Asset Purchase Agreement Employment Issues



-September 11, 2021-

Asset Purchase Agreement Employment Issues

Mike Burroughs

Buyer should be aware that Section 9 of the Employment Standards Act, 2000 ("ESA") states that if Buyer employs an employee of seller, benefits that depend on an employee`s seniority, such as leave, termination or payment at the place of termination and severance pay, are transferred to the employee`s employment relationship with Buyer. In other words, ESA probably makes a buyer liable for the full operating life of an employee, both to the seller and the buyer. This is sometimes referred to as the "employer`s inheritance doctrine", which aims to avoid unfair results for employees in wealth transactions. In case of purchase of assets, the buyer is not obliged to take the employees of the seller. However, sellers should keep in mind that the sale of a company`s assets does not give the employer the reason for dismissal or appropriate severance or severance or severance pay and that the seller is responsible for these rights (subject to a worker`s mitigation obligation). In some circumstances, an employee may be reluctant to sign a new employment contract with the buyer. However, in most cases, it is considered that an employee who refuses a job offer from the buyer has not reduced his claim for damages and is probably not entitled to substantial damages against the seller. This problem becomes more complicated if the buyer extends the employment on terms different from those previously agreed with the seller. For example, if a new job offer results in a reduction in wages or benefits, the worker should accept the position as part of their mitigation obligation, but can then assert a claim to compensation against the seller. Note that all income received by the buyer during the notice period will be deducted from the damage suffered by the employee. However, if the buyer`s conditions of employment constitute a deterioration of the employee`s previous position with the seller, the worker cannot be required to accept this position as part of his obligation to reduce, since the staff are only required to make reasonable efforts to seek comparable employment. In the case of non-unionized companies, the purchase of shares does not change the status of the employment relationship between employees and the group.

Canadian courts have clarified that the sale of a company`s shares is only a change of shareholder; the company continues to exist as before the sale of shares and the staff remains employed by the same legal person. Therefore, the buyer inherits all employees of the target company and their respective rights. Although trade union issues are often a critical factor in buying and selling a business, other labour law issues must be taken into consideration. For example, the buyer and seller may agree that the buyer offers employment to all employees at the end of the closing period, but that the buyer has time after closing to manage the transaction and evaluate which employees they want. If there are employees that the buyer does not wish to keep, the buyer will dismiss these employees within the agreed period and, unless otherwise agreed between the parties, will be legally responsible for any rights of the workers. For protection reasons, the buyer may attempt to include in the contract of purchase and sale a provision where the seller compensates the buyer for certain costs related to such termination. Although this does not delineate the buyer`s payment obligation as an employer, the buyer can request a refund from the seller....


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