Can a Buyer Cherry-Pick Which Employees to Hire in an Asset Sale

If you are buying the assets of a business, you may not want every employee. Some roles overlap with your own team, and some people may not be the right fit. The natural question is whether you can simply choose who comes across.

In general, the Employment Standards Act lets a buyer choose, but the choice has consequences for both sides. This article covers what the ESA says about hiring and not hiring, what a seller owes staff who are left behind, and where human rights risk comes in.

Is it really an asset sale for employment purposes?

The label on the deal does not control the result. The Ministry looks at substance, meaning whether the buyer received a going concern it could run without interruption. Indicators include a seller non-compete, giving up the trade name, transferring client lists or records, taking over contracts, and assigning goodwill.

The word sells is defined broadly to include leases, transfers or disposing of a business in any other manner. A share sale is different, because the corporation remains the same employer and employment simply continues. Cherry-picking is really an asset-deal question.

No duty to hire, but consequences follow

Section 9 does not require a purchaser to hire the seller's employees. If the purchaser does not hire them, s. 9(1) does not apply, and the seller must meet the ESA Part XV obligations, meaning notice or pay in lieu and severance where applicable.

A sale agreement that requires the purchaser to offer jobs to the seller's employees does not make the purchaser liable under the ESA if it does not make the offers. Where the seller terminated before the sale and the purchaser does not hire, the seller stays responsible. The agreement itself may still create contractual consequences between the parties, so read any hiring covenants carefully.

An employee may also reject the purchaser's offer and treat the sale as a termination by the seller, and refusing the offer does not remove the employee's termination entitlements. Offers that are not made, or that are made on much worse terms, should be planned with this in mind.

What the seller owes employees left behind

For employees employed at least three months, statutory notice ranges from 1 week for under 1 year of service up to 8 weeks for 8 years or more. Termination pay replaces notice not given and is a lump sum equal to regular wages for the notice period. It is due on the later of seven days after employment ends or the employee's next regular pay date.

Severance pay is separate. It requires at least five years of service and either a global payroll of at least $2.5 million or 50 or more jobs cut within six months because all or part of the business permanently closed. It is capped at 26 weeks. If 50 or more employees at one establishment are terminated within four weeks, separate and longer mass termination notice rules apply.

Notice and termination pay do not apply to an employee who refused an offer of reasonable alternative employment with the employer, among other listed exceptions. Whether anything beyond the ESA minimums applies to a particular employee depends on their situation, so it is worth confirming with a lawyer.

Employees you do hire come with their service

A buyer that hires a seller's employee treats the employee's seller service as its own. Continuity under s. 9 cannot be contracted out of or waived, and hiring on new terms or having employees sign a new contract does not avoid it. A purchaser who knowingly lets employees keep working after the sale can be treated as employing them.

If you hire someone and later terminate them, you alone are responsible for ESA termination and severance based on total service, with no pro-rata split with the seller. You also get no credit for notice or pay the seller gave at the sale, although severance paid by the seller may be offset against the purchaser's contractual liability. A buyer with a payroll over $2.5 million may owe severance to an employee whose combined service is over five years.

Discrimination risk when choosing staff

Even when the ESA allows you to decline to hire, the Human Rights Code applies separately. Dismissing or declining to hire someone because of a Code ground, such as disability, pregnancy, family status or age, can be discrimination whatever the ESA says. Employees on leave or recently returned from leave are an obvious risk area, because the ESA also bars penalizing someone for taking or being eligible for a leave.

• Base each hiring decision on documented, job-related criteria such as role overlap, skills and business needs.
• Apply the same criteria to everyone, including people on leave.
• Avoid comments or notes tied to age, health, pregnancy, family status or similar grounds.
• Keep a written record of why each decision was made.

What to do next

• Get a full employee list with start dates, pay, contracts and any leave status.
• Decide early which roles you need and set out the criteria in writing.
• Estimate what the seller would owe those not hired, using the notice and severance rules.
• Review any clause in the sale agreement about offering jobs to staff.
• Have a lawyer check both the ESA and human rights exposure before offers go out.

Frequently asked questions