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T H E P R I M E R U S P A R A D I G M
Buying or Selling a Business in Ontario?
Don't Forget About Employees
The sale of a business will almost always
involve the transfer of employees.
Accordingly, it is important for each
party to the sale to understand which
employees will or will not be retained,
whether termination pay is owed, if new
employment contracts are necessary,
and what tax or statutory obligations the
purchaser may be assuming.
The conclusions drawn in the above
issues will depend on whether the
purchaser is purchasing the shares or the
assets of the vendor. Regardless of the
type of transaction, proper due diligence
with respect to employees is necessary to
avoid unwanted surprises.
Understanding the Differences
Between a Share Purchase and
an Asset Purchase
In Ontario, the rules governing the
obligations to employees on the sale
of a business largely stem from the
Employment Standards Act, 2000 (the
"Act"), the Agreement of Purchase and
Sale, any existing employment contracts
and the common law.
Share Purchase
In a share purchase, because the
corporate employer is unchanged, there
will be no change in the obligations
and liabilities attached to the business,
including obligations to employees.
If an employee is terminated as part
of the share purchase transaction,
termination obligations will remain with
the employer, except to the extent these
obligations are assumed and satisfied by
the vendor pursuant to the Agreement of
Purchase and Sale. Indemnity provisions
are typically a matter for negotiation
between the vendor and purchaser.
(In Ontario, termination pay cannot
be less than the amount specified in the
Act. If termination pay is not limited by
contract, the courts may determine the
termination pay owed to an employee
based on the common law requirement
of reasonable notice of termination or
pay in lieu of reasonable notice. Courts
typically award far higher amounts of
termination pay than the minimum
amount set out in the Act.)
Asset Purchase
Subject to the Agreement of Purchase
and Sale, in an asset purchase the
purchaser can choose whether or not to
offer employment to some or all of the
vendor's employees.
The Act provides that if an
employer sells a business and the
purchaser employs an employee of
the vendor employer, the employment
of the employee will be deemed to be
continuous for the purposes of the Act.
This means that if a transaction is
considered a "sale of a business" under
the Act, that the purchaser inherits the
prior service of the employee. Depending
on the employee's length of service, this
may significantly increase termination
pay entitlements of the employee.
It is not always a given that an
asset purchase qualifies as a "sale
of a business." Some key factors in
determining if a sale of a business took
place includes analyzing: the value of
the assets sold as a percentage of the
North America ­ Canada
Alexander Levy is an associate at Houser Henry & Syron LLP,
a boutique corporate law firm in Toronto, Ontario. His practice
focuses on advising private companies and their owners in
a range of corporate matters with a particular emphasis on
mergers and acquisitions. His other areas of expertise include
employment law and wills and estates.
Houser Henry & Syron LLP
Suite 2701 (27th Floor)
145 King Street West
Toronto, Ontario M5H 1J8 Canada
647.694.1180 Phone
416.362.3757 Fax
alevy@houserhenry.com
houserhenry.com
Alexander Levy