When a company in Canada sells its business and chooses not to retain certain employees, the implications for those employees can be significant. Understanding the legal framework governing such scenarios is crucial for both employers and employees. This blog post delves into the rights of employees and the obligations of employers under Canadian law when a business changes hands and certain staff members are not retained.
Understanding Business Sales: Asset vs. Share Transactions
In Canada, the sale of a business can occur through either an asset sale or a share sale, each with distinct implications for employees:
- Asset Sale: The buyer purchases specific assets of the company. In this case, the purchaser is not obligated to retain any of the seller’s employees. If employees are not rehired, their employment is considered terminated, and they may be entitled to severance pay from the seller.
- Share Sale: The buyer acquires the shares of the company, effectively taking over the entire business, including its employees. In this scenario, the employment relationship continues uninterrupted, and employees retain their existing rights and benefits.
Employee Rights When Not Retained Post-Sale
If a company sells its business and the new owner does not retain certain employees, those employees are typically considered to have been terminated without cause. This entitles them to specific rights under Canadian employment law:(Ertl Lawyers) Employment Hour in 30
1. Notice of Termination or Pay in Lieu
Under the Employment Standards Act (ESA), employees who have been continuously employed for at least three months are entitled to written notice of termination or termination pay in lieu of notice. The minimum notice period is one week per year of service, up to a maximum of eight weeks. (Ertl Lawyers, CanLII)
2. Severance Pay
In addition to termination notice or pay, employees may be entitled to severance pay if they have been employed for five or more years and the employer has a payroll of at least $2.5 million or if 50 or more employees are terminated within a six-month period due to the business closure. (Ertl Lawyers)
3. Common Law Entitlements
Beyond statutory minimums, employees may be entitled to additional compensation under common law, which considers factors such as age, length of service, position, and the availability of similar employment. Common law notice periods can be significantly longer than ESA minimums, sometimes up to 24 months. (KM Law)
Employer Obligations in Business Sales
When a business is sold, the obligations of the seller and purchaser regarding employees depend on the nature of the sale:(KM Law)
- In an Asset Sale: The seller is responsible for providing notice of termination or pay in lieu, as well as severance pay if applicable, to employees not rehired by the purchaser. (Achkar Law)
- In a Share Sale: Since the employment relationship continues, there is no termination, and thus, no obligation for notice or severance pay arises solely due to the sale.
Employee Options and Considerations
Employees affected by a business sale have several options and considerations:
- Review Employment Contracts: Employees should review their employment contracts to understand their rights and any clauses related to termination or business sales.
- Seek Legal Advice: Consulting with an employment lawyer can help employees understand their entitlements and the best course of action if they are not retained post-sale.
- Mitigation of Damages: Employees have a duty to mitigate their damages by seeking comparable employment. Failure to do so can affect the amount of compensation awarded in wrongful dismissal cases.(Canadian HR Reporter)
Conclusion
The sale of a business in Canada can have significant implications for employees, especially if they are not retained by the new owner. Understanding the legal rights and obligations in such scenarios is crucial for both employers and employees. Employers must ensure compliance with employment laws to avoid potential legal disputes, while employees should be aware of their entitlements and seek appropriate legal advice when necessary.(Global News)
