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S P R I N G 2 0 1 5
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business; whether the purchaser continues
the same type of operation as the vendor;
and whether the purchaser continues at
the same location as the vendor.
Do Employees Need to Sign
New Employment Contracts?
In a share transaction, the employees will
continue under the same employment
contracts unless new contracts are
entered into. A purchaser should be
aware that it will need to provide fresh
consideration to an employee in order
for a new employment contract to be
enforceable. The promise of continued
employment does not qualify as
consideration.
Changes made to an existing
employment contract should be done
with caution. If the changes are material,
an employee may claim that he or she
has been constructively dismissed
and is owed termination pay. Fresh
consideration is also necessary for any
changes to an employment contract to be
enforceable.
In an asset purchase, employees who
are offered employment will usually
sign new employment contracts. A
purchaser should be careful if it chooses
to hire some employees and not others,
to ensure it does not choose not to hire
someone for reasons contrary to Ontario
human rights legislation. Choosing not
to hire someone due to a disability or
another prohibited ground may give rise
to a human rights claim by the employee.
As stated previously, if the
transaction constitutes a sale of a
business under the Act, the employee's
employment will be deemed to be
continuous and uninterrupted by the
sale. The purchaser will be required
to recognize the employee's length of
service with the vendor under the Act.
What If an Employee Is
Not Offered Employment or
Refuses Employment?
If an employee is not offered
employment, the vendor will be liable for
termination pay owed unless reasonable
notice of termination has been provided.
For this reason, vendors negotiate for
the inclusion of a term in the Agreement
of Purchase and Sale requiring the
purchaser to offer employment to all
employees on substantially similar terms
and conditions.
If a purchaser knows that it will not
hire certain employees, it will want an
indemnity or some allocation of costs for
termination from the vendor.
If the employee refuses an offer of
employment by the purchaser and the
term and conditions of the offer were
substantially similar to those provided
by the vendor, the purchaser would
likely have no common law claim for
termination pay against the vendor or the
purchaser. This is because the employee
will likely be deemed to have failed to
mitigate his or her damages by accepting
alternative employment. However, the
employee will still be owed his or her
minimum termination pay under the Act.
General Employment
Considerations:
As part of the due diligence process, a
purchaser should consider the following
items early in negotiations:
1. What employees, if any, will the
purchaser wish to retain? Are there
enforceable employment contracts
in place and if so what are the terms
of employment? It is prudent to
gather a full list of all employees with
their compensation, job title, length
of service and status clearly outlined.
2. What party will bear the costs of
termination of any employees? This
will largely depend on whether the
transaction is a share or an asset
purchase. This issue can have a
major financial impact.
3. Is there any accrued and unpaid
vacation pay owing by the vendor to
the employees? Will this be adjusted
on closing?
4. Are there any outstanding
employment liabilities of the vendor?
This would require investigating
if there are claims under various
statutes such as the Pay Equity Act,
the Occupational Health and Safety
Act
, the Employment Standards Act,
2000
and the Workplace Safety and
Insurance Act, 1997
.
Purchasing a business is a complex
transaction. This article has only
addressed some of the issues that need
to be taken into consideration from
an employment perspective. When
considering selling or purchasing a
business in Ontario, we recommend
engaging legal counsel early in the
process. This will help avoid unwanted
surprises that may result in increased
costs or unnecessary delay.