Employees when a BC business is sold: what transfers and what doesn't

Staff are often a large part of what a buyer is paying for, and a large part of what a seller worries about. The legal question underneath both is simple to state: when the business is sold, does the employees' history with the business come with it?

For BC's minimum employment standards, the answer is usually yes. Knowing how that works, and where the common-law rules add to it, lets both sides plan offers, terminations and price adjustments before closing.

Share sale or asset sale makes a difference

In a share sale, the buyer acquires the shares of the company that employs the staff. The employer does not change: the same company continues to employ the same people, with its existing obligations, and only its owners are different. In an asset sale, the buyer acquires the business assets and becomes a new employer for anyone it takes on. Our article on share purchase or asset purchase covers the wider differences.

Section 97: service continues

Section 97 of the Employment Standards Act says that if all or part of a business is disposed of, the employment of an employee of the business is deemed, for the purposes of the Act, to be continuous and uninterrupted by the disposition. The same applies when a business continues to operate under a receiver or receiver-manager.

The Province's interpretation guidelines describe "disposition" broadly, as a transfer by any method, and give the sale of a division, the transfer of a franchise and the sale of a restaurant as examples. For employees who are still employed when the business is sold, the buyer takes on their past service.

That matters because service drives the statutory severance, called compensation for length of service. Under section 63, it is one week's wages after three consecutive months, two weeks after 12 months, and three weeks after three years plus one more week for each further year, to a maximum of eight weeks. The guidelines give the example of a four-year employee who is let go a month after the sale: the buyer owes four weeks, not one.

Who pays what

According to the Province's guidelines on section 97:

• Employees who carry on. The seller generally does not pay length-of-service compensation for employees whose employment continues. The buyer becomes responsible for it, and for outstanding wages and vacation pay.
• Employees the seller lets go before the sale. Their outstanding wages and compensation remain the seller's responsibility, and they cannot recover them from the buyer.
• Employees who decline to move across. If an employee chooses not to work for the buyer and their conditions have not substantially changed, the guidelines treat the employee as having quit, so neither party owes notice or compensation under the Act.

Two sections limit how far the parties can engineer the result. Section 66 allows the Director of Employment Standards to find that employment has been terminated if a condition of employment is substantially altered, so a buyer who cuts pay or changes duties significantly may be treated as having terminated. And section 4 says the Act's requirements are minimums that cannot be waived by agreement.

Larger workforces: group termination notice

If 50 or more employees at a single location are to be terminated within any two-month period, section 64 requires written notice of group termination to the affected employees, any union representing them, and the Minister. The notice period is at least 8 weeks for 50 to 100 employees, 12 weeks for 101 to 300, and 16 weeks for 301 or more. A sale that involves a large restructuring needs this built into the timeline.

The common law can add more

The Employment Standards Act sets minimums. Many employees also have a common-law right to reasonable notice of termination, which can be considerably longer, unless an enforceable written contract limits it. Whether a buyer must recognize prior service for common-law purposes, and what happens to the claim of an employee who refuses a comparable offer from the buyer, depend on the employment contracts and the facts. These are points to work through with counsel before offers go out, not after.

Settling it in the purchase agreement

Because the liabilities follow the employees, a well-drafted agreement deals with staff expressly. Common terms include:

• a list of employees with start dates, pay, accrued vacation and any written contracts;
• which employees the buyer will offer employment to, and on what terms;
• whether prior service will be recognized, and a price adjustment for accrued wages, vacation pay and service-based liabilities;
• who handles any terminations, and when; and
• representations about existing claims and complaints, with an indemnity if they prove untrue.

Employee costs are one of several liabilities that can follow a business. Our article on debts a buyer can inherit covers PST, WorkSafeBC and others.

Buying or selling a business with staff? Plan the employee terms before you sign

Our business purchase and sale lawyers can review the employment records, draft the employee provisions of the purchase agreement, and coordinate offers and any terminations with the closing timeline.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.