What happens to my job when the employer sells the business?
When an employer decides to sell its business, the effect that this will have on the employees of that business will depend on how the sale takes place. Generally speaking, the sale occurs via a share purchase or an asset purchase.
When the buyer acquires the business/employer through a share purchase, the law determines that there is no change to the corporate identity of the employer, as it is considered merely a change of shareholders. This means that the employment relationships are not interrupted, and continue under the same terms and conditions as before the sale. Where a share purchase takes place, the buyer inherits all of the business’ liabilities and obligations, including those pursuant to employment agreements.
On the other hand, where the sale is completed through an asset purchase, the buyer is not obligated to take on the various liabilities and commitments of the vendor/employer. Under such circumstances, the buyer will generally have the option to rehire all, some, or none of the current employees, and the liability for termination of the employment relationships lies with the seller. Because of this, when the sale of a business takes place via an asset purchase, the vendor will often negotiate to have the buyer retain the employees or share some of the liability arising from the terminations.
When the buyer chooses to retain some or all of the previous business’ employees, it will often offer employment under new terms. Generally speaking, in order to modify an employment contract, the employer must offer something to the employee, be it a raise, a bonus, or another benefit that represents value to the employee. This is known as consideration, and it is necessary for an agreement to be legally binding. In the employment context, offering continued employment has been deemed to not amount to consideration. Therefore, an employer is generally prevented from altering the terms of the employment relationship unless it offers something of value, other than an offer for the employee to keep his or her job. However, this can vary in the context of the asset purchase of a business.
The Ontario Court of Appeal in Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873, held that, given that the buyer of a business in an asset purchase does not automatically inherit the employment contracts of the seller, where the buyer offers employment to the current business’ employees, it is free to offer new terms of employment. In an asset purchase, the employment relationship is deemed to be terminated, and so the offer of employment is not considered an offer of continued employment, but rather, a new offer of employment, since the buyer of the business is not obligated to hire the previous business’ employees. Accordingly, the new offer amounts to consideration, and the buyer/new employer may alter the terms of the agreement. Most often, we find that new employers will change the termination provisions of the contracts of newly rehired employees in order to limit their own liability, from common law reasonable notice, to the Employment Standards Act (ESA) minimums.
Even though, given the Court’s ruling on Krishnamoorthy, continued employment may be sufficient consideration in the context of the asset purchase of a business to modify the terms of employment agreements, any provision of the new agreement that attempts to contract out of the ESA will continue to be invalid. This means, for example, that where the new employer wishes to include termination provisions into the new contracts, limiting rights upon termination to less than common law notice, it must comply with the ESA standards. Similarly, while buyers/employers will be able to change the terms of the employment agreements, they will not be able to contract out of the provisions of the ESA which deal with seniority.
Section 9 of the ESA dictates that on the sale of a business, where the purchaser hires an employee of the seller, the employment is deemed to not have been terminated, and the employee is considered to have been continuously employed with the purchaser for the purpose of any future calculation of length of employment. For example, where an employee has been with a business for 5 years, and the employer then sells the business, if the purchaser continues to employ that employee but terminates him or her 3 years later, then the length of employment will be 8 years, instead of 3. The application of this provision of the ESA was confirmed by the Court in Ariss v. NORR Limited Architects & Engineers, 2019 ONCA 449, where it held that, in accordance with s.9 of the ESA, the employer cannot waive the employee’s years of service upon the sale of a business.
When a change of ownership takes place via an asset purchase, it can be difficult for employees to determine what rights they have, either because they may be terminated, or they may be “rehired” under modified terms. Because of this, it is important to consult a lawyer upon termination of employment or once presented with a new employment agreement. As lawyers with expertise in employment law, we often advise our clients regarding their termination rights, and their rights and obligations under specific employment conditions. You may contact us anytime.