Employment Issues when Selling a Business

Determining and assigning liability for employees

Obtaining the relevant information

If a business is being sold or transferred and has employees, the sale agreement between the vendor and purchaser will have to address which party is responsible for any resulting liabilities to the employees.  We are routinely retained by corporate law firms to provide them with advice about reducing their client’s liability in such transactions.  

To properly allocate any present liabilities and to assess potential future liabilities, the purchaser will need information about the employees, including: 

Identifying all employees of the business, and providing sufficient information about their employment so that the parties can assess the magnitude of any potential severance liability;

Identifying employees who are on leave on the closing date and determining whether the vendor or purchaser is responsible for any liabilities to those employees;

Confirming the vendor’s responsibility for wage and benefit liabilities to the closing date;

Identifying accrued liabilities (like the accrual of vacation entitlement or other compensation or benefits) and making provisions for when these liabilities will be paid out; and

Identifying the existence of any current or pending health and safety issues which may result in cost to the employer or an increase in the employer’s insurance premiums.

Issues with union employees

For UNION employees, issues that should be considered include:

Notice and obligations to the union – where a union is certified to represent employees of a business, many collective agreements will have provisions requiring the union to be notified in advance of the sale of the business.  

Obligations under the Labour Code – The Labour Code has notification provisions that may apply depending upon the impact the sale may have on the terms, conditions or security of employment of the unionized workers.  Successorship provisions under the Labour Code are generally also triggered by the sale of a business.

Information on negotiations – the purchaser will need to know the state of any ongoing collective agreement negotiations with the union and whether any labour disputes are pending or anticipated.

Liability for current grievances – any pending grievance issues that have been raised by the union, any active grievances and any pending or current arbitrations should be identified.

Issues with non-union employees

For NON-UNION employees, issues that should be considered include:

Confirming whether there are any current union organizing drives taking place – once the union has employee support at a workplace, the certification process can be very quick.  If a union has been conducting a campaign at the workplace while the sale of the business transaction is taking place, it is clearly relevant to the purchaser.  Keep in mind that if the employees know about the pending sale of the business, and think it threatens their job security, it may make them an easier target to a union organizing drive. 

In the transfer of non-union employees to the purchaser – the parties will have to address:

Whether the purchaser will be required to hire some or all of the existing employees of the business, specifically which employees the purchaser will retain, and whether the vendor is required to terminate employment of the remaining employees prior to the closing date;

Whether the purchaser is only obligated to make job offers to the employees they have agreed to retain, and upon what terms;

The type and level of benefit plan the purchaser will provide to the vendor’s employees whom it hires; and

Whether past service to the business will be recognized by the purchaser and if not, whether the vendor is responsible for any severance liability in respect of that past service.