What happens to employees when an Ontario business is sold?
When a business is sold in Ontario, what happens to employees depends significantly on whether the deal is structured as a share purchase or an asset purchase.
In a share purchase, the corporation (and its employees) simply changes ownership. Employees continue in their roles with the same employer of record; their length of service continues uninterrupted, and their accrued entitlements under the Employment Standards Act, 2000 (vacation, notice periods, etc.) carry over automatically.
In an asset purchase, the employees technically work for the selling corporation, which is not what is being transferred. The buyer must make fresh offers of employment to the employees they want to retain. If the buyer is a "successor employer" under the Employment Standards Act — meaning it carries on a business that was previously carried on by the seller — employees' service with the seller counts toward their entitlements with the buyer. Not all asset deals trigger successor employer status; the analysis depends on the facts.
Employees who are not offered continued employment (or who receive a significant change to their terms) may have constructive or actual dismissal claims. Severance obligations must be addressed in the purchase agreement so there is no gap between seller and buyer.
Key takeaways
- Share purchases leave employees' service and entitlements intact automatically.
- Asset purchases require fresh employment offers; successor employer rules may apply.
- Employees not retained may have wrongful or constructive dismissal claims.
- The purchase agreement should clearly allocate responsibility for any severance costs.