As a business evolves, there may come a time when the business is sold. Depending on how the new employer wants to proceed, this can significantly impact existing employees. Both parties to the business sale need to consider arrangements for existing employees, as they have rights to compensation if they are terminated, whether under the previous employer or new employer. While this is not always the case, in some circumstances, the employee’s time under previous management can be included in their total length of service, impacting the length of notice they are entitled to. It is, therefore, important to proactively speak to a lawyer about employees’ rights when a business is sold.

This post will discuss an employee’s rights and how they may be affected after a business is sold. We will consider the factors that can impact an employee’s notice period, such as length of service. Also, we will discuss the principles for determining an employee’s length of service if management has changed. To illustrate these principles, we will examine a case example, 542491 Ontario Limited v. 8240631 Canada Inc., 2024 ONSC 2769, in which the court found that the employee’s time under previous management was to be included in their total length of service, which increased the notice period and compensation that they were entitled to. This post will provide key takeaways for parties seeking to understand how the sale of a business can affect employees’ rights and employer obligations.

What Are An Employee’s Rights After A Business Is Sold?

After a business is sold, an employee’s rights can change significantly, and employers must be prepared to provide sufficient compensation. In particular, an employee’s contract with the previous employer is automatically terminated unless the parties agree to assign it to the purchaser. If there has been an assignment, the new owner assumes the employee’s contract. As a result, the new employer also assumes the obligations required for dismissal and provides reasonable notice.

There can also be an implied assignment, meaning that while there is no explicit agreement for the employer to assume the employee’s contract, it can be implied based on the parties’ conduct. For instance, if the employee appeared to continue as a permanent employee with no renegotiations of their contract, then there may be an implied assignment, and the employer could be responsible for providing reasonable notice based on the employee’s full tenure under the previous employer and the new employer.

What Are the Factors for An Employee’s Notice Period?

When an employee is terminated, an employer must provide reasonable notice of their termination or compensation in place of that notice. For example, if the reasonable notice period is 12 months, then the employee would be required to allow the employee to continue working for 12 months or provide 12 months of salary to the employee if they are to stop working immediately.

The length of the notice period depends on various factors, including the following:

a)    The character of employment;

b)    Length of service;

c)     The employee’s age at termination;

d)    The availability of similar employment, given the employee’s training, qualifications, and experience.

Notably, an employee’s service length can impact the required notice amount required. For a longer length of service, the employee would be entitled to a longer notice period or more compensation in place of notice, and vice versa for a shorter length of service.

How Long Is An Employee’s Length of Service If Management Has Changed?

If a business has been sold and the employee continues working under new management, it may be confusing to determine the employee’s length of service. It raises the question of whether the employee’s employment under the previous employer will count toward their length of service.

Generally, there is no automatic rule that the employee’s employment period under the former employer will be included in the employee’s length of service. However, an employee’s employment period under the previous employer is a factor that can be considered when determining the reasonable notice period. In particular, the court will consider the experience a long-time employee would bring to the purchaser.

Employee’s Time Under Previous Management Included In Length of Service

In the 542 case, the employee claimed. Since 2002, the employee has been the exclusive sales agent for the previous owner of the business, Presentoirs. The business involved point-of-purchase solutions and the production of marketing materials. Due to his experience in this industry, the employee was hired to be the new face and voice of the company.

The court found that the employee worked hard to build up the business, which started small in the employee’s living room. Due to his efforts, the business grew, and so did the employee’s commissions. Also, the employee had secured a deal with a significant client, which helped maintain the business’s longevity.

In February 2014, the previous employee filed for bankruptcy, and another company, Innovation, took over. The employee continued to provide the same services as before. By April 2014, Innovation sent a letter to the employee stating that any sales agent contract between the employee and Innovation would be terminated by the end of the year. In the meantime, the letter stated that the employee’s commission structure would significantly change.

The court had to consider whether the employee’s length of service included time under the previous employer. The court found that the employee’s period of service should include time working under the previous employee, as there was evidence that he was a permanent employee under the previous employer and continued this under the new employer. After Innovation took over the business, the employee was not informed of the assignment of the contract and was not offered any reasonable notice or compensation from his previous employer.

There was also no evidence that Innovation tried to either terminate the employee or renegotiate his employment contract when they took over the business. Also, Innovation should have stated that they would not honour his past service with the previous employer. Based on the parties’ conduct, Innovation appeared to continue to accept his services, so it was implied that the contract would continue on the same terms. The court also noted that by the time Innovation wrote to the employee in April 2014, it was too late for Innovation to seek a change in the employment terms or resile from the implied agreement.

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. We aim 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.