It is not uncommon for companies to change ownership or restructure. After a business is transferred or sold, this may affect employee rights and employer liability. It is important for both employees and employers to understand their rights and obligations if the company is transferred. In some cases, there may be issues determining whether a business was transferred and whether certain rights or liabilities apply. Before it gets to the point of transfer, it is important to consult with an employment lawyer to understand the legal consequences for both the employee and employer. 

This post will discuss employee rights and employer liability in business transfers. We will also discuss when a business is considered transferred, which may only be applicable in some cases. In particular, we will examine Stock Transportation Ltd. v. Llanos, 2024 ONSC 575, where the court found that the employee was entitled to severance as the business was not transferred to a new employer. Therefore, The former employer was liable for damages despite introducing the employee to the new employer who was taking over a work contract. This post will provide important takeaways for both employees and employers who may be involved in a business transfer. 

What happens to employee rights after a business is transferred?

After selling a business, an employee may be asked to continue working under the new employer. Under the Ontario Employment Standards Act section 9, if an employer sells a business or part of a business, and the purchaser employs one of the seller’s employees, that employee is not considered terminated or severed. In particular, the employee would not be entitled to termination damages if the business is transferred. This is because the employee would be considered to be working under the same business, and their employment would continue. 

If an employee continues working for the new employer, it is important to gain clarity on whether they are hired on an indefinite basis or a fixed-term contract. If hired indefinitely, they are entitled to more protections than with a fixed-term contract, as employers are not required to provide reasonable notice of termination for fixed-term employees. Employers are also expected to advise the employee if their role has changed to a fixed-term or temporary position after selling the business. 

What happens to employer liability in business transfers?

There are some exceptions to the rule of continuity, however. The former employer may be liable for severance or termination pay if the employee is not rehired by the purchaser for longer than 13 weeks after the earlier of the following:

  1. The employee’s last day of employment with the seller; or
  2. The day of the sale.

It is, therefore, important for a business seller to discuss with the purchaser what will happen to the current employees, including if the purchaser intends to hire them, as it can affect the purchaser’s liability as a former employer. 

The purchaser may also be liable for termination or severance pay if they terminate the employee later and the company rehired them as a permanent employee rather than on a fixed-term or temporary basis. 

The seller and purchaser will need to examine the potential employment liabilities arising from the transfer of a business. 

When is a business considered transferred?

Besides the sale of business assets or the business as a whole, a business is also considered sold by a former employer if all or part of the business is leased, transferred, or otherwise disposed of in another manner. 

However, it is important to note that a party can only transfer a business they own. The Employment Standards Act section 9 exceptions to employee termination pay only apply if a business is sold. It is not considered the sale of a business if a work contract from a third party is awarded to a new company that subsequently employs employees of the former employer. This was the case in the Stock Transportation case, discussed below. 

Former Employer Liable for Termination Pay Despite Agreement with New Employer to Hire Existing Employee

In the Stock Transportation case, the employer-provided bus services in Ontario. Under section 64 of the Employment Standards Act, the employer was required to pay severance pay to terminated employees within 7 days of the termination or at the employee’s next payday, whichever is later. The employer contracted with the Student Transportation Services of York Region Consortium to provide bus services for students commuting from home to school. 

The employee began working with the employer in 2010 as a bus driver. She was one of the drivers for the York Consortium routes.

This continued until 2021 when Stock Transportation’s contract with the York Consortium would expire. As a result, the employer provided the employee with a termination letter that specified that they would pay her severance pay after she was terminated, pursuant to the Employment Standards Act

The contract for the bus routes was awarded to a new company, Voyago. Before the contract expired, Stock Transportation entered into an agreement with Voyago to introduce drivers of those routes to Voyago so that they could extend employment offers if they met Voyago’s conditions. The agreement stated that Voyago would recognize the employee’s length of service with Stock Transportation. This agreement did not transfer any of Stock’s assets or business operations to Voyago. 

Voyago offered the employee of this action a role to continue driving the same bus routes as she had done while employed by Stock. Her original start date with Stock was honoured by Voyago. 

As a result of this agreement and subsequent offer to the employee, which she accepted, Stock did not pay her any severance pay. Stock claimed they were not required to do so under section 9 of the Employment Standards Act, as the agreement was considered a “sale,” and Stock was exempt from paying severance. 

The court found that no sale of business occurred. The contract from the York Consortium was not something that Stock could transfer or sell to Voyago. It was not under Stock’s control, and rather, the contract expired and was awarded to another company. The agreement to introduce Voyago to Stock’s employees was not a sale, as employees could not be sold. No purchase and sale agreement between Stock and Voyago would exempt Stock from paying severance to the employee, even though Voyago subsequently hired her. 

Contact Haynes Law Firm in Toronto for Advice on Employee Rights and Employer Liability After A Business is Sold 

After a business is sold, the new employer must consider whether to seek work from existing business employees. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. Our goal is to ensure that employees understand their rights and receive maximum compensation in termination cases. Haynes Law Firm also assists employers in avoiding liabilities that may arise from terminations that are not permitted by the legislation. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.