compliance:
Service Recognition: Clearly define whether prior service is recognized for statutory purposes only or for all purposes to avoid unintended entitlements.
Employment Agreements: Align new agreements with existing terms and time sign-backs strategically to avoid constructive dismissal risks.
Indemnity Clauses: Include these in purchase agreements to allocate termination costs and other liabilities effectively.
Unionized Workforces and Sector-Specific Challenges
Unionized employees introduce additional complexities:
Successor Employer Rules: In both Québec and common law jurisdictions, purchasers are often deemed successor employers, inheriting collective bargaining agreements (CBAs) and associated obligations.
Sector-Specific Liabilities: In industries like building services, successor liability can exceed statutory minimums, making due diligence critical.
Human Rights and Benefits Continuity
Accommodations for employees, such as disability plans, must be maintained throughout the transaction. Gaps in benefits continuity can lead to legal risks and employee dissatisfaction. Targeted indemnities and onboarding solutions can help address these challenges.
Actionable Checklist for Success
Use this checklist to ensure a smooth transaction:
- align the deal structure with jurisdictional rules and workforce composition;
- sequence offers, notices and closing mechanics to mitigate risks;
- address workforce adjustment plans and statutory notice requirements; and
- engage legal counsel to navigate jurisdiction-specific requirements.
By integrating employment considerations into transaction planning from the outset, businesses can navigate asset transactions with confidence. Whether you are managing unionized workforces, addressing jurisdictional nuances or planning employee transitions, these strategies will help you minimize risks, ensure compliance and foster a positive employee experience. With the right approach, asset transactions can become opportunities for growth and success.
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.
