Don't Forget About Employees 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. Between a Share Purchase and an Asset Purchase 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. 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.) 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 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. Suite 2701 (27th Floor) 145 King Street West Toronto, Ontario M5H 1J8 Canada 416.362.3757 Fax houserhenry.com |