October 4, 2024 | Business Resources

What Happens to Employees in the Sale of a Business: Ontario Labour Law Perspective

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When a business is sold in Ontario, it’s not just the ownership that changes hands—employees are directly impacted by the transition. Whether you’re a business owner, buyer, or part of the workforce, understanding how Ontario labour laws handle employee rights during a sale is essential. Here’s an overview of what happens to employees in this situation under Ontario’s Employment Standards Act (ESA).

Please keep in mind that this blog is for informational purposes and as commercial real estate professionals, we cannot offer any legal advice. We recommend seeking a qualified employment lawyer for more guidance.


Searching for commercial real estate insights about selling your small business? Check out these blog posts. 


Asset Sale vs. Share Sale: The Structure is Key

In Ontario, the type of sale—whether an asset sale or a share sale—has significant implications for employees.

Asset Sale: In an asset sale, the buyer purchases the assets of the business, such as inventory, equipment, and intellectual property. Under Ontario law, when an asset sale occurs, employees are considered terminated from the selling company at the time of sale. However, if the buyer continues the same business, the new owner typically assumes responsibility for the employees, who are then deemed to have continuous service under the new employer. This means the buyer must recognize their tenure, and entitlements to severance, notice, or vacation time are carried over.

   In practice, the buyer is not obligated to retain all employees, but any decisions about layoffs or terminations must comply with the ESA, including proper notice and severance pay, where applicable.

Share Sale: In a share sale, the ownership of the business changes, but the business entity remains intact. From an employee’s perspective, nothing changes, as they are still employed by the same corporate entity, just under new ownership. This means there’s no need for new employment agreements or terminations since their employment continues uninterrupted. Employees keep their accumulated service for purposes like calculating notice, severance, and vacation pay under the ESA.

Employee Rights and Continuity of Service

In Ontario, continuity of service is a key concern for employees when a business changes hands. Under the ESA, if a buyer in an asset sale offers employment to an employee and the employee accepts, the employee is deemed to have continuous service with the buyer. This is crucial because it ensures that employees do not lose their accrued seniority and entitlements, such as vacation days, notice periods, and severance pay, that are tied to their length of service.

If the new owner decides not to hire certain employees, the seller is typically responsible for any termination obligations, such as severance and notice. However, if the buyer offers employment and an employee declines, the employee may forfeit some of their rights to notice or severance from the seller.

Termination and Severance Obligations

If employees are not retained by the buyer, or if the terms of employment are significantly changed and the employees do not accept the new terms, they may be entitled to termination pay or severance pay under Ontario law. Termination pay is required when an employee is dismissed without cause and without the required notice period, while severance pay applies to employees with five or more years of service if the employer has a payroll of $2.5 million or more.

For businesses with larger payrolls, severance pay can be a significant financial obligation. In some cases, the buyer and seller may negotiate who will take on responsibility for these obligations in the terms of the sale.

Unionized Workplaces

In a unionized workplace, a sale of the business does not typically affect the collective bargaining agreement (CBA). The buyer is generally required to recognize the union and assume the terms of the existing CBA, including wages, benefits, and seniority provisions. However, buyers may try to renegotiate certain terms with the union post-sale.

Protecting Employee Rights in Business Sales

For employees, the sale of a business in Ontario can be an uncertain time, but the protections provided under the Employment Standards Act offer important safeguards. Whether the sale is structured as an asset sale or a share sale, employees have rights that ensure their service, benefits, and entitlements are respected, whether they continue under new ownership or face termination. Both buyers and sellers should carefully consider these obligations during the transaction to avoid legal risks and ensure a smooth transition.

Understanding these laws can help all parties—sellers, buyers, and employees—navigate the complexities of a business sale in Ontario with clarity and confidence. As Southern Ontario commercial real estate experts, Northern Hospitality can help you find success. Send us an email or call 647-280-4404 to get started.