Employee Rights When an Employer Sells a Business

Whether you are newly employed or have been with the same employer for several years, news that your employer has sold the business can cause anxiety and uncertainty.

What rights do you have? What obligations do the original and new employers have?

The British Columbia Employment Standards Act, the Employment Standards Tribunal and the courts have addressed these issues.

Employee Rights on Termination Generally

An employee cannot be terminated from his or her job without proper notice or payment in lieu of notice. The British Columbia Employment Standards Act sets the minimum notice an employer must give to employees, based on how long the employee has been employed. For example, an employee who has worked for one year is entitled to notice equal to two weeks’ wages; .

The longer an employee has worked for an employer, the longer the notice period required, and the greater the termination pay that the employee is entitled to. In addition, under the common law (the law established by court judgments), an employee is entitled to “reasonable” notice or payment in lieu thereof, which may be more than the minimum required by the Act.

Employment Standards Act – Rights and Obligations When a Business is Sold

Section 97 of the Employment Standards Act provides that if all or a part of a business is sold, the employee’s job is considered to be continuous and uninterrupted by the sale. This means that the sale of the business alone does not affect your status as an employee, and you are considered to continue to be employed by the new owner of the business. You cannot be terminated by the seller or buyer of the business without the usual notice or payment in lieu of notice.

The Employment Standards Branch has provided a policy interpretation to help employees and employers understand what section 97 of the Act means, and how it affects decisions that may be made by a new owner after acquiring the business.

According to the policy interpretation, the purchaser of a business assumes the role of employer. The purchaser must honour the employee’s past service with the seller and must assume all the seller’s obligations toward employees that are required by the Employment Standards Act. An employee is entitled to the same statutory holidays, vacation time, and benefits plans that they were entitled to prior to the sale. An employee who is on leave when a sale occurs is still considered an employee of the business and must be treated the same way as other current employees are treated.

Termination before a Business is Sold

If the employment of an employee is terminated prior to the sale of the business, any outstanding wages or compensation are owed by the original employer. The employee cannot seek compensation from the new owner of the business.

For example, in Aspol Motors (1982) Ltd. (Re), 2021 BCEST 2, the British Columbia Employment Standards Tribunal held that since the employee was fired by the defendant five days prior to the date of the disposition by sale of the defendant’s business assets, she had ceased to be employed before the date of disposition and the defendant, rather than the new owner, was obliged to pay her compensation for length of service.

Termination after a Business is Sold

If the business continues to operate as a going concern after it is transferred to the new owner and the employee continues in the service of the business, the new employer is obliged to provide notice or pay compensation owing to the employee for their entire length of service with the business, starting from the date the employee was hired by the original employer. This is referred to as “continuous and uninterrupted employment”.

Essentially, there is an implied term in the contract of employment that the purchaser assumes the role of employer and is required to honour the employee’s past service with the seller. The new employer must also pay any other outstanding wages owing such as vacation pay.

For example, in Sorel v. Tomenson Saunders Whitehead Ltd, 1987 CanLII 154 (BC CA), the plaintiff employee sued for wrongful dismissal after his employment was terminated without cause approximately eleven years after the the company he worked for was acquired by new ownership. The court recognized that the plaintiff had provided a total of 37 years of service, which included the time he was employed by the original owners of the business. The court used this longer period of service to calculate the notice period and termination pay owed by the employer, which was ultimately set by the court at two and a half years.

An implied term of “continuous service” may however be negated by an express stipulation to the contrary. That is, the new owner may, at the time of purchase, advise employees that he does not intend to give them credit for past services to the vendor. In that case, the employees may negotiate a new contract of employment with the new owner, or they may decline to work for the purchasing company. In either case, any liability for severance or other payments due in relation to the employee’s past service will lie with the original owner, the seller of the business.

In Hall v. Quicksilver Resources Canada Inc, 2015 BCCA 291, the British Columbia Court of Appeal clarified that the principle that a new employer must give employees credit for their years of past service does not depend on the form of sale of the business, but rather on whether the business is intended to be carried on as a going concern after the sale. In Hall, the defendant did not acquire the business as a going concern, since the pulp mill had ceased operation and had been decommissioned prior to the sale. This, combined with the existence of an agreement with the original owner which appeared to provide the employee with compensation for his years of the employment, despite not using the term “severance”, meant that there was no implied term of “continuous employment” in the plaintiff’s employment contract with the new owner.

Constructive Dismissal after a Business is Sold

Where an employee continues in the service of the business after it is transferred, the new owner cannot unilaterally change the employee’s working conditions without the employee’s consent. Where an employee continues to work for the new owner but finds the conditions of their employment have substantially changed for the worse, such as a decrease in hours, a demotion, or a pay cut, the employee may be entitled to seek compensation on the basis they have been constructively dismissed (i.e. effectively forced to resign because of a fundamental change in employment).

However, if any employee chooses not to work for the new employer and there has been no substantial change in the conditions of their employment, the employee will be deemed to have quit. In such a situation, the employee is not entitled to notice or compensation from either the original or the new owner of the business.

Conclusion

If the business you work for has been sold, you may have questions about your rights and what you may be entitled to expect from either the former or new business owner. Our team of experienced employment lawyers can offer you guidance and respond to your concerns. To arrange a one-on-one consultation, please contact us today. We have offices located in Vancouver & Kamloops, British Columbia.

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