Sale of Business — Ontario Employment Law
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About Sale of Business
When a company changes hands, employees are often left wondering whether they still have a job and what happens to the seniority they have spent years building. In Ontario, how a sale of business impacts your employment rights depends heavily on the legal structure of the transaction: specifically, whether it is a share purchase or an asset purchase.
In a share purchase, the buyer acquires the shares of the existing company. The corporate entity remains exactly the same; only the ownership changes. For employees, it is essentially business as usual. Your employment contract continues automatically, uninterrupted, and your total years of service remain intact.
An asset purchase is much different. The buyer purchases the equipment, client lists, and property of the business, but not the corporate entity itself. Under the common law, an asset sale technically results in the termination of your employment with the seller. The new owner then has the option to offer you employment. If they choose not to hire you, your original employer (the seller) is responsible for providing you with termination pay and severance pay.
However, if the buyer in an asset sale does offer you a job and you accept it, section 9 of Ontario's Employment Standards Act, 2000 (ESA) steps in to protect you. This legislation dictates that your employment is deemed continuous. The purchaser inherits your past years of service for the purpose of calculating future entitlements to notice of termination, severance pay, and vacation time. Ontario courts strongly enforce this continuity. For instance, in one notable case, a 64-year-old welder whose company was sold later found himself dismissed without cause by the new owner. The court awarded him 20 months of reasonable notice, ruling that his entire 36-year continuous tenure carried over to the purchaser, rejecting arguments that his service clock had reset.
Because corporate transactions are highly complex and buyers often attempt to introduce new contracts that secretly limit your rights, these situations require careful navigation. Whether you are wondering if you should accept an offer from a purchaser or how your prior service will be recognized, having a qualified professional review the specifics of your workplace transition is highly recommended before you sign any new documents.
Frequently Asked Questions
Do I automatically keep my job when my employer sells the business?
It depends on how the business is sold. If it is a share sale, your employment continues automatically with the same company. If it is an asset sale, your employment with the seller officially ends, and the new owner can choose whether or not to offer you a new position.
If the new owner hires me, do I lose all my years of seniority?
No. Under the Employment Standards Act, if the purchaser of a business hires an employee of the seller, the employee's length of service is deemed continuous. Your years working for the previous owner will count toward future entitlements like vacation time and severance pay.
Who pays my severance if the new company doesn't hire me during an asset sale?
If the buyer declines to offer you a position following an asset purchase, your original employer (the seller) has effectively terminated your employment. They are legally responsible for providing your mandatory termination pay and severance pay.
Can I just refuse a job offer from the new owner and ask the original employer for severance?
This is a risky move. If the buyer offers you a position on substantially similar terms to your old job and you refuse it, a court might determine that you failed to mitigate your damages. This could result in you forfeiting your right to severance from the seller.
My new employer is asking me to sign a contract stating I am on probation. Is this legal?
If you are transitioning to a purchaser as part of a business sale, the ESA protects your continuous service. While an employer might ask you to sign a new contract, they cannot legally strip away your accrued statutory rights or legally place a 10-year veteran on standard beginner's probation without proper consideration.
When should I have a lawyer look at transition paperwork during a company buyout?
You should seek legal guidance the moment the purchaser presents you with a new employment agreement. These contracts frequently contain termination clauses designed to restrict your common law notice rights, making it vital to understand what you are giving up before putting pen to paper.
Common Scenarios
- A warehouse is acquired in an asset purchase. The purchasing company offers jobs to the existing forklift operators but requires them to sign contracts stripping away their previous 8 years of seniority. Because this violates the continuous employment provisions of the ESA, the employees challenge the validity of the new contracts.
- A software firm is bought via a share purchase. The next day, the brand name changes and the management team is swapped out, but a senior developer's employment continues flawlessly, with her original 15-year employment contract remaining fully enforceable against the newly owned entity.
- During an asset buyout of a retail chain, the buyer decides to consolidate operations and does not offer a position to a regional manager. The regional manager successfully claims 12 months of common law reasonable notice from the seller, who technically terminated the employment through the sale.
- A marketing executive is offered a role with the purchasing company, but the new position comes with a 25% pay cut and a loss of their managerial title. They wisely seek legal counsel to determine if refusing this inferior offer will still allow them to claim constructive dismissal and severance from the seller.
What You Should Know
- Do not hastily reject an offer of employment from a business purchaser. Unreasonably refusing a comparable job can severely harm your ability to claim severance from your former employer due to a failure to mitigate.
- Always secure a copy of your original employment contract with the seller before the transaction closes, as it can be difficult to obtain HR records once a company dissolves or integrates its systems.
- Read newly presented offer letters carefully. Buyers often use a transition as an opportunity to insert restrictive non-compete clauses or aggressive termination caps that were not in your original agreement.
- If your company is undergoing an asset purchase, ask for written confirmation regarding exactly how your accrued but unpaid vacation pay will be handled between the buyer and the seller.
- Consulting an Ontario employment practitioner during a corporate buyout is the best way to ensure that any new employment agreement you sign properly recognizes your past years of service and protects your future severance rights.
Featured Cases
Stock Transportation Ltd. v. L.
2024 ONSC 575 (CanLII) · 2024-01-25Severance Pay: Sale of Business Appeal Dismissed
This is an appeal to the Divisional Court from a decision regarding statutory severance pay entitlements under the Employment Standards Act. The court addressed whether the expiry of a service contract and the existence of an Employee Introduction Agreement constituted a 'sale of a business' triggering severance obligations under s. 9 of the ESA. The appeal was dismissed, confirming the employees' entitlement to statutory severance under s. 64.
M. v. ASCO Manufacturing
2019 ONSC 5572 (CanLII) · 2019-09-26Wrongful Dismissal: 36-Year Welder Awarded 20 Months Notice
This wrongful dismissal case involved a 64-year-old welder with 36 years of service who was terminated without cause by a purchaser of the business. The court determined that his employment constituted a continuation of his service with the seller, entitling him to damages based on that full tenure. The court awarded 20 months' notice, rejecting the defendant's arguments regarding mitigation and prior settlements by the seller.
D. v. Imperial Oil Limited
2019 ONCA 448 (CanLII) · 2019-05-29Employer's appeal dismissed; 26 months' notice stands
This is an appeal to the Court of Appeal from a motion judge's decision in a wrongful dismissal action following the sale of a retail business. The employer appealed the award of damages to two dismissed employees, arguing they failed to mitigate by refusing employment with the purchaser, while the employees cross-appealed regarding the calculation of their savings plan benefits. The motion judge found the employees acted reasonably in refusing the purchaser's offers and set a 26-month notice period, but limited their savings plan damages to 3% of their salaries. The Court of Appeal dismissed the employer's appeal and allowed the cross-appeal, concluding the purchaser's job offers were not comparable due to decreased benefits and that the employees were entitled to higher savings plan contributions. A 26-month notice period stands, with the employer ordered to pay 6% matching contributions for the notice period.
N. v. Canadian Back Institute
2018 ONSC 2882 (CanLII) · 2018-05-09ESA Sale of Business: Termination Pay
This case concerns a Deputy Judge's decision regarding employees' entitlement to termination pay under the Employment Standards Act, 2000. The central issue was whether the termination of employees and their hiring by a competitor constituted a 'sale of a business' under section 9 of the Act. The court applied governing principles from Abbott v. Bombardier and found no sale of a business due to the absence of asset transfers, personnel files, or contractual obligations between the parties.
A. v. NORR Limited Architects & Engineers
2018 ONSC 620 (CanLII) · 2018-03-2830-Year Employee Limited to ESA Pay Due to Valid Waiver
This wrongful dismissal case addressed whether an employee's service remained continuous following a business sale and a transition from full-time to part-time work. The court determined that while the employee's service was continuous, he was bound by a valid waiver of common law notice, limiting his damages to ESA termination and severance pay.
K. v. Olympus Canada Inc.
2017 ONCA 873 (CanLII) · 2017-11-16K. v. Olympus: Termination Clause & ESA Continuity
This appeal addresses whether a termination clause in a new employment contract offered by a purchaser of business assets is enforceable, specifically examining if section 9(1) of the Employment Standards Act, 2000 deems employment continuous for all purposes and if the offer of employment constitutes valid consideration. The Court of Appeal for Ontario held that the ESA protects minimum statutory entitlements but does not deem continuity for all purposes, and that the offer of employment constitutes valid consideration for the new contract. The court declined to address alternative arguments regarding the termination clause's validity due to the absence of a cross-appeal and factual findings from the trial.
M. v. ConCreate USL Limited Partnership
2013 ONCA 72 (CanLII) · 2013-02-05Restrictive Covenants and Indeterminate Duration in Sale
This is an appeal to the Court of Appeal from an application judge's decision regarding the enforceability of restrictive covenants. The employee had sold his minority interest in the employer's business and signed agreements containing non-competition and non-solicitation clauses that lasted for 24 months after he disposed of his retained indirect interest. The application judge found the covenants to be unambiguous and reasonable. The Court of Appeal allowed the appeal in part, concluding that the duration of the general non-competition and non-solicitation clauses was unreasonable because it depended on the consent of unascertainable third parties (lenders), effectively making the duration indeterminate.
A. v. Bombardier Inc.
2007 ONCA 233 (CanLII) · 2007-03-30Severance Pay: Sale of Business & Employment Continuity
This is an appeal to the Court of Appeal from a motion judge's summary judgment decision about severance pay. The employee appellants transferred from Bombardier to CGI after Bombardier contracted its information technology services to CGI. The motion judge dismissed the employees' claim for severance pay against Bombardier, finding the transaction was a sale of a business under the Employment Standards Act that preserved their employment continuity. The Court of Appeal dismissed the employees' appeal. The Court held that the broad statutory definition of a business sale applied to the transfer, meaning the employees retained their seniority and were not entitled to severance pay from Bombardier.
C.M.G. Innovations Co. Ltd. v. Ontario (Labour Relations Board)
2006 CanLII 40667 (ON SCDC) · 2006-12-06Judicial Review: Sale of Business Under OLR Act
A judicial review application challenging the Ontario Labour Relations Board's decision on whether a transaction constituted a 'sale of a business' under the Ontario Labour Relations Act, 1995. The Divisional Court examined the standard of review, the Board's specialized expertise, and the admissibility of affidavit evidence disputing the Board's factual findings.
S. v. 3829537 Canada Inc.
2005 CanLII 20816 (ON SC) · 2005-06-10Non-Compete Agreement Repudiation in Employment Contract Context
An employment contract dispute involving a non-compete agreement tied to the sale of a business. The court examined whether late payment of $50,000 non-compete remuneration constituted repudiation of the employment agreement and whether restrictive covenants in the agreement were enforceable after alleged repudiation.
Ajax (Town of) v. National Automobile, Aerospace and Agricultural Implement Workers Union of Canada
1998 CanLII 7179 (ON CA) · 1998-09-30Successor Rights: Municipality Acquiring Workforce
This is an appeal to the Court of Appeal from a Divisional Court decision on a judicial review. The Town of Ajax ended its contract with a transit company and directly hired most of the company's drivers and mechanics to operate its transit system. The Ontario Labour Relations Board declared this a sale of a business, preserving the union's collective bargaining rights, but the Divisional Court quashed the decision. The Court of Appeal allowed the union's appeal and dismissed the town's application for judicial review. The Court found the Board's conclusion reasonable, meaning the declaration of successor rights stands.
T. v. D.
1998 CanLII 4627 (ON CA) · 1998-06-08T. v. D.: Wrongful Dismissal After Asset Sale
This was an appeal to the Court of Appeal from a trial decision about wrongful dismissal and assault. The employee was dismissed shortly after her original employer's assets were sold to a new company and she was hired by the new company. The trial judge found she was wrongfully dismissed and assaulted by her manager, awarding 9 months' notice based on her combined service, plus aggravated damages and damages for assault against all defendants jointly. The Court of Appeal upheld the notice period and assault damages but reduced the base salary used for notice damages. The Court also set aside the joint liability findings, holding the new employer solely liable for wrongful dismissal and the manager and new employer jointly liable for assault, while dismissing claims against the old employer.
Canada (Attorney-General) v. Standard Trust Co.
1994 CanLII 7516 (ON SC) · 1994-11-13Employment Standards: Continuity of Employment and Termination Pay on Business Sale
A merits decision involving the interpretation of the Employment Standards Act (ESA) regarding the continuity of employment and entitlement to termination and severance pay when a business is sold to a federally regulated entity. The case also examines whether ESA claims are preferred in bankruptcy proceedings under the Winding-up Act.
Ontario (Employment Standards Officer) v. Equitable Management Ltd. (Div. Ct.)
1990 CanLII 6973 (ON SC) · 1990-09-28Employment Standards: Continuity of Employment During Business Sale
A merits decision involving the interpretation of section 13(2) of the Employment Standards Act, which deems employment continuous if the purchaser employs the vendor’s employee. The court overturned a referee’s decision for misinterpreting the provision, applying the standard of correctness in judicial review.
A. v. M. Loeb, Ltd.
1984 CanLII 2067 (ON SC) · 1984-03-21Wrongful Dismissal: Employee Entitled to 6 Months Notice After Business Sale
A wrongful dismissal case where an employee was dismissed without cause after 18 months of service with the current employer, following the sale of the business as a going concern. The court determined that the employee was only entitled to notice based on service with the current employer, not total service since 1963. Damages were awarded based on six months’ notice, with mitigation of damages considered.